The Karnataka Bank Limited - Edelweiss
The Karnataka Bank Limited - Edelweiss
The Karnataka Bank Limited - Edelweiss
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Letter of Offer<br />
Dated February 18, 2011<br />
For Equity Shareholders of our <strong>Bank</strong> only<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
Our <strong>Bank</strong> was incorporated on February 18, 1924 as <strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong> under the Indian Companies Act, 1913. <strong>The</strong><br />
certificate to commence business was obtained on May 23, 1924. Our <strong>Bank</strong> received its license to carry on the banking business in<br />
India under the <strong>Bank</strong>ing Regulation Act, 1949, from the Reserve <strong>Bank</strong> of India on April 04, 1966. Our <strong>Bank</strong> has been allotted CIN<br />
L85110KA1924PLC001128 under the Companies Act, 1956.<br />
Registered Office: P.B. No. 599, Mahaveera Circle, Kankanady, Mangalore - 575 002<br />
Tel: +91 (0824) 2228222 Fax: +91 (0824) 2225588<br />
Contact Person: Mr. Y V Balachandra, Company Secretary and Compliance Officer<br />
E-mail: info@ktkbank.com; Website: www.karnatakabank.com<br />
FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF OUR BANK ONLY<br />
ISSUE OF 5,37,69,935 EQUITY SHARES WITH A FACE VALUE OF RS. 10 EACH (“RIGHTS EQUITY SHARES”) FOR<br />
CASH AT A PRICE OF RS. 85 PER EQUITY SHARE INCLUDING SHARE PREMIUM OF RS. 75 PER EQUITY SHARE<br />
AGGREGATING TO RS. 457.04 CRORES BY THE KARNATAKA BANK LIMITED (THE “BANK” OR THE “ISSUER”)<br />
TO THE EXISTING EQUITY SHAREHODERS OF THE BANK ON A RIGHTS BASIS IN THE RATIO OF 2 EQUITY<br />
SHARES FOR EVERY 5 EQUITY SHARES HELD ON THE RECORD DATE, I.E. FEBRUARY 28, 2011 (“THE RIGHTS<br />
ISSUE”). THE ISSUE PRICE FOR THE EQUITY SHARES IS 8.5 TIMES OF THE FACE VALUE OF THE EQUITY<br />
SHARES.<br />
GENERAL RISK<br />
Investments in equity and equity related securities involve a degree of risk and investors should not invest any funds in this Rights<br />
Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before<br />
taking an investment decision in this Rights Issue. For taking an investment decision, investors must rely on their own examination of<br />
our <strong>Bank</strong> and the Rights Issue including the risks involved. <strong>The</strong> securities being offered in the Rights Issue have not been<br />
recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of<br />
this Letter of Offer. Investors are advised to refer “Risk Factors” on Page no 8 of this Letter of Offer before making an<br />
investment in this Rights Issue.<br />
ISSUER’S ABSOLUTE RESPONSIBILITY<br />
Our <strong>Bank</strong>, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all<br />
information with regard to our <strong>Bank</strong> and the Rights Issue, which is material in the context of the Rights Issue, that the information<br />
contained in the Letter of Offer is true and correct in all material aspects and is not misleading in any material respect, that the<br />
opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this Letter of<br />
Offer as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.<br />
LISTING<br />
Our existing Equity Shares are listed on the Bombay Stock Exchange <strong>Limited</strong> (“BSE”) and the National Stock Exchange of India<br />
<strong>Limited</strong> (“NSE”). <strong>The</strong> Equity Shares offered through this Letter of Offer are proposed to be listed on the BSE and the NSE. We have<br />
received "in-principle" approvals from the BSE and the NSE for listing the Equity Shares to be allotted pursuant to this Rights Issue<br />
vide their letter dated November 10, 2010 and November 11, 2010, respectively. For the purposes of the Rights Issue, the Designated<br />
Stock Exchange is BSE.<br />
LEAD MANAGER TO THE ISSUE<br />
REGISTRAR TO THE ISSUE<br />
<strong>Edelweiss</strong> Capital <strong>Limited</strong><br />
14th Floor, Express Towers,<br />
Nariman Point, Mumbai – 400 021<br />
Telephone: +91 22 4086 3535<br />
Facsimile: +91 22 4086 3610<br />
E-mail: ktk.rights@edelcap.com<br />
Investor Grievance E-mail: customerservice.mb@edelcap.com<br />
Website: www.edelcap.com<br />
Contact Person: Mr. Sumeet Lath/Mr. Jibi Jacob<br />
SEBI Registration No. INM0000010650<br />
ISSUE OPENS ON<br />
ISSUE PROGRAMME<br />
LAST DATE FOR REQUEST FOR<br />
SPLIT APPLICATION FORMS<br />
Integrated Enterprises India <strong>Limited</strong><br />
No 30 Ramana Residency 4th Cross,<br />
Sampige Road, Malleswaram,<br />
Bangalore 560 003<br />
Telephone: + 91 80 23460815-818<br />
Facsimile: + 91 80 23460819<br />
E-mail: alfint@vsnl.com<br />
Investor Grievance E-mail: ktkbankrights@vsnl.net<br />
Website:www.iepindia.com<br />
Contact Person: Mr. S. Vijayagopal<br />
SEBI Registration No: INR 000000544<br />
ISSUE CLOSES ON<br />
TUESDAY, MARCH 8, 2011 MONDAY, MARCH 14, 2011 TUESDAY, MARCH 22, 2011
TABLE OF CONTENTS<br />
PRESENTATION OF FINANCIAL INFORMATION ....................................................................................3<br />
ABBREVIATIONS AND TECHNICAL TERMS.............................................................................................4<br />
RISK FACTORS ..................................................................................................................................................8<br />
SUMMARY OF THE ISSUE ............................................................................................................................28<br />
SUMMARY FINANCIAL INFORMATION...................................................................................................29<br />
GENERAL INFORMATION............................................................................................................................34<br />
CAPITAL STRUCTURE...................................................................................................................................38<br />
OBJECTS OF THE ISSUE................................................................................................................................45<br />
STATEMENT OF TAX BENEFITS.................................................................................................................46<br />
REGULATIONS AND POLICIES ...................................................................................................................53<br />
HISTORY OF OUR BANK AND OTHER CORPORATE MATTERS .......................................................54<br />
OUR MANAGEMENT ......................................................................................................................................57<br />
FINANCIAL STATEMENTS ...........................................................................................................................64<br />
MATERIAL DEVELOPMENTS......................................................................................................................65<br />
STOCK MARKET DATA FOR EQUITY SHARES OF OUR BANK .........................................................71<br />
LEGAL AND OTHER INFORMATION.........................................................................................................73<br />
LICENSES AND APPROVALS .......................................................................................................................85<br />
STATUTORY AND OTHER INFORMATION..............................................................................................86<br />
TERMS AND PROCEDURE OF THE ISSUE................................................................................................98<br />
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION.....................................................130<br />
DECLARATION ..............................................................................................................................................131<br />
2
PRESENTATION OF FINANCIAL INFORMATION<br />
Unless stated otherwise, the financial information used in this Letter of Offer is derived from our <strong>Bank</strong>’s<br />
financial statements as of fiscal 2010, reviewed financial statements for the six months ended on September 30,<br />
2010, prepared in accordance with Indian GAAP and in accordance with the SEBI ICDR Regulations, as stated<br />
in the report of our Statutory Auditors, M/s Vishnu Daya & Co, Chartered Accountants and M/s R.K Kumar &<br />
Co., Chartered Accountants and unaudited financial results for the nine months and quarter ended ended<br />
December 31, 2010 filed with the Stock Exchanges in accordance with the requirements under clause 41 of the<br />
listing agreement, included in this Letter of Offer. <strong>The</strong> current Auditors of our <strong>Bank</strong> are M/s Vishnu Daya & Co,<br />
Chartered Accountants and M/s R.K Kumar & Co., Chartered Accountants.<br />
Our fiscal year commences on April 1 and ends on March 31 of the next year. Unless stated otherwise,<br />
references herein to a fiscal year are to the fiscal year ended March 31 of a particular year.<br />
In this Letter of Offer, any discrepancies in any table between the total and the sum of the amounts listed may be<br />
due to rounding off.<br />
Unless otherwise stated, throughout this Letter of Offer all figures have been expressed in INR.<br />
3
ABBREVIATIONS AND TECHNICAL TERMS<br />
In this Letter of Offer, all references to “Rupees”, “Rs.” , ‘Re’ or “INR” refer to Indian Rupees, the official<br />
currency of India; references to the singular also refer to the plural and reference to a gender also refers to any<br />
other gender, wherever applicable, and the words “Lakh” or “Lac” mean “100 thousand” and the word “million”<br />
means “10 lakh” and the word “crores” means “10 million” or “100 lakhs” and the word “billion” means “1,000<br />
million” or “100 crores”.<br />
CONVENTIONAL/ GENERAL TERMS<br />
Act<br />
<strong>The</strong> Companies Act, 1956, as amended<br />
Articles or AOA<br />
Articles of Association of our <strong>Bank</strong><br />
Board<br />
<strong>The</strong> Board of Directors of our <strong>Bank</strong> or the Committee authorized to act<br />
on its behalf<br />
Equity Shares<br />
<strong>The</strong> Issued, Subscribed and Paid Up Equity Share Capital of our <strong>Bank</strong><br />
and the additional equity shares of our <strong>Bank</strong> offered pursuant to the<br />
Rights Issue<br />
Depository<br />
A depository registered with SEBI under the SEBI (Depository and<br />
Participant) Regulations, 1996, as amended from time to time.<br />
Rights Equity Shares<br />
<strong>The</strong> equity shares of our <strong>Bank</strong> offered pursuant to the Rights Issue<br />
SEBI ICDR Regulations Securities and Exchange Board of India (Issue of Capital and Disclosure<br />
Requirements) Regulations, 2009 as amended<br />
ISIN<br />
International Securities Identification Number allotted by the depository<br />
Memorandum or MOA<br />
Memorandum of Association of our <strong>Bank</strong><br />
ISSUE RELATED TERMS<br />
Abridged Letter of Offer<br />
Allotment<br />
Application<br />
Allottee(s)<br />
ASBA/Application<br />
Supported by Blocked<br />
Amount<br />
ASBA Investor<br />
<strong>Bank</strong>ers To <strong>The</strong> Issue<br />
CAF / Composite Application<br />
Form<br />
Controlling Branches<br />
Designated Branches<br />
Designated Stock<br />
Exchange/DSE<br />
<strong>The</strong> abridged letter of offer to be sent to Eligible Equity Shareholders of<br />
our <strong>Bank</strong> with respect to this Issue in accordance with SEBI ICDR<br />
Regulations<br />
Unless the context otherwise requires, the allotment of Rights Equity<br />
Shares pursuant to the Issue.<br />
Unless the context otherwise requires, refers to an application for<br />
allotment of the Rights Equity Shares in the Issue.<br />
Unless the context otherwise requires, an Investor(s) to whom Rights<br />
Equity Shares are allotted.<br />
<strong>The</strong> application (whether physical or electronic) used by an Investor to<br />
make an application authorizing the SCSB to block the amount payable<br />
on application in their specified bank account<br />
An applicant who;<br />
a) holds the shares of our <strong>Bank</strong> in dematerialized form as on the record<br />
date and has applied for entitlements and / or additional shares in<br />
dematerialized form;<br />
b) has not renounced his/her entitlements in full or in part;<br />
c) is not a renouncee;<br />
d) is applying through a bank account maintained with SCSBs.<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
<strong>The</strong> form used by an Investor to make an application for the Allotment of<br />
Equity Shares in the Issue<br />
Such branches of the SCSBs which coordinate applications under the<br />
Issue by the ASBA Investors with the Registrar to the Issue and the Stock<br />
Exchanges and a list of which is available at<br />
http://www.sebi.gov.in/pmd/scsb.html<br />
Such branches of the SCSBs which shall collect CAF from ASBA<br />
investor and a list of which is available at<br />
http://www.sebi.gov.in/pmd/scsb.html<br />
<strong>The</strong> Designated Stock Exchange shall be BSE.<br />
4
DLOF/Draft Letter Of Offer Draft Letter of Offer of our <strong>Bank</strong> for the rights issue dated October 15,<br />
2010 and filed with SEBI on October 18, 2010.<br />
Equity Shareholders/Eligible<br />
Equity Shareholders<br />
Means a holder/beneficial owner of equity shares of <strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong><br />
<strong>Limited</strong> as on the record date i.e. February 28, 2011.<br />
Investors<br />
<strong>The</strong> Eligible Equity Shareholders of our <strong>Bank</strong> as on the Record Date and<br />
the Renouncees who have submitted an Application to subscribe to the<br />
Issue.<br />
Issue/Rights Issue<br />
Issue of 5,37,69,935 equity shares with a face value of Rs. 10/- each<br />
(“Rights Equity Shares”) for cash at a price of Rs. 85 including a<br />
premium of Rs. 75 aggregating to Rs. 457.04 Crores to the existing equity<br />
shareholders of our <strong>Bank</strong> on rights basis in the ratio of 2 Rights Equity<br />
Shares for every 5 Equity Shares held on the record date i.e. February 28,<br />
2011.<br />
Issue Price<br />
Rs. 85/- per Rights Equity Share<br />
Issue Closing Date Tuesday, March 22, 2011<br />
Issue Opening Date Tuesday, March 8, 2011<br />
Issue Proceeds<br />
<strong>The</strong> proceeds of this Issue that is available to our <strong>Bank</strong>.<br />
Lead Manager/ <strong>Edelweiss</strong> <strong>Edelweiss</strong> Capital <strong>Limited</strong>, 14 th floor, Express Towers, Nariman Point,<br />
Mumbai- 400021<br />
Letter of Offer<br />
This letter of offer filed with the Stock Exchanges after incorporating<br />
SEBI comments on the DLOF.<br />
Record Date February 28, 2011<br />
Renouncee(s)<br />
Any person(s) who has / have acquired Rights Entitlements from the<br />
Eligible Equity Shareholders.<br />
Rights Entitlement<br />
<strong>The</strong> number of Equity Shares that an Eligible Equity Shareholder is<br />
entitled to in proportion to his / her shareholding in our <strong>Bank</strong> as on the<br />
Record Date.<br />
Registrar To <strong>The</strong> Issue<br />
Integrated Enterprises India <strong>Limited</strong><br />
Self Certified Syndicate <strong>Bank</strong><br />
or SCSB<br />
<strong>The</strong> <strong>Bank</strong>s which are registered with SEBI under SEBI (<strong>Bank</strong>ers to an<br />
Issue) Regulations, 1994 and offers services of ASBA, including blocking<br />
of bank account and a list of which is available on<br />
http://www.sebi.gov.in/pmd/scsb.html<br />
Stock Exchanges<br />
BSE and NSE<br />
BANK/INDUSTRY RELATED TERMS<br />
“We”, “us”, “our”, “the Issuer”, Unless the context otherwise indicates or implies, refers to “<strong>The</strong><br />
“the <strong>Bank</strong>”, “our <strong>Bank</strong>”, “<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong>”<br />
<strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong>” or<br />
“<strong>Karnataka</strong> <strong>Bank</strong>”<br />
Auditors<br />
<strong>The</strong> statutory auditors of our <strong>Bank</strong> – M/s Vishnu Daya & Co, Chartered<br />
Accountants and M/s R K Kumar & Co.<br />
Chairman<br />
Repatriation<br />
<strong>The</strong> BR Act<br />
<strong>The</strong> Chairman of Board of Directors our <strong>Bank</strong><br />
“Investment on repatriation basis” means an investment the sale proceeds<br />
of which are, net of taxes, eligible to be repatriated out of India, and the<br />
expression ‘Investment on non-repatriation basis’, shall be construed<br />
accordingly.<br />
<strong>The</strong> <strong>Bank</strong>ing Regulation Act, 1949 and subsequent amendments thereto.<br />
ABBREVIATIONS<br />
AY<br />
AGM<br />
AS<br />
BPLR<br />
BG<br />
BSE<br />
CAGR<br />
CDSL<br />
DEMAT<br />
Assessment Year<br />
Annual General Meeting<br />
Accounting Standard as Issued By <strong>The</strong> Institute Of Chartered<br />
Accountants Of India<br />
Benchmark Prime Lending Rate<br />
<strong>Bank</strong> Guarantee<br />
Bombay Stock Exchange <strong>Limited</strong><br />
Compounded Annual Growth Rate<br />
Central Depository Services (India) <strong>Limited</strong><br />
Dematerialized (Electronic/Depository as the context may be)<br />
5
DIN<br />
Director Identification Number<br />
DLOF<br />
Draft Letter of Offer<br />
DP<br />
Depository Participant<br />
EGM<br />
Extra-Ordinary General Meeting<br />
EPS<br />
Earnings Per Share<br />
FCNR<br />
Foreign Currency Non Resident<br />
FDI<br />
Foreign Direct Investment<br />
FEMA<br />
Foreign Exchange Management Act, 1999 and the subsequent<br />
amendments thereto<br />
FERA Foreign Exchange Regulation Act, 1973<br />
FII<br />
Foreign Institutional Investors (as defined under the Securities and<br />
Exchange Board of India (Foreign Institutional Investors) Regulations,<br />
1995) registered with SEBI.<br />
FIPB<br />
Foreign Investment Promotion Board<br />
FINANCIAL YEAR / FY Financial Year<br />
GOI / Government<br />
Government Of India<br />
HUF<br />
Hindu Undivided Family<br />
IT Income-Tax Act, 1961<br />
ITAT<br />
Income Tax Appellate Tribunal<br />
LOF<br />
Letter of Offer<br />
NR<br />
Non Resident<br />
NRE ACCOUNT<br />
Non Resident External Account<br />
NRI<br />
Non Resident Indian<br />
NRO ACCOUNT<br />
Non Resident Ordinary Account<br />
NSDL<br />
National Securities Depository <strong>Limited</strong><br />
NSE<br />
National Stock Exchange of India <strong>Limited</strong><br />
OCB<br />
Overseas Corporate Bodies<br />
PAN/GIR No.<br />
Income Tax Permanent Account Number/General Index Reference<br />
Number<br />
RBI<br />
Reserve <strong>Bank</strong> Of India<br />
SAF<br />
Split Application Form<br />
SEBI<br />
Securities And Exchange Board of India<br />
SEBI (SAST) Regulations, 1997 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,<br />
1997 and subsequent amendments thereto<br />
ST<br />
Service Tax<br />
TAN<br />
Tax Deduction Account Number<br />
TECHNICAL AND INDUSTRY TERMS AND ABBREVIATIONS<br />
AFS<br />
Available for sale<br />
ALCO<br />
Asset Liability Management Committee<br />
ATMs<br />
Automated Teller Machines<br />
Bps<br />
Basis points<br />
CAIIB<br />
Certified Associate of Indian Institute of <strong>Bank</strong>ers<br />
CAR<br />
Capital Adequacy Ratio<br />
CBS<br />
Core <strong>Bank</strong>ing Solutions<br />
CDR<br />
Corporate Debt Restructuring<br />
CRAR<br />
Capital to Risk Weighted Assets Ratio<br />
CRR<br />
Cash Reserve Ratio<br />
DBOD<br />
Department of <strong>Bank</strong>ing Operations and Development<br />
DRS<br />
Disaster Recovery Site<br />
DRT<br />
Debts Recovery Tribunal<br />
ECGC<br />
Export Credit and Guarantee Corporation of India Ltd<br />
ECS<br />
Electronic Clearing Services<br />
EPS<br />
Earnings Per Share<br />
FBT<br />
Fringe Benefit Tax<br />
GAAP<br />
Generally Accepted Accounting Principles<br />
HFT<br />
Held for trading<br />
HTM<br />
Held to Maturity<br />
6
IRDA<br />
IT<br />
KYC<br />
LIC<br />
FCNR (Account)<br />
FCNR (<strong>Bank</strong>s)<br />
NAV<br />
NPA<br />
NEFT<br />
NSLR<br />
MSME<br />
PAT<br />
PBIT<br />
RIDF<br />
RTGS<br />
SARFAESI Act<br />
2002/Securitisation Act<br />
SGL<br />
SLR<br />
Tier I Capital<br />
Tier II Capital<br />
WDV<br />
YTM<br />
Insurance Regulatory and Development Authority<br />
Income Tax<br />
Know Your Customer Norms as stipulated by the Reserve <strong>Bank</strong> of India<br />
Life Insurance Corporation of India<br />
Foreign Currency Non Resident (Account)<br />
Foreign Currency Non Resident (<strong>Bank</strong>s)<br />
Net Asset Value<br />
Non-Performing Asset<br />
National Electronic Fund Transfer<br />
Non- Statutory Liquidity Ratio<br />
Micro Small and Medium Enterprises. Micro Enterprise shall mean where<br />
the investment in plant and machinery does not exceed Rs. 0.25 Crores.<br />
Small Enterprise shall mean where the investment in plant and machinery<br />
is more than Rs. 0.25 Crores but does not exceed Rs. 5 Crores, and<br />
Medium Enterprise shall mean where the investment in plant and<br />
machinery is more than Rs. 5 Crores does not exceed Rs. 10 Crores<br />
Profit after Tax<br />
Profit before Interest and Tax<br />
Rural Infrastructure Development Fund<br />
Real Time Gross Settlement<br />
Securitisation and Reconstruction of Financial Assets and Enforcement of<br />
Security Interests Act, 2002, as amended<br />
Subsidiary General Ledger<br />
Statutory Liquidity Ratio<br />
<strong>The</strong> core capital of a bank, which provides the most permanent and<br />
readily available support against unexpected losses. It comprises paid-up<br />
capital and reserves consisting of any statutory reserves, free reserves and<br />
capital reserves as reduced by equity investments in subsidiaries,<br />
intangible assets, and losses in the current period and those brought<br />
forward from the previous period<br />
<strong>The</strong> undisclosed reserves and cumulative perpetual preference shares,<br />
revaluation reserves, general provisions and loss reserves, hybrid debt<br />
capital instruments, investment fluctuation reserves and subordinated<br />
debt.<br />
Written down value<br />
Yield to Maturity<br />
7
RISK FACTORS<br />
An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information<br />
in this Letter of Offer, including the risks and uncertainties described below, before making an investment in our<br />
Rights Equity Shares. If any of the following risks actually occur, our business, results of operations and<br />
financial condition could suffer, the price of our Equity Shares could decline, and you may lose all or part of<br />
your investment. <strong>The</strong> financial and other implications of material impact of risks concerned, wherever<br />
quantifiable, have been disclosed in the risk factors mentioned below. However there are a few risk factors<br />
where the impact is not quantifiable and hence the same has not been disclosed in such risk factors.<br />
<strong>The</strong> occurrence of any of the following events could have a material adverse effect on our business, results of<br />
operations, financial condition and prospects and cause the market price of our Equity Shares to fall<br />
significantly, and you may lose all or part of your investment. Additionally, our business operations could also<br />
be affected by additional factors that are not presently known to us or that we currently consider as immaterial<br />
to our operations. <strong>The</strong> following factors have been considered for determining the materiality:<br />
1. Some events may not be material individually but may be found material collectively;<br />
2. Some events may have material impact qualitatively instead of quantitatively;<br />
3. Some events may not be material at present but may have material impact in future.<br />
INTERNAL RISK FACTORS AND RISK FACTORS RELATING TO OUR BUSINESS<br />
1. We are involved in certain legal and other proceedings in India. If any of the cases pending is decided<br />
against us, it may have a material adverse effect on our businesses, reputation, financial condition and<br />
results of operations.<br />
Our <strong>Bank</strong> is involved in various civil, criminal, consumer and tax related litigations which are at different<br />
stages of adjudications before various forums. We are involved in litigations for a variety of reasons, which<br />
generally arise in the normal course of business, when we seek to recover our dues from borrowers who<br />
default in payment of the loans or when customers seek claims against us during the process of recovery of<br />
our dues or for other service related issues.<br />
Litigation against our <strong>Bank</strong> as of December 31, 2010:<br />
Sl.<br />
No.<br />
Brief Description No. of Cases Amount<br />
Involved (Rs. in<br />
crores)<br />
1. Proceedings filed against our <strong>Bank</strong> on disputed tax claims 35 243.55<br />
2. Suits involving our <strong>Bank</strong> which are not acknowledged as debts. 81 31.71<br />
3. Criminal proceedings against our <strong>Bank</strong> 13 Not quantifiable<br />
4. Labour cases against our <strong>Bank</strong> 28 0.01<br />
<strong>The</strong> criminal proceedings against our <strong>Bank</strong> interalia include complaints in respect of non-credit of cheques<br />
deposited with our <strong>Bank</strong>, breach of trust, cheating and other related cases. While the Chairman and<br />
Managing Director and four Independent Directors have been made party in one of the litigations, our<br />
<strong>Bank</strong>’s officials have been made party in ten of the criminal proceedings.<br />
We cannot assure you that the provisions we have made for the above mentioned litigations will be<br />
sufficient or that new litigation will not be brought against us in the future. Futher, we will be required to<br />
devote management and financial resources in their defence or prosecution. If we fail to successfully defend<br />
these or other claims, or if our current provisions prove to be inadequate, our business, reputation, business,<br />
financial condition and results of operations could be adversely affected.<br />
Litigation by our <strong>Bank</strong> as of December 31, 2010:<br />
Sl.<br />
Brief Description No. of Cases Amount Involved<br />
No.<br />
(Rs. in crores)<br />
1. Suits filed by our <strong>Bank</strong> against defaulting borrowers. 5,517 261.94<br />
8
Sl.<br />
Brief Description No. of Cases Amount Involved<br />
No.<br />
(Rs. in crores)<br />
2. Proceedings filed by our <strong>Bank</strong> on disputed tax claims. 13 17.78<br />
Our <strong>Bank</strong> intends to defend or appeal these proceedings and will be required to devote management and<br />
financial resources in their defence or prosecution. It cannot be assured that any new litigation / counter suits<br />
will not be brought against our <strong>Bank</strong> in the future, in respect to such legal proceedings. If our <strong>Bank</strong> fails to<br />
successfully defend these or other claims, or if its current provisions prove to be inadequate in relation to such<br />
new litigations / counter suits, its business, financial condition and results of operations could be adversely<br />
affected.<br />
For further details in this regard, please refer to the section titled “Legal and Other Information” beginning on<br />
Page no 73 of this Letter of Offer.<br />
2. Our results of operations depend to a great extent on our net interest income which to a great extent<br />
depends on the interest rate movements. Volatility in interest rates and other market conditions could<br />
adversely impact our business and financial results.<br />
Interest rates are sensitive to many factors beyond our control, including RBI’s monetary policy, de-regulation<br />
of the financial sector in India, domestic and international economic and political conditions and other factors.<br />
Volatility and changes in market interest rates could disproportionately affect the interest we earn on our assets<br />
as compared to the interest we pay on our liabilities. <strong>The</strong> difference could result in an increase in interest<br />
expense relative to interest income leading to a reduction in net interest income. Unstable interest rates may also<br />
adversely affect the rate of growth of important sectors of the Indian economy such as the corporate, retail and<br />
agricultural sectors, which may adversely impact our business.<br />
Also, under the regulations of the RBI, we are required to maintain a minimum specified percentage in the form<br />
of SLR, currently 24%, of our net demand and time liabilities in Government or other approved securities or in<br />
cash. Yields on these investments are dependent to a large extent on interest rates. In a rising interest rate<br />
environment, especially if the increase was sudden or sharp, we could be adversely affected by the decline in the<br />
market value of our Government securities portfolio and other fixed income securities and may be required to<br />
further provide for depreciation in the Available for Sale (“AFS”) and Held For Trading (“HFT”) categories,<br />
which may adversely impact our business and financial performance of our <strong>Bank</strong>.<br />
3. We have, in the past, not met the minimum priority sector lending of 18.00% required to be extended to<br />
the agricultural sector. Our failure to meet the priority sector lending targets in India may subject us to<br />
appropriate actions by the RBI and also contribution to Rural Infrastructure Development Fund,<br />
(“RIDF”) which offers lower rate of interest, which may adversely affect our business prospects,<br />
financial condition and results of operations.<br />
<strong>The</strong> priority sector lending norms of the RBI require all banks in India to extend at least 40.00% of their<br />
adjusted net bank credit (“ANBC”) (net bank credit plus investments made by banks in non-SLR bonds held in<br />
Held to Maturity (“HTM”) category) to specified sectors, including agriculture, export credit and small scale<br />
industries, which are known as priority sectors. In accordance with these norms, at least 18.00% of our ANBC<br />
must be extended to the agricultural sector and at least 10.00% to the weaker sections.<br />
As on March 31, 2010 and September 30, 2010, the total credit extended by us to priority sectors<br />
constituted 45.80 % and 41.33 %, respectively of our ANBC; and the credit extended to the agriculture sector<br />
constituted 11.97% and 13.51% , respectively of our ANBC. As on March 31, 2010, our total advances made to<br />
the priority sector stood at 45.80% of the ANBC. Though we have met the target in relation to aggregate lending<br />
required to be made to the priority sector for the year ended March 31, 2010, we have not been able to meet the<br />
sub targets that have been set with respect to separate sectors under it.<br />
Failure to meet the targets/sub targets that are set with respect to priority sector lending have in past made us /<br />
and in future may require us to contribute to the Rural Infrastructure Development Fund, (“RIDF”), or such<br />
other investments as determined by the RBI which offer lower rates of return which may impact our net intrest<br />
income. This may adversely affect our business prospects, financial condition and results of operations.<br />
9
4. Our business could suffer if we are unable to manage our risks and control the level of our NPAs. If we<br />
are not able to control and reduce our NPAs, it could adversely affect our business and future financial<br />
performance<br />
From Fiscal 2009 to 2010, the total value of our net NPAs have moved from Rs. 116.10 Crores to Rs.188.61<br />
Crores, which represents 0.98% of our net advances as of March 31, 2009 and 1.31% of our net advances as of<br />
March 31, 2010. <strong>The</strong> value of our net NPAs as at September 30, 2010 was Rs. 172.74 Crores which represents<br />
1.1 % of our net advances as of September 30, 2010. Various factors, like a rise in unemployment, slowdown in<br />
the India and world economy, a sharp and sustained rise in the interest rates, adverse developments in the Indian<br />
economy, movements in global commodity markets and exchange rates may cause an increase in the level of<br />
our NPAs and have an adverse impact on the quality of our loan portfolio. <strong>The</strong> inability of the borrowers to<br />
repay loans due to inadequate money supply in the economy may translate into mounting NPAs. In addition to<br />
the above, under the directed lending norms of RBI, we are required to extend 40.00% of our adjusted net bank<br />
credit to certain eligible sectors, which are categorised as ‘priority sectors’. We may experience an increase in<br />
NPAs in our lending to priority sectors, particularly with regard to loans that are granted to the agriculture and<br />
small-scale industries sectors, where the borrowers are most vulnerable to economic difficulties.<br />
Although we are increasing our efforts to improve collections, we cannot assure you that we will be successful<br />
in our efforts or that the overall quality of our loan portfolio may not deteriorate in the future. If we are not able<br />
to control and reduce our NPAs, it could adversely affect our business and future financial performance.<br />
5. We are required to maintain Cash Reserve Ratio (“CRR”) and SLR and increase in these requirements<br />
could materially and adversely affect our business, financial condition and results of operations.<br />
As a result of the statutory reserve requirements stipulated by the RBI, we may be more exposed structurally to<br />
interest rate risk than banks in many other countries. Under the RBI’s regulations, we are subject to a CRR<br />
requirement under which we are currently required to keep 6.00% of our net demand and time liabilities in<br />
current account with the RBI. We do not earn interest on cash reserves maintained with the RBI. <strong>The</strong> RBI may<br />
further increase the CRR requirement as a monetary policy measure and has done so on numerous occasions.<br />
Increase in the CRR requirement would reduce funds availability for lending, thereby resulting in reduction in<br />
interest income and hence could materially and adversely affect our business, results of operations and financial<br />
condition. In addition, under the RBI’s regulations, we are required to maintain a SLR, according to which<br />
24.00% of our net demand and time liabilities need to be invested in Government securities, state government<br />
securities and other securities approved by the RBI from time to time. In our experience, these securities<br />
generally carry fixed coupons. When the interest rate rises, the value of these fixed coupon securities depreciates<br />
thereby having an adverse impact on our interest income. Hence any increase in the CRR and the SLR<br />
requirements could materially and adversely affect our business, financial condition and results of operations.<br />
6. In order to grow our business, we are required to maintain our capital adequacy ratio at the minimum<br />
level required by the RBI. <strong>The</strong>re is no guarantee that we will be able to access capital as and when it is<br />
needed for growth. If we fail to meet capital adequacy requirements, the RBI may take certain actions,<br />
including restricting our lending and investment activities, and the payment of dividends by us. <strong>The</strong>se<br />
actions could materially and adversely affect our reputation and financial results.<br />
We are required by the RBI to maintain a minimum capital adequacy ratio of 9.00% in relation to our total riskweighted<br />
assets. We must maintain this minimum capital adequacy level to support our growth. Our capital<br />
adequacy ratio was 11.41% (Basel I) and 11.71% (Basel II) as of September 30, 2010. We are exposed to the<br />
risk of the RBI increasing the applicable risk weightage for different asset classes from time to time. Although<br />
we currently meet the applicable capital adequacy requirements, certain adverse developments could affect our<br />
ability to continue to satisfy the capital adequacy requirements, including deterioration in our asset quality,<br />
decline in the values of our investments and changes in the minimum capital adequacy requirements.<br />
Furthermore, our ability to support and grow our business could be limited by a declining capital adequacy ratio<br />
if we are unable to access or have difficulty accessing the capital markets or have difficulty in obtaining capital<br />
in any other manner. If we fail to meet capital adequacy requirements, the RBI may take certain actions,<br />
including restricting our lending and investment activities and the payment of dividends by us. <strong>The</strong>se actions<br />
could materially and adversely affect our reputation, results of operations and financial condition. <strong>The</strong> Basel II<br />
guidelines for the capital adequacy framework also require maintenance of Tier-1 capital at 6.00%. <strong>The</strong><br />
implementation of Basel II norms which became effective from March 31, 2009 and which introduces the<br />
concept of capital for operational risk as well as Risk rating based approach for Credit risk may increase our<br />
capital requirement. <strong>The</strong>re can be no assurance that we will be able to raise adequate additional capital in the<br />
future on terms favourable to us.<br />
10
7. <strong>The</strong> value of our collateral may decrease or we may experience delays in enforcing our collateral if<br />
borrowers default on their obligations, which may result in failure to recover the expected value of<br />
collateral security exposing us to a potential loss. This can adversely affect our business and the<br />
financial performance of our <strong>Bank</strong>.<br />
A substantial portion of our loans are secured by collateral, including real estate assets such as property, plant,<br />
equipment, inventory, receivables, current assets and pledges of financial assets such as marketable securities<br />
and corporate guarantees. <strong>The</strong> loans to corporate customers also include working capital credit facilities that are<br />
typically secured by a first lien on inventory, receivables and other current assets. In certain cases, we may have<br />
taken further security of a first or second lien on fixed assets and a pledge of financial assets like marketable<br />
securities, corporate guarantees and personal guarantees. In the event of our borrowers defaulting on the<br />
repayment of the loans, we may not be able to realize the full value of the collateral due to various reasons,<br />
including a possible decline in the realisable value of the collateral, defective title, prolonged legal proceedings<br />
and fraudulent actions by borrowers.<br />
Foreclosure on collateral generally requires a written petition to an Indian court or tribunal. An application,<br />
when made, may be subject to delays and administrative requirements that may result, or be accompanied by, a<br />
decrease in the value of the collateral. In the event a corporate borrower makes a reference to a specialised<br />
quasi-judicial authority called the Board for Industrial and Financial Reconstruction (BIFR), foreclosure and<br />
enforceability of collateral is stayed. <strong>The</strong> Securitisation and Reconstruction of Financial Assets and<br />
Enforcement of Security Interest Act, 2002 (SARFAESI Act), has strengthened the ability of lenders to resolve<br />
NPAs by granting them greater rights as to enforcement of security and recovery of dues from corporate<br />
borrowers. <strong>The</strong>re can be no assurance that the legislation will have a favourable impact on our efforts to resolve<br />
NPAs. <strong>The</strong>re can be no assurance that we will be able to realize the full value of the collateral, as a result of,<br />
among other factors, delays in bankruptcy and foreclosure proceedings, defects in the perfection of collateral<br />
and fraudulent transfers by borrowers. A failure to recover the expected value of collateral security could expose<br />
us to a potential loss. Any unexpected losses could adversely impact our business, financial condition and the<br />
price of the Equity Shares.<br />
Such difficulties in realizing our collateral fully or at all, including if we are compelled to restructure our loans,<br />
could adversely affect our business and financial results.<br />
In addition, the RBI’s guidelines on corporate debt restructuring specify that for debt amounts of Rs. 10 Crores<br />
and above, 60% of the creditors by number and 75% of creditors by value can decide to restructure the debt and<br />
that such a decision would be binding on the remaining creditors. If we own 25% or less of the debt of a<br />
borrower, we could be forced to agree to an extended restructuring of debt which may not be in our interests. As<br />
on December 31, 2010, there are total of 3 cases of <strong>Bank</strong>’s recovery issues under corporate debt restructuring<br />
aggregating to Rs. 109.54 Crores, constituting about 0.66 % of our <strong>Bank</strong>’s advances. In all the 3 cases, our <strong>Bank</strong><br />
owns 25% or less of the debt of a borrower and may be bound by the decision of other creditors. <strong>The</strong> details of 3<br />
cases of <strong>Bank</strong>’s recovery issues under corporate debt restructuring are:<br />
Sr. No<br />
Exposure to all Creditors<br />
Our Exposure<br />
Our Exposure (%)<br />
(Rs. In Crores)<br />
(Rs. In Crores)<br />
A 2,724.52 58.06 2.13%<br />
B 505.07 10.96 2.17%<br />
C 205.79 40.52 19.69%<br />
Total 3,435.38 109.54<br />
8. Our risk management policies and procedures may not adequately address unanticipated risks. Inability<br />
to develop and implement effective risk management policies may adversely affect our business,<br />
prospects, financial condition and results of operations.<br />
11
We have devoted significant resources to developing our risk management policies and procedures and expect to<br />
continue to do so in the future. Despite this, our policies and procedures to identify, monitor and manage risks<br />
may not be fully effective. Some of our methods of managing risk are based upon the use of observed historical<br />
market behaviour. As a result, these methods may not accurately predict future risk exposures which could be<br />
significantly greater than indicated by the historical measures. As we seek to expand the scope of our operations,<br />
we also face the risk of inability to develop risk management policies and procedures that are properly designed<br />
for those new business areas. Implementation and monitoring may prove particularly challenging with respect to<br />
businesses that we have recently initiated. Inability to develop and implement effective risk management<br />
policies may adversely affect our business, prospects, financial condition and results of operations.<br />
9. Our Regional Offices may have weak control over our branches which may adversely affect our<br />
reputation, operations, or otherwise have a material adverse effect on our business, financial condition<br />
or results of operation.<br />
Our Regional Offices may have weak control over the branches especially in areas such as transgression of<br />
delegated powers, prevention and follow up of frauds, monitoring adherence to KYC norms etc. which may lead<br />
to increase in incidences of frauds in our branch offices which may adversely affect our reputation, operations,<br />
or otherwise have a material adverse effect on our business, financial condition or results of operation.<br />
<strong>The</strong> <strong>Bank</strong> has established risk management systems and the roles of the regional offices have been revisited to:<br />
i. mitigate the risks and consequences of transgression of delegated powers;<br />
ii. prevent and monitor fraud cases;<br />
iii. monitor adherence to KYC norms.<br />
Following are the details of fraud cases where transgression of power has been observed:<br />
(Amount Rs. In Crores)<br />
01.04.2007<br />
31.03.2008<br />
01.04.2008<br />
31.03.2009<br />
01.04.2009<br />
31.03.2010<br />
01.04.2010<br />
31.12.2010<br />
No. of<br />
No. of<br />
No. of<br />
No. of<br />
Amount<br />
Amount<br />
Amount<br />
cases<br />
cases<br />
cases<br />
cases<br />
Amount<br />
5 3.01 4 4.43 1 0.14 2 1.04<br />
10. As on September 30, 2010, we had a contingent liability amounting to Rs. 9,286.60 Crores including<br />
derivatives. Any crystallization of our significant contingent liabilities could materially and adversely<br />
affect our business, financial conditions, result of operations and prospects.<br />
As on September 30, 2010, we had a contingent liability amounting to Rs. 9,286.60 Crores. Most of the<br />
liabilities have been incurred during the normal course of business, in the event of there being a crystallization<br />
of any of the above liabilities, we may be required to honour the demands raised. This may materially and<br />
adversely impact our business, financial conditions, result of operations and prospects.<br />
Contingent Liabilities As on March 31,<br />
2010<br />
Rs. in Crores<br />
Claims against the <strong>Bank</strong> not acknowledged as debts<br />
Liability on account of outstanding Forward Exchange<br />
Contacts*<br />
Guarantees given on behalf of constituents<br />
a) In India<br />
b) Outside India<br />
Acceptances, Endorsements & other Obligations<br />
Other items for which the bank is contingently liable<br />
Total<br />
* Includes derivatives<br />
As on September 30,<br />
2010<br />
Rs. in Crores<br />
28.33 28.03<br />
7,163.96 6,163.67<br />
1,030.37 1024.34<br />
0 0<br />
673.61 724.95<br />
1,222.97 1345.61<br />
10,119.24 9,286.60<br />
12
Note: In the past the <strong>Bank</strong> had entered into certain derivative transactions, back to back with other banks<br />
on behalf of our Clients. As on September 30, 2010, there were three outstanding transactions with a<br />
balance of Rs.174.98 Crores. Mark to market value (negative to the clients) relating to the above<br />
transactions was Rs. 273.05 Crores as of September 30, 2010. In future if our clients do not honor their<br />
commitments to bear the losses, we may have to bear such losses which would have a material adverse<br />
effect on our business, financial condition and results of operations.<br />
11. <strong>The</strong>re are operational risks associated with the banking industry, including the risk of fraud or other<br />
misconduct by employees etc., which when realised may have an adverse impact on our results.<br />
We are exposed to many types of operational risk, including the risk of fraud or other misconduct by employees<br />
or outsiders, unauthorized transactions by employees or operational errors, including clerical or recordkeeping<br />
errors or errors resulting from faulty computer or telecommunications systems. Though we carefully recruit all<br />
our employees, we have in the past been held liable for the fraudulent acts committed by our employees. We<br />
cannot guarantee you that such events will not recur in the future. Any such event could adversely affect our<br />
reputation, operations, or otherwise have a material adverse effect on our business, financial condition or results<br />
of operation. Given the high volume of transactions, certain errors may be repeated or compounded before they<br />
are discovered and successfully rectified. In addition, our dependence upon automated systems to record and<br />
process transactions may further increase the risk that technical system flaws or employee tampering or<br />
manipulation of those systems will result in losses that are difficult to detect. We may also be subject to<br />
disruptions of our operating systems, arising from events that are wholly or partially beyond its control<br />
(including, for example, computer viruses or electrical or telecommunication outages), which may lead to a<br />
deterioration in customer service and to loss or liability. We also face the risk that the design of our controls and<br />
procedures prove to be inadequate, or may be circumvented, thereby causing delays in detection of errors in<br />
information. Although we maintain a system of controls designed to keep operational risk at appropriate levels,<br />
there can be no assurance that we will not suffer losses from operational risks in the future.<br />
12. We do not own the trademark and logo and our ability to use the trademark and logo may be<br />
impaired, which may materially and adversely affect our goodwill and business.<br />
We have not registered the trademark and logo<br />
impaired.<br />
and our ability to use the trademark and logo may be<br />
We are in a business where customer trust is critical and if the customers no longer identify us, it may affect our<br />
financial condition and result of operation. We also operate in a competitive environment where retention and<br />
recognition will be a significant element of our business strategy. Further, in the event we lose our right to use<br />
the trademark and our logo, our business could be adversely affected.Any legal proceedings which result in a<br />
finding that we have breached third parties’ intellectual property rights may require us to give financial<br />
compensation to such third parties and/or to make changes to our marketing strategies or to the brand names of<br />
our products, which could have a material adverse effect on our business, prospects, financial condition and<br />
results of operations. No legal proceedings have been initiated till date against our <strong>Bank</strong> with regard to breach of<br />
intellectual property rights of third parties. However, there cannot be any assurance that in future any such legal<br />
proceedings will not be initiated against our bank and any such proceedings, if initiated, could require us to<br />
incur additional costs and may adversely impact our reputation, business, financial condition and results of<br />
operations.<br />
13. We are exposed to various industry sectors. Deterioration in the performance of any of the industry<br />
sectors where we have significant exposure may adversely impact our business.<br />
Our credit exposure to borrowers is dispersed across various sectors including, cotton and jute, infrastructure,<br />
gems and jewellery, iron and steel, food and food product, chemicals and chemical products, construction and<br />
other industries. Our credit exposure in the ‘Other Textile’ industry is the largest wherein we have lent Rs.<br />
583.53 Crores as on December 31, 2010, which constituted 15.61% of our total funded industry exposure. Any<br />
significant deterioration in the performance of a particular sector, including due to regulatory action or policy<br />
announcements by Government or State government authorities, could adversely impact the ability of borrowers<br />
in that industry to service their debt obligations owed to us. As a result, we would experience increased<br />
delinquency risk which may adversely impact our business, prospects, financial condition and results of<br />
operations, and the market price of our Equity Shares.<br />
13
As as on December 31, 2010, our <strong>Bank</strong>’s total industrial advances was Rs. 3,738.15 Crores. Out of our <strong>Bank</strong>s’<br />
total industrial advances, exposure to other industries which constitutes more than 10% of our <strong>Bank</strong>'s total<br />
funded industrial advances are given below:<br />
Industry<br />
Outstanding Balance as on December 31,<br />
2010<br />
(Amount in Crores)<br />
Percentage of our total industrial<br />
advances<br />
Other Textiles 583.53 15.61<br />
Gems & Jewellery 548.83 14.68<br />
Cotton Textiles 517.91 13.85<br />
14. <strong>The</strong> base rate system is a new method for pricing loans, and its impact on the future results of our <strong>Bank</strong><br />
is unclear.<br />
As of July 1, 2010, RBI guidelines replacing the benchmark prime lending rate regime with a base rate regime<br />
became effective. <strong>The</strong> <strong>Bank</strong> plans to implement the new base rate regime and has declared that its initial base<br />
rate, the minimum benchmark lending rate that banks can charge customers, is to be set at 8.75% per annum.<br />
Because the base rate regime is newly implemented, its long-term effects on the lending practices of our <strong>Bank</strong><br />
and other banks are unclear as of the date of this Letter of Offer. If the base rate regime is successful in<br />
promoting transparency and enhancing competition in the bank lending markets in India, our <strong>Bank</strong> may lose<br />
business to its competitors, who may benefit more from the new regime than our <strong>Bank</strong> does. As banks are<br />
unable to lend at rates below their base rate, regardless of the creditworthiness of the borrower, it is possible that<br />
the <strong>Bank</strong> will be restricted from making loans that would otherwise result in a profit, thereby adversely affecting<br />
the <strong>Bank</strong>‘s results of operations. It is also possible that the base rate regime will increase deposit rates, which<br />
would raise our <strong>Bank</strong>‘s cost of funding, lower the <strong>Bank</strong>‘s net interest margin and adversely affect its financial<br />
condition and results of operations<br />
15. Renunciation by any shareholder in favour of a non-resident or FII may require prior approval of the<br />
RBI. <strong>The</strong>re can be no certainty as to the conditions subject to which the approval will be granted or if the<br />
approval will be granted at all.<br />
Renunciation of rights entitlement in our <strong>Bank</strong> by any shareholder in favour of a non-resident or a FII may<br />
require prior approval of the RBI. <strong>The</strong>re can be no certainty as to the conditions subject to which the approval<br />
will be granted or if the approval will be granted at all. For more details on the restrictions applicable to non<br />
residents or FIIs please refer to the section titled “Terms and Procedure of the Issue” beginning on Page no 98 of<br />
this Letter of Offer.<br />
16. Our <strong>Bank</strong> has received notice from the RBI for contravention of comprehensive guidelines on derivative<br />
issued by the RBI. <strong>The</strong>re can be no assurance that RBI will not pass an order that would restrict, stop or<br />
hamper our operations or services, or a part thereof, and/or levy penalties in connection therewith. This<br />
may, in turn, adversely affect our operations and profitability<br />
In the past, our <strong>Bank</strong> had entered into certain derivative transactions, back to back with other banks on behalf of<br />
our Clients. <strong>The</strong> RBI had issued a show-cause notice to our <strong>Bank</strong> on November 9, 2010 which was received by<br />
our <strong>Bank</strong> on November 15, 2010, wherein our <strong>Bank</strong> was called upon to show-cause why a penalty of Rs. 0.05<br />
Crores each for contravention of the comprehensive guidelines on derivatives issued by the RBI should not be<br />
imposed on it for irregularities in the manner in which certain derivative transaction(s) were entered into and<br />
monitored by it. RBI observed that our <strong>Bank</strong> (i) failed to carry out due diligence before offering derivative<br />
products; (ii) failed to document the process of determining the pricing and periodical evaluations; and (iii)<br />
appears to have failed to comply with the requirements regarding restructuring of derivative products.<br />
Our <strong>Bank</strong> responded to the RBI’s notice on November 26, 2010 stating that it has put in place various systems<br />
and procedures for managing and monitoring the derivative portfolio and conducts stress testing of both the<br />
default risk and the Mark-to-Market at periodic intervals. Further, our <strong>Bank</strong> has also stated that it has the<br />
expertise to predict the likely future market scenarios, which was sufficient to measure the risk in underlying<br />
transactions.<br />
14
In lieu of the aforesaid, our <strong>Bank</strong> prayed that the proposal to impose penalty may be dropped and requested for a<br />
personal hearing in the matter.<br />
While our <strong>Bank</strong> was granted a personal hearing for the above matter on December 15, 2010, outcome of the<br />
same is currently pending. <strong>The</strong>re can be no assurance that RBI will not pass an order that would restrict, stop or<br />
hamper our operations or services, or a part thereof, and/or levy penalties in connection therewith. This may, in<br />
turn, adversely affect our operations and profitability. For further details on the RBI notice, please refer to the<br />
section “Legal and Other Information” on Page no 73 of this Letter of Offer.<br />
17. We have previously been penalized for not being in compliance with the RBI circulars and may face<br />
further penalties from the RBI and/or other regulatory bodies that govern us in cases of non-compliance<br />
in future.<br />
In FY 2010, we have been penalized by the RBI with penalty of Rs 4,400/- on account of certain deficiencies<br />
noticed by RBI on account of discrepancies detected while processing soiled notes remittances received from<br />
currency chest in their CVPS/ during inspection of the currency chests for non compliance with operational<br />
guidelines. This has been the only instance in the last three financial years wherein RBI has levied penalty on us.<br />
However, we cannot assure you that we will not be subject to such penalties in the future.<br />
18. Expansion of our fee based earning is dependent on our arrangements with third parties including<br />
insurance companies and mutual funds. Termination of these arrangements may adversely impact our<br />
results of operations.<br />
We intend to increase our fee-based income by expanding our third party product offerings and by increasing<br />
our fee-based services. We have entered into an agreement with Franklin Templeton (I) Private Ltd, TATA<br />
Mutual Fund and ICICI Prudential Asset Management Company <strong>Limited</strong> for the distribution of mutual fund<br />
products. We also market and sell the life insurance products of MetLife India Insurance Company Private<br />
<strong>Limited</strong> and general insurance products of Universal Sompo General Insurance Company Ltd in conjunction<br />
with certain of our savings account and term deposit products. We earn fees and commissions for the<br />
distribution and sale of these products. However, termination of these agencies or distribution agreements with<br />
such third party business associates or any weakening of our relationship with these third party associates may<br />
have an adverse impact on our fee based revenues and results of operations.<br />
19. <strong>The</strong> Government of India (“GoI”) has in the past and may in the future direct us to implement certain<br />
schemes that are aimed at serving the interest of farmers and/or a cross section of the public. Such<br />
schemes may not necessarily be aimed at maximizing our profits and may adversely affect our business,<br />
financial condition and results of operations.<br />
In year 2010, the GoI implemented the “Coffee Debt Relief Package 2010” under which waiver of 50% of the<br />
total liability subject to a maximum benefit of Rs. 0.05 Crores per farmer will be borne by Government of India<br />
and an additional 25% shall be waived by the banks and balance shall be rescheduled. In view of this scheme,<br />
our <strong>Bank</strong> has waived off Rs. 16.15 Crores till December 31, 2010. In future, the GoI may further require us to<br />
waive off or reduce the outstanding amount due on loans provided to customers in certain sectors, in particular<br />
the agricultural sector, to serve the larger interests of India which could adversely affect our business and<br />
financial condition.<br />
We also provide special schemes under which credit facilities and loans are extended to persons belonging to<br />
weaker sections, which is aimed at facilitating the GoI’s initiative to empower them. Such schemes and credit<br />
facilities provided to members of the weaker sections may not be as profitable as compared to lending in the<br />
non-priority sector. This is because historically, NPAs are higher in the priority sector lending compared with<br />
non-priority sector lending and due to above reasons, our profitability and financial condition gets affected<br />
adversely.<br />
20. Most of our branches are located on leased premises. We may not be able to renew the lease agreements<br />
for our branches upon favourable terms or at all which could have a material adverse affect on our<br />
business and results of operations.<br />
As of December 31, 2010, we have 466 branches and 235 ATMs, of which except 23 branches and six ATMs,<br />
all our branches are housed on leased premises and are not owned by us. <strong>The</strong> general duration of the lease<br />
agreements is 10 years. If any of the owners of these premises do not renew the agreements under which we<br />
15
occupy the premises, or if they seek to renew such agreements on terms and conditions unfavourable to us, we<br />
may suffer a disruption in our operations or increased costs, or both, which may adversely affect our business<br />
and results of operations.<br />
Additionally, as of December 31, 2010, 13 of our leases for our branches and other office premises had expired.<br />
All or any of the leases may not be renewed on similar terms or at all, or we may be evicted from all or a<br />
number of these premises and be required to pay damages to the landlord. This may adversely impact our<br />
business and financial condition<br />
21. We may undertake mergers or acquisitions which may pose management and integration challenges. We<br />
also could experience difficulty in combining operations and cultures and may not realise the anticipated<br />
synergies or efficiencies from such transactions which may have an adverse impact on the business of<br />
our <strong>Bank</strong> in the long run.<br />
We may make acquisitions and investments to expand our customer base, acquire new service or product<br />
offerings or enhance our technical capabilities. Our future acquisitions or investments may not necessarily<br />
contribute to our profitability and may, in some cases, require us to assume operational and financial problems<br />
of the acquired entity, including high levels of NPAs. We also could experience difficulty in combining<br />
operations and cultures and may not realise the anticipated synergies or efficiencies from such transactions.<br />
22. Any downgrading in our credit rating could adversely affect our business, financial condition and results<br />
of operations.<br />
<strong>The</strong> rating agencies ICRA and CARE have reaffirmed “LA +” and “A+” ratings respectively for Rs 350 crores<br />
Lower Tier II Subordinated debt instruments and CARE has given “A1+” rating for certificate of Deposits<br />
programme of Rs. 2,000 Crores. Credit rating is considered as an assessment of our ability to honour our<br />
financial commitments and obligations as and when they become due. A downgrade in our credit rating may<br />
adversely affect our ability to obtain funds and may increase financing costs by increasing the interest rates of<br />
our outstanding debt or the interest rates at which we will be able to refinance existing debt or incur new debt,<br />
which will adversely affect our business, financial condition and results of operations.<br />
23. Significant security breaches and failure in our computer systems, and calamities could materially and<br />
adversely impact our business.<br />
We depend on our computer systems to process a large number of transactions on an accurate and timely basis,<br />
and to store and process substantially all of our business and operating data. We seek to protect our computer<br />
systems and network infrastructure from physical break-ins as well as security breaches and other disruptive<br />
problems. <strong>The</strong>se concerns could intensify with our increased use of technology, internet based resources and<br />
advanced internet banking platform.<br />
Computer break-ins and power disruptions could affect the security of information stored in and transmitted<br />
through these computer systems and network infrastructure. Our <strong>Bank</strong>’s computer systems and network<br />
infrastructure have only been recently migrated to Core <strong>Bank</strong>ing Solution (“CBS”). Certain parts of the system<br />
may not be properly protected from security breaches and other attacks. Our <strong>Bank</strong> employs security systems<br />
including firewalls and password encryption, designed to minimise the risk of security breaches. Although our<br />
<strong>Bank</strong> intends to continue to implement security technology and establish operational procedures to prevent<br />
break-ins, damage and failures, there can be no assurance that these security measures will be adequate or<br />
successful. A failure of security measures could have a material adverse effect on our <strong>Bank</strong>’s business, its future<br />
financial performance and the trading price of the Equity Shares. We may also be subject to disruptions of our<br />
operating systems, arising from events that are wholly or partially beyond our control (including, for example,<br />
computer viruses or electrical or telecommunication outages), which may give rise to deterioration in customer<br />
service and to loss or liability to us.<br />
24. Non Compliance with RBI inspection/observations may have a material adverse effect on our business,<br />
financial condition or results of operation<br />
We are subject to annual financial inspection by RBI. In the past certain observations were made by RBI during<br />
the inspection regarding our business and operations. In case we are not able to meet the requirements suggested<br />
by RBI, RBI may impose strict enforcement of its observations on us which may have a material adverse effect<br />
on our business, financial condition or results of operation.<br />
16
25. Our business and financial performance are dependent on increasing our area coverage through the<br />
branch network, any failure to do so, will affect our future growth, thereby having a material adverse<br />
impact on the business operations of our <strong>Bank</strong><br />
As on December 31, 2010, we have 466 branches across India. Scheduled Commercial <strong>Bank</strong>s in India are<br />
required to obtain RBI approval before opening a branch office office in Tier 1 and Tier 2 centres (centres with<br />
population of 50,000 and above as per 2001 census), except in the case of North Eastern States and Sikkim<br />
where the general permission would cover semi-urban and urban centres also. We had obtained permission from<br />
the RBI by a letter dated September 09, 2009 to open 30 additional branches, in order to expand our coverage.<br />
We opened 17 new branches in Fiscal 2010. Any hindrance in obtaining such approval from RBI for opening<br />
branch office in Tier 1 and Tier 2 centres in the future could delay/prevent us from opening new branches. This<br />
would affect our future growth, thereby having a material adverse impact on the business operations of our<br />
<strong>Bank</strong>.<br />
26. A major part of our branch network is concentrated in southern India and thereby exposing us to<br />
regional risks.<br />
As of December 31, 2010, out of our 466 branches, 359 branches are located in the southern states of India. 65<br />
% of our business (advances + deposits) is conducted in the southern states of India as of December 31, 2010.<br />
Our concentration in the southern states exposes us to any adverse geological, ecological, economic and/or<br />
political circumstances in that region as compared to other public and private sector banks that have diversified<br />
national presence. Any disruption, disturbance or breakdown in the economy of southern India could adversely<br />
affect the result of our business and operations.<br />
27. We may face labour disruptions that could interfere with our operations. Any such disruption in future<br />
may have a material adverse effect on our business, financial condition or results of operation.<br />
We are exposed to the risk of strikes and other industrial actions. As of December 31, 2010, we employed 5,876<br />
employees. Majority of our employees are members of <strong>Karnataka</strong> <strong>Bank</strong> Employees Association and <strong>Karnataka</strong><br />
<strong>Bank</strong> Officers Organization. We cannot guarantee that our employees will not undertake or participate in strikes,<br />
work stoppage or other industrial action in the future. Any such event could disrupt our operations, possibly for<br />
a significant period of time, result in increased wages and other benefits or otherwise have a material adverse<br />
effect on our business, financial condition or results of operation.<br />
28. We operate in a regulated industry and any changes in the regulations or enforcement initiatives may<br />
adversely affect our business, financial condition or results of operation.<br />
We are subject to a wide variety of banking and financial services laws and regulations and a large number of<br />
regulatory and enforcement authorities in each of the jurisdictions in which we operate. <strong>The</strong> laws and<br />
regulations or the regulatory or enforcement environment in any of those jurisdictions may change at any time<br />
and that may have an adverse effect on the products or services we offer, the value of our assets or our business<br />
in general. Also, the laws and regulations governing the banking and financial services industry have become<br />
increasingly complex governing a wide variety of issues, including interest rates, liquidity, capital adequacy,<br />
securitisation, investments, ethical issues, money laundering, privacy, record keeping, marketing and selling<br />
practices, with sometimes overlapping jurisdictional or enforcement authorities. Any change in RBI policy,<br />
including directed lending norms, may result in our inability to meet the priority sector lending requirements as<br />
well as require us to increase our lending to relatively riskier segments and may result in an increase in NPAs in<br />
the directed lending portfolio. Future changes in laws and regulations and failure or the apparent failure to<br />
address any regulatory changes or enforcement initiatives could have an adverse impact on our business, our<br />
future financial performance and our shareholders’ funds, harm our reputation, subject us to penalties, fines,<br />
disciplinary actions or suspensions of any kind or increase our litigation risks and have an adverse effect on the<br />
price of our Equity Shares.<br />
<strong>The</strong>re are a number of restrictions under the <strong>Bank</strong>ing Regulation Act, which impede our operating flexibility<br />
and affect or restrict investors’ rights. <strong>The</strong>se include the following:<br />
• Section 12(2) of the <strong>Bank</strong>ing Regulation Act states that “no person holding shares in a banking<br />
company shall exercise voting rights on poll in excess of 10.00% of the total voting rights of all the<br />
shareholders of the banking company”.<br />
17
• Section 15(1) of the <strong>Bank</strong>ing Regulation Act states that “no banking company shall pay any dividend<br />
on its shares until all its capitalised expenses (including preliminary expenses, organization expenses,<br />
share-selling commission, brokerage, amounts of losses incurred and any other item of expenditure not<br />
represented by tangible assets) have been completely written off”.<br />
• Section 17(1) of the <strong>Bank</strong>ing Regulation Act requires every banking company to create a reserve fund<br />
and to transfer out of the balance of the profit of each year as disclosed in the profit and loss account a<br />
sum equivalent to not less than 20.00% (the RBI circular dated September 23, 2000 has fixed this limit<br />
at 25.00%) of such profit before paying any dividend.<br />
• Section 19 of the <strong>Bank</strong>ing Regulation Act restricts the forming of subsidiaries by banks, which may<br />
prevent us from exploiting emerging business opportunities. Similarly, Section 23 of the <strong>Bank</strong>ing<br />
Regulation Act contains certain restrictions on banking companies regarding the opening of new places<br />
of business and transfers of existing places of business, which may hamper our operational flexibility.<br />
• Section 25 of the <strong>Bank</strong>ing Regulation Act requires each banking company to maintain assets in India<br />
equivalent to not less than 75.00% of its demand and time liabilities in India, which in turn may restrict<br />
us from building overseas asset portfolios and exploiting overseas business opportunities.<br />
• We are required to obtain approval of RBI for the appointment and remuneration of our part time<br />
chairman and other whole time directors. RBI has powers to remove managerial and other persons<br />
from office, and to appoint additional directors. We are also required to obtain approval of the RBI for<br />
the creation of floating charges on our borrowings, thereby hampering leverage. <strong>The</strong> <strong>Bank</strong>ing<br />
Regulation Act also contains provisions regarding production of documents and availability of records<br />
for inspection.<br />
• A compromise or arrangement between us and our creditors or any class of them or between us and our<br />
shareholders or any modification in such arrangement or compromise will not be sanctioned by any<br />
High Court unless such compromise or arrangement or modification, as the case may be, is certified by<br />
RBI in writing as capable of being implemented and as not being detrimental to the interests of our<br />
depositors. Our amalgamation with any other banking company will require the sanction of RBI and<br />
shall be in accordance with the provisions of the <strong>Bank</strong>ing Regulation Act. <strong>The</strong> provisions for windingup<br />
of banking companies as specified in the <strong>Bank</strong>ing Regulation Act are at variance with the provisions<br />
of the Companies Act. Further, RBI can also apply for winding up of a banking company in certain<br />
circumstances and can also be appointed as the liquidator and the GoI could acquire the undertakings<br />
of banking companies in certain cases.<br />
• <strong>The</strong> forms of business in which we may engage are specified and regulated by the <strong>Bank</strong>ing Regulation<br />
Act. Pursuant to the provisions of section 8 of <strong>Bank</strong>ing Regulation Act, we cannot directly or indirectly<br />
deal in the buying, selling or bartering of goods by itself or for others, except in connection with the<br />
realisation of security given to us or held by us, or in connection with bills of exchange received for<br />
collection or negotiation, or in connection with the administration of estates as executor, trustee or<br />
otherwise, or in connection with any business specified under section 6(1)(o) of the <strong>Bank</strong>ing<br />
Regulation Act. Goods for this purpose means every kind of movable property, other than actionable<br />
claims, stocks, shares, money, bullion and specie and all instruments referred to in section 6(1)(a) of<br />
<strong>Bank</strong>ing Regulation Act. Unlike a company incorporated under the Companies Act, which may amend<br />
the objects clause of its Memorandum of Association to commence a new business activity, banking<br />
companies may only carry on business activities permitted by Section 6 of the <strong>Bank</strong>ing Regulation Act<br />
or specifically permitted by the Reserve <strong>Bank</strong> of India. This may restrict our ability to pursue profitable<br />
business opportunities as they arise.<br />
29. We may face maturity mismatch between assets and liabilities which may result in an adverse impact on<br />
our business and operations.<br />
Most of our funding requirements are met through short-term and medium-term funding sources, primarily in<br />
the form of deposits. A portion of our assets have long-term maturities, creating a possibility for funding<br />
mismatches. In our experience, a substantial portion of our customer deposits have been rolled over on maturity<br />
and have been, over time, a stable source of funding. However, in the event that a substantial number of our<br />
depositors do not roll over deposits on maturity, our liquidity position and business could be adversely affected.<br />
18
If the depositors do not renew deposits or our <strong>Bank</strong> is unable to raise new deposits, our <strong>Bank</strong> may face a<br />
liquidity problem and may be required to pay higher interest rates to attract deposits, which may have an adverse<br />
impact on our <strong>Bank</strong>’s business and operations.<br />
30. If we are unable to adapt to rapid technological changes, our business, future financial performance<br />
could suffer.<br />
Our future success and ability to compete with other banks will depend, in part, on our ability to respond to<br />
technological advances and emerging banking industry standards and practices on a cost-effective and timely<br />
basis. <strong>The</strong> development and implementation of such technology entails significant technical and business risks.<br />
<strong>The</strong>re can be no assurance that our <strong>Bank</strong> will successfully upgrade or implement new technologies effectively or<br />
adapt its transaction processing systems to customer requirements or emerging industry standards. If our <strong>Bank</strong> is<br />
unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing<br />
market/technological conditions, customer requirements or technological changes, our business, the future<br />
financial performance of our <strong>Bank</strong> could be materially affected.<br />
31. We rely on the accuracy and completeness of information provided to us about our customers and<br />
counterparties which if not accurate and complete may have a negative impact on our financial<br />
condition.<br />
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may<br />
rely on information furnished to us by or on behalf of customers and counterparties, including financial<br />
statements and other financial information. We may also rely upon certain representations as to the accuracy and<br />
completeness of that information and, with respect to financial statements, on reports of independent auditors.<br />
For example, in deciding whether to extend credit, we may assume that a customer’s audited financial<br />
statements conform to generally accepted accounting principles and present fairly, in all material respects, the<br />
financial condition, results of operations and cash flows of the customer. Our financial condition and results of<br />
operations could be negatively affected by relying on financial statements that do not comply with generally<br />
accepted accounting principles or other information that is materially misleading or by relying on information<br />
furnished to us by or on behalf of our customers and counterparties.<br />
32. If we are not able to renew or maintain our statutory and regulatory permits and approvals and licenses<br />
required to operate our business, it may have a material and adverse effect on our business, financial<br />
condition and results of operations.<br />
We require certain statutory and regulatory permits and approvals and licenses to operate our business.<br />
Applicaion dated August 11, 2010 addressed to the Chief General Manager, Department of <strong>Bank</strong>ing Operations<br />
and Development, Reserve <strong>Bank</strong> of India for opening 35 new branches in terms of Section 23 of the <strong>Bank</strong>ing<br />
Regulation Act, 1949 has been made. <strong>The</strong> RBI has given its approval on January 14, 2011 for opening of 13<br />
branches out of 35 branches within a period of 1 year from the date of approval.<br />
Further, in the future, we will be required to renew our permits and approvals and obtain new permits and<br />
approvals for our proposed operations. While we believe that we will be able to renew or obtain such permits<br />
and approvals as and when required, there can be no assurance that the relevant authorities will issue any of<br />
such permits or approvals in the time-frame anticipated by us or at all. Our failure to renew, maintain or obtain<br />
the required permits or approvals in the future may result in the interruption of our operations or delay or<br />
prevent our expansion plans and may have a material and adverse effect on our business, financial condition and<br />
results of operations.<br />
33. New product/services offered by us may not be successful and we may not grow in any new business area<br />
which may have a material adverse effect on our business, financial condition or results of operation<br />
We introduce new products/services to explore new business opportunities on a regular basis. We cannot assure<br />
you that all our new products/services will gain customer acceptance and this may result in our incurring preoperative<br />
expenses and launch costs without any assurance that such products will be successful or may fail<br />
market penetration. Further, our inability to grow in any new business areas could adversely affect our business<br />
and financial performance.<br />
19
34. We may not maintain historical dividends in the future as the same depends upon, among other factors,<br />
our earnings, financial position, cash requirements and availability of profits, as well as the provisions of<br />
relevant laws in India from time to time.<br />
While we have paid dividends in the past, there can be no assurance as to whether we will pay dividends in the<br />
future and, if so, the level of such future dividends. <strong>The</strong> declaration, payment and amount of any future<br />
dividends is subject to the discretion of the Board and will depend upon, among other factors, our earnings,<br />
financial position, cash requirements and availability of profits, as well as the provisions of relevant laws in<br />
India from time to time. <strong>The</strong> details of dividend paid by our Company in the last 5 years are as follows:<br />
Financial Year Dividend Per Share<br />
(In Rs)<br />
Dividend Percentage<br />
(%)<br />
2009-10 4 40<br />
2008-09 6 60<br />
2007-08 5 50<br />
2006-07 3 30<br />
2005-06 3 30<br />
35. Any inability to attract and retain talented professionals may materially and adversely impact our<br />
business.<br />
Our performance and success depends largely on our ability to nurture and retain the continued service of our<br />
management team and skilled personnel. <strong>The</strong>re is significant competition for management and other skilled<br />
personnel in the banking industry. We are dependent on our key personnel. Further, we do not have a key-man<br />
insurance policy to cover for loss of our skilled personnel. We are dependent on our key personnel for smooth<br />
operations of our business activities. Attracting and retaining talented professionals is a key element of our<br />
strategy and we believe it to be a significant source of competitive advantage. Our inability to attract and retain<br />
talented professionals or the loss of key management personnel could have a material and adverse impact on our<br />
business, our future financial performance and the price of our Equity Shares.<br />
36. Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the<br />
market price of our Equity Shares.<br />
We may be required to finance our growth through additional equity offerings. Any future issuance of our<br />
equity shares could dilute the holdings of investors in our <strong>Bank</strong> and could adversely affect the market price of<br />
our Equity Shares.<br />
We established an Employees Stock Option Scheme 2006 for our employees (ESOS). Pursuant to the ESOS, as<br />
at February 16, 2011, 4,85,345 options were outstanding to be exercised by our employees. During Fiscal 2009<br />
and Fiscal 2010, we have not granted any options. <strong>The</strong> exercise of these options will increase our equity share<br />
capital and will dilute our EPS. This may affect the price of the Equity Shares.<br />
37. A nation-wide credit bureau has become operational in India only recently and may not provide<br />
adequate information. Until such time, we may be more susceptible to higher NPAs compared to banks<br />
in more developed economies which may have an adverse impact on the financials of our <strong>Bank</strong>.<br />
<strong>The</strong> credit risk of borrowers in India is higher than in more developed countries. A nation-wide credit bureau,<br />
Credit Information Bureau (India) <strong>Limited</strong> (“CIBIL”), has become operational in India in the year 2000.<br />
CIBIL’s database is in the process of developing which may affect the quality of information available to us<br />
about the credit history of our borrowers, especially individuals and small businesses. Until such time, we may<br />
be more susceptible to higher NPAs compared to banks in more developed economies.<br />
38. We are exposed to certain risks of the Indian financial system and could be impacted by the financial<br />
difficulties of other financial institutions in India.<br />
Along with other banks in India, we are exposed to the risks of the Indian financial system,which in turn may be<br />
affected by financial difficulties, and other problems faced by Indian financial institutions. As an emerging<br />
market system, the Indian financial system faces risks of nature and extent not typically faced in developed<br />
countries. Additionally, the credit risk of borrowers in India is higher than in developed countries. India’s<br />
nationwide credit bureau is still developing, which may affect the quality of information available to us about<br />
20
the credit history of our borrowers, especially individuals and small businesses. <strong>The</strong> problems faced by<br />
individual Indian financial institutions and any instability in or difficulties faced by the Indian financial system<br />
generally could create adverse market perception about Indian financial institutions and banks. This in turn<br />
could materially and adversely affect our business, financial condition and results of operations.<br />
EXTERNAL RISK FACTORS<br />
1. <strong>The</strong> Indian and global banking industry is very competitive and if we are unable to effectively respond to<br />
competitive pressures it may adversely affect our business and growth.<br />
We compete with public and private sector Indian commercial banks as well as foreign commercial banks. Some<br />
of our competitors are large institutions, and may have much larger customer and deposit bases, larger branch<br />
networks and more capital than us. Some of our competitors may be better positioned to take advantage of<br />
market opportunities than us. We face competition in some or all of our products and services from Indian and<br />
foreign commercial banks, NBFCs, mutual funds and other entities operating in the Indian financial sector. In<br />
particular, private banks in India may have operational advantages in implementing new technologies,<br />
rationalising branches and recruiting employees through incentive-based compensation. In terms of the<br />
Consolidated FDI Policy, 2010 (“FDI Policy”), foreign banks are permitted to operate in India through its<br />
branches or establish wholly-owned subsidiaries in India or invest up to 74% in the equity of Indian private<br />
sector banks, which is likely to further increase competition in the Indian banking industry. <strong>The</strong> foreign banks<br />
that have established branches in India have aggressively pursued market share.<br />
Additionally, the RBI has recently indicated that it intends to issue new banking licenses in order to expand the<br />
banking sector which would lead to higher competition amongst the banks. In August 2010, RBI released a<br />
discussion paper on ―Entry of New <strong>Bank</strong>s in the Private Sector which, inter alia, includes discussion on the<br />
minimum capital requirements for new banks and promoters contribution, foreign shareholding in the new<br />
banks, whether industrial or business houses should be permitted to promote banks and whether non-banking<br />
financial companies should be entitled to convert to banks. Further, the GoI is also encouraging banks and other<br />
financial institutions to significantly increase their lending to the agriculture sector, which will make this<br />
segment more competitive.<br />
Increased competitive pressure may have an adverse impact on our earnings, our future financial performance<br />
and the market price of the Equity Shares. Our future success will depend in large part on our ability to respond<br />
in an effective and timely manner and our ability to compete effectively.<br />
2. Investing in securities that carry emerging market risks can be affected generally by volatility in the<br />
emerging markets.<br />
<strong>The</strong> markets for securities bearing emerging market risks, such as risks relating to India, are, to varying degrees,<br />
influenced by economic and securities market conditions in other emerging market countries. Although<br />
economic conditions differ in each country, investors’ reactions to developments in one country may affect<br />
securities of issuers in other countries, including India. Accordingly, the price and liquidity of our Equity Shares<br />
may be subject to significant fluctuations, which may not necessarily be directly or indirectly related to our<br />
financial performance.<br />
Indian stock exchanges have, in the past, experienced problems that have affected the market price and liquidity<br />
of the securities of Indian companies, such as temporary exchange closures, broker defaults, settlement delays<br />
and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time<br />
restricted securities from trading, limited price movements and increased margin requirements. Further, disputes<br />
have occurred on occasion between listed companies and the Indian stock exchanges and other regulatory bodies<br />
that, in some cases, have had a negative effect on market sentiment. If similar problems occur in the future, the<br />
market price and liquidity of our Equity Shares could be adversely affected. A closure of, or trading stoppage<br />
on, either the BSE or the NSE could adversely affect the trading price of our Equity Shares.<br />
3. Conditions in the Indian securities market may affect the price or liquidity of the Equity Shares.<br />
<strong>The</strong> Indian securities markets are smaller and may be more volatile than securities markets in more developed<br />
economies. <strong>The</strong> regulation and monitoring of Indian securities markets and the activities of investors, brokers<br />
and other participants differ, in some cases significantly, from those in the U.S. and Europe. Indian stock<br />
exchanges have in the past experienced substantial fluctuations in the prices of listed securities.<br />
21
Indian stock exchanges have, in the past, experienced problems that have affected the market price and liquidity<br />
of the securities of Indian companies, such as temporary exchange closures, broker defaults, settlement delays<br />
and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time<br />
restricted securities from trading, limited price movements and increased margin requirements. Further, disputes<br />
have occurred on occasion between listed companies and the Indian stock exchanges and other regulatory bodies<br />
that, in some cases, have had a negative effect on market sentiment. If similar problems occur in the future, the<br />
market price and liquidity of the Equity Shares could be adversely affected. A closure of, or trading stoppage on,<br />
either the BSE or the NSE could adversely affect the trading price of the Equity Shares. Historical trading<br />
prices, therefore, may not be indicative of the prices at which the Equity Shares will trade in the future.<br />
4. While our scrip has from October 29, 2010 moved into trading in F&O segment and we are currently not<br />
subject to a daily “circuit breaker” imposed by all stock exchanges in India there cannot be any<br />
assurance that our scrip will continue to remain in F&O segment and circuit breaker will not apply to<br />
our scrip<br />
<strong>The</strong>re can be two types of circuit breakers applicable to the stocks listed on the Stock Exchanges (i) daily “price<br />
based circuit breaker” which specifies the band within which the price of a particular stock is allowed to move<br />
freely and (ii) index based market wide circuit breaker which applies to a stock at three stages of the index<br />
movement either way at 10%, 15% and 20%. While the daily price based circuit breaker is applicable to a stock<br />
depending on whether it is traded in F&O segment, an index based market wide circuit breaker is applicable to<br />
all the stocks listed on all the Stock Exchanges. Further, the daily “price based circuit breaker” operates<br />
independently of the index based market wide circuit breakers imposed by SEBI on Indian stock exchanges.<br />
While our scrip has from October 29, 2010 moved into trading in F&O segment and we are currently not subject<br />
to a daily “price based circuit breaker” imposed by the Stock Exchanges in India, which does not allow<br />
transactions beyond specified increases or decreases in the price of the Equity Shares, there cannot be any<br />
assurance that our scrip will continue to remain in F&O segment and daily “price based circuit breaker” will not<br />
apply to our scrip in future.<br />
However, the index based market-wide circuit breaker system are still applicable to our scrip and these circuit<br />
breakers bring about a coordinated trading halt in trading on all equity and equity derivatives markets across the<br />
country. <strong>The</strong> breakers are triggered by movements in either Nifty 50 or Sensex, whichever is breached earlier. In<br />
past the Stock Exchanges halted trading due to the index-based market-wide circuit breaker on May 18, 2009<br />
after the index crossed the threshold of such circuit breaker. <strong>The</strong>re cannot be any assurance that the Stock<br />
Exchanges will not halt trading due to the index-based market-wide circuit breaker in future and closure of, or<br />
trading stoppage on, either the BSE or the NSE could adversely affect the trading price of our Equity Shares.<br />
5. <strong>The</strong>re is no guarantee that the Equity Shares issued in this Issue will be listed on the BSE and the NSE<br />
in a timely manner.<br />
In accordance with Indian law and practice, permission for listing of the Equity Shares will not be granted until<br />
after those Equity Shares have been issued and allotted. Approval will require all other relevant documents<br />
authorizing the issuing of Equity Shares to be submitted. <strong>The</strong>re could be delay in listing the Equity Shares on<br />
the BSE and/or the NSE. Any delay in obtaining the approval would restrict your ability to dispose off your<br />
Equity Shares allotted in the Issue.<br />
6. Significant differences exist between Indian GAAP and other accounting principles, such as U.S. GAAP<br />
and IFRS, which may be material to investors’ assessments of our financial condition. Our failure to<br />
successfully adopt IFRS could have a material adverse effect on our stock price.<br />
Our financial statements, including the financial statements provided in this Letter of Offer are prepared in<br />
accordance with Indian GAAP. We have not attempted to quantify the impact of U.S. GAAP or IFRS on the<br />
financial data included in this Letter of Offer, nor do we provide a reconciliation of our financial statements to<br />
those of U.S. GAAP or IFRS. Each of U.S. GAAP and IFRS differs in significant respects from Indian GAAP.<br />
Accordingly, the degree to which the Indian GAAP financial statements included in this Letter of Offer will<br />
provide meaningful information is entirely dependent on the reader’s level of familiarity with Indian accounting<br />
practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures<br />
presented in this Letter of Offer should accordingly be limited.<br />
<strong>The</strong> Ministry of Corporate Affairs and the ICAI, the accounting body that regulates the accounting firms in<br />
India, have announced a road map for the adoption of, and convergence of Indian GAAP with the IFRS (the<br />
22
“converged accounting standards”) pursuant to which all scheduled commercial banks in India will be<br />
required to prepare their annual and interim financial statements under converged accounting standards<br />
beginning with fiscal period commencing April 1, 2013. Because there is significant lack of clarity on the<br />
adoption of and convergence with IFRS and there is not yet a significant body of established practice on which<br />
to draw in forming judgments regarding its implementation and application, we have not determined with any<br />
degree of certainty the impact that such adoption will have on our financial reporting. <strong>The</strong>re can be no<br />
assurance that our financial condition, results of operations, cash flows or changes in shareholders' equity will<br />
not appear materially worse under converged accounting standards than under Indian GAAP. As we transition to<br />
converged accounting standards, we may encounter difficulties in the ongoing process of implementing and<br />
enhancing our MIS. Moreover, there is increasing competition for the small number of IFRS-experienced<br />
accounting personnel available as more Indian companies begin to prepare financial statements based on<br />
converged accounting standards. <strong>The</strong>re can be no assurance that our adoption of converged accounting standards<br />
will not adversely affect our reported results of operations or financial condition and any failure to successfully<br />
adopt converged accounting standards by April 2013 could have a material adverse effect on our stock price.<br />
7. You may be subject to Indian taxes arising out of capital gains. Any gain realised on the sale of equity<br />
shares held for more than 12 months to an Indian resident, which are sold other than on a recognised<br />
stock exchange and as result of which no STT has been paid, will be subject to capital gains tax in India.<br />
Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian bank are<br />
generally taxable in India. Any gain realised on the sale of listed equity shares on a stock exchange held for<br />
more than 12 months will not be subject to capital gains tax in India if the STT has been paid on the transaction.<br />
<strong>The</strong> STT will be levied on and collected by a domestic stock exchange on which equity shares are sold. Any<br />
gain realised on the sale of equity shares held for more than 12 months to an Indian resident, which are sold<br />
other than on a recognised stock exchange and as result of which no STT has been paid, will be subject to<br />
capital gains tax in India. Further, any gain realised on the sale of listed equity shares held for a period of 12<br />
months or less will be subject to capital gains tax in India.<br />
Capital gains arising from the sale of our Equity Shares will be exempt from tax in India in cases where such<br />
exemption is provided under the tax treaty between India and the country of which the seller is a resident.<br />
Generally, Indian tax treaties, do not limit India’s ability to impose tax on capital gains. As a result, residents of<br />
certain countries may be liable for tax in India, as well as in their own jurisdictions on gain upon a sale of our<br />
Equity Shares.<br />
8. You will be subject to market risks until the Equity Shares credited to your demat account are listed and<br />
permitted to trade.<br />
You can start trading the Equity Shares Allotted to you only after they have been credited to your demat<br />
account, are listed and permitted to trade. Since our Equity Shares are currently traded on the Stock Exchanges,<br />
you will be subject to market risk from the date you pay for the Equity Shares to the date when trading approval<br />
is granted for the same. Further, there can be no assurance that the Equity Shares Allocated to you will be<br />
credited to your demat account or that trading in the Equity Shares will commence in a timely manner. This risk<br />
factor is for the information of investors and does not in any way dilute the right of investors and our<br />
obligations.<br />
9. Future issues or sales of Equity Shares may significantly affect the trading price of the Equity Shares.<br />
<strong>The</strong> future issue of Equity Shares or the disposal of Equity Shares by any of our major Equity Shareholders or<br />
the perception that such issues or sales may occur may significantly affect the trading price of the Equity Shares.<br />
<strong>The</strong>re is no restriction on our ability to issue Equity Shares or the relevant Equity Shareholders’ ability to<br />
dispose of their Equity Shares, and there can be no assurance that we will not issue Equity Shares or that any<br />
such Equity Shareholder will not dispose of, encumber, or pledge, its Equity Shares.<br />
10. <strong>The</strong> Issue Price of our Equity Shares may not be indicative of the market price of our Equity Shares<br />
after the Issue.<br />
<strong>The</strong> Issue Price Equity Share may not be indicative of the market price for our Equity Shares after the Issue. <strong>The</strong><br />
market price of our Equity Shares could be subject to significant fluctuations after the Issue, and may decline<br />
below the Issue Price. <strong>The</strong>re can be no assurance that the investor will be able to resell their shares at or above<br />
the Issue Price. Among the factors that could affect our share price are:<br />
23
• quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income<br />
and revenues;<br />
• changes in revenue or earnings estimates or publication of research reports by analysts;<br />
• speculation in the press or investment community;<br />
• general market conditions; and<br />
• domestic and international economic, legal and regulatory factors unrelated to our performance.<br />
11. A significant change in the Government’s economic liberalization and deregulation policies could<br />
adversely affect our business and the price of our Equity Shares.<br />
Our business and customers are predominantly located in India or are related to and influenced by the Indian<br />
economy. <strong>The</strong> Indian government has traditionally exercised, and continues to exercise, a dominant influence<br />
over many aspects of the economy. Government policies could adversely affect business and economic<br />
conditions in India, our ability to implement our strategy and our future financial performance. Since 1991,<br />
successive Indian governments have pursued policies of economic liberalization, including significantly<br />
relaxing restrictions on the private sector and encouraging the development of the Indian financial sector. For<br />
the past several years, coalition governments have governed India. <strong>The</strong> leadership of India and the composition<br />
of the coalition in power are subject to change and election results are sometimes not along expected lines. It is<br />
difficult to predict the economic policies that will be pursued by the Government. <strong>The</strong> rate of economic<br />
liberalization could change and specific laws and policies affecting banking and finance companies, foreign<br />
investment, currency exchange and other matters affecting investment in our securities could change as well.<br />
Any significant change in India’s economic liberalization and deregulation policies could adversely affect<br />
business and economic conditions in India generally and our business in particular.<br />
12. Civil unrest, acts of violence including terrorism or war involving India and other countries could<br />
materially and adversely affect the financial markets and our business.<br />
Civil unrest, acts of violence including terrorism or war, may negatively affect the Indian markets where our<br />
Equity Shares will be traded and also materially and adversely affect the worldwide financial markets. <strong>The</strong>se<br />
acts may also result in a loss of business confidence, make travel and other services more difficult and<br />
ultimately materially and adversely affect our business. Diplomatic relations between the GoI and neighbouring<br />
countries have suffered post the terrorist attacks on November 26, 2008. While the GoI has been trying to<br />
engage in conciliatory efforts any further tension or deterioration of relations might result in investor concern<br />
about stability in the region, which could materially and adversely affect the price of the Equity Shares.<br />
India has also witnessed civil disturbances in recent years and it is possible that future civil unrest as well as<br />
other adverse social, economic and political events in India could have an adverse impact on us. Such incidents<br />
could also create a greater perception that investment in Indian companies involves a higher degree of risk and<br />
could have an adverse impact on our business, financial condition, results of operations and the price of the<br />
Equity Shares.<br />
13. Trade deficits could materially and adversely affect our <strong>Bank</strong>’s business and the price of our <strong>Bank</strong>’s<br />
Equity Shares.<br />
India’s trade relationships with other countries and its trade deficit, driven to a major extent by global crude oil<br />
prices, may adversely affect Indian economic conditions. If trade deficits increase or are no longer manageable<br />
because of the rise in global crude oil prices or otherwise, the Indian economy, and therefore our <strong>Bank</strong>’s<br />
business, its financial performance, shareholders’ funds and the price of its Equity Shares could be materially<br />
and adversely affected.<br />
14. Financial difficulty and other problems in certain financial institutions in India could adversely affect<br />
our business and the price of our Equity Shares.<br />
As an Indian bank, we are exposed to the risks of the Indian financial system which may be affected by the<br />
financial difficulties faced by certain Indian financial institutions because the commercial soundness of many<br />
financial institutions may be closely related as a result of credit, trading, clearing or other relationships. This<br />
risk, which is sometimes referred to as “systemic risk”, may adversely affect financial intermediaries, such as<br />
clearing agencies, banks, securities firms and exchanges with whom we interact on a daily basis and who may<br />
default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. Any such<br />
difficulties or instability of the Indian financial system in general could create an adverse market perception<br />
24
about Indian financial institutions and banks and hence adversely affect our business. As the Indian financial<br />
system operates within an emerging market, it faces risks of a nature and extent not typically faced in more<br />
developed economies, including the risk of deposit runs notwithstanding the existence of a national deposit<br />
insurance scheme.<br />
15. A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian<br />
economy, which could adversely impact us.<br />
<strong>The</strong> direct adverse impact of the global financial crisis on India has been the reversal of capital inflows and<br />
decline in exports, leading to pressures on the balance of payments and a sharp depreciation of the Indian Rupee<br />
vis-à-vis the US Dollar. Any increased intervention by the RBI in the foreign exchange market to control the<br />
volatility of the exchange rate may result in a decline in India’s foreign exchange reserves and reduced liquidity<br />
and higher interest rates in the Indian economy, which could adversely affect our business and our future<br />
financial performance.<br />
16. Any downgrading of India’s debt rating by an international rating agency could adversely affect our<br />
business and the price of our Equity Shares.<br />
Any adverse revisions to India’s credit ratings for domestic and international debt by international rating<br />
agencies may adversely impact our ability to raise additional financing, and the interest rates and other<br />
commercial terms at which such additional financing is available. This could have a material adverse effect on<br />
our business and future financial performance, our ability to obtain financing for capital expenditures, and the<br />
price of our Equity Shares.<br />
17. Investors may not be able to enforce a judgment of a foreign court against us.<br />
It may not be possible for investors in our Equity Shares to effect service of process outside of India on us or our<br />
directors and executive officers named in this Letter of Offer who are residents of India or to enforce judgments<br />
obtained against us or these persons in foreign courts predicated upon the liability provisions of foreign<br />
countries. Moreover, it is unlikely that a court in India would award damages on the same basis as a foreign<br />
court if an action were brought in India or that an Indian court would enforce foreign judgments if it viewed the<br />
amount of damages as excessive or inconsistent with Indian law and practice.<br />
18. Provisions in Indian law may discourage a third party from acquiring control of our <strong>Bank</strong>, even if it<br />
would result in the purchase of our Equity Shares at a premium to the market price or would otherwise<br />
be beneficial to our <strong>Bank</strong>’s shareholders<br />
<strong>The</strong>re are provisions in Indian law that may discourage a third party from attempting to take control of our<br />
<strong>Bank</strong>, even if it would result in the purchase of our Equity Shares at a premium to the market price or would<br />
otherwise be beneficial to our <strong>Bank</strong>’s shareholders. Indian takeover regulations contain certain provisions that<br />
may delay, deter or prevent a future takeover or change in control so as to ensure that the interests of<br />
shareholders are protected. Any person acquiring either “control” or an interest (either on its own or together<br />
with parties acting in concert with it) in 15% or more of our <strong>Bank</strong>’s voting Equity Shares must make an open<br />
offer to acquire at least another 20% of our <strong>Bank</strong>’s outstanding voting Equity Shares. A takeover offer to<br />
acquire at least another 20% of our <strong>Bank</strong>’s outstanding voting Equity Shares also must be made if a person<br />
(either on its own or together with parties acting in concert with it) holding between 15% and 55% of our<br />
<strong>Bank</strong>’s voting Equity Shares has entered into an agreement to acquire or decided to acquire additional voting<br />
Equity Shares in any financial year that exceed 5% of our <strong>Bank</strong>’s voting Equity Shares. <strong>The</strong>se and other<br />
applicable provisions may discourage or prevent certain types of transactions involving an actual or threatened<br />
change in control.<br />
19. Your ability to sell your Equity Shares to a resident of India may be subject to delays if RBI approval is<br />
required.<br />
Under current Indian regulations and practice, approval of the RBI is required for the sale of Equity Shares by a<br />
non-resident to a resident of India, unless the sale is made on a stock exchange in India through a stock broker<br />
or a merchant banker registered with SEBI, at the market price or in terms of the pricing guidelines specified by<br />
RBI in the case of an off-market transfer. If the Equity Shares are thinly traded, then certain other pricing<br />
guidelines specified by RBI must be followed. Prior to the repatriation of sale proceeds, certain filings must be<br />
made with an authorised dealer remitting the proceeds along with certain documents, including an undertaking<br />
25
from the resident buyer in the prescribed form stating that the pricing guidelines have been adhered to and a no<br />
objection/tax clearance certificate from the income tax authority or an accountant has been obtained. If any<br />
approvals are required from the RBI or any other government agency, they may not be obtained on terms<br />
favourable to a non-resident investor or at all. We cannot guarantee that any approval, if required, will be<br />
obtained in a timely manner or at all. Because of possible delays in obtaining requisite approvals, investors in<br />
the Equity Shares may be prevented from realising gains during periods of price increases or limiting losses<br />
during periods of price declines.<br />
20. Foreign investment in our <strong>Bank</strong> as well as acquisitions or transfers of our Equity Shares resulting in an<br />
aggregate holding of five per cent or more is subject to limits specified by the Reserve <strong>Bank</strong> of India.<br />
<strong>The</strong>se restrictions may adversely affect the liquidity of our Equity Shares and could result in the absence<br />
of FII buying support even in situations where there is a decline in the price of our Equity Shares.<br />
Under Indian laws, the aggregate permissible foreign investment (including foreign direct investment (‘‘FDI’’)<br />
and investment by registered foreign institutional investors (‘‘FIIs’’) and nonresident Indians (‘‘NRIs’’) in a<br />
private sector bank, such as our <strong>Bank</strong>, is limited to an aggregate of 74% of the paid up capital. Further, the<br />
foreign exchange regulations stipulate that the aggregate foreign institutional investor‘s/ FII’s holding cannot<br />
exceed 24% of the total issued capital. However, with the approval of the Board of Directors and the<br />
shareholders by way of a special resolution, the aggregate FII holding in a company can be increased up to<br />
sectoral limits. Presently, the FII shareholding limit of our <strong>Bank</strong> is 49% of our paid up capital as approved by<br />
the shareholders. As on December 31, 2010, our FII holding was 29.98 %. Accordingly, unless the current<br />
foreign investment limit applicable to us is liberalised, the scope of us getting additional foreign investment will<br />
be limited. Once the aggregate foreign investment of a bank reaches this cut-off point, the RBI cautions nonresident<br />
investors and authorised dealers not to further transact in equity shares of such bank without prior<br />
approval of the RBI. <strong>The</strong>se restrictions may adversely affect the liquidity of our Equity Shares and could result<br />
in the absence of FII buying support even in situations where there is a decline in the price of our Equity Shares.<br />
Pursuant to the Guidelines for Acknowledgement of Shares in Private <strong>Bank</strong>s contained in the Circular DBOD.<br />
NO.PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004, or the Acknowledgement Guidelines, any<br />
acquisition or transfer of shares in a private bank which will take the aggregate holding of an individual or a<br />
group to five per cent or more of the paid-up capital of a bank, requires the prior “acknowledgement” of the<br />
RBI. <strong>The</strong> term “holding” refers to both direct and indirect holdings, beneficial or otherwise, and is computed<br />
with reference to the holding of the applicant, relatives (where the applicant is a natural person) and associated<br />
enterprises. In considering whether it will grant its acknowledgement to any application for an acquisition or<br />
transfer resulting in a holding of five per cent or more of the paid-up capital of a private bank, the RBI<br />
considers, among other matters, whether the applicant or proposed acquirer (including all entities connected<br />
with the acquirer) meets certain fitness and propriety tests. Further as advised by RBI vide its circular<br />
DBOD.No.PSBS.BC.182/16.13.100/99-2000 May 31, 2000, our <strong>Bank</strong> had amended its Articles of Association<br />
to the effect that acquisition of shares by a person/group which would take his/its holding to a level of 5% or<br />
more of the total issued capital of the bank (or such other percentage as may be prescribed by the Reserve <strong>Bank</strong><br />
from time to time) should be with the prior approval of Reserve <strong>Bank</strong> of India. <strong>The</strong> RBI considers additional<br />
criteria when granting its acknowledgement where the acquisition or transfer will take the aggregate<br />
shareholding of the applicant or proposed acquirer to 10.00% or more and certain further criteria when granting<br />
its acknowledgement where the acquisition or transfer will take the aggregate shareholding of the applicant or<br />
proposed acquirer to 30.00% or more of the paid-up capital of a private bank. <strong>The</strong> RBI, in terms of the<br />
guidelines on ownership and governance issued on February 28, 2005 may require the applicant or proposed<br />
acquirer to seek further approval in relation to subsequent acquisitions at any higher threshold as it may specify.<br />
<strong>The</strong> aforementioned regulatory framework could adversely affect the free transferability of the Equity Shares.<br />
21. <strong>The</strong> price of our Equity Shares may be highly volatile<br />
<strong>The</strong> prices of our Equity Shares on the Indian stock exchanges may fluctuate as a result of several factors,<br />
including:<br />
• volatility in the Indian and global securities market or in the Rupee’s value relative to the U.S. dollar, the<br />
Euro and other foreign currencies;<br />
• our profitability and performance;<br />
• performance of our competitors in the Indian banking industry and the perception in the market<br />
• significant developments in India’s economic liberalisation and deregulation policies;<br />
26
• significant developments in India’s fiscal, environmental and other regulations;<br />
• an assessment of our management, our past and present operations, and the prospects for, and timing of,<br />
our future revenues and cost structures; and<br />
• the present state of our development<br />
Further, there can be no assurance the prices at which our Equity Shares have historically traded will correspond<br />
to the prices at which our Equity Shares will trade in the market subsequent to this Offering.<br />
Prominent Notes:<br />
1. This Issue is of 5,37,69,935 Rights Equity Shares for cash at a premium of Rs. 75/- per Rights Equity<br />
Share on rights basis to the existing Equity Shareholders of our <strong>Bank</strong> in the ratio of 2 Rights Equity<br />
Share for every 5 Equity Share held on the Record Date i.e. February 28, 2011 in terms of this Letter of<br />
Offer.<br />
2. Net worth of our <strong>Bank</strong> as on March 31, 2010 is Rs. 1,832.75 Crores and September 30, 2010 is Rs.<br />
1,910.10 Crores. <strong>The</strong> Issue is of an amount aggregating Rs. 457.04 Crores.<br />
3. <strong>The</strong> book value per Equity Share as of March 31, 2010 and September 30, 2010 was Rs. 136.80 and<br />
Rs. 142.33 per Equity Share.<br />
4. Our <strong>Bank</strong> has entered into certain related party transactions as disclosed in the section titled “Financial<br />
Statements” on Page no 64 of this Letter of Offer.<br />
5. None of our directors and their relatives have financed the purchase by any other person of securities of<br />
our <strong>Bank</strong> other than in the normal course of the business of the financing entity during the period of six<br />
months immediately preceding the date of filing this Letter of Offer with SEBI.<br />
6. No loans and advances have been granted to our Directors<br />
7. Trading in equity shares for all investors shall be in dematerialised form only.<br />
8. Except as stated in this Letter of Offer under section titled “Our Management” on age 57 of this Letter<br />
of Offer, the Directors have no interest other than to the extent of Equity Shares of our <strong>Bank</strong> held or<br />
reimbursement of expenses incurred or normal remuneration or benefits.<br />
9. <strong>The</strong> Lead Manager and our <strong>Bank</strong> shall make any information relating to the Issue available to the<br />
investors at large and no selective or additional information would be available for a section of the<br />
investors in any manner whatsoever.<br />
10. <strong>The</strong> Lead Manager and our <strong>Bank</strong> have updated this Letter of Offer to keep the shareholders/public<br />
informed of any material changes from the filing of the Draft Letter of Offer and will keep the<br />
shareholders/public informed of the same till the listing and trading commencement and our <strong>Bank</strong> shall<br />
continue to make all material disclosures as per the terms of the listing agreement.<br />
11. Investors may contact Lead Manager or Compliance Officer of our <strong>Bank</strong> for any queries/ complaints<br />
pertaining to the Issue.<br />
27
SUMMARY OF THE ISSUE<br />
Pursuant to the resolution passed by the Board of Directors of our <strong>Bank</strong> under Section 81(1) of the Companies<br />
Act, 1956 at the meeting held on July 30, 2010 and subsequently approved by the members of our <strong>Bank</strong> at the<br />
Extra-Ordinary General Meeting held on September 9, 2010, it has been decided to make the following offer to<br />
the eligible equity shareholders of our <strong>Bank</strong>, with a right to renounce.<br />
<strong>The</strong> following is a summary of the Issue. This summary should be read in conjunction with, and is qualified in<br />
its entirety by, more detailed information in the section titled “Terms and Procedure of the Issue” beginning on<br />
Page no 98 of this Letter of Offer.<br />
Rights Equity Shares proposed to be<br />
issued<br />
Rights Entitlement for Equity Shares<br />
5,37,69,935 Rights Equity Shares<br />
Record Date February 28, 2011<br />
Issue Price per Rights Equity Share Rs. 85<br />
Face Value per Rights Equity Share Rs. 10<br />
Equity Shares outstanding prior the<br />
Issue<br />
Equity Shares outstanding prior the<br />
Issue (Adjusted) (Includes 2,800 shares<br />
kept in abeyance on account of earlier<br />
issues which have not yet lapsed)<br />
Equity Shares outstanding after the<br />
Issue*<br />
Use of Issue Proceeds<br />
2 Rights Equity Shares for every 5 Equity Shares held on the<br />
Record Date<br />
13,44,22,037 Equity Shares<br />
13,44,24,837 Equity Shares<br />
18,81,94,772 Equity Shares<br />
For further information, please refer to the section titled “Objects<br />
of the Issue” beginning on Page no 45 of this Letter of Offer.<br />
* Including the entitlements in respect of shares kept in abeyance which have not yet lapsed.<br />
Payment terms<br />
<strong>The</strong> payment terms available to the Investors are as follows:<br />
Due Date<br />
On Rights Issue application<br />
Amount<br />
Rs. 85 which constitutes 100% of the full amount of the Issue Price<br />
of Rs. 85.<br />
28
SUMMARY FINANCIAL INFORMATION<br />
<strong>The</strong> following tables set forth the summary financial information derived from the financial statements of our<br />
<strong>Bank</strong> as on and for Fiscal 2010 and six months period ended September 30, 2010, prepared in accordance with<br />
Indian GAAP.<br />
<strong>The</strong> summary financial information of our <strong>Bank</strong> presented below, is in crores and should be read in conjunction<br />
with the financial statements and the notes (including the significant accounting principles) thereto included in<br />
the section “Financial Statements” of the Letter of Offer.<br />
BALANCE SHEET AS ON 31 ST MARCH, 2010<br />
CAPITAL AND LIABILITIES<br />
As on<br />
(Rs in Crore)<br />
As on<br />
31.03.2010 31.03.2009<br />
Capital 133.99 121.58<br />
Reserves and Surplus 1,698.76 1,445.44<br />
Deposits 23,730.65 20,333.29<br />
Borrowings 341.64 3.97<br />
Other Liabilities and Provisions 1,130.11 953.52<br />
TOTAL 27,035.15 22,857.80<br />
ASSETS<br />
Cash and balances with Reserve <strong>Bank</strong> of India 1,743.10 1,364.98<br />
Balances with <strong>Bank</strong>s and Money at Call & Short Notice 62.45 95.75<br />
Investments 9,992.05 8,961.49<br />
Advances 14,435.68 11,810.04<br />
Fixed Assets 148.07 138.49<br />
Other Assets 653.80 487.05<br />
TOTAL 27,035.15 22,857.80<br />
Contingent Liabilities 10,119.24 10,042.74<br />
Bills for Collection 1,032.24 928.93<br />
29
I. INCOME<br />
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010<br />
Year ended<br />
31.03.2010<br />
(Rs in crore)<br />
Year ended<br />
31.03.2009<br />
Interest Earned 2,043.42 1,948.76<br />
Other Income 311.26 321.79<br />
Total 2,354.68 2,270.55<br />
II. EXPENDITURE<br />
Interest Expended 1,707.79 1,443.83<br />
Operating Expenses 386.05 346.51<br />
Provisions and Contingencies 93.72 213.51<br />
Total 2,187.56 2,003.85<br />
III.PROFIT<br />
Net profit for the year 167.12 266.70<br />
Profit brought forward 0.03 0.10<br />
Total 167.15 266.80<br />
IV. APPROPRIATIONS<br />
Transfer to Statutory Reserve 88.00 100.00<br />
Transfer to Capital Reserve -- 60.67<br />
Transfer to Revenue Reserve 3.00 7.00<br />
Transfer to Special Reserve u/s 36 (i) (viii) of IT Act 6.68 12.31<br />
Transfer to Investment Reserve Account 5.70 --<br />
Transfer to Other Funds 1.00 1.45<br />
Transfer to Proposed dividend 53.63 72.94<br />
Transfer to Tax on proposed dividend 9.11 12.40<br />
Balance carried over to Balance Sheet 0.02 0.03<br />
Total 167.14 266.80<br />
Number of Shares outstanding during the year (weighted average) 12,37,79,973 12,14,44,753<br />
Earning per share (Rs per share of Rs10/- each)<br />
Basic (Rs.) 13.50 21.96<br />
Diluted (Rs.) 13.45 21.96<br />
30
A<br />
(Rs in crores)<br />
CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010<br />
March 31, 2010 March 31, 2009<br />
CASH FLOW FROM OPERATING ACTIVITIES<br />
Net profit before tax and extra ordinary items 193.05 406.15<br />
Adjustments for :<br />
Depreciation on Fixed Assets including<br />
Lease Adjustment charges 22.15 19.82<br />
Provisions and Contingencies 71.08 80.50<br />
Amortisation of premium on Held to Maturity Investments 28.86 11.95<br />
122.09 112.27<br />
B<br />
C<br />
Operating profit before working capital changes 315.14 518.42<br />
Adjustment for :<br />
i) Advances & Other Assets -2662.89 -919.27<br />
ii) Investments -1041.20 -2650.43<br />
iii) Deposits, Borrowings & Other Liabilities 3793.27 3166.36<br />
89.18 -403.34<br />
Cash generated from operations 404.32 115.08<br />
Direct taxes paid 102.58 168.10<br />
Net cash flow from operating activities (A) 301.74 -53.02<br />
CASH FLOW FROM INVESTING ACTIVITIES<br />
Purchase of fixed assets -32.35 -39.04<br />
Sale of fixed assets 0.88 0.51<br />
Net cash used in investing activities (B) -31.47 -38.53<br />
CASH FLOW FROM FINANCING ACTIVITIES<br />
Proceeds from issue of share capital (net of expenses) 158.84 1.06<br />
Proceeds from long term borrowings 0.00 0.00<br />
Dividend paid (Including Tax on Dividend) -84.30 -70.21<br />
Net Cash generated from Financing Activities ( C ) 74.54 -69.15<br />
Net increase in Cash & Cash equivalents (A+B+C) 344.81 -160.70<br />
Cash & cash equivalents as at (opening) 1460.74 1621.43<br />
Cash & cash equivalents as at (closing) 1805.55 1460.74<br />
31
(Rs in Crore)<br />
CAPITAL AND LIABILITIES<br />
BALANCE SHEET AS ON 30TH SEPTEMBER 2010<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
Capital 134.21 133.99<br />
Reserves and Surplus 1,775.90 1,698.76<br />
Deposits 25,045.31 23,730.65<br />
Borrowings 917.25 691.64<br />
Other Liabilities and Provisions 727.22 780.11<br />
TOTAL 28,599.89 27,035.15<br />
ASSETS<br />
Cash and balances with Reserve <strong>Bank</strong> of India 1,774.83 1,743.10<br />
Balances with <strong>Bank</strong>s and Money at Call & Short Notice 40.75 62.45<br />
Investments 10,435.04 9,992.05<br />
Advances 15,683.07 14,435.68<br />
Fixed Assets 146.08 148.07<br />
Other Assets 520.12 653.80<br />
TOTAL 28,599.89 27,035.15<br />
Contingent Liabilities 9,286.60 10,119.24<br />
Bills for collection 1,244.50 1,032.24<br />
32
PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30 TH SEPTEMBER 2010<br />
(Rs in Crore)<br />
Half year<br />
ended<br />
30.09.2010<br />
Half year ended<br />
30.09.2009<br />
Year ended<br />
31.03.2010<br />
I. INCOME<br />
Interest Earned 1,116.47 971.65 2,043.42<br />
Other Income 132.27 185.94 311.26<br />
Total 1,248.74 1,157.59 2,354.68<br />
II. EXPENDITURE<br />
Interest Expended 857.92 869.69 1,707.79<br />
Operating Expenses 239.71 189.59 386.05<br />
Provisions and Contingencies 75.91 41.89 93.72<br />
Total 1,173.54 1,101.17 2,187.56<br />
III.PROFIT<br />
Net profit for the year 75.20 56.42 167.12<br />
Profit brought forward 0.02 0.10 0.03<br />
Total 75.22 56.52 167.15<br />
IV. APPROPRIATIONS<br />
Transfer to Statutory Reserve 0.00 0.00 88.00<br />
Transfer to Capital Reserve 0.00 0.00 0.00<br />
Transfer to Revenue Reserve 0.00 0.00 3.00<br />
Transfer to Special Reserve u/s 36 (i) (viii) of IT Act 0.00 0.00 6.68<br />
Transfer to Investment Reserve Account 0.00 0.00 5.70<br />
Transfer to Other Funds 0.00 0.00 1.00<br />
Transfer to Proposed dividend 0.00 0.00 53.63<br />
Transfer to Tax on proposed dividend 0.00 0.00 9.11<br />
Balance carried over to Balance Sheet 75.22 56.52 0.02<br />
Total 75.22 56.52 167.14<br />
33
GENERAL INFORMATION<br />
Dear Equity Shareholder(s),<br />
Pursuant to the resolution passed by the Board of Directors of our <strong>Bank</strong> under Section 81(1) of the Companies<br />
Act, 1956 at the meeting held on July 30, 2010 and subsequently approved by the members of our <strong>Bank</strong> at the<br />
Extra-Ordinary General Meeting held on September 9, 2010, our <strong>Bank</strong> has been authorized to make the<br />
following Rights Issue to its Equity Shareholders:<br />
Issue of 5,37,69,935 Equity Shares of Rs.10 each for cash at a premium of Rs. 75/- per Equity Share aggregating<br />
to Rs. 457.04 Crores on rights basis to the existing Equity Shareholders of our <strong>Bank</strong>, in the ratio of two Equity<br />
Shares for every five Equity Shares (i.e. 2:5) held as on the Record Date i.e. February 28, 2011.<br />
REGISTERED OFFICE<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
P.B. No. 599<br />
Mahaveera Circle, Kankanady<br />
Mangalore - 575 002, India<br />
Telephone: +91 (0824) 2228222<br />
Fascimile: +91 (0824) 2225588<br />
Website: www.karnatakabank.com<br />
Email: info@ktkbank.com<br />
Company Identification Number: L85110KA1924PLC001128<br />
ADDRESS OF THE REGISTRAR OF COMPANIES<br />
<strong>The</strong> Registrar of Companies, <strong>Karnataka</strong><br />
'E' Wing, 2nd Floor<br />
Kendriya Sadana<br />
Koramangala, Bangalore-560034<br />
Telephone: 080-25633105, 080-25537449/25633104<br />
Fascimile: 080-25538531<br />
Email: roc.bangalore@mca.gov.in<br />
<strong>The</strong> Equity Shares are listed on the BSE and the NSE.<br />
Company Secretary and Compliance Officer<br />
Mr. Y V Balachandra<br />
Company Secretary and Compliance Officer<br />
P.B. No. 599, Mahaveera Circle,<br />
Kankanady, Mangalore - 575 002<br />
India<br />
Telephone: +91 (0824) 2228222<br />
Fascimile: +91 (0824) 2225588<br />
Website: www.karnatakabank.com<br />
E-mail: comsec@ktkbank.com<br />
Investors may contact the Compliance Officer for any pre-issue /post-issue related matters such as non-receipt<br />
of letters of allotment/ share certificates/ refund orders, etc. All grievances relating to the ASBA process may be<br />
addressed to the Registrar to the Issue, with a copy to the SCSB, giving full details such as name, address of the<br />
applicant, number of Equity Shares applied for, Amount blocked, ASBA Account number and the Designated<br />
Branch of the SCSB where the CAF was submitted by the ASBA Investors.<br />
34
Auditors of our <strong>Bank</strong><br />
<strong>The</strong> auditors of our <strong>Bank</strong> are:<br />
M/s Vishnu Daya & Co<br />
Chartered Accountant<br />
GF No 7, Karuna Complex, No 337<br />
Sampige Road, Malleshwaram,<br />
Bangalore-560 003<br />
Tel: 080-23312779,Fax: 23313725<br />
Email:Vishnu@vishnudaya.com<br />
M/s R K Kumar & Co<br />
Chartered Accountants<br />
II Floor, Congress Building<br />
573, Mount Road<br />
Chennai-600006<br />
Tel: 044-24349866, Fax:-24349857<br />
Email: rkkco@dataone.in<br />
Registrar to the Issue<br />
Integrated Enterprises India <strong>Limited</strong><br />
No 30 Ramana Residency 4th Cross,<br />
Sampige Road, Malleswaram,<br />
Bangalore 560 003<br />
Telephone: 080-23460815-818<br />
Facsimile: 080-23460819<br />
E-mail: alfint@vsnl.com<br />
Investor Grievance E-mail: ktkbankrights@vsnl.net<br />
Website:www.iepindia.com<br />
Contact Person: Mr. S. Vijayagopal<br />
SEBI Reg. No: INR 000000544<br />
Lead Manager to the Issue<br />
<strong>Edelweiss</strong> Capital <strong>Limited</strong><br />
14 th Floor, Express Towers,<br />
Nariman Point,<br />
Mumbai 400 021, India<br />
Board: +91 (22) 4086 3535<br />
Fax: +91 (22) 4086 3610<br />
E-mail: ktk.rights@edelcap.com<br />
Investor Grievance I.D.: customerservice.mb@edelcap.com<br />
Website: www.edelcap.com<br />
Contact Person: Mr. Sumeet Lath/Mr. Jibi Jacob<br />
SEBI Registration No. INM0000010650<br />
Legal Advisor to the Issue<br />
Khaitan & Co<br />
One Indiabulls Centre<br />
13th Floor, 841 Senapati Bapat Marg<br />
Mumbai 400 013, India<br />
Tel: + 91 22 6636 5000<br />
Fax: + 91 22 6636 5050<br />
<strong>Bank</strong>ers to the Issue<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
HO Complex Branch<br />
Mahaveera Circle,<br />
Kankanady, Mangalore - 575 002<br />
India<br />
Telephone: +91 (0824) 2228222<br />
Fascimile: +91 (0824) 2225588<br />
Website: www.karnatakabank.com<br />
Email: mangalore.hocomplex@ktkbank.com<br />
35
Self Certified Syndicate <strong>Bank</strong>s<br />
<strong>The</strong> list of banks that have been notified by SEBI to act as SCSB for the ASBA process is provided on<br />
http://www.sebi.gov.in/pmd/scsb.html.<br />
Statement of responsibility of the Lead Manager<br />
<strong>Edelweiss</strong> Capital <strong>Limited</strong> is the sole Lead Manager to the Issue. However, the details of responsibility for<br />
<strong>Edelweiss</strong> Capital <strong>Limited</strong> are follows:<br />
S.No<br />
Activities<br />
1 Capital structuring with relative components and formalities such as type of instruments, etc.<br />
2 Drafting and design of the Letter of Offer and of advertisement /publicity material including newspaper<br />
advertisements and brochure /memorandum containing salient features of the Letter of Offer.<br />
Compliance with the SEBI Regulations and other stipulated requirements and completion of prescribed<br />
formalities with Stock Exchange and SEBI.<br />
3 Marketing of the Issue which will cover, inter alia, formulating marketing strategies, preparation of<br />
publicity budget, arrangements for selection of (i) ad-media and (ii) bankers to the issue.<br />
4 Selection of various agencies connected with the Issue, namely Registrars to the Issue, printers, bankers<br />
and advertisement agencies.<br />
5 <strong>The</strong> post-issue activities will involve essential follow-up steps, which must include finalization of basis<br />
of allotment / weeding out of multiple applications, listing of instruments and dispatch of certificates<br />
and refunds, with the various agencies connected with the work such as registrars to the issue, bankers<br />
to the issue, and bank handling refund business. Even if many of these post-issue activities would be<br />
handled by other intermediaries, the Lead Manager shall be responsible for ensuring that these agencies<br />
fulfill their functions and enable him to discharge this responsibility through suitable agreements with<br />
the Issuer.<br />
6 Ensuring compliance with the SEBI (ICDR) Regulations 2009 and other requirements and formalities<br />
specified by SEBI and the recognized stock exchanges where specified securities being offered are<br />
proposed to be listed.<br />
Issue Schedule<br />
Issue Opening Date: Tuesday, March 8, 2011<br />
Last date for receiving requests for split forms: Monday, March 14, 2011<br />
Issue Closing Date: Tuesday, March 22, 2011<br />
Trustees<br />
As this is an issue of equity shares, the appointment of trustees is not required.<br />
Monitoring Agency<br />
Our <strong>Bank</strong> is not required to appoint a monitoring agency pursuant to Regulation 16 of the SEBI ICDR<br />
Regulations. Our Board will monitor the use of the proceeds of this Issue as per clause 49 of the listing<br />
agreement.<br />
Underwriting<br />
This Issue is not underwritten and our <strong>Bank</strong> has not entered into any underwriting arrangement.<br />
If our <strong>Bank</strong> does not receive the minimum subscription of 90% of the Issue, or the subscription level falls below<br />
90%, after the Issue Closing Date on account of cheques being returned unpaid or withdrawal of applications,<br />
our <strong>Bank</strong> shall refund the entire subscription amount received within 15 days from the Issue Closing Date. If<br />
there is delay in the refund of the subscription amount by more than eight days after our <strong>Bank</strong> becomes liable to<br />
pay the subscription amount (i.e. 15 days after the Issue Closing Date), our <strong>Bank</strong> will pay interest for the<br />
delayed period at 15% per annum as prescribed under sub-sections (2) and (2A) of Section 73 of the Companies<br />
Act.<br />
36
Principal Terms of Loans and Assets charged as security<br />
For details of the principal terms of loans and assets charged as security, please see the section titled “Financial<br />
Statements” on Page no 64 of this Letter of Offer.<br />
37
CAPITAL STRUCTURE<br />
<strong>The</strong> share capital of our <strong>Bank</strong> as on February 16, 2011 is as under:<br />
(Rs. in Crores, except share data)<br />
Aggregate value<br />
at Face Value<br />
Authorized share capital<br />
20,00,00,000 Equity Shares of Rs. 10 each 200.00<br />
Issued capital<br />
13,44,45,665 Equity Shares of Rs. 10 each 134.45<br />
Subscribed Capital<br />
13,44,38,587 Equity Shares of Rs. 10 each 134.44<br />
Paid up Capital<br />
13,44,22,037 Equity Shares of Rs. 10 each 134.42<br />
Aggregate<br />
Value at Issue<br />
Price<br />
Present Issue being offered to the Equity Shareholders through the Letter of Offer<br />
5,37,69,935 Equity Shares of Rs. 10 each at a premium of Rs. 75, i.e.<br />
at a price of Rs. 85 per share (Note 1)<br />
53.77 457.04<br />
Paid up capital after the Issue<br />
18,81,94,772 Equity Shares of Rs. 10 each (Note 2) 188.20<br />
Share premium Account<br />
Before the Issue 319.43<br />
After the Issue 722.70<br />
Issued Capital<br />
1. <strong>The</strong> issued capital of 13,44,45,665 equity shares includes 23,628 equity shares comprising of:<br />
i. 350 shares kept in abeyance in the bonus issue of shares during the year 2002-03<br />
ii. 350 shares kept in abeyance in the rights issue of shares during the year 2002-03<br />
iii. 4,128 shares in the rights issue kept in abeyance during 1995-96 which have since been lapsed<br />
iv. 150 shares in the rights issue kept in abeyance during 2002-03 rights issue which have since been<br />
lapsed.<br />
v. 2,100 shares kept in abeyance during 2004-05 rights issue.<br />
vi. 16,550 shares forfeited on October 10, 1998.<br />
Subscribed Capital<br />
<strong>The</strong> subscribed capital includes 16,550 shares, which were allotted in 1995-96 pursuant to the public issue but<br />
forfeited on October 10, 1998 for non-payment of allotment money.<br />
Paid-up Capital<br />
<strong>The</strong> paid-up capital excludes 16,550 shares, which were allotted in 1995-96 pursuant to the public issue but<br />
forfeited on October 10, 1998 for non-payment of allotment money.<br />
Present Issue (Note 1)<br />
a. <strong>The</strong> present issue of rights shares is in the ratio of two shares of Rs. 10 each for every five shares held<br />
on the Record Date i.e. February 28, 2011.<br />
b. In addition to the present paid up capital of 13,44,22,037 equity shares, 2,800 Equity Shares, which<br />
have not yet lapsed, kept in abeyance on account of earlier issues are considered to arrive at the<br />
adjusted paid up capital of 13,44,24,837 equity shares which is considered for determining the number<br />
of shares in the Rights Issue. <strong>The</strong> above 2,800 equity shares comprises of:<br />
38
i. 350 shares kept in abeyance in the bonus issue of shares during the year 2002-03<br />
ii. 350 shares kept in abeyance in the rights issue of shares during the year 2002-03<br />
iii. 2,100 shares kept in abeyance in the rights issue of shares during the year 2004-05.<br />
Post Issue (Note 2)<br />
<strong>The</strong> post Rights Issue share capital also includes 2800 shares kept in abeyance, which have not yet lapsed, in<br />
earlier isues and rights entitlement on those shares in the Rights Issue.<br />
Outstanding Instruments<br />
Employee Stock Option Scheme, 2006<br />
<strong>The</strong> shareholders of our <strong>Bank</strong> had approved the employee stock option scheme at the annual general meeting<br />
held on July 6, 2006 for grant to eligible employees upto 15,00,000 stock options in aggregate. Accordingly,<br />
stock options have been granted to eligible employees at an exercise price of Rs. 50 per share. <strong>The</strong>se stock<br />
options would vest within a period not exceeding three years in a graded manner i.e. 40%, 30% and 30%. <strong>The</strong><br />
options vested, subject to other conditions, are exercisable within a period of 5 years from the respective dates<br />
of vesting. During the year ended March 31, 2010 our <strong>Bank</strong> has provided a sum of Rs. 3,82,61,525 as employee<br />
compensation cost being the proportionate accounting value in respect of stock options.<br />
Summary of the Stock options as on February 16, 2011 is as under:<br />
Series 1 Series 2 Series 3<br />
Stock Options Granted (Gross) 978,800 11,400 517,600<br />
Less: Cancellations of Granted Options - - 2,700<br />
Stock Options Granted (Net) (A) 978,800 11,400 514,900<br />
Options vested 910,900 8,650 348,425<br />
Options exercised (B) 683,570 6,470 243,685<br />
Shares issued on exercise of options 683,570 6,470 243,685<br />
Options lapsed (C) 63,040 2,770 20,220<br />
Variation of terms of options nil nil nil<br />
Money realized by exercise of options 34,178,500 323,500 12,184,250<br />
Total number of options in force (D) = (A)-(B)-(C) 232,190 2,160 250,995<br />
Total Options Outstanding (Total of all the series of D) 485,345<br />
Person-wise details of options granted to Directors and key managerial persons<br />
None of our Directors have been granted stock options.<br />
Except as stated below, none of our key managerial persons in our <strong>Bank</strong> have been granted stock options as on<br />
the date of the filing of the Letter of Offer:<br />
Sr. No Name of the Key Managerial Personnel No. of options granted<br />
1 Shri K H Shivaswamy Aithal K H 8,000<br />
2 P Jairama Hande 8,000<br />
3 N Upendra Prabhu 8,000<br />
4 Ashok Hegde 8,000<br />
5 M V C S Karanth 8,000<br />
Promoters and Promoter Group related information<br />
39
Our <strong>Bank</strong> has no identifiable promoters. Hence, no disclosure of details in relation to their holding, pledge of<br />
shares held, acquisition of shares by the promoter and promoter group in the last one year immediately prior to<br />
the date of filing of the Letter of Offer, participation in the issue and lock-in has been made.<br />
Further, there is no shareholders agreement in place whereby any special right to appoint a director of our <strong>Bank</strong><br />
has been given to any shareholder of our <strong>Bank</strong>.<br />
Shareholding Pattern<br />
Shareholding Pattern in compliance with Clause 35 of the listing agreement as on December 31, 2010 filed with<br />
the Stock Exchanges<br />
Cate<br />
gory<br />
Code<br />
Category of<br />
shareholder<br />
Total<br />
Numbe<br />
r of<br />
shareho<br />
lders<br />
Total<br />
number of<br />
shares<br />
Number of<br />
shares held<br />
in<br />
dematerializ<br />
ed form<br />
Total shareholding<br />
as a percentage of<br />
total number of<br />
shares<br />
As a<br />
percen<br />
tage of<br />
(A+B)<br />
As a<br />
percentag<br />
e of<br />
(A+B+C)<br />
Shares pledged or<br />
otherwise encumbered<br />
Numbe<br />
r of<br />
shares<br />
As a<br />
percentage<br />
(I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX=(VIII)(<br />
IV)*100<br />
(A) Shareholding<br />
of Promoter<br />
and Promoter<br />
Group<br />
0 0 0 0 0<br />
(1) Indian 0 0 0 0 0<br />
(a) Individuals/<br />
Hindu<br />
Undivided<br />
Family<br />
0 0 0<br />
- -<br />
(b)<br />
(c)<br />
(d)<br />
Central<br />
Government/<br />
State<br />
Government(s)<br />
Bodies<br />
Corporate<br />
Financial<br />
Institutions/<br />
<strong>Bank</strong>s<br />
0 0<br />
0 0 0 0 0 0 0<br />
0 0 0<br />
0 0<br />
- -<br />
0 0 0 0 0 0 0<br />
(e) Any Other<br />
0 0 0 0 0 0 0<br />
(specify)<br />
Sub-Total<br />
0 0 0 0.00 0.00 0 0<br />
(A)(1)<br />
(2) Foreign 0 0 0 0 0<br />
(a) Individuals<br />
(Non-Resident<br />
Individuals/<br />
Foreign<br />
Individuals)<br />
0 0 0 0 0 0 0<br />
(b) Bodies<br />
0 0 0 0 0 0 0<br />
Corporate<br />
(c) Institutions 0 0 0 0 0 0 0<br />
(d) Any Other<br />
0 0 0 0 0 0 0<br />
(specify)<br />
Sub-Total<br />
0 0 0 0.00 0.00 0 0<br />
(A)(2)<br />
Total<br />
Shareholding<br />
0 0 0 0.00 0.00 0 0<br />
40
Cate<br />
gory<br />
Code<br />
Category of<br />
shareholder<br />
Total<br />
Numbe<br />
r of<br />
shareho<br />
lders<br />
Total<br />
number of<br />
shares<br />
Number of<br />
shares held<br />
in<br />
dematerializ<br />
ed form<br />
Total shareholding<br />
as a percentage of<br />
total number of<br />
shares<br />
As a<br />
percen<br />
tage of<br />
(A+B)<br />
As a<br />
percentag<br />
e of<br />
(A+B+C)<br />
Shares pledged or<br />
otherwise encumbered<br />
Numbe<br />
r of<br />
shares<br />
As a<br />
percentage<br />
(I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX=(VIII)(<br />
IV)*100<br />
of Promoter<br />
and Promoter<br />
Group<br />
(A)=<br />
(A)(1)+(A)(2)<br />
(B) Public<br />
shareholding<br />
(1) Institutions<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
(h)<br />
Mutual Funds/<br />
UTI<br />
Financial<br />
Institutions/<br />
<strong>Bank</strong>s<br />
Central<br />
Government/<br />
State<br />
Government(s)<br />
Venture<br />
Capital Funds<br />
Insurance<br />
Companies<br />
Foreign<br />
Institutional<br />
Investors<br />
Foreign<br />
Venture<br />
Capital<br />
Investors<br />
Any Other<br />
(specify)<br />
Sub-Total<br />
(B)(1)<br />
(2) Noninstitutions<br />
(a) Bodies<br />
Corporate<br />
(b) Individuals -<br />
i. Individual<br />
shareholders<br />
holding<br />
nominal share<br />
capital up to<br />
Rs. 1 lakh.<br />
ii. Individual<br />
shareholders<br />
holding<br />
nominal share<br />
capital in<br />
excess of Rs. 1<br />
9 47,02,314 47,02,314 3.50 3.50<br />
7 2,22,540 2,22,540 0.17 0.17<br />
6 46,84,102 46,84,102 3.49 3.49<br />
88 4,02,88,593 4,02,88,593 29.98 29.98<br />
110 4,98,97,549 4,98,97,549 37.12 37.12<br />
1,087 2,17,75,483 2,15,50,041 16.20 16.20<br />
87,883 4,26,96,604 2,79,30,948 31.77 31.77<br />
568 1,88,93,614 1,69,64,743 14.06 14.06<br />
41
Cate<br />
gory<br />
Code<br />
Category of<br />
shareholder<br />
Total<br />
Numbe<br />
r of<br />
shareho<br />
lders<br />
Total<br />
number of<br />
shares<br />
Number of<br />
shares held<br />
in<br />
dematerializ<br />
ed form<br />
Total shareholding<br />
as a percentage of<br />
total number of<br />
shares<br />
As a<br />
percen<br />
tage of<br />
(A+B)<br />
As a<br />
percentag<br />
e of<br />
(A+B+C)<br />
Shares pledged or<br />
otherwise encumbered<br />
Numbe<br />
r of<br />
shares<br />
As a<br />
percentage<br />
(I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX=(VIII)(<br />
IV)*100<br />
lakh.<br />
(c) Any Other<br />
(specify)<br />
Trust 7 39,864 39,864 0.03 0.03<br />
Clearing<br />
328 5,45,008 5,45,008 0.41 0.41<br />
Members<br />
NRI 549 5,58,645 5,58,645 0.42 0.42<br />
OCB - 0 0 - -<br />
Sub-Total 90,422 8,45,09,218 6,75,89,249 62.88 62.88<br />
(B)(2)<br />
Total Public 90,532 13,44,06,767 11,74,86,798 100.00 100.00<br />
Shareholding<br />
(B)=<br />
(B)(1)+(B)(2)<br />
TOTAL 90,532 13,44,06,767 11,74,86,798 100.00 100.00<br />
(A)+(B)<br />
(C) Shares held<br />
0 0 0 0 0<br />
by<br />
Custodians<br />
and against<br />
which<br />
Depository<br />
Receipts have<br />
been issued<br />
1 Held by<br />
0 0 0 0 0<br />
promoter/<br />
promoter<br />
group<br />
2 Held by<br />
0 0 0 0 0<br />
Public<br />
GRAND<br />
TOTAL<br />
(A)+(B)+(C)<br />
90,532 13,44,06,767# 11,74,86,798 100.00 100.00<br />
# Post December 31, 2010, our <strong>Bank</strong> has allotted 15,270 Equity Shares pursuant to the Employee Stock Option<br />
Scheme, 2006 (“ESOP Scheme”).<br />
Details of our Shareholders holding more than one per cent of the share capital of our <strong>Bank</strong> as on December 31,<br />
2010 is as follows:<br />
Sr. No. Name of the shareholder Number of<br />
shares<br />
42<br />
Shares as a<br />
percentage of<br />
total number<br />
of shares<br />
1 HSBC Financial Services (Middle East) Ltd 59,99,999 4.46<br />
2 Life Insurance Corporation of India 36,03,918 2.68<br />
3 Birla Sun Life Insurance Company <strong>Limited</strong> 3,18,8101 2.37<br />
4 Wellington Management Company, LLP A/C BAY POND MB 30,91,692 2.30*
Sr. No. Name of the shareholder Number of<br />
shares<br />
Shares as a<br />
percentage of<br />
total number<br />
of shares<br />
5 Franklin Templeton Investment Funds 29,11,714 2.17<br />
6 Macquarie <strong>Bank</strong> <strong>Limited</strong> 26,48,362 1.97<br />
7 Kuroto Fund Lp 24,37,914 1.81<br />
8 Kotak Mahindra Investments Ltd. 21,27,456 1.58<br />
9 Reliance Capital Trustee Company <strong>Limited</strong> 18,26,114 1.36<br />
10 Fern Health Care Pvt Ltd 17,58,829 1.31<br />
11 SBI MUTUAL FUND A/C MMPS 93 16,00,000 1.19<br />
12 Equinox Partners LP 15,00,000 1.12<br />
13 Wellington Management Company, LLP A/C BAY POND BMD MB 14,55,428 1.08*<br />
14 VIC Enterprises Private <strong>Limited</strong> 13,95,000 1.04<br />
15 Swiss Finance Corportion (Mauritius) Ltd 13,70,915 1.02<br />
TOTAL 3,69,15,442 27.47<br />
* Wellington Management Company, LLP, as on the date of the Letter of Offer, holds more than 5% of the paid up capital of<br />
our <strong>Bank</strong>. We have informed the RBI of the same vide our letters(s) dated December 30, 2010, January 05, 2011 and January<br />
18, 2011<br />
RELEVANT RBI PROVISIONS<br />
Rights issues by private sector banks – Acknowledgement of transfer / allotment of shares<br />
1) In terms of RBI Circular DBOD.No.PSBS.BC.79/16.13.100 /2001-2002 dated March 20, 2002, listed as<br />
well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue.<br />
2) While reviewing, the following issues have emerged with reference to percentage of holding at the time of<br />
rights issue:-<br />
a) When some shareholders (individuals/ entities / groups) pick up unsubscribed shares which would<br />
result in his / its holding going up as a percentage of total paid up capital of the bank.<br />
b) When Some shareholders not picking up their entitlements, holdings of the other shareholders would<br />
go up in percentage even if they pick up their own entitlements.<br />
<strong>The</strong> above matter has been examined from the point of view of applicability of RBI Circular DBOD. NO.PSBS.<br />
BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004 on acknowledgement of transfer/ allotment of shares in<br />
private sector banks and DBOD. NO. BP.BC.71/ 21.01.01/ 2004-05 dated February 28, 2005 on ownership and<br />
governance and also the regulatory limits such as the cap for the aggregate FDI/FII/NRI holdings and the 5%<br />
limit for a bank’s investment in equity of another bank.<br />
RBI has advised banks going for rights issue to make complete disclosure of the regulatory requirements in the<br />
offer documents, including the following that:<br />
i. Subscription to rights other than own entitlement will not be permitted if such subscription would result<br />
in breach of any statutory / regulatory ceilings.<br />
ii.<br />
any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or more<br />
of the paid up capital of the bank would require acknowledgement of RBI in terms of the criteria laid<br />
down in the RBI guidelines contained in the Circular DBOD. NO.PSBS. BC. 64/ 16.13.100/ 2003-04<br />
dated February 3, 2004. In terms of the guidelines on ownership and governance issued on February<br />
28, 2005 any acquisition that will take the shareholding of any entity/ group, directly or indirectly, to<br />
10% or more of the paid-up capital of the bank will require the prior approval of RBI. Further as<br />
advised by RBI vide its circular DBOD.No.PSBS.BC.182/16.13.100/99-2000 May 31, 2000, our bank<br />
had amended its Articles of Association to the effect that acquisition of shares by a person/group which<br />
would take his/its holding to a level of 5% or more of the total issued capital of our bank (or such other<br />
percentage as may be prescribed by the Reserve <strong>Bank</strong> from time to time) should be with the prior<br />
approval of Reserve <strong>Bank</strong> of India.<br />
43
iii.<br />
If the holding of any shareholder breaches any statutory / regulatory ceilings as a result of nonsubscription<br />
of rights by other shareholders, the shareholder concerned will not be able to acquire any<br />
further shares till his/ its shareholding is brought within the stipulated ceilings.<br />
Notes:<br />
1. No further issue of capital by way of issue of bonus shares, preferential allotment, rights issue or public<br />
issue or in any other manner which will affect the equity capital of our <strong>Bank</strong>, have been made during the<br />
period commencing from the filing of the Draft Letter of Offer with the SEBI till the the date of filing of<br />
this Letter of Offer with the Stock Exchange and no such issue will be made till the date on which the<br />
Equity Shares issued under the Letter of Offer are listed or application moneys are refunded on account of<br />
the failure of the Issue, except the allotment of equity shares pursuant to exercise of stock options vested in<br />
the employees.<br />
2. Further, except for (i) the allotment of Equity Shares pursuant to exercise of stock options vested pursuant<br />
to our <strong>Bank</strong>’s Employee Stock Option Scheme, at present our <strong>Bank</strong> has no intention to alter the equity<br />
capital structure by way of split/consolidation of the denomination of the shares, or issue of shares on a<br />
preferential basis or issue of bonus or rights or pubic issue of shares or any other securities for a period of<br />
six months from the date of opening of the Issue.<br />
3. <strong>The</strong> attention of the investors is drawn to section 12 (2) of the <strong>Bank</strong>ing Regulation Act, 1949, as amended<br />
which states that: “No person holding shares in the banking company shall in respect of any shares held by<br />
him, exercise voting rights on poll in excess of 10% of the total voting rights of all the shareholders of the<br />
banking company.”<br />
4. <strong>The</strong> Issue will remain open for 15 days. However, the Board will have the right to extend the Issue period<br />
as it may determine from time to time but not exceeding 30 days from the Issue Opening Date.<br />
5. At any given time, there shall be only one denomination of the Equity Shares of our <strong>Bank</strong>.<br />
44
OBJECTS OF THE ISSUE<br />
We are a banking company regulated by RBI. <strong>The</strong> RBI guidelines require us to maintain a minimum Capital<br />
Adequacy Ratio of 9% subject to a minimum Tier I capital adequacy ratio of 6%. As per our six month financial<br />
statements for period ended September 30, 2010, our total capital adequacy ratio under Basel I was 11.41% and<br />
Based II was 11.71%. However, considering the future growth plans and increase in risk weighted assets, our<br />
<strong>Bank</strong> would require additional capital to meet the Basel II norms.<br />
<strong>The</strong> objects of the Issue are to augment our capital base to meet the capital requirements and growth in our<br />
assets, primarily our loan and investment portfolio, compliance with regulatory requirements including meeting<br />
the expenses of the Issue.<br />
<strong>The</strong> main objects clause and the objects incidental or ancillary to the main objects clause of our Memorandum<br />
of Association enable us to undertake our existing activities. Further, the main objects of our <strong>Bank</strong> enable us to<br />
carry on the activities for which the funds are being raised by us in the Issue.<br />
Requirement and Sources of Funds<br />
Particulars<br />
Amount<br />
(Rs. in Crores)<br />
Augment our capital base to meet our capital adequacy requirements arising out of growth 453.46<br />
in our business<br />
Estimated Issue expenses 3.58<br />
Net Proceeds 457.04<br />
<strong>The</strong> stated Objects of the Issue are proposed to be financed entirely from the Proceeds of the Issue. <strong>The</strong>refore,<br />
excluding the amount to be raised through proposed Rights issue, there is no requirement of firm arrangements<br />
of finance.<br />
(a)<br />
Augment our capital base to meet our capital adequacy requirements arising out of growth in our<br />
businesses<br />
As we are engaged in the business of banking, we are seeking to strengthen our capital base to support the future<br />
growth in our assets and comply with the capital adequacy requirements applicable to us.<br />
(b)<br />
Estimated Issue Expenses<br />
<strong>The</strong> total expenses of the Issue are estimated to be approximately Rs. 3.58 Crores. <strong>The</strong> Issue related expenses<br />
include, among others, Issue management fees, Registrar fees, printing and distribution expenses, fees of the<br />
legal counsels, advertisement, listing fees to the Stock exchanges etc. <strong>The</strong> break-up of total issue expenses is as<br />
under:<br />
Category<br />
Estimated expenses<br />
(Rs. In Crores)<br />
% of the Issue<br />
Expenses<br />
% of total<br />
Issue Size<br />
Fees to the Lead Manager 0.66 18.44 0.14<br />
Fees to the Registrar to the Issue 0.26 7.26 0.06<br />
Fees to the Legal advisors 0.20 5.59 0.04<br />
Fees to the Auditors 0.06 1.68 0.01<br />
Advertising and Publicity Expenses 0.50 13.97 0.11<br />
Printing, Postage, Stationery Expenses 1.08 30.16 0.24<br />
Contingency, Stamp duty, Listing Fees, etc 0.82 22.90 0.18<br />
Total 3.58 100.00 0.78<br />
Monitoring of Utilisation of Funds<br />
Pursuant to Regulation 16 of the SEBI ICDR Regulations, our <strong>Bank</strong> is not required to appoint a monitoring<br />
agency. Our Board will monitor the use of the proceeds of this Issue as per clause 49 of the listing agreement.<br />
45
STATEMENT OF TAX BENEFITS<br />
To,<br />
<strong>The</strong> Board of Directors,<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
P.B. No. 599, Mahaveera Circle,<br />
Kankanady,<br />
Mangalore - 575 002<br />
<strong>Karnataka</strong><br />
Dear Sir,<br />
We hereby confirm that the information provided below states the possible direct tax benefits available to<br />
<strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong> (“<strong>The</strong> <strong>Bank</strong>”) and its shareholders under the current direct tax laws presently in force<br />
in India. Several of these benefits are dependent on the <strong>Bank</strong> or its shareholders fulfilling the conditions<br />
prescribed under the relevant provisions of the tax law. Hence, the ability of the <strong>Bank</strong> or its shareholders to<br />
derive tax benefits is dependent upon fulfilling such conditions, which based on business imperatives, the <strong>Bank</strong><br />
or its shareholders may or may not choose to fulfill.<br />
<strong>The</strong> benefits discussed below are not exhaustive. We are informed that this statement is only intended to provide<br />
general information to the investors and hence is neither designed nor intended to be a substitute for professional<br />
tax advice. In view of the individual nature of tax consequences and the changing tax provisions, each investor<br />
is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of<br />
their participation in the issue.<br />
Unless otherwise specified, sections referred to below are sections of the Income-tax Act, 1961 (“<strong>The</strong> Act”).<br />
<strong>The</strong> Income-tax rates referred here are the existing tax rates based on the rates prescribed in the Finance Act,<br />
2010 for the Financial Year 2010-11. All the provisions set out below are subject to conditions specified in the<br />
respective sections.<br />
<strong>The</strong> below mentioned contents are based on information, explanations and representations obtained from the<br />
<strong>Bank</strong> and on the basis of our understanding of the business activities and operations of the <strong>Bank</strong> and the<br />
interpretation of tax laws presently in force in India.<br />
We do not express any opinion or provide any assurance as to whether:<br />
<strong>The</strong> <strong>Bank</strong> or its shareholders will continue to obtain these benefits in future; or<br />
<strong>The</strong> conditions prescribed for availing the benefits, where applicable have been/ would be met.<br />
46
I. INCOME-TAX ACT, 1961<br />
A. TO THE BANK<br />
(i)<br />
Special Tax Benefits:<br />
1. As per the provisions of section 36(1)(iiia) the Act, the <strong>Bank</strong> is entitled to deduction in respect<br />
of prorata amount of discount on a zero coupon bond, having regard to the period of life of<br />
such bond, calculated in the manner as may be prescribed by rules in this behalf. Zero coupon<br />
bond is defined under section 2(48) of the Act to mean a bond issued by any infrastructure<br />
capital company or infrastructure capital fund or public sector company or scheduled bank on<br />
or after 1.6.2005 in respect of which no payment and benefit is received or receivable before<br />
maturity or redemption from infrastructure capital company/fund or public sector company or<br />
scheduled bank and which is notified by the Central Government in this behalf.<br />
2. Under section 36(1)(vii), any bad debt or part thereof written off as irrecoverable in the<br />
accounts of the <strong>Bank</strong> is allowable as a deduction from the <strong>Bank</strong>’s total income. However<br />
deduction is limited to the amount by which such bad debts or part thereof, exceeds the credit<br />
balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of<br />
the Act, and further subject to compliance with section 36(2)(v) of the Act which requires that<br />
such debt or part thereof should have been debited to the provision for bad and doubtful debts<br />
account.<br />
3. Under section 36(1)(viia) of the Act, a deduction is allowable in respect of any provision<br />
made for bad and doubtful debts, by an amount not exceeding 7.5% of total income (computed<br />
before making any deduction under this section and Chapter VIA) and an amount not<br />
exceeding 10% of the aggregate average advances made by rural branches of the <strong>Bank</strong>.<br />
As per the third proviso to the section and subject to the conditions specified therein, the <strong>Bank</strong><br />
at its option is allowed a further deduction for an amount not exceeding the income derived<br />
from redemption of securities in accordance with a scheme framed by the Central<br />
Government.<br />
4. In terms of section 36(1) (viii) of the Act, the bank is allowed deduction at 20% of the profits<br />
derived from the business of long term finance for industrial or agricultural development or<br />
development of infrastructure facility in India or development of housing in India computed in<br />
the manner specified under the section and carried to the Special Reserve account from time to<br />
time not exceeding twice the paid-up capital and general reserves. <strong>The</strong> amount withdrawn<br />
from such a Special Reserve Account would be chargeable to income tax in the year of<br />
withdrawal, in accordance with the provisions of section 41(4A) of the Act.<br />
5. In terms of section 43D of the Act, interest on certain categories of bad and doubtful debts as<br />
specified in Rule 6EA of the Income-tax Rules, 1962, shall be chargeable to tax only in the<br />
year of receipt or credit to Profit and Loss Account, whichever is earlier.<br />
(ii)<br />
General Tax Benefits<br />
6. As per provisions of Section 10(15)(i) of the Act, income by way of interest, premium on<br />
redemption or other payment on securities, bonds, annuity certificates, savings certificates,<br />
other certificates issued by the Central Government and deposits as notified by the Central<br />
Government in the Official Gazette is exempt from tax, subject to such conditions and limits<br />
as may be specified by Central Government in this behalf.<br />
7. Under section 10(15)(vii) of the Act, interest on bonds issued by a local authority or by a State<br />
Pooled Finance Entity and specified by the Central Government by notification in the Official<br />
Gazette is exempt from tax. For the purpose of this section, “State Pooled Finance Entity”<br />
means such entity which is set up in accordance with the guidelines for the Pooled Finance<br />
Development Scheme notified by the Central Government in the Ministry of Urban<br />
Development.<br />
47
8. Dividends earned by the <strong>Bank</strong> are exempt from tax in accordance with and subject to the<br />
provisions of section 10(34) read with section 115-O of the Act. However, as per section 94(7)<br />
of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within<br />
three months prior to the record date and sold within three months from the record date, will<br />
be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.<br />
9. Income earned by the <strong>Bank</strong> from investment in units of a specified Mutual Fund is exempt<br />
from tax under section 10(35) of the Act. However, as per section 94(7) of the Act, losses<br />
arising from the sale/ redemption of units purchased within three months prior to the record<br />
date (for entitlement to receive income) and sold within nine months from the record date, will<br />
be disallowed to the extent such loss does not exceed the amount of income claimed exempt.<br />
Further, as per section 94(8) of the Act, if an investor purchases units within three months<br />
prior to the record date for entitlement of bonus and is allotted bonus units without any<br />
payment on the basis of holding original units on the record date and such person sells/<br />
redeems the original units within nine months of the record date, then the loss arising from<br />
sale/ redemption of the original units will be ignored for the purpose of computing income<br />
chargeable to tax and the amount of loss ignored shall be regarded as the cost of acquisition of<br />
the bonus units.<br />
10. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to<br />
incomes which do not form part of the total income under the Act. Thus, any expenditure<br />
incurred to earn tax exempt income is not tax deductible expenditure.<br />
11. Under the provisions of section 43(5) (d) of the Act, an eligible transaction in respect of<br />
trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts<br />
(Regulation) Act, 1956, carried out in a recognized stock exchange is not deemed to be a<br />
speculative transaction. An eligible transaction is defined to mean any transaction carried out<br />
electronically on screen-based systems through a stock broker or sub-broker or such other<br />
intermediary and which is supported by a time stamped contract note issued by such stock<br />
broker or sub-broker or such other intermediary to every client indicating in the contract note<br />
the unique client identity number and permanent account number.<br />
12. In case of loss under the head “Profit and Gains from Business or Profession (Non<br />
Speculative)”, it can be set-off against other income and the excess loss after set-off can be<br />
carried forward for set-off against Business Income of the next eight Assessment Years in<br />
terms of provisions of section 70, 71 & 72 of the Act.<br />
13. <strong>The</strong> unabsorbed depreciation, if any, can be adjusted against any other income and can be<br />
carried forward for set-off against the income of future years as per the provisions of section<br />
32 of the Act.<br />
14. From assessment year beginning 1st April, 2010, the amount of tax paid under Section 115JB<br />
of the Act by the <strong>Bank</strong> for any assessment year beginning on or after 1st April 2006 will be<br />
available as credit for ten years succeeding the Assessment Year in which MAT credit<br />
becomes allowable in accordance with the provisions of section 115JAA of the Act.<br />
B. TO THE SHAREHOLDERS OF THE BANK<br />
(i)<br />
Special Tax Benefits<br />
<strong>The</strong>re are no special tax benefits available to the shareholders of the <strong>Bank</strong>.<br />
(ii)<br />
General Tax Benefits<br />
a) RESIDENTS:<br />
1. Dividends earned on shares of the <strong>Bank</strong> are exempt from tax in accordance with and subject to<br />
the provisions of section 10(34) read with section 115-O of the Act. However, as per section<br />
48
94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased<br />
within three months prior to the record date and sold within three months from the record date,<br />
will be disallowed to the extent such loss does not exceed the amount of dividend claimed<br />
exempt.<br />
2. Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of <strong>Bank</strong>s<br />
share is fully exempt from tax in accordance with the provision of section 10(38) of the Act<br />
where the sale is made on or after October 1, 2004 on a recognized stock exchange and<br />
transaction is chargeable to securities transaction tax.<br />
3. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to<br />
incomes which do not form part of the total income under the Act. Thus, any expenditure<br />
incurred to earn tax exempt income is not tax deductible expenditure.<br />
4. Under section 36(1)(xv) of the Act, securities transaction tax paid by a shareholder in respect<br />
of taxable securities transactions entered into in the course of its business, would be allowed<br />
as a deduction if the income arising from such taxable securities transactions is included in the<br />
income computed under the head “profit and gains of business or profession”.<br />
5. Under section 54EC of the Act, long term capital gain arising on sale of <strong>Bank</strong>`s share {other<br />
than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is<br />
invested in certain notified bonds within a period of six months from the date of such transfer<br />
(up to a maximum limit of Rs 50 lakhs) and held for a minimum period of three years.<br />
000<br />
6. Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale<br />
of <strong>Bank</strong>’s share {other than sale referred to in section 10(38) of the Act is exempt from tax if<br />
the net consideration is invested to purchase a residential house property within a period of<br />
one year before or two years after the date of sale/ transfer or invested in the construction of a<br />
residential house property within a period of three years after the date of sale/transfer. If only<br />
a part of the net consideration is invested in the new asset then the exemption will be available<br />
proportionately.<br />
7. Taxable long term capital gains would arise [if not exempt under section 10(38) or any other<br />
section of the Act] to a resident shareholder where the equity shares are held for a period of<br />
more than 12 months prior to the date of transfer of the shares. In accordance with and subject<br />
to the provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the<br />
following amounts would be deductible from the full value of consideration:<br />
(a)<br />
(b)<br />
Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index<br />
notified by the Central Government; and<br />
Expenditure incurred wholly and exclusively in connection with the transfer of shares<br />
8. Under section 111A of the Act, Short term capital gains on the transfer of equity shares, where<br />
the shares are held for a period of not more than 12 months would be taxed at 15% (plus<br />
applicable surcharge and education cess), where the sale is made on or after October 1, 2004<br />
on a recognized stock exchange and the transaction is chargeable to securities transaction tax.<br />
In all other cases, the short term capital gains would be taxed at the normal rates of tax (plus<br />
applicable surcharge and education cess). Cost indexation benefits would not be available in<br />
computing tax on short term capital gain.<br />
9. Under section 112 of the Act, long-term capital gains are subject to tax at a rate of 20% (plus<br />
applicable surcharge and cess) after indexation, as provided in the second proviso to section<br />
48 of the Act. However, in case of listed securities or units, the amount of such tax could be<br />
limited to 10% (plus applicable surcharge and cess), without indexation, at the option of the<br />
shareholder in cases where securities transaction tax is not levied.<br />
10. From assessment year beginning 1st April, 2010, the amount of tax paid under section 115JB<br />
of the Act by the Corporate Assessee for any assessment year beginning on or after 1st April<br />
49
2006 will be available as credit for ten years succeeding the Assessment Year in which MAT<br />
credit becomes allowable in accordance with the provisions of section 115JAA of the Act.<br />
11. In accordance with the provisions of section 56(1)(vii) of the Act, If an individual or HUF<br />
receives any shares, without consideration, the aggregate fair market value of which exceeds<br />
Rs.50,000, the whole of the fair market value of such shares will be considered as income in<br />
the hands of the recipient. Similarly, if an individual or HUF receives any shares for<br />
consideration which is less than the fair market value of the shares by an amount exceeding<br />
Rs.50000, the fair market value of such shares as exceeds the consideration will be considered<br />
as income in the hands of the recipient. However, the above ceilings of Rs.50,000 shall not<br />
apply to any shares received from any relative (as given in Explanation to clause (vi) of subsection<br />
(2) of Section 56 of the Act) or on the occasion of the marriage of the individual or<br />
under a will or by way of inheritance or in contemplation of death of the payer or donor, as the<br />
case may be or from any local authority as defined in the explanation to section 10(20) of the<br />
Act or from any fund or foundation or university or other educational institution or hospital or<br />
other medical institution or any trust or institution referred to in clause (23C) of section 10 of<br />
the Act or from any trust or institution registered under section 12AA of the Act.<br />
b) NON-RESIDENT SHAREHOLDERS INCLUDING NON RESIDENT INDIANS (NRIs) AND<br />
FOREIGN INSTITUTIONAL INVESTORS (FIIs):<br />
1. Dividends earned on shares of the <strong>Bank</strong> are exempt in accordance with and subject to the<br />
provisions of section 10(34) read with Section115-O of the Act. However, as per section 94(7)<br />
of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within<br />
three months prior to the record date and sold within three months from the record date, will<br />
be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.<br />
2. Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of <strong>Bank</strong>’s<br />
share is fully exempt from tax in accordance with the provisions of section 10(38) of the Act,<br />
where the sale is made on or after October, 1 2004 on a recognized stock exchange and the<br />
transaction is chargeable to securities transaction tax.<br />
3. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to<br />
incomes which do not form part of the total income under the Act. Thus, any expenditure<br />
incurred to earn tax exempt income is not tax deductible expenditure.<br />
4. Under section 36(1)(xv) of the Act, securities transaction tax paid by a shareholder in respect<br />
of taxable securities transactions entered into in the course of its business, would be allowed<br />
as a deduction if the income arising from such taxable securities transactions is included in the<br />
income computed under the head “Profit and gains of business or profession.<br />
5. Under section 54EC of the Act, long term capital gain arising on sale of <strong>Bank</strong>`s share {other<br />
than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is<br />
invested in certain notified bonds within a period of six months from the date of such transfer<br />
(upto a maximum limit of Rs 50 lakhs) and held for a minimum period of three years.<br />
6. Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale<br />
of the <strong>Bank</strong>’s shares [other than the sale referred to in section 10(38) of the Act], is exempt<br />
from tax if the net consideration is invested to purchase a residential house property within a<br />
period of one year before or two years after the date of sale/ transfer or invested in the<br />
construction of a residential house property within a period of three years after the date of<br />
sale/transfer. If only a part of the net consideration is invested in the new asset then the<br />
exemption will be available proportionately.<br />
7. Long term capital gains would arise [if not exempt under section 10(38) or any other section<br />
of the Act] to a non-resident shareholder where the equity shares are held for a period of more<br />
than 12 months prior to the date of transfer of the shares. In accordance with and subject to the<br />
provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the<br />
following amounts would be deductible from the full value of consideration:<br />
50
00<br />
(a)<br />
(b)<br />
Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index<br />
notified by the Central Government; and<br />
Expenditure incurred wholly and exclusively in connection with the transfer of the<br />
shares<br />
Section 48 of the Act further provides that capital gains arising from the transfer of equity<br />
shares acquired by the non-resident in foreign currency, are to be computed by converting the<br />
cost of acquisition/ improvement, expenditure incurred wholly and exclusively in connection<br />
with such transfer and the full value of the consideration received or accruing as a result of<br />
transfer of the capital asset into the same foreign currency as was initially utilized in the<br />
purchase of the shares and the capital gains so computed in such foreign currency shall be<br />
reconverted into Indian currency. Indexation will not be available in this case.<br />
8. Under Section 111A of the Act, Short term capital gains on the transfer of equity shares,<br />
where the shares are held for a period of not more than 12 months would be taxed at 15%<br />
(plus applicable surcharge and education cess), where the sale is made on or after October 1,<br />
2004 on a recognized stock exchange and the transaction is chargeable to securities<br />
transaction tax. In all other cases, the short term capital gains would be taxed at the normal<br />
rates of tax (plus applicable surcharge and education cess). Cost indexation benefits would not<br />
be available in computing tax on short term capital gain.<br />
9. Under section 112 of the Act, long-term capital gains are subject to tax at a rate of 20% (plus<br />
applicable surcharge and cess) after indexation, as provided in the second proviso to section<br />
48 of the Act. However, in case of listed securities or units, the amount of such tax could be<br />
limited to 10% (plus applicable surcharge and cess), without indexation, at the option of the<br />
shareholder in cases where securities transaction tax is not levied.<br />
10. Option available to Non-resident Indian[s] (NRI) as per Chapter XII-A of the Act:<br />
(i)<br />
(ii)<br />
(iii)<br />
(iv)<br />
Under section 115E of the Act, long term capital gains arising to a NRI on transfer of<br />
specified capital assets (including on the <strong>Bank</strong>`s equity share) are taxable at the rate<br />
of 10% (plus education cess) without indexation. Short-term capital gains are<br />
however, taxable at the normal rates of tax.<br />
Under section 115F of the Act, long-term capital gains arising to a NRI from the<br />
transfer of shares of the <strong>Bank</strong> subscribed to in convertible foreign exchange shall be<br />
exempt from tax, if the net consideration is reinvested in specified asset or in any<br />
savings certificate as defined by section 10(4B) of the Act, within six months of the<br />
date of transfer. If only part of the net consideration is so reinvested, the exemption<br />
shall be proportionately reduced. <strong>The</strong> amount so exempted shall be chargeable to tax<br />
subsequently, if the specified assets are transferred or converted into money within<br />
three years from the date of their acquisition.<br />
Under section 115G of the Act, a NRI is not required to file a return of income under<br />
section 139(1) of the Act, if his only income is from foreign exchange asset<br />
investments or long-term capital gains in respect of those assets or both, provided<br />
that tax has been deducted at source from such income as per the provisions of<br />
Chapter XVII-B of the Act.<br />
As per the provisions of section 115-I of the Act, a NRI may elect not to be governed<br />
by the provisions of Chapter XII-A for any assessment year by furnishing his return<br />
of income for that assessment year under section 139 of the Act to the effect that the<br />
provisions of Chapter XII-A shall not apply to him for that assessment year and<br />
accordingly his total income for that assessment year will be computed and tax on<br />
such total income shall be charged in accordance with the other provisions of the Act.<br />
11. As per section 115AD of the Act, long term capital gains arising on transfer of shares<br />
purchased by FIIs, are taxable at the rate of 10% (plus applicable surcharge and education<br />
cess) if such long term capital gains are not exempt under section 10(38) of the Act.<br />
51
Short term capital gains earned by FIIs are taxable at the rate of 15% (plus applicable<br />
surcharge and education cess) if the transaction is chargeable to securities transaction tax<br />
[proviso to section 115AD(1)(ii)]. In all other cases the short term capital gains shall be taxed<br />
at 30% (plus applicable surcharge and education cess). Indexation benefits are not available.<br />
Further, the provisions of the first proviso of section 48 of the Act will not apply.<br />
000<br />
12. Under section 195 of the Act, dividends paid by the <strong>Bank</strong> in accordance with the provisions of<br />
Section 115-O of the act, are not subject to deduction of tax at source.<br />
13. Under Section 196D of the Act, no deduction of tax at source shall be made in respect of<br />
capital gains arising on sale proceeds to FIIs on transfer of shares.<br />
14. Under section 90(2) of the Act, the provisions of the Act would prevail over the provisions of<br />
the Double tax avoidance agreement (tax treaty) entered into between India and the country of<br />
physical domicile of the non-resident, if any, to the extent they are more beneficial to the nonresident.<br />
Thus, a non-resident (including NRIs) can opt to be governed by the provisions of<br />
the Act or the applicable tax treaty, whichever is more beneficial.<br />
3. MUTUAL FUNDS<br />
Under section 10(23D) of the Act, exemption is available in respect of income (including capital gains<br />
arising on transfer of shares of the <strong>Bank</strong>) of a Mutual Fund registered under the Securities and<br />
Exchange Board of India Act, 1992 or such other Mutual fund set up by a public sector bank or a<br />
public financial institution or authorized by the Reserve <strong>Bank</strong> of India and subject to the conditions as<br />
the Central Government may specify by notification.<br />
II. WEALTH TAX ACT, 1957<br />
Notes:<br />
Shares are not treated as assets within the meaning of Section 2(ea) of the Wealth-tax Act, 1957.<br />
Accordingly, shares purchased in the issue are not liable to Wealth-tax in the hands of the shareholders.<br />
1. <strong>The</strong> above statement of possible tax benefits sets out the provisions of the direct tax law in a summary<br />
manner only and is not a complete analysis or list of all potential tax consequences of the purchase,<br />
ownership and disposal of shares.<br />
2. <strong>The</strong> stated benefits will be available only to the sole/ first named holder in case the shares are held by<br />
joint holders.<br />
3. In respect of non-residents, the tax rates and the consequent taxation mentioned above shall be further<br />
subject to any benefits available under the tax treaty, if any, between India and the country in which the<br />
non-resident has fiscal domicile.<br />
4. No assurance is given that the Revenue authorities / Courts will concur with the view expressed herein.<br />
Our view is based on the existing provisions of law and its interpretation which is subject to change<br />
from time to time. We do not assume responsibility to update our view consequent to such changes.<br />
for Vishnu Daya & Co.,<br />
Chartered Accountants<br />
F.R.No.-008456S<br />
(Venkatesh Kamath S V.)<br />
Partner<br />
for R.K. Kumar & Co.,<br />
Chartered Accountants<br />
F.R.No.-001595S<br />
(B.R.Ashok)<br />
M.No.023313<br />
Date: January 24, 2011<br />
Place: Bangalore<br />
52
REGULATIONS AND POLICIES<br />
<strong>The</strong> main legislation governing commercial banks in India is the <strong>Bank</strong>ing Regulation Act, 1949. Other<br />
important laws include RBI Act, 1932, the Negotiable Instruments Act, 1881 and the <strong>Bank</strong>er’s Books Evidence<br />
Act, 1891. Additionally, RBI, from time to time, issues guidelines to be followed by the banks. Compliance<br />
with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. <strong>Bank</strong>ing<br />
companies are also subject to the purview of the Companies Act and if such companies are listed on a stock<br />
exchange in India then various regulations of SEBI would additionally apply to such companies.<br />
No new regulations are applicable for the proposed objects of the issue since the objects are to augment our<br />
capital base to meet our capital adequacy requirements arising out of growth in our business.<br />
53
HISTORY OF OUR BANK AND OTHER CORPORATE MATTERS<br />
Our <strong>Bank</strong> was incorporated on February 18, 1924 as <strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong> at Mangalore in <strong>Karnataka</strong><br />
state to cater to the banking needs of the South Kanara Region. <strong>The</strong> certificate to commence business was<br />
obtained on May 23, 1924. Towards achievement of this, our <strong>Bank</strong> is committed to the best practices in<br />
corporate governance to protect the interest of shareholders, depositors and customers.<br />
Our <strong>Bank</strong> was promoted by Late Shri B.R. Vysarayachar and other leading members of the South Kanara<br />
Region. Under the able guidance of Shri K.S.N. Adiga, the second Chairman of our <strong>Bank</strong> who held the post for<br />
a period of 21 years, our <strong>Bank</strong> made significant progress thereby providing a strong foundation and as a result<br />
grew in stature in terms of number of branches, deposits, advances etc. Over the years, our <strong>Bank</strong> grew with the<br />
merger of Sringeri Sharada <strong>Bank</strong> <strong>Limited</strong>, Chitladurg <strong>Bank</strong> <strong>Limited</strong> and <strong>Bank</strong> of <strong>Karnataka</strong>. At present our<br />
<strong>Bank</strong> provides a wide gamut of financial services to cater to the needs of trade, industry, commerce and<br />
agriculture. Our <strong>Bank</strong> has set its vision statement to be ‘A technology savvy, customer centric progressive <strong>Bank</strong><br />
with a national presence, driven by highest standards of corporate governance and guided by sound ethical<br />
values’.<br />
Key Milestones of our <strong>Bank</strong><br />
Year<br />
Milestone/Achievements<br />
1995 Public cum Rights Issue aggregating Rs. 81 Crores<br />
1998-99 Platinum Jubilee Year<br />
2000 Signed Memorandum of Understanding with Infosys Technologies for implementation of<br />
FINACLE - Core <strong>Bank</strong>ing Solution<br />
2000 First FINACLE branch operationalized<br />
2002 Maiden Bonus Issue of shares in the ratio 1:1<br />
2002 Pact with Corporation <strong>Bank</strong> for sharing ATM’s<br />
2002 <strong>Bank</strong> took up Corporate Agency for distribution of products of MetLife Insurance Co.<br />
2003 Rights Issue in the ratio 1:2 aggregating Rs. 33.72 Crores<br />
2003 Registered and Head Office of our <strong>Bank</strong> shifted to the present premises.<br />
2003 <strong>Bank</strong> took up Corporate Agency for distribution of products of Bajaj Allianz General Insurance<br />
Co <strong>Limited</strong><br />
2003 <strong>Bank</strong>s ATM Moneyplant launched<br />
2004 Completion of FINACLE at 200 branches<br />
2005<br />
Launching <strong>Bank</strong>`s internet. <strong>Bank</strong> was the 19 th Best bank as per KPMG Survey<br />
2005<br />
Rights issue of equity shares aggregating Rs. 161.83 Crores in March 2005<br />
2006 Tie up with Franklin Templeton (I) Private <strong>Limited</strong> for distribution of their mutual funds.<br />
2007 <strong>Bank</strong> signed Memorandum of undertaking with Allahabad <strong>Bank</strong>, Indian Overseas <strong>Bank</strong>,<br />
Sompo Japan Insurance Inc. and Dabur Investment Corporation to form a Joint Venture for<br />
undertaking General Insurance business<br />
2008 100% net working of branches under core banking platform.<br />
2009 Our <strong>Bank</strong> won the prestigious Sun and NDTV Green IT award instituted by Sun Microsystems<br />
and NDTV for use of eco efficient green technologies to run business.<br />
2010 <strong>Bank</strong> issued shares under Qualified Institutions Placement (QIP)<br />
<strong>Bank</strong> bagged "Special Award for use of IT for Internal effectiveness” for the year 2009,<br />
instituted by Institute for Development and Research in <strong>Bank</strong>ing Technology (IDRBT).<br />
Our Main Objects<br />
<strong>The</strong> main objects of our <strong>Bank</strong> as per our Memorandum of Association are as under:<br />
a) To establish and carry on the business of our <strong>Bank</strong>, where of the Head office or place of business shall<br />
be in Mangalore with such branches or agencies as may from time to time be determined upon.<br />
54
) To carry on the business of banking in all its branches and departments including the borrowing or<br />
raising or taking up of money, the discounting, buying and selling of and dealing in Government<br />
securities, bills of exchange, hundies, promissory notes and other negotiable and transferable<br />
instruments and securities, the granting and issuing of letters of credit and circular notes, buying and<br />
selling of the and dealings in bullion and specie, such as gold, silver etc , the negotiating of loans and<br />
advances, the receiving of money and valuables on deposit, or for safe custody or otherwise the lending<br />
or advancing of money on promotes, on the security of jewels, Government Securities, Port Trust<br />
Bonds, Municipal debentures, shares or debentures of any other companies, insurance policies , or<br />
other valuable securities, or merchandise or any other movable property and also on the security of<br />
immovable property, by deposit of title deeds or otherwise the collecting and transmitting of money<br />
and securities and the transacting of all kinds of agency business, commonly transacted by <strong>Bank</strong>ers.<br />
c) To take or acquire the whole or any part of any business similar to that this <strong>Bank</strong> or any business which<br />
this <strong>Bank</strong> is authorized to carry on and such other business which is capable of being conducted to the<br />
benefit directly or indirectly of this <strong>Bank</strong>.<br />
d) To purchase or otherwise acquire any sites with or without building thereon, erect or construct<br />
buildings and repair and improve them for the purpose of investment or otherwise as may be<br />
determined upon.<br />
e) Generally to purchase, take on lease or in Exchange, hire or otherwise acquire any immovable or<br />
movable property and any rights or privileges which our <strong>Bank</strong> may think necessary or convenient with<br />
reference to any of the objects, for which is established or acquisition of which may seem calculated to<br />
facilitate to the realization of any securities held by our <strong>Bank</strong> or to prevent or diminish any<br />
apprehended loss or liability.<br />
f) To take shares or otherwise acquire shares in <strong>Bank</strong>ing Companies or in other joint stock business<br />
companies or guaranteed corporations at the discretion of the Directors.<br />
g) To encourage, assist and finance any and every description of financial, commercial, mercantile,<br />
industrial, manufacturing and agency business undertakings, and operations at the discretion of the<br />
Directors.<br />
h) To take or concur in the taking up of all such steps and proceedings as may seem best calculated to<br />
uphold and support the credit of our <strong>Bank</strong>.<br />
i) To establish and support or aid in the establishment and support of associations, institutions, funds,<br />
trusts, and conveniences calculated to benefit employees or ex employees of our <strong>Bank</strong>, or the<br />
dependents or connections of such persons, to grant pensions and allowances and to make payments<br />
towards insurance and to set apart and appropriate from the annual net profits, towards the general,<br />
mental, moral and physical advancement of the members of the Dravida Brahmin Community, such<br />
sums as may be deemed fit.<br />
j) To sell and dispose of the entire undertaking of our <strong>Bank</strong> but not part of it only for such consideration<br />
as our <strong>Bank</strong> may think fit either for cash or shares, debentures, or securities of any other company<br />
having objects all together or in part similar to those of this <strong>Bank</strong>.<br />
k) To sell, manage, develop, exchange, lease, mortgage, dispose of, turn to account, or otherwise deal<br />
with all or any part of the property and rights of the bank.<br />
l) To do all or any of the above things as principals, agents, contractors, trustees or otherwise and by or<br />
through trustees, agents or otherwise.<br />
m) To do all such other things as are incidental or conducive to the attainments of the above objects.<br />
n) To engage in all or any one or more of the forms of business enumerated in Section 6 (1) of the<br />
<strong>Bank</strong>ing Regulation Act, 1949.<br />
o) To open, establish, maintain and operate currency chests and small coins depots on such terms and<br />
conditions as may be required by the Reserve <strong>Bank</strong> of India established under the Reserve <strong>Bank</strong> of<br />
55
India Act, 1934, and enter into all administrative or other arrangements for undertaking such functions<br />
with the Reserve <strong>Bank</strong> of India.<br />
<strong>The</strong> main object clause of the Memorandum of Association of our <strong>Bank</strong> enables it to undertake the activities for<br />
which the funds are being raised and the activities which it has been carrying on till date. <strong>The</strong>re have been no<br />
changes in object clause since the previous rights issue of bank in the year 2005.<br />
Corporate Structure<br />
- (2)<br />
56
OUR MANAGEMENT<br />
As per the Articles of Association of our <strong>Bank</strong>, our <strong>Bank</strong> must have a minimum of 3 and a maximum of 15<br />
Directors. At present, our <strong>Bank</strong> has 11 Directors. <strong>The</strong> constitution of our Board conforms to sections 10A and<br />
10B of <strong>Bank</strong>ing Regulation Act, 1949 and the Corporate Governance requirements under clause 49 of the listing<br />
agreement/s entered into with the Stock Exchanges. As on date, we have 1 Executive and 10 Non Executive<br />
Directors. Out of 10 Non Executive Directors, 9 are Independent. <strong>The</strong> following table sets forth our Board of<br />
Directors.<br />
<strong>The</strong> following table sets forth details regarding the Board of Directors as on the date of this Letter of Offer:<br />
Name, Father’s Name,<br />
Address, Designation and<br />
DIN<br />
Mr. Ananthakrishna<br />
S/o Mr. Narayana Rao<br />
G-6, Swarna Deepa Apartments,<br />
Church Road, Bejai, Mangalore -<br />
575 004<br />
Part time - Non Executive<br />
Chairman and Non Independent<br />
Nationality Age Other<br />
Directorships<br />
Indian 63 • Universal<br />
Sompo<br />
General<br />
Insurance Co.<br />
<strong>Limited</strong><br />
• Indian<br />
Institute of<br />
<strong>Bank</strong>ing and<br />
Finance<br />
Date of<br />
Appointment<br />
Date of<br />
Completion<br />
of Term#*<br />
July 13, 2009 July 12, 2012<br />
(Term as Non<br />
Executive<br />
Chairman for<br />
three years)<br />
DIN: 00018423<br />
Mr. P. Jayarama Bhat<br />
S/o Mr. Vasudeva Bhat<br />
Chaitanya, Manjushree Layout,<br />
Kadri Temple Road, Mangalore -<br />
575 002<br />
Indian 58 Nil July 13, 2009 July 12, 2012<br />
(Term as<br />
Managing<br />
Director for<br />
three years)<br />
Managing Director and Chief<br />
Executive Officer, Non<br />
Independent<br />
DIN: 00041500<br />
Mr. S.R. Hegde<br />
S/o Mr. Ramakrishna Hegde<br />
D1-707, White House, 6th Main,<br />
15th Cross,<br />
R T Nagar, Bangalore 560 032<br />
Non Executive and Independent<br />
Director<br />
Indian 68 Nil March 26,<br />
2005<br />
March 25,<br />
2013<br />
DIN: 00018648<br />
Mr. R.V. Shastri<br />
S/o Mr. Venkatarama Shastri<br />
Flat No B- 2-4, Oakyard, 8th<br />
Indian 65 • National<br />
Housing <strong>Bank</strong><br />
• Nagarjuna<br />
Construction<br />
Company<br />
January 28,<br />
2006<br />
January 27,<br />
2014<br />
57
Name, Father’s Name,<br />
Address, Designation and<br />
DIN<br />
Cross, East End<br />
Main, 9th Block, Jayanagar,<br />
Bangalore 560 069<br />
Non Executive and Independent<br />
Director<br />
Nationality Age Other<br />
Directorships<br />
<strong>Limited</strong><br />
• Religare<br />
Trustee<br />
Company<br />
<strong>Limited</strong><br />
Date of<br />
Appointment<br />
Date of<br />
Completion<br />
of Term#*<br />
DIN: 00026892<br />
Mr. U.R. Bhat<br />
S/o Dr. U V Krishna<br />
3A-203, Green Acres (W),<br />
Lokhandwala<br />
Complex, Andheri (W), Mumbai<br />
- 400 053<br />
Non Executive and Independent<br />
Director<br />
DIN: 00008425<br />
Mr. T.S. Vishwanath<br />
S/o Late Mr. T J Sitaram<br />
C-131, Sarvodaya Enclave, New<br />
Delhi – 110017<br />
Non Executive and Independent<br />
Director<br />
DIN: 00023065<br />
Mr. Sitarama Murty M.<br />
S/o Mr. Hanumantha Rao<br />
Mandavilli<br />
Flat No. 401, Siva Sai Apts, Road<br />
No. 9, West Marredpally,<br />
Secunderabad - 500 026<br />
Indian 59 • Dalton Capital<br />
Advisors<br />
(India) Private<br />
<strong>Limited</strong><br />
• Repro India<br />
<strong>Limited</strong><br />
• <strong>Edelweiss</strong><br />
Asset<br />
Management<br />
Limted<br />
• Subhkam<br />
Capital<br />
Ventures<br />
Private<br />
<strong>Limited</strong><br />
• Axis Asset<br />
Management<br />
Company<br />
<strong>Limited</strong><br />
• IRIS Business<br />
Services<br />
<strong>Limited</strong><br />
Indian 63 • LIC Mutual<br />
Fund<br />
Management<br />
Company<br />
<strong>Limited</strong><br />
• Mangalam<br />
Cement<br />
<strong>Limited</strong><br />
Asset<br />
• Areva T&D<br />
India <strong>Limited</strong><br />
Indian 66 • Aurobindo<br />
Pharma<br />
<strong>Limited</strong><br />
• G.K.C.<br />
Projects<br />
<strong>Limited</strong><br />
January 28,<br />
2006<br />
January 5.<br />
2007<br />
November<br />
30, 2007<br />
January 27,<br />
2014<br />
January 4,<br />
2015<br />
November<br />
29, 2015<br />
Non Executive and Independent<br />
Director<br />
DIN: 01694236<br />
Mr. S.V. Manjunath Indian 59 Nil October 25, October 24,<br />
58
Name, Father’s Name,<br />
Address, Designation and<br />
DIN<br />
S/o Mr. Sargod Gowda<br />
Venkatappa<br />
Kaskekhan Esate, Jenagadde<br />
Post,<br />
Chikmagalore - 577 136<br />
Non Executive and Independent<br />
Director<br />
Nationality Age Other<br />
Directorships<br />
Date of<br />
Appointment<br />
2008 2016<br />
Date of<br />
Completion<br />
of Term#*<br />
DIN: 02354102<br />
Mr. D. Harshendra Kumar<br />
S/o Mr. D Ratnavarma Heggade<br />
Dharmasthala, Dakshina<br />
Kannada Dist,<br />
Dharmasthala - 574 216<br />
Non Executive and Independent<br />
Director<br />
DIN:02336746<br />
Dr. H. Rama Mohan<br />
S/o Mr. Halsnad<br />
Venkatrmanayya<br />
Prema Clinic, Ramamandira<br />
Road, Kundapura - 576 201<br />
Non Executive and Independent<br />
Director<br />
DIN: 02331431<br />
Mr. Tirupathur Ramaswamy<br />
Chandrasekaran<br />
S/o Mr. Ramaswamy T R<br />
A/3 SICAL Race View<br />
Apartments No.2, Racecourse<br />
Inner Road Guindy, Chennai<br />
600032<br />
Non Executive and Independent<br />
Director<br />
Indian 57 Nil October 25,<br />
2008<br />
Indian 58 Nil October 25,<br />
2008<br />
Indian 64 Nil October 15,<br />
2010<br />
October 24,<br />
2016<br />
October 24,<br />
2016<br />
October 14,<br />
2018<br />
DIN: 00399104<br />
# As per the <strong>Bank</strong>ing Regulation Act, 1949, no director of a banking company, other than its chairman or<br />
whole-time director, by whatever name called, shall hold office continuously for a period exceeding eight years<br />
* Term - Liable to retire by rotation and reappointment<br />
<strong>The</strong>re is no shareholders agreement in place whereby any special right to appoint a director of our <strong>Bank</strong> has<br />
been given to any shareholder of our <strong>Bank</strong>.<br />
59
Relationship between Directors<br />
None of the Directors of our <strong>Bank</strong> are related to each other.<br />
Brief biography of our Directors<br />
Mr. Ananthakrishna, aged 63 years, is the part time Non executive Chairman of our <strong>Bank</strong> with effect from<br />
July 13, 2009. He is a post-graduate in Mathematics from Mysore University. He began his career as a teacher<br />
and later served as a Lecturer at Manipal Institute of Technology. He moved over to Hindustan Aeronautics<br />
<strong>Limited</strong> as a Junior Programmer before joining our <strong>Bank</strong> as an Officer in 1971. At our <strong>Bank</strong> he has worked in<br />
different capacities both at the operational level and in key management positions in various functional areas<br />
like treasury and accounts, corporate taxation, information technology and credit administration. Excellent<br />
performance in different capacities resulted in his promotion as General Manager of our <strong>Bank</strong> in 1994 and later<br />
as Chief General Manager in 1998. He was appointed as Chairman & CEO of our <strong>Bank</strong> in July 2000 and has<br />
successfully completed 9 years in office on July 12, 2009. Presently, he is a part time Non-Executive Chairman<br />
of our <strong>Bank</strong> w.e.f July 13, 2009. He is currently the President of the <strong>Bank</strong>ers' Club, Mangalore He is the<br />
recipient of PR Person of the year - 2002 awarded by Public Relations Society of India, Mangalore, Manipal<br />
Chapter; Outstanding Manager Award for the Districts of Dakshina Kannada and Udupi for the year 2004 by<br />
Mangalore Management Association, and "Purushothama" by Shri Shri Raghaveshwara Swamiji of Shri<br />
Ramachandrapura Mutt, Hosanagara in recognition of his contribution to the society.<br />
Mr. P. Jayarama Bhat, aged 58 years, is the Managing Director and Chief Executive Officer of our <strong>Bank</strong> w.e.f<br />
July 13, 2009. He is a post graduate in Science from University of Mysore and a Certified Associate of Indian<br />
Institute of <strong>Bank</strong>ers. He has banking experience of over 36 years. He joined our <strong>Bank</strong> as an Officer in the year<br />
1973 and over the period of time promoted to various positions. In the year 2005, he was promoted as Chief<br />
General Manager of our <strong>Bank</strong> and was entrusted with the responsibilities of overall supervision of operational<br />
areas. He has rich experience in all the facets of <strong>Bank</strong>ing operations. Before the present appointment, he was on<br />
the Board of Universal Sompo General Insurance Company <strong>Limited</strong>, a joint venture of our <strong>Bank</strong> since 2007. He<br />
has also served on various sub committees of Indian <strong>Bank</strong>s` Association (“IBA”). He was also nominated as a<br />
member of IBA working group to prepare broad outlines of a policy on KYC norms and Anti-money laundering<br />
standards. He was a member of IBA working group on to study the recommendations of Raghuram Rajan<br />
Committee report on Financial Sector Reforms. He is also a member of the IBA`s Management Committee.<br />
Mr. S.R. Hegde, aged 68 years, has been on the Board of our <strong>Bank</strong> since March 26, 2005. He holds B.A. LL.B<br />
degrees from <strong>Karnataka</strong> University. He joined the Reserve <strong>Bank</strong> of India in the year 1974 as a Legal Officer and<br />
he retired from Reserve <strong>Bank</strong> of India as Legal Adviser-in-Charge, Legal Division, Department of Non-<strong>Bank</strong>ing<br />
Supervision in the year 2002. At present he is practicing as an Advocate in Bangalore besides being a Panel<br />
Advocate and Retainer for several <strong>Bank</strong>s and National level institutions. He is also an independent trustee for<br />
Sahara Mutual Fund.<br />
Mr. R.V. Shastri, aged 65 years, has been on the Board of our <strong>Bank</strong> since January 28, 2006. He holds M.A in<br />
Economics from the University of Mysore. He has over 36 years experience in banking sector. He is a former<br />
Chairman and Managing Director of Canara <strong>Bank</strong> and Indian Overseas <strong>Bank</strong>. He was holding a number of<br />
representative positions, prominent among them being Deputy Chairman- Indian <strong>Bank</strong>s` Association, President<br />
- IBA Local Chapter, Bangalore, Advisor - <strong>Bank</strong>ers` Training College (RBI). He was the Chairman of the<br />
Canara <strong>Bank</strong>`s subsidiaries and its sponsored entities.. He is also an Advisor - Specified Undertaking of UTI.<br />
Mr. U.R. Bhat, aged 59 years, has been on the Board of our <strong>Bank</strong> since January 28, 2006. He holds M.Sc. from<br />
Indian Institute of Technology, Kanpur and has attended advanced courses on Finance at the Harvard Business<br />
School, Boston. He is a fellow of the Chartered Institute of <strong>Bank</strong>ers, London. He is presently Managing Director<br />
of Dalton Capital Advisors (India) Private <strong>Limited</strong>, an investment advisory company of the Dalton group,<br />
London He was earlier the Chief Investment Officer of Jardine Fleming in India that later became J.P. Morgan,<br />
India where he was for 7 years advising the India dedicated funds of the Flemings group. He has been closely<br />
involved in formulating policies for benchmark indices for the BSE as a member of its Index Committee.<br />
Mr. T.S. Vishwanath, aged 63 years, has been on the Board of our <strong>Bank</strong> since January 05, 2007. He is a<br />
Bachelor of Commerce (Hons) from the Delhi University and a fellow member of the Institute of Chartered<br />
Accountants of India. His association with professional/public appointments include - Chair, India Side, Indo-<br />
UK Accountancy Taskforce – Current; Member on the Board of International Accounting Standards Committee<br />
from 1998 till October 2000; President, South Asian Federation of Accountants – 1999; President, <strong>The</strong> Institute<br />
60
of Chartered Accountants of India - 1996-97; Chairman, Northern India Regional Council of <strong>The</strong> Institute of<br />
Chartered Accountants of India - 1980-81; Government of India - Member, Working Group on Depreciation<br />
Rates constituted by the Department of Company Affairs, Government of India- 1994; Member, <strong>The</strong> Expert<br />
Group constituted to rationalize and simplify the Income Tax Act by the Government of India - 1996-97;<br />
Member, Ad-hoc Task Force on Financial Parameters constituted by Bureau of Public Enterprises (Government<br />
of India) –1996; Insurance Regulatory and Development Authority – Chair, Committee on Accounting issues -<br />
Current; Member, Insurance Advisory Committee - 2000 to June 2005; Member, Committee constituted to<br />
study certain aspects and make recommendation on some specific and other areas of Insurance Act - 2005;<br />
Chair, Committee on Accounting and Auditing Standards and Regulations for Insurance Companies in India -<br />
1999-2000, Reserve <strong>Bank</strong> of India – Member, Technical Group on <strong>Bank</strong>`s Capital Adequacy Norms – 1996;<br />
Member, Working Group on Modification of Formats of Final Accounts of <strong>Bank</strong>s – 1996; Securities and<br />
Exchange Board of India – Member, Committee on Substantial Acquisition of Shares & Takeover Regulations<br />
(Bhagawati Committee) – 1996; Member, Advisory Committee on Primary Markets - 1996; he has been a<br />
Member on various Committees, Accounting Standards Board of the Council of <strong>The</strong> Institute of Chartered<br />
Accountants of India from time to time. He has also been on the Committee on Corporate and Fiscal Laws of<br />
various Chambers of Commerce in India, from time to time.<br />
Mr. Sitarama Murty M., aged 66 years, has been on the Board of our <strong>Bank</strong> since November 30, 2007. He is<br />
B.Sc. (Hons), M.Sc.(Electronics) and a Certified Associate of Indian Institute of <strong>Bank</strong>ers. He has over 37 years<br />
banking experience in five banks of the State <strong>Bank</strong> Group including 9 years at the Management level and as<br />
Managing Director of State <strong>Bank</strong> of Mysore. He has rich experience in international banking, foreign exchange,<br />
money markets and funds management. He participated in several international seminars and meets, including<br />
the G-15 meet in Jakarta in 2001. He is the co-author of the Book Computerisation of <strong>Bank</strong>ing Operations in<br />
India (1990). He also wrote a book 'Stones and Flowers- A <strong>Bank</strong>er Looks Back (2006)'.<br />
Mr. S.V. Manjunath, aged 59 years, has been on the Board of our <strong>Bank</strong> since October 25, 2008. He is a B.Sc.<br />
graduate. He had earlier worked as Director of Co-operative Union and as president PCARD <strong>Bank</strong> and has rich<br />
experience of functioning of these Institutions.<br />
Mr. D. Harshendra Kumar, aged 57 years, has been on the Board of our <strong>Bank</strong> since October 25, 2008. He is a<br />
graduate in Arts. He is well versed with all aspects of Agriculture and Rural Economy, cooperation and Self<br />
Help Group. He is the Secretary, Rural Development , Self Employment Training Institute, having branches all<br />
over India, Trustee Sri Dharmasthala Munjunatheshwara Trust, Dharmasthala and Secretary, SDM Educational<br />
Institutions, member, Council for Advancement of People’s and Rural Technology.<br />
Dr. H. Rama Mohan, aged 58 years, has been on the Board of our <strong>Bank</strong> since October 25, 2008. He holds<br />
MBBS, FCGP, FIAMS, DMag. He is in private practice as family Physician in Kundapura, Udupi District. He is<br />
a member of 'Govt. of <strong>Karnataka</strong> Sustainable Forest maintenance and bio-diversity preservation' committee for<br />
Mangalore circle, a programme of Japan <strong>Bank</strong> of International Cooperation. He is also the Chairman - IMA<br />
Academy of Medical Specialties, Kundapur Chapter, President - Amateur Artists` Association, Trustee - Seva<br />
Sangam Trust, Managing 20 Kindergarten schools, Treasurer - Seva Sangam Vidya Kendra, <strong>The</strong>kkatte - A<br />
primary and High school, Treasurer - Coondapur Education Society-managing English medium school and PU<br />
college, Advisory Committee member - KMC Hospital, Manipal, Member of the Supreme governing body of<br />
the Academy of General Education, Manipal, Member - Quality Assessment and advisory committee,<br />
Bhandarkars` College, Kundapura, Vice President - Flora and Fauna Club (a nature club).<br />
Mr. T.R. Chandrasekaran, aged 64 years, has been on the Board of our <strong>Bank</strong> since October 15, 2010. He<br />
holds a degree of Bachelor of Commerce (FCA), Diploma in Labour Law and Adminstration Law. He is<br />
presently the Partner of M/s M.C Ranganathan & Co. Chartered Accountants, Chennai. He was earlier the<br />
Deputy General Manager (Accounts and Audit) in Indian <strong>Bank</strong> Mutual Fund. He has a rich experience in the<br />
field of <strong>Bank</strong>ing and Finance. He was a part of the <strong>Bank</strong> Audit faculty at Indian <strong>Bank</strong> Management Academy<br />
for Excellence and Growth (IMAGE), IOB Staff Training College, Chennai and Institute of Chartered<br />
Accountants of India. He has presented several papers on <strong>Bank</strong> Audit, LFAR, Tax audit relating to a bank,<br />
assessment of NPA’s and RBI Norms, Accounting Standards applicable to banks and disclosure requirements in<br />
bank accounts. He has also been a member of various committees of ICAI, New Delhi viz Corporate<br />
Governance, Guidance note on audit of banks, Long Form Audit Report etc.<br />
Compensation and benefits in kind granted to the Directors<br />
<strong>The</strong> <strong>Bank</strong> does not pay any remuneration to its Non-Executive Directors except sitting fees.<br />
61
Shri Ananthakrishna has been appointed as part time non-executive Chairman of the Board for a period of 3 years<br />
who has assumed office on July 13, 2009. <strong>The</strong> terms of his appointment and remuneration has been approved by<br />
RBI under section 10B (1A) of the <strong>Bank</strong>ing Regulation Act, 1949 vide RBI letter bearing reference No.<br />
DBOD.No.20957/08.40.001/2008-09 dated June 08, 2009 and has been approved by the Government of India.<br />
Shri P Jayarama Bhat has been appointed as Managing Director of our <strong>Bank</strong> for a period of 3 years by the Board<br />
of Directors at the meeting held on June 26, 2009, who assumed charge on July 14, 2009. <strong>The</strong> terms of his<br />
appointment and the remuneration has been approved by the RBI under section 35B of the <strong>Bank</strong>ing Regulation<br />
Act, 1949 vide RBI letter bearing reference No. DBOD.No.20953/08.40.001/2008-09 dated June 08, 2009.<br />
<strong>The</strong> payment of remuneration to both the above Directors has been approved by the members of our <strong>Bank</strong> at the<br />
Annual General Meeting held on August 8, 2009. Details of remuneration to the above Directors are as under:<br />
Mr. Ananthakrishna, part time Non executive Chairman<br />
Salary: Mr. Ananthakrishna is entitled to a consolidated salary of Rs 1,00,000 per month. However, Mr<br />
Ananthakrishna has foregone the payment of Rs 1,00,000 per month w.e.f July 13, 2009 and the same has been<br />
accepted by the Board.<br />
Sitting fees: As paid to other non executive directors of our <strong>Bank</strong> for attending meetings of the Board &<br />
Committees of the Board.<br />
Others: (a) Free use of <strong>Bank</strong>’s car for official purpose. For personal use Rs. 250/- per month to be recovered; (b)<br />
Traveling and Halting allowance: Governed by the rules as applicable to other directors of our <strong>Bank</strong>.<br />
Mr. P. Jayarama Bhat, Managing Director<br />
Salary and other allowances: Mr. P. Jayarama Bhat is entitled to a salary of Rs. 2,00,000 per month and dearness<br />
allowance of 20% of basic salary. He is also provided house rent allowance @ 15% of the basic pay and<br />
entertainment allowance of Rs. 25,000 p.a.<br />
Perquisites: (a) Free use of <strong>Bank</strong>’s car for official purpose. For personal use Rs. 250/- per month to be recovered;<br />
(b) Provident Fund @ 10% of the basic pay; (c) Traveling and Halting allowance: As may be decided by the<br />
Board from time to time; (d) Medical benefits: Reimbursement upto Rs. 15,000/- per annum for self and family.<br />
Hospitalisation charges to be reimbursed to the extent of 100% in the case of self and 75% for dependant family<br />
members; (e) Other benefits: (i) Personal accident insurance cover upto Rs. 20,00,000/- p.a. & (ii) Telephone<br />
facility at his residence at <strong>Bank</strong>’s cost.<br />
Sitting fees<br />
All Directors except Mr. P. Jayarama Bhat (remuneration details of whom are provided above) do not receive any<br />
remuneration except the sitting fees for attending Board and Committee meetings @ Rs. 15,000 and Rs. 10,000<br />
for each meeting respectively.<br />
Further our bank has not entered into any service contracts with any of our directors providing for benefits upon<br />
termination of employment.<br />
Director’s Interest<br />
Except as stated otherwise in this Letter of Offer, our <strong>Bank</strong> has not entered into any contracts, agreements or<br />
arrangements during the preceding two years from the date of this Letter of Offer in which the directors are<br />
interested directly or indirectly and no payments have been made to them in respect of these contracts,<br />
agreements or arrangements which are proposed to be made to them.<br />
All the Directors, including independent Directors, may be deemed to be interested to the extent of fees, if any,<br />
payable to them for attending meetings of the Board or a committee thereof and reimbursement of expenses<br />
payable to them under the Articles of Association. <strong>The</strong> Managing Director will be interested to the extent of<br />
remuneration paid to him for services rendered as officer or employee of our <strong>Bank</strong>. All the Directors, including<br />
62
independent Directors, may also be deemed to be interested to the extent Equity Shares held by them and any<br />
dividend payable to them and other distributions in respect of Equity Shares, if any, already held by them.<br />
No stock options under ESOS have been granted to any of the Directors.<br />
63
FINANCIAL STATEMENTS<br />
Sr. No Contents Page Number<br />
1 Audited Financial Statements for the year ended March 31, 2010 of our <strong>Bank</strong> F-1 to F-41<br />
2 Reviewed Financial Statements for the six months ended September 30, 2010<br />
of our <strong>Bank</strong><br />
F-42 to F-58<br />
64
AUDITORS REPORT<br />
To,<br />
<strong>The</strong> Board of Directors<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> Ltd<br />
Regd. & Head Office<br />
Kankanady - Mangalore-575002<br />
Mangalore-575002<br />
Dear Sirs,<br />
1. We are engaged to report on the financial statements (‘Financial Statements’) of <strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
(‘the ‘<strong>Bank</strong>’), for the year ended 31 March 2010 annexed to this report in Annexure I to IV for the purpose of<br />
inclusion in the Draft Letter of Offer and Letter of Offer (the ‘Offering Documents’) prepared by the <strong>Bank</strong> in<br />
connection with the Rights Issue (‘Rights Issue’) of its equity shares, in accordance with the provisions of the<br />
Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (‘the<br />
Regulations’) as amended to date. Our responsibility is to report on such statements based on our procedures.<br />
2. We have examined such statements taking into consideration:<br />
(i) the terms of reference dated 9 th September 2010 received from the <strong>Bank</strong>, requesting us to carry out the<br />
assignment, in connection with the Offering Documents being issued by the <strong>Bank</strong> for its proposed Rights Issue of<br />
equity shares having a face value of Rs. 10 each in the ratio of 2 (TWO) equity shares for every 5 (FIVE) equity<br />
shares, under the SEBI (ICDR) Regulations 2009 (‘Issue’); and<br />
(ii) <strong>The</strong> Guidance Note on Reports in Company Prospectuses (Revised) issued by the Institute of Chartered<br />
Accountants of India.<br />
3. We report that the figures disclosed in the ‘Financial Statements’ have been extracted by the management from<br />
the audited financial statements for the year ended 31 March 2010. <strong>The</strong> financial statements for the year ended 31<br />
March 2010 have been audited by M/s Kamath & Rau, Chartered Accountants and M/s Vishnu Daya & Co,<br />
Chartered Accountants and in respect of which an unqualified audit opinion dated 17 May 2010, have been issued.<br />
4. For the purpose of this report we have not performed any additional audit procedures on the above referred<br />
audited financial statements of the <strong>Bank</strong> for the year ended 31 st March 2010 including evaluating the possible<br />
impact, if any, of subsequent events on the earlier audited financial statements of the <strong>Bank</strong>.<br />
5. <strong>The</strong> ‘Financial Statements’ annexed to this report are extracted from the audited financial statements for the year<br />
ended 31 March 2010. <strong>The</strong>se ‘Financial Statements’ have been prepared using the same set of accounting policies<br />
used for preparing the audited financial statements as at 31 st March 2009 except in respect of appropriation of<br />
recoveries made in non-performing advances. In respect of financial year 2010, in respect of non-performing<br />
advances, recoveries made are appropriated towards the principal, interest and charges in their order of demand as<br />
against the earlier policy of first appropriating the recoveries made towards the principal and the balance towards the<br />
interest.. <strong>The</strong> impact of this change in accounting policy resulted in the Net Profit of the year ended 31 st March 2010<br />
being higher by Rs.4.97 crores. <strong>The</strong> accounting policies and notes to accounts have been reproduced as they were<br />
disclosed audited accounts for the year ended March 31, 2010 year.<br />
F -1
6. Except as stated above, we have not audited any financial statement of the <strong>Bank</strong> as of any date or for any period<br />
subsequent to 31 March 2010. Accordingly, we express no opinion on the financial position, results of operations or<br />
cash flows of the <strong>Bank</strong> as of any date or for any period subsequent to 31 March 2010. However, for the purpose of<br />
proposed Rights issue, we have conducted a limited review of the Balance Sheet of the <strong>Bank</strong> as at September 30,<br />
2010 and the Profit and Loss Account for the period ended on that date.<br />
7. At the <strong>Bank</strong>’s request, we have also examined the following information proposed to be included in the Offering<br />
Documents prepared by the management and annexed to this report:<br />
(i) Accounting Ratios enclosed as Annexure V and<br />
(ii) Capitalization Statement enclosed as Annexure VI<br />
8. In our opinion, the financial information contained in Annexure I to IV of this report read together with the Notes<br />
to Accounts & Significant Accounting Policies have been prepared in accordance with the provisions of Section 29<br />
of the <strong>Bank</strong>ing Regulation Act, 1949 read with Section 211 of the Companies Act 1956 and requirements of the<br />
Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2009 as<br />
amended till date.<br />
9. This report should not be in any way construed as a re-issuance or re-dating of any of the previous audit report<br />
issued by above mentioned auditors nor should this report be construed as a new opinion on any of the financial<br />
statement referred to herein.<br />
10. This report is intended solely for your information and for inclusion in the Offering Documents in connection<br />
with the proposed Issue by the <strong>Bank</strong> and is not to be used, referred to or distributed for any other purpose without<br />
our prior written consent.<br />
for Vishnu Daya & Co.,<br />
Chartered Accountants<br />
F.R.No.: 008456S<br />
for R. K. Kumar & Co.,<br />
Chartered Accountants<br />
F.R.No.: 001595S<br />
(Venkatesh Kamath S V)<br />
(B.R.ASHOK)<br />
Partner – M. No. 202626 Partner – M. No. 023313<br />
Place: Bangalore<br />
Dated: 15/10/2010<br />
F -2
BALANCE SHEET AS ON 31 ST MARCH , 2010<br />
Annexure I<br />
(Rs in Crore)<br />
Schedule As on As on<br />
No. 31.03.2010 31.03.2009<br />
CAPITAL AND LIABILITIES<br />
Capital 1 133.99 121.58<br />
Reserves and Surplus 2 1,698.76 1,445.44<br />
Deposits 3 23,730.65 20,333.29<br />
Borrowings 4 341.64 3.97<br />
Other Liabilities and Provisions 5 1,130.11 953.52<br />
TOTAL 27,035.15 22,857.80<br />
ASSETS<br />
Cash and balances with Reserve <strong>Bank</strong> of India 6 1,743.10 1,364.98<br />
Balances with <strong>Bank</strong>s and Money at Call & Short Notice 7 62.45 95.75<br />
Investments 8 9,992.05 8,961.49<br />
Advances 9 14,435.68 11,810.04<br />
Fixed Assets 10 148.07 138.49<br />
Other Assets 11 653.80 487.05<br />
TOTAL 27,035.15 22,857.80<br />
Contingent Liabilities 12 10,119.24 10,042.74<br />
Bills for Collection 1,032.24 928.93<br />
Significant Accounting Policies 17<br />
Notes on Account 18<br />
F -3
Annexure II<br />
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010<br />
(Rs in crore)<br />
Schedule No.<br />
Year ended<br />
31.03.2010<br />
Year ended<br />
31.03.2009<br />
I. INCOME<br />
Interest Earned 13 2,043.42 1,948.76<br />
Other Income 14 311.26 321.79<br />
Total 2,354.68 2,270.55<br />
II. EXPENDITURE<br />
Interest Expended 15 1,707.79 1,443.83<br />
Operating Expenses 16 386.05 346.51<br />
Provisions and Contingencies 93.72 213.51<br />
Total 2,187.56 2,003.85<br />
III.PROFIT<br />
Net profit for the year 167.12 266.70<br />
Profit brought forward 0.03 0.10<br />
Total 167.15 266.80<br />
IV. APPROPRIATIONS<br />
Transfer to Statutory Reserve 88.00 100.00<br />
Transfer to Capital Reserve -- 60.67<br />
Transfer to Revenue Reserve 3.00 7.00<br />
Transfer to Special Reserve u/s 36 (i) (viii) of IT<br />
Act 6.68 12.31<br />
Transfer to Investment Reserve Account 5.70 --<br />
Transfer to Other Funds 1.00 1.45<br />
Transfer to Proposed dividend 53.63 72.94<br />
Transfer to Tax on proposed dividend 9.11 12.40<br />
Balance carried over to Balance Sheet 0.02 0.03<br />
Total 167.14 266.80<br />
F -4
Number of Shares outstanding during the year (weighted average) 12.37.79.973 12.14.44.753<br />
Earning per share (Rs per share of Rs10/- each -<br />
see note No: 7 of schedule 18 )<br />
Basic Rs. 13.50 21.96<br />
Diluted Rs 13.45 21.96<br />
Significant Accounting Policies 17<br />
Notes on Account 18<br />
F -5
ANNEXURE III<br />
CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST<br />
MARCH 2010<br />
Rs in crores<br />
March 31, 2010 March 31, 2009<br />
Rs Rs Rs Rs<br />
A<br />
CASH FLOW FROM OPERATING ACTIVITIES<br />
Net profit before tax and extra ordinary items 193.05 406.15<br />
Adjustments for :<br />
Depreciation on Fixed Assets including<br />
Lease Adjustment charges 22.15 19.82<br />
Provisions and Contingencies 71.08 80.50<br />
Amortisation of premium on Held to Maturity Investments 28.86 11.95<br />
122.09 112.27<br />
Operating profit before working capital changes 315.14 518.42<br />
Adjustment for :<br />
i) Advances & Other Assets -2662.89 -919.27<br />
ii) Investments -1041.20 -2650.43<br />
iii) Deposits, Borrowings & Other Liabilities 3793.27 3166.36<br />
89.18 -403.34<br />
Cash generated from operations 404.32 115.08<br />
Direct taxes paid 102.58 168.10<br />
Net cash flow from operating activities (A) 301.74 -53.02<br />
B<br />
CASH FLOW FROM INVESTING ACTIVITIES<br />
Purchase of fixed assets -32.35 -39.04<br />
F -6
CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST<br />
MARCH 2010<br />
Rs in crores<br />
March 31, 2010 March 31, 2009<br />
Sale of fixed assets 0.88 0.51<br />
Net cash used in investing activities (B) -31.47 -38.53<br />
C<br />
CASH FLOW FROM FINANCING ACTIVITIES<br />
Proceeds from issue of share capital (net of expenses) 158.84 1.06<br />
Proceeds from long term borrowings 0.00 0.00<br />
Dividend paid (Including Tax on Dividend) -84.30 -70.21<br />
Net Cash generated from Financing Activities ( C ) 74.54 -69.15<br />
Net increase in Cash & Cash equivalents (A+B+C) 344.81 -160.70<br />
Cash & cash equivalents as at (opening) 1460.74 1621.43<br />
Cash & cash equivalents as at (closing) 1805.55 1460.74<br />
F -7
SCHEDULES FORMING PART OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT<br />
Annexure IV<br />
SCHEDULE - 1 - CAPITAL<br />
Rs in Crore<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
Authorised Capital<br />
20,00,00,000 Equity shares of Rs. 10/- each 200.00 200.00<br />
(Previous Year 20,00,00,000 Equity shares of Rs. 10/- each)<br />
Issued Capital<br />
13,39,99,950 equity shares of Rs 10 each 134.00 121.60<br />
(Previous year 12,15,98,506 Equity shares of Rs. 10/- each)<br />
Subscribed Capital<br />
13,39,92,872 Equity shares of Rs. 10/- each 133.99 121.60<br />
(Previous year 12,15,91,428 Equity shares of Rs. 10/- each)<br />
Called up/Paid-up Capital 133.98 121.57<br />
13,39,76,322 Equity shares of Rs.10/- each<br />
(Previous year12,15,74,878 Equity shares of Rs.10/- each)<br />
Add : Forfeited Shares 0.01 0.01<br />
Total 133.99 121.58<br />
SCHEDULE -2- RESERVES & SURPLUS<br />
I. Statutory Reserve<br />
Opening balance<br />
Additions during the year<br />
Deductions during the year<br />
Total<br />
II. Capital Reserve<br />
Opening balance<br />
918.00 818.00<br />
88.00 100.00<br />
1.006.00 918.00<br />
-- --<br />
1.006.00 918.00<br />
63.69 3.02<br />
F -8
Additions during the year ( pursuant to sale of securities<br />
held under HTM category)<br />
Deductions during the year<br />
-- 60.67<br />
63.69 63.69<br />
-- --<br />
Total<br />
III. Share Premium<br />
Opening balance<br />
Additions during the year<br />
Deductions during the year<br />
Total<br />
IV. Revenue and other Reserves<br />
a) Revenue Reserve<br />
Opening balance<br />
Deductions at the beginning of the year<br />
Additions during the year<br />
63.69 63.69<br />
162.94 159.61<br />
149.73 3.33<br />
312.67 162.94<br />
-- --<br />
312.67 162.94<br />
267.00 260.00<br />
-- --<br />
267.00 260.00<br />
3.00 7.00<br />
Total<br />
b) Special Reserve u/s 36(1)(viii) of IT Act<br />
Opening balance<br />
Total<br />
Additions during the year<br />
Withdrawn during the year<br />
c) Employee Stock Option Outstanding<br />
270.00 267.00<br />
23.56 11.25<br />
6.68 12.31<br />
30.24 23.56<br />
-- --<br />
30.24 23.56<br />
Opening balance 8.72 4.77<br />
Additions during the year 3.83 6.45<br />
12.55 11.22<br />
Deductions during the year 3.61 2.50<br />
Total 8.94 8.72<br />
d) Investment Reserve Account<br />
Opening balance<br />
Additions during the year<br />
1.50 1.50<br />
5.70 --<br />
7.20 1.50<br />
F -9
Total<br />
Deductions during the year<br />
-- --<br />
7.20 1.50<br />
V. Balance in Profit and Loss Account<br />
TOTAL ( I. II. III.IV and V )<br />
0.02 0.03<br />
1,698.76 1,445.44<br />
SCHEDULE -3<br />
DEPOSITS<br />
A.I. Demand Deposits<br />
1. From <strong>Bank</strong>s<br />
2. From others<br />
2.44 2.21<br />
1,704.04 1,154.81<br />
1,706.48 1,157.02<br />
II. Savings <strong>Bank</strong> Deposits<br />
3,813.68 2,899.43<br />
III. Term Deposits<br />
1. From <strong>Bank</strong>s<br />
2. From others<br />
32.05 55.04<br />
18,178.44 16,221.80<br />
18,210.49 16,276.84<br />
Total : (I. II and III)<br />
23,730.65 20,333.29<br />
B.1. Deposits of branches in India<br />
2. Deposits of branches outside India<br />
23,730.65 20,333.29<br />
-- --<br />
Total (1+2)<br />
23,730.65 20,333.29<br />
SCHEDULE -4 BORROWINGS<br />
I. Borrowings in India<br />
1. Reserve <strong>Bank</strong> of India<br />
2. Other <strong>Bank</strong>s<br />
Rs in Crore<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
-- --<br />
-- 0.06<br />
F -10
3. Other Institutions and Agencies<br />
Total<br />
II. Borrowings outside India<br />
Total : (I and II)<br />
250.16 3.91<br />
250.16 3.97<br />
91.48 --<br />
341.64 3.97<br />
Secured borrowings included in I & II above Rs.<br />
-- --<br />
SCHEDULE - 5 OTHER LIABILITIES & PROVISIONS<br />
Rs in Crore<br />
I. Bills Payable<br />
II. Inter Office adjustments(Net)<br />
III. Interest accrued<br />
IV. Subordinated Debt for Tier II Capital<br />
V. Deferred Tax Liability (Net)<br />
VI. Others (including Provisions)*<br />
Total<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
198.66 145.30<br />
3.51 1.21<br />
72.12 65.05<br />
350.00 350.00<br />
102.93 60.78<br />
402.90 331.18<br />
1,130.12 953.52<br />
SCHEDULE - 6 CASH & BALANCES WITH THE RBI<br />
(Rs in crore)<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
I. Cash in hand<br />
(including foreign currency notes)<br />
II. Balances with Reserve <strong>Bank</strong> of India<br />
1. In Current Account<br />
2. In Other Accounts<br />
Total : (I and II)<br />
146.62 127.67<br />
1,596.48 1,237.31<br />
-- --<br />
1,743.10 1,364.98<br />
SCHEDULE – 7 BALANCES WITH BANKS AND MONEY AT CALL & SHORT NOTICE<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
I. IN INDIA<br />
F -11
i. Balances with <strong>Bank</strong>s<br />
a) In Current Accounts<br />
b) In other deposit accounts<br />
39.53 44.74<br />
19.10 20.00<br />
ii. Money at Call & Short Notice<br />
a) With <strong>Bank</strong>s<br />
b) With other institutions<br />
58.63 64.74<br />
-- --<br />
-- --<br />
Total<br />
58.63 64.74<br />
II. OUTSIDE INDIA<br />
i. In Current Accounts<br />
ii. In Other Deposit Accounts<br />
iii. Money at Call & Short Notice<br />
3.82 31.01<br />
-- --<br />
-- --<br />
Total : (i. ii and iii)<br />
3.82 31.01<br />
Grand Total (I & II)<br />
62.45 95.75<br />
SCHEDULE - 8 INVESTMENTS<br />
I. Investments in India (Gross at cost)<br />
Less: Provision for depreciation<br />
(Rs in crore)<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
10,021.65 9,009.32<br />
29.60 47.83<br />
Total<br />
Break-up :<br />
1. Government Securities<br />
2. Other Approved Securities<br />
3. Shares<br />
4. Debentures and Bonds<br />
5. Subsidiaries and/or Joint Ventures<br />
6. Others<br />
Total<br />
II. Investments outside India<br />
9,992.05 8,961.49<br />
6,400.98 5,926.53<br />
4.98 9.67<br />
139.77 85.07<br />
809.39 1,442.26<br />
22.50 22.50<br />
2,614.43 1,475.46<br />
9,992.05 8,961.49<br />
-- --<br />
Total (I+II)<br />
9,992.05 8,961.49<br />
F -12
SCHEDULE - 9 ADVANCES<br />
A) 1. Bills Purchased & discounted<br />
2. Cash Credits. Overdrafts and<br />
Loans repayable on demand<br />
3. Term Loans<br />
(Rs in crore)<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
691.19 650.48<br />
7,728.29 6,322.20<br />
6,016.20 4,837.36<br />
Total<br />
14,435.68 11,810.04<br />
B) 1. Secured by Tangible Assets *<br />
2. Secured by <strong>Bank</strong>/Government Guarantees<br />
3. Unsecured<br />
11,553.70 8,999.94<br />
1,841.79 1,733.09<br />
1,040.19 1,077.01<br />
Total<br />
* Includes Advances against Book Debts<br />
C) I. Advances in India<br />
1. Priority Sectors<br />
2. Public Sectors<br />
3. <strong>Bank</strong>s<br />
4. Others<br />
14,435.68 11,810.04<br />
5,252.96 4,372.16<br />
1,228.68 557.19<br />
0.15 0.52<br />
7,953.89 6,880.17<br />
Total<br />
14,435.68 11,810.04<br />
C) II. Advances outside India<br />
1. Due from <strong>Bank</strong>s<br />
2. Due from others<br />
a) Bills Purchased & Discounted<br />
b) Syndicated Loans<br />
c) Others<br />
-- --<br />
-- --<br />
-- --<br />
-- --<br />
-- --<br />
Total<br />
-- --<br />
GRAND TOTAL (C. I and C. II)<br />
14,435.68 11,810.04<br />
F -13
SCHEDULE - 10 FIXED ASSETS<br />
I. Premises<br />
At cost as on 31 st March of preceding year<br />
Additions during the year<br />
Deductions during the year<br />
Depreciation to-date<br />
Total<br />
II. Other Fixed Assets<br />
(including Furniture & Fixtures)<br />
At cost as on 31 st March of the preceding year<br />
Additions during the year<br />
Rs in crore)<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
100.38 82.50<br />
5.79 17.88<br />
106.17 100.38<br />
0.14 --<br />
106.03 100.38<br />
23.10 20.24<br />
82.93 80.14<br />
171.86 158.98<br />
26.57 21.16<br />
Deductions during the year<br />
Depreciation to date<br />
Total<br />
198.43 180.14<br />
5.94 8.28<br />
192.49 171.86<br />
128.34 114.51<br />
64.15 57.35<br />
III. Leased Fixed Assets<br />
Cost as on 31 st March of the preceding year<br />
Additions during the year<br />
Deductions during the year<br />
Depreciation to-date<br />
Less Accumulated Lease Adjustment<br />
Less Other Adjustments<br />
Total<br />
Total (I. II & III)<br />
20.16 20.16<br />
-- --<br />
20.16 20.16<br />
4.84 --<br />
15.32 20.16<br />
6.05 7.77<br />
9.27 12.39<br />
8.15 11.22<br />
1.12 1.17<br />
.13 0.17<br />
1.00 1.00<br />
148.08 138.49<br />
F -14
SCHEDULE -11 OTHER ASSETS<br />
I. Interest accrued<br />
II. Tax paid in advance/tax deducted at source *<br />
III. Stationery and Stamps<br />
IV. Non-<strong>Bank</strong>ing Assets acquired in satisfaction of claims<br />
V. Others<br />
Total<br />
* Includes Rs 4280.00 lakhs being MAT Credit Entitlement.<br />
Rs in crore)<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
182.33 146.32<br />
179.00 158.47<br />
2.94 2.33<br />
1.47 0.21<br />
288.06 179.72<br />
653.80 487.05<br />
SCHEDULE - 12 CONTINGENT LIABILITIES<br />
I. Claims against the <strong>Bank</strong> not acknowledged as debts<br />
II. Liability on account of outstanding Forward Exchange<br />
Contracts *<br />
III. Guarantees given on behalf of constituents<br />
a) In India<br />
b) Outside India<br />
IV. Acceptances. Endorsements & other Obligations<br />
V. Other items for which the bank is contigently liable<br />
Total<br />
* Includes derivatives<br />
Rs in crore)<br />
As on<br />
As on<br />
31.03.2010 31.03.2009<br />
28.33 16.87<br />
7,163.96 8,146.95<br />
1,030.37 909.85<br />
-- --<br />
673.61 444.39<br />
1,222.97 524.68<br />
10,119.24 10,042.74<br />
SCHEDULES TO PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2010<br />
SCHEDULE – 13 INTEREST EARNED<br />
Year ended<br />
(Rs in crore)<br />
Year ended<br />
31.03.2010 31.03.2009<br />
I. Interest/discount on advances/bills 1,388.98 1,390.93<br />
II. Income on Investments 633.46 545.19<br />
III. Interest on balances with R.B.I / other Inter-<strong>Bank</strong> funds 0.58 5.52<br />
IV. Others 20.40 7.12<br />
Total<br />
2,043.42 1,948.76<br />
F -15
SCHEDULE - 14 OTHER INCOME<br />
Year ended<br />
( Rs in crore)<br />
Year ended<br />
31.03.2010 31.03.2009<br />
I. Commission. Exchange & Brokerage 126.28 103.21<br />
II. Profit on sale of Investments (net) 114.76 159.31<br />
III. Profit on Revaluation of Investments (net) -- --<br />
IV. Profit on sale of Land. Buildings & Other Assets (net) 0.21 0.01<br />
V. Profit on Exchange Transactions(net) 24.53 28.89<br />
VI. Income earned by way of dividends etc.. from Subsidiaries/<br />
Companies and /or Joint Ventures abroad/ in India -- --<br />
VII. Lease Income -- --<br />
VIII. Miscellaneous income 45.48 30.37<br />
Total<br />
311.26 321.79<br />
SCHEDULE - 15 INTEREST EXPENDED<br />
Year ended<br />
(Rs in crore)<br />
Year ended<br />
31.03.2010 31.03.2009<br />
1. Interest on deposits 1,661.95 1,406.89<br />
2. Interest on Reserve <strong>Bank</strong> of India/Inter-<strong>Bank</strong> Borrowings 4.39 10.32<br />
3. Others 41.45 26.62<br />
Total<br />
SCHEDULE - 16 OPERATING EXPENSES<br />
1,707.79 1,443.83<br />
Year ended<br />
(Rs in crore)<br />
Year ended<br />
31.03.2010 31.03.2009<br />
I. Payments to and provisions for employees 206.80 190.41<br />
II. Rent. Taxes and Lighting 49.45 43.69<br />
III. Printing and Stationery 3.99 3.56<br />
IV. Advertisement and Publicity 3.18 2.95<br />
V. Depreciation on <strong>Bank</strong>'s property 22.23 19.83<br />
VI. Directors' fees. allowances and expenses 0.57 0.44<br />
VII. Auditors' fees and expenses (including branch auditors) 1.17 0.99<br />
VIII. Law charges 1.36 1.31<br />
IX. Postage. telegrams. telephones etc. 7.79 6.30<br />
X. Repairs and Maintenance 12.27 11.94<br />
XI. Insurance 24.07 20.98<br />
XII. Other expenditure 53.17 44.11<br />
Total<br />
386.05 346.51<br />
F -16
SCHEDULE - 17<br />
SIGNIFICANT ACCOUNTING POLICIES<br />
1. BASIS OF PREPARATION:<br />
<strong>The</strong> accompanying financial statements have been prepared on historical cost convention on the accrual<br />
basis of accounting, unless otherwise stated, and comply with generally accepted accounting principles,<br />
statutory requirements prescribed under the <strong>Bank</strong>ing Regulation Act, 1949, circulars and guidelines issued<br />
by the Reserve <strong>Bank</strong> of India (RBI) from time to time and notified accounting standards by Companies<br />
(Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in banking<br />
industry in India.<br />
2. USE OF ESTIMATES:<br />
<strong>The</strong> preparation of the financial statements, in conformity with generally accepted accounting principles,<br />
requires management to make estimates and assumptions that affect the reported amounts of assets and<br />
liabilities, revenue and expenses along with disclosure of contingent liabilities at the date of the financial<br />
statements. Actual results could differ from those estimates. <strong>The</strong> Management believes that the estimates<br />
used in the preparation of the financial statements are prudent and reasonable. <strong>The</strong> differences if any<br />
between estimate and actual will be dealt appropriately in future periods.<br />
3. REVENUE RECOGNITION:<br />
Income and expenditure are accounted for on accrual basis except receipt of commission, exchange, rent<br />
on safe deposit lockers all of which are accounted on cash basis. In respect of Non Performing Assets, the<br />
bank has not recognised interest. Recoveries are appropriated towards the principal, interest and charges in<br />
the order of demand. In the case of matured Term Deposits, interest is provided at the rate of interest<br />
applicable to savings bank deposit pending renewal / discharge and the balance overdue interest is<br />
accounted for at the time of renewal.<br />
4. INVESTMENTS:<br />
Investments have been presently classified under the heads “Held to Maturity”, “Available for Sale” and<br />
“Held for Trading” categories and have been valued in accordance with the RBI guidelines. <strong>The</strong> value net<br />
of depreciation has been shown in the Balance Sheet. <strong>The</strong> excess of acquisition cost over the face value of<br />
securities under “Held to Maturity” is amortised over the remaining period to Maturity. Provision for nonperforming<br />
investments has been made as per RBI guidelines.<br />
5. ADVANCES:<br />
All outstanding advances are reviewed and classified under 4 categories namely<br />
a) Standard Assets<br />
b) Sub-Standard Assets<br />
c) Doubtful Assets and<br />
d) Loss Assets<br />
Provision for Non-performing and Standard Advances has been made on the basis of asset classification and<br />
provisioning requirement over and above the prudential norms laid down by the Reserve <strong>Bank</strong> of India.<br />
Advances shown in the Balance Sheet are net of provisions (including Floating Provision) for Non<br />
Performing Advances and unrealised interest.<br />
F -17
6. FIXED ASSETS<br />
Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date.<br />
Software is capitalised along with computer and included under Other Fixed Assets.<br />
7. DEPRECIATION: - Depreciation on fixed assets has been provided on written down value method as<br />
per the rates and in the manner specified under Schedule –XIV of the Companies Act 1956, except in<br />
respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per<br />
RBI guidelines which is more than the amount required under schedule –XIV of the Companies Act<br />
1956.Depreciation on assets purchased during the year has been computed upto the end of the year<br />
including for the entire month in which the asset was capitalised, and on assets sold/scrapped, upto the end<br />
of the month in which it is sold/scrapped. Depreciation of leased assets has been calculated so as to spread<br />
the depreciable amount over the primary lease period as per RBI guidelines. Carrying amount of assets is<br />
reviewed at each balance sheet date for indication of impairment if any. An impairment loss is recognized<br />
wherever the carrying amount of an asset exceeds its recoverable value.<br />
8. FOREIGN CURRENCY TRANSACTIONS:<br />
a) Foreign currency transactions of FCNR/EEFC/RFC accounts are re-valued at the year end closing spot<br />
rates as published by Foreign Exchange Dealers Association of India (FEDAI).<br />
b) Transactions other than FCNR/EEFC/RFC accounts: -<br />
Foreign currency balances both under Assets and Liabilities and outstanding Forward Exchange Contracts<br />
and Swaps are evaluated at the year-end rates published by FEDAI. <strong>The</strong> resultant profit/loss is shown as<br />
Income/Loss.<br />
<strong>The</strong> Gain or Loss on a trading forward exchange contract is computed by multiplying the forward rate<br />
available on the reporting date for the remaining maturity period of the contract, and the difference between<br />
that amount and the contracted forward amount is recognised as profit or loss for the period.<br />
Revenue items are translated at the exchange rates ruling on the dates of transactions.<br />
Contingent liabilities on account of acceptances, endorsements and other obligations including guarantees<br />
and letters of credit issued in foreign currencies are valued at the year end closing spot rates published by<br />
FEDAI.<br />
9. STAFF BENEFITS:<br />
Provision for payment of Gratuity and Pension are made on actuarial basis and paid to the concerned funds, Leave<br />
encashment benefit and leave fare concession payable at a future date to the employees has been accounted on<br />
accrual basis as per actuarial valuation. On the rest of the employee benefits, adhoc provisions have been made.<br />
10. INCOME TAX :<br />
<strong>The</strong> provision for tax for the year comprises of current tax liability and deferred tax assets and liabilities which<br />
recognise, subject to the consideration of prudence, timing differences, being the difference between taxable<br />
income and accounting income that originate in one period and are capable of reversal in one or more subsequent<br />
periods.<br />
F -18
11. SHARE ISSUE EXPENSES:<br />
Share issue expenses are adjusted from share premium account.<br />
12. EMPLOYEE STOCK OPTION:<br />
<strong>The</strong> <strong>Bank</strong> has elected to use intrinsic value method to account for compensation cost of stock options granted<br />
to employees of the <strong>Bank</strong>. Intrinsic value is the amount by which the quoted market price of the underlying<br />
shares exceeds the exercise price of the options.<br />
13. SEGMENT REPORTING:<br />
(i) <strong>The</strong> <strong>Bank</strong> has recognised the Business Segment as the Primary Reporting Segment and Geographical<br />
Segment as Secondary Segment in accordance with the RBI guidelines in compliance with the Accounting<br />
Standard 17.<br />
(II)<strong>The</strong> Business Segment has been divided into (a) Treasury (b) Corporate and Wholesale <strong>Bank</strong>ing, (c) Retail<br />
<strong>Bank</strong>ing and (d) Other <strong>Bank</strong>ing Operations.<br />
(iii) <strong>The</strong> Geographical Segment consists only of the Domestic Segment, as the <strong>Bank</strong> does not have any foreign<br />
branches.<br />
14. NET PROFIT<br />
<strong>The</strong> net profit disclosed in the Profit & Loss Account is after making necessary provisions for taxes, NPA,<br />
Standard Advances, and Investments without recognising unrealised interest on Non-Performing Assets as per<br />
RBI guidelines.<br />
SCHEDULE – 18<br />
NOTES ON ACCOUNTS FORMING PART OF THE BALANCE SHEET AS ON, THE PROFIT AND<br />
LOSS ACCOUNT AND THE CASH FLOW STATEMENT FOR THE YEAR ENDED 31 st MARCH 2010.<br />
1. Reconciliation of Branch Adjustments and Balancing of Subsidiary Ledgers.<br />
a) Reconciliation of branch adjustments/Inter <strong>Bank</strong> accounts has been completed upto 31-03-2010 and steps are<br />
being taken to give effect to consequential adjustments of pending items.<br />
b) Balancing of Subsidiary Ledgers are completed in all branches/offices.<br />
2. Net profit or Loss for the period, Prior period items and changes in Accounting policies (Accounting<br />
Standard 5): -<br />
<strong>The</strong>re are no significant prior period items which are required to be disclosed as per RBI guidelines. However<br />
during the year, the <strong>Bank</strong> has made some changes in Accounting Policies as detailed below:<br />
Recoveries made in Non-Performing advances are appropriated towards the principal, interest and charges in their<br />
order of demand instead of first appropriating the same towards the principal and the balance towards interest as<br />
followed in previous years. Due to this change, the profit (net) for the year is higher by Rs 4.97 crore.<br />
F -19
3 Share Issue Expenses<br />
During the year, the <strong>Bank</strong> issued equity shares under Qualified Institutional Placement. <strong>The</strong> entire expenses<br />
including amount paid to Lead Merchant <strong>Bank</strong>ers have been deducted from the share premium collected on the<br />
issue as per the provisions of section 78(2) (c) of <strong>The</strong> Company’s Act 1956..<br />
4. Employee Benefits –Accounting Standard 15<br />
Various Benefits made available to the Employees are:-<br />
a) Pension: <strong>The</strong> <strong>Bank</strong> has defined benefit plan under Pension Trust to employees who have opted for Pension<br />
Scheme under the Pension & Group Schemes unit of LIC of India, by purchasing annuity for optants separated after<br />
completion of 20 years of service. <strong>The</strong> Benefits under this plan are based on last drawn salary and the tenure of<br />
employment. <strong>The</strong> Liability for the pension is determined and provided on the basis of actuarial valuation.<br />
b) Gratuity: In accordance with the applicable Indian Laws, the <strong>Bank</strong> provides for defined gratuity benefit<br />
retirement plan (‘the gratuity Plan’) covering eligible employees. This plan provides for a lumpsum payment to the<br />
eligible employees on retirement, death, incapacitation or termination of employment of amounts that are based on<br />
the last drawn salary and tenure of employment. Liabilities with regard to the gratuity plan are determined by<br />
actuarial valuation and contributed to the gratuity fund trust. Trustees administer the contribution made to the trust<br />
and invest in specific designated securities as mandated by law, which generally comprise of Central and State<br />
government bonds and debt instruments of government owned corporations.<br />
c) Leave Encashment (PL): <strong>The</strong> bank permits encashment of leave accumulated by employees on retirement,<br />
resignation and during the course of service. <strong>The</strong> liability of encashment of such leave is determined and provided on<br />
the basis of actuarial valuation performed by an independent actuary at the balance sheet date<br />
d) Provident Fund: <strong>The</strong> <strong>Bank</strong> pays fixed contribution to Provident Fund at predetermined rates to a separate trust,<br />
which invests the funds in permitted securities. <strong>The</strong> contribution to the fund is recognised as expense and is charged<br />
to the profit and Loss account. <strong>The</strong> obligation of the <strong>Bank</strong> is limited to such contributions. As on 31 st March 2010,<br />
there was no liability due and outstanding to the fund by the <strong>Bank</strong>.<br />
e) Other Long term Employee Benefits<br />
Other than the employees benefits listed above, the <strong>Bank</strong> also gives certain long term benefits to the employees<br />
which include Medical aid, reimbursement of hospitalization expenses to the employees / their family members,<br />
compensated absence such as sick leave and casual leave etc. <strong>The</strong> bank has made provision for such liabilities on<br />
an adhoc basis.<br />
<strong>The</strong> summarized position of Post-employment benefits and long term employee benefits recognized in the Profit &<br />
Loss Account and the Balance Sheet as required in accordance with Accounting Standard – 15 (Revised) are as<br />
under :<br />
a) Changes in the present value of the obligations (Rs.in Crore)<br />
Pension<br />
(Funded)<br />
Gratuity<br />
(Funded)<br />
Leave Encashment<br />
(Un Funded)<br />
Present Value of obligation as at the beginning of the year 125.24 57.00 29.63<br />
Interest Cost 9.71 4.42 2.30<br />
F -20
Pension<br />
(Funded)<br />
Gratuity<br />
(Funded)<br />
Leave Encashment<br />
(Un Funded)<br />
Current Service Cost 5.65 1.45 1.35<br />
Benefits Paid -- (5.56) --<br />
Actuarial Loss/(Gain) on Obligations 6.79 1.39 (0.63)<br />
Present Value of obligation at year end 147.39 58.70 32.65<br />
b) Change in Fair Value of Plan Asset (Rs.in Crore)<br />
Pension<br />
(Funded)<br />
Gratuity<br />
(Funded)<br />
Leave<br />
Encashment<br />
(Un Funded)<br />
Fair Value of Plan Assets at the beginning of the year 125.75 57.40 29.63<br />
Expected return on Plan Assets 9.75 4.45 --<br />
Employer's contribution 19.76 5.00 2.63<br />
Benefits Paid -- (5.56) --<br />
Actuarial (Loss)/Gain on Obligations (7.48) (1.90) 0.39<br />
Fair Value of Plan Asset at the end of the year 147.78 59.39 32.65<br />
c) Net Actuarial Gain / Loss (Rs in crore)<br />
Pension<br />
(Funded)<br />
Gratuity<br />
(Funded)<br />
Leave<br />
Encashment<br />
(Un Funded)<br />
Actuarial (Gain) / Loss on obligations (i) 6.79 1.39 (0.63)<br />
Actuarial Gain /(Loss )on assets (ii) (7.48) (1.90) 0.39<br />
Net Actuarial Gain / (Loss) {(ii) – (i)} (14.27) (3.29) 1.02<br />
Actuarial Gain / (Loss) recognised in the period (14.27) (3.29) 1.02<br />
Actuarial Gain/ (Loss) unrecognised at the end of the<br />
year<br />
-- -- --<br />
F -21
d) Amount recognized in Balance Sheet (Rs. In Crore)<br />
Pension<br />
(Funded)<br />
Gratuity<br />
(Funded)<br />
Leave<br />
Encashment<br />
(Un Funded)<br />
Estimated Present value of deferred payment obligations<br />
as at the end of the year<br />
147.39 58.70 32.65<br />
Less Fair Value of Plan Assets as at the end of the Year 147.39 58.70 32.65<br />
Funded in advance -- -- --<br />
Unfunded Transitional Liability -- -- --<br />
Unfunded Net Liability / (Assets) recognised in Balance<br />
Sheet<br />
(0.39) (0.69) --<br />
e) Expenses recognized in Profit & Loss Account (Rs. In Crore)<br />
Pension<br />
(Funded)<br />
Gratuity<br />
(Funded)<br />
Leave<br />
Encashment (Un<br />
Funded)<br />
Current Service Cost 5.65 1.45 1.35<br />
Interest Cost 9.71 4.42 2.30<br />
Transitional Liability recognised during the year -- -- --<br />
Less : Expected return on Plan Asset 9.75 4.45 --<br />
Net Actuarial Gain/ (Loss) recognized in the year (14.27) (3.29) 1.02<br />
Net Benefit Expense 19.88 4.71 2.63<br />
f) Movement in Liability Recognised in the Balance Sheet ( Rs in Crore)<br />
Pension (Funded)<br />
Gratuity (Funded)<br />
Leave Encashment<br />
(Un Funded)<br />
Opening Net Liability -- -- --<br />
Net benefit expensed 19.88 4.71 2.63<br />
Contribution Paid 19.88 4.71 2.63<br />
Closing net liability (--) (--) (--)<br />
F -22
g .Investment percentage maintained by Pension & Gratuity Trust<br />
Pension Trust<br />
Gratuity Trust<br />
Central Government Securities - 18.17<br />
State Government Securities -- 12.05<br />
PSU Bond -- 20.87<br />
Others 0.06 48.91<br />
Insure Managed fund 99.94 --<br />
Total 100.00 100.00<br />
h) Principal actuarial assumption at the Balance Sheet Date (expressed as weighted average)<br />
Pension (Funded)<br />
Gratuity (Funded)<br />
Leave Encashment (Un<br />
Funded)<br />
Method of Valuation Projected unit Credit Projected unit Credit Projected unit Credit<br />
Rate of Interest 8.00% 8.00% 8.00%<br />
Rate of Inflation 4.25% 4.25% 4.25%<br />
Mortality<br />
LIC (94-96) –Table of<br />
Mortality Rates<br />
LIC (94-96) –Table<br />
of Mortality Rates<br />
LIC (94-96) –Table of<br />
Mortality Rates<br />
Contribution 10% of basic Pay - -<br />
Rate of Withdrawal - - 5%<br />
Note:<br />
1. <strong>The</strong> estimates of future salary increases considered in actuarial valuation, take account of inflation, seniority,<br />
promotion and other relevant factors, such as supply and demand in employee market.<br />
2. <strong>The</strong> financial assumptions considered for the calculations are as under:<br />
Discount Rate: <strong>The</strong> discount rate has been chosen by reference to market yield on government bonds as on the date<br />
of valuation. (Balance sheet dated 31.03.2010)<br />
Expected Rate of Return: <strong>The</strong> expected rate of return is taken on the basis of yield on government bonds.<br />
Salary Increase : On the basis of past data provided by the bank.<br />
i) Other long term employee’s benefits (Un-Funded) (Rs.in Crore)<br />
Other Benefits #<br />
Liability as on 01.04.2009 3.07<br />
Liability as on 31.03.2010 3.08<br />
Transitional Liability --<br />
Amount debited /(credited )to Profit & Loss Account 0.01<br />
F -23
# Includes LFC Encashment, Medical Aid, Hospitalisation Reimbursement, Sick Leave etc.<br />
* LFC encashment has been taken at actuarial valuation and others on adhoc basis<br />
5. Segment reporting (Accounting Standard 17).<br />
For the purpose of segment reporting in terms of AS 17 of ICAI and as prescribed in RBI guidelines, the business of<br />
the <strong>Bank</strong> has been classified into 4 segments i.e.(a) Treasury operations (b) Corporate / Wholesale <strong>Bank</strong>ing (c)<br />
Retail <strong>Bank</strong>ing and (d) Other <strong>Bank</strong>ing Operations. Since the <strong>Bank</strong> does not have any overseas branch, reporting<br />
under geographic segment does not arise. Segment assets have been identified and segment liabilities have been<br />
allocated on the basis of segment assets.<br />
Segmentwise Results for the year ended 31.03.2010<br />
Part A – Business Segments<br />
(Rs. in Crore)<br />
Business Segments<br />
(AUDITED)<br />
31.03.2010 31.03.2009<br />
Revenue<br />
Treasury 808.29 753.51<br />
Corporate/Wholesale <strong>Bank</strong>ing 661.29 629.08<br />
Retail <strong>Bank</strong>ing 839.41 850.46<br />
Other <strong>Bank</strong>ing Operations 45.69 37.50<br />
Total 2,354.68 2,270.55<br />
Result<br />
Treasury -77.68 34.15<br />
Corporate/Wholesale <strong>Bank</strong>ing -51.35 21.72<br />
Retail <strong>Bank</strong>ing 303.14 331.72<br />
Other <strong>Bank</strong>ing Operations 37.88 31.96<br />
Total 211.99 419.55<br />
Unallocated expenses 22.23 19.84<br />
Profit before Tax 189.76 399.71<br />
Other information<br />
Capital Employed (Segment Assets-Segment Liabilities)<br />
(a)Treasury Operations 858.26 765.62<br />
(b)Corporate <strong>Bank</strong>ing 594.64 472.77<br />
(c)Retail <strong>Bank</strong>ing 379.34 327.83<br />
(d) Other <strong>Bank</strong>ing Operations 0.51 0.81<br />
Total 1,832.75 1,567.03<br />
F -24
Part B - Geographic Segments: <strong>The</strong>re is only one segment i.e. Domestic segment<br />
6. Related Party Disclosure (Accounting Standard 18):<br />
<strong>The</strong>re is no related party transaction other than remuneration paid to Sri Ananthakrishna as Chairman and Chief<br />
Executive Officer upto 12.07.2009, a sum of Rs 9,14,516/- (Previous year Rs 32,40,000) and Sri P Jayarama Bhat<br />
as Managing Director and Chief Executive Officer from 13.07.2009, a sum of Rs. 23,16,774/- ( previous year Rs<br />
nil) as remuneration and contribution to Provident Fund etc. Sri Ananthakrishna, non executive chairman has<br />
forgone the payment of Rs 1 lakh per month effective from July 13, 2009 and the same has been accepted by the<br />
Board.<br />
7. a) Earnings per Share (Accounting Standard 20):<br />
31.03.2010 31.03.2009<br />
i) Earnings per share Basic Rs. 13.50 21.96<br />
ii) Earnings per share Diluted Rs 13.45 21.96<br />
iii) Net Profit as per Profit and Loss Account (Rs. In crore) 167.12 266.70<br />
iv) No of Equity Shares (weighted Avg.)-Basic 12,37,79,973 1,21,444,753<br />
v) No of Equity Shares for Diluted earnings 12,42,36,031 1,21,444,753<br />
<strong>The</strong> Net profit for the year has been used as the numerator and the weighted average number of equity shares as<br />
denominator in calculating the earning per share.<br />
(b) 2800 equity shares (previous year 2800 equity shares) allotment of which is in abeyance, being sub judice.<br />
8. Accounting for Taxes on Income - Accounting Standard 22:<br />
<strong>The</strong> <strong>Bank</strong> has accounted for taxes on income in compliance with Accounting Standard 22 issued by the ICAI.<br />
Accordingly, deferred tax assets and liabilities are recognised. <strong>The</strong> major components of deferred tax are as<br />
under: -<br />
Timing Differences:<br />
( Rs. in crore)<br />
Particulars<br />
As on 31.03.2010 As on 31.03.2009<br />
A. Deferred Tax Liabilities<br />
1. Depreciation on fixed assets 5.12 5.54<br />
2. Depreciation on investments 88.93 30.78<br />
3. Accrued Interest on Investments 55.51 49.48<br />
Total 149.56 85.80<br />
B. Deferred Tax Assets<br />
1. PL/LFC Encashment 11.46 10.43<br />
2. Arrears of Salary 15.52 7.82<br />
3. Others 19.65 6.77<br />
Total 46.63 25.02<br />
Net deferred tax liabilities (A) – ((B) 102.93 60.78<br />
F -25
9. Impairment of Assets – Accounting Standard –28<br />
Fixed Assets possessed by the bank are treated as “Corporate Assets” and are not “Cash Generating<br />
Units” as defined by AS – 28 issued by the Institute of Chartered Accountants of India (ICAI). In the<br />
opinion of the management, there is no impairment of the fixed assets of the <strong>Bank</strong>.<br />
10. Provisions, Contingent Liabilities and Contingent Assets- Accounting Standard 29<br />
a) Movement of provisions for liabilities*<br />
( Rs. in Crore)<br />
Particulars Legal cases /contingencies **<br />
Balance as at 1 st April 2009 15.41<br />
Provided during the year 7.75<br />
Amounts used during the year 11.25<br />
Reversed during the year --<br />
Balance as at 31 st March 2010 11.91<br />
Timing of outflow/uncertainties<br />
Outflow on settlement / crystallization<br />
* excluding provisions for others.<br />
** Including towards customary practices<br />
b) Contingent Liabilities of schedule 12<br />
Liabilities at Sl. No. (I) to (V) are dependent upon, the outcome of Court / arbitration / out of court settlement,<br />
disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of<br />
demand by concerned parties, respectively. Reimbursement is expected except in item no (I).<br />
c) Contingent Assets:- Nil<br />
11. ADDITIONAL DISCLOSURE:<br />
In terms of RBI guidelines, the following additional disclosures have been made:<br />
11.1 Capital Adequacy:<br />
31.03.2010 31.03.2009<br />
i) Capital Adequacy Ratio (%)<br />
- Basel –I 11.85% 13.54%<br />
- Basel II 12.37% 13.48%<br />
ii)Capital Adequacy Ratio -- Tier – I Capital (%)<br />
- Basel –I 9.56% 10.65%<br />
- Basel II 9.98% 10.60%<br />
ii)Capital Adequacy Ratio -- Tier – II Capital (%)<br />
- Basel -I 2.29% 2.89%<br />
- Basel II 2.39% 2.88%<br />
iii) Amount of subordinated debt raised as Tier II capital (Rs in crore) 350.00 350.00<br />
F -26
11.2 Investments (Rs in crore)<br />
Items 31.03.2010 31.03.2009<br />
(1) Value of Investments<br />
(i) Gross Value of Investments<br />
(a) In India<br />
(b) Outside India<br />
(ii) Provisions for Depreciation<br />
(a) India<br />
(b) Outside India<br />
(iii) Net Value of Investments<br />
(a) In India<br />
(b) Outside India<br />
(2) Movement of provisions held towards depreciation on investments<br />
(i) Opening balance<br />
(ii) Add: Provisions made during the year<br />
(iii) Less : Write-off/write-back of excess provisions during the year<br />
(iv) Closing balance<br />
11.3 Repo transactions :<br />
<strong>The</strong> particulars of Repo transactions are as under:<br />
(Rs in crore)<br />
10,021.66<br />
Nil<br />
29.61<br />
Nil<br />
9,992.05<br />
Nil<br />
47.83<br />
0.00<br />
18.22<br />
29.61<br />
9,009.32<br />
Nil<br />
47.83<br />
Nil<br />
8,961.49<br />
Nil<br />
44.31<br />
33.35<br />
29.83<br />
47.83<br />
Outstanding during the Year<br />
As on 31.03.2010<br />
Particulars Min Max Daily<br />
Average<br />
Securities sold under repos 50.00 50.00 0.41 --<br />
Securities purchased under reverse repos 85.00 900.00 186.76 --<br />
11.4 Issuer composition of Non-SLR Investments (Rs. In crore)<br />
Sl.No. Issuer Amount Extent of<br />
Private<br />
placements<br />
Extent of ‘below<br />
investment grade’<br />
securities<br />
Extent of<br />
‘un-rated’<br />
securities<br />
Extent of<br />
‘un-listed’<br />
securities<br />
01 PSUs 257.20 34.68 0.17 -- --<br />
02 Financial Institutions 2,569.71 2,402.88 -- -- --<br />
03 <strong>Bank</strong>s 147.91 36.03 -- -- --<br />
04 Private Corporates 277.71 162.69 -- 24.54 0.77<br />
05 Subsidiaries / joint ventures 22.50 22.50 -- 22.50 22.50<br />
06 Others 319.81 8.26 -- -- --<br />
07 Less Provision held towards<br />
deprecation/NPA<br />
-8.74 XXX XXX XXX XXX<br />
TOTAL 3,586.10 2,667.04 0.17 47.04 23.27<br />
F -27
11.5 Non Performing Non-SLR investments (Rs.in crore)<br />
Particulars 2009-10 2008-09<br />
Opening Balance -- 1.89<br />
Additions during the year -- --<br />
Deductions during the above period -- 1.89<br />
Closing Balance -- --<br />
Total Provision Held -- --<br />
11.6 Forward Rate Agreement/ Interest Rate Swaps/Exchange Traded Interest Rate Derivatives:<br />
Forward Rate Agreements / Interest Rate Swap<br />
(Rs in Crore)<br />
Items 31.03.2010 31.03.2009<br />
i) <strong>The</strong> Notional principal of swap agreements 116.62 131.74<br />
ii)Losses which would be incurred if counter parties failed to<br />
-- --<br />
fulfill their obligations under the agreements<br />
iii) Collateral required by the bank upon entering into swaps -- --<br />
iv) Concentration of credit risk arising from swaps Client Client<br />
v) <strong>The</strong> fair values of the swap book -- --<br />
Note: (i) Interest rate swap (fix v/s. fix) was undertaken for the purpose of client’s hedging requirements, the<br />
underlying for the transaction being FCCB and ECB exposures of the client.<br />
(ii) <strong>The</strong> entire interest rate swap covered on back-to-back basis with counter party bank and there is no open position.<br />
However the contingent liability is recognised.<br />
Exchange Traded Interest Rate Derivatives<br />
Rs in crore<br />
Sl<br />
No<br />
Particulars<br />
Amount<br />
I Notional principal amount of exchange traded interest rate derivatives Nil<br />
Ii Notional principal amount of exchange traded interest rate derivatives<br />
Nil<br />
outstanding as on 31 st March 2010 (instrument wise)<br />
Iii<br />
iv<br />
Notional principal amount of exchange traded interest rate derivatives<br />
outstanding and not “highly effective” (instrument wise)<br />
Mark- to-market value of exchange traded interest rate derivatives<br />
outstanding and not “highly effective” (instrument wise)<br />
Nil<br />
Nil<br />
F -28
11.7 Disclosure on Risk Exposures in Derivatives<br />
(i) Qualitative Disclosure:<br />
Operations in the Treasury are segregated into three functional areas, namely. Front office, Mid office and Back<br />
office, equipped with necessary infrastructure and trained officers, whose responsibilities are well defined.<br />
<strong>The</strong> Integrated Treasury policy of the <strong>Bank</strong> clearly lays down the types of financial derivative instruments, scope of<br />
usages, approval process as also the limits like the open position limits, deal size limits and stop loss limits for<br />
trading in approved instruments.<br />
<strong>The</strong> Mid Office is handled by Risk Management Department. Daily report is submitted to Risk Management<br />
department, which, in turn appraises the risks profile to the senior management on the assets and liability<br />
management.<br />
<strong>The</strong> <strong>Bank</strong> ensures that the transactions with the corporate clients are undertaken only after the inherent credit<br />
exposures are quantified and approved in terms of the approval process laid down in the Derivative Policy for<br />
customer appropriateness and suitability and necessary documents like ISDA agreements etc. are duly executed.<br />
<strong>The</strong> <strong>Bank</strong> has adopted Current Exposure Method for monitoring the credit exposures.<br />
<strong>The</strong> <strong>Bank</strong> also uses financial derivative transactions for hedging its on or off Balance Sheet exposures. <strong>The</strong><br />
Integrated Treasury Policy of the <strong>Bank</strong> spells out the approval process for hedging the exposures. <strong>The</strong> hedge<br />
transactions are monitored on a regular basis and the notional profits or losses are calculated on MTM basis. PV01<br />
and VaR on these deals are reported to the ALCO every month.<br />
<strong>The</strong> hedged/non hedged transactions are recorded separately. <strong>The</strong> hedged transactions are accounted for on accrual<br />
basis.<br />
In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium and<br />
discount are being followed.<br />
While sanctioning the limits, the competent authority may stipulate condition of obtaining collaterals/margin as<br />
deemed appropriate. <strong>The</strong> derivative limits are reviewed periodically along with other credit limits.<br />
<strong>The</strong> customer related derivative transactions for notional value (at market rate) of Rs 187.01 crore are covered with<br />
counter party banks, on back- to- back basis for identical amount and tenure and the <strong>Bank</strong> does not have any market<br />
risk.<br />
(ii) Quantitative Disclosure:<br />
(Rs in crore)<br />
Sl.No Particulars Currency<br />
Derivatives<br />
Interest<br />
Derivatives<br />
1 Derivatives (Notional Principal Amount)<br />
a) Hedging 2,439.58 226.49<br />
b) Trading 4,716.72 --<br />
2. Marked to Market Positions<br />
Assets(+) 178.40 88.87<br />
Liabilities(-) -162.01 -88.87<br />
3. Credit Exposure 327.93 91.24<br />
F -29
Sl.No Particulars Currency<br />
Derivatives<br />
Interest<br />
Derivatives<br />
4. Likely impact of 1% change in interest Rates (100*PV01)<br />
a) on hedging derivatives -- --<br />
b) on trading derivatives -- --<br />
5. Maximum and Minimum of 100*PV01 observed during the year<br />
a) on hedging- Maximum -- --<br />
b) On hedging –minimum -- --<br />
c) on trading- Maximum -- --<br />
d) on trading – Minimum -- --<br />
11.8 Non-Performing Asset (Rs. in Crore)<br />
2009-10 2008-09<br />
i) Net NPAs to Net Advances (%) 1.31 0.98<br />
ii) Movement of NPAs (Gross)<br />
a) Opening Balance 443.20 379.57<br />
b) Additions during the year 300.28 162.44<br />
Sub total i 743.48 542.01<br />
Less :<br />
a) Upgradations 49.80 19.23<br />
b) Recoveries (excluding recoveries made in upgraded accounts) 67.91 71.18<br />
c) Write off 76.13 8.40<br />
Sub total ii 193.84 98.81<br />
Closing Balance 549.64 443.20<br />
iii) Movement Of Net NPAs<br />
a) Opening Balance 116.10 106.48<br />
b) Additions during the year 202.03 93.39<br />
318.13 199.87<br />
c) Reductions during the year 129.52 83.77<br />
d) Closing Balance 188.61 116.10<br />
iv) Movement of provisions for NPAs<br />
a)Opening balance 301.23 247.04<br />
b)Provisions made during the year 81.00 47.00<br />
c)Write off/write back of excess provisions (76.62) 7.19<br />
d) Closing balance 305.61 301.23<br />
v) Movement of Floating Provisions<br />
a) Opening Balance 11.69 13.00<br />
b) the quantum of floating provisions made during the year -- --<br />
c) Amount of draw down made during the year 1.31 1.31<br />
d) Closing balance 10.38 11.69<br />
F -30
Note: Floating provision of Rs 1.31 crore was withdrawn during the year to meet the interest loss in respect of<br />
eligible accounts under Agricultural debt waiver / debt relief scheme as permitted by RBI.<br />
11.9 Loans and advances subjected to restructuring etc., during the year:<br />
Details of Loan assets subjected to Restructuring<br />
( Rs in Crore)<br />
CDR<br />
Mechanism<br />
SME Debt<br />
Restructuring<br />
Others<br />
Total<br />
Standard<br />
Advances<br />
Restructured<br />
No of Borrowers 1 105 227 333<br />
Amount<br />
Outstanding<br />
45.28 52.74 766.78 864.80<br />
Sacrifice<br />
(diminution in the<br />
fair value)<br />
2.91 0.16 1.51 4.58<br />
Sub-Standard<br />
Advances<br />
Restructured<br />
No of Borrowers -- 5 4 9<br />
Amount<br />
Outstanding<br />
-- 1.04 0.79 1.83<br />
Sacrifice<br />
(diminution in the<br />
fair value)<br />
-- -- 0.01 0.01<br />
Doubtful<br />
Advances<br />
Restructured<br />
No of Borrowers -- -- 2 2<br />
Amount<br />
Outstanding<br />
-- -- 39.25 39.25<br />
Sacrifice<br />
(diminution in the<br />
fair value)<br />
-- -- -- --<br />
Total<br />
No of Borrowers 1 110 233 344<br />
Amount<br />
Outstanding<br />
Sacrifice<br />
(diminution in<br />
the fair value)<br />
45.28 53.78 806.82 905.88<br />
2.91 0.16 1.51 4.58<br />
F -31
11.10 Details of Assets sold to Securitisation Company / Re-construction Company<br />
(Rs. in Crore)<br />
Sl.No Particulars 2009-10 2008-09<br />
01 No of Accounts Nil Nil<br />
02 Aggregate Value (net of Provisions) of accounts sold to SC/RC -- --<br />
03 Aggregate consideration -- --<br />
04 Additional consideration realised in respect of accounts transferred in<br />
earlier years<br />
-- --<br />
05 Aggregate Gain / Loss over net book value -- --<br />
11.11 Details of non-performing financial assets purchased (Rs in crore)<br />
Sl<br />
no<br />
Particulars 31.03.2010 31.03.2009<br />
1 a) no. of accounts purchased during the year -- --<br />
b) aggregate outstanding -- --<br />
2 a) Of these, number of accounts restructured during the year -- --<br />
b) aggregate outstanding -- --<br />
11.12 Details of non-performing financial assets sold: (Rs in crore)<br />
Sl Particulars 31.03.2010 31.03.2009<br />
1 No of accounts sold 1 --<br />
2 Aggregate outstanding -- --<br />
3 Aggregate consideration received 1.50 --<br />
11.13 Provisions on Standard Asset (Rs in crore)<br />
Item 31.03.2010 31.03.2009<br />
Provisions towards Standard Assets 57.66 54.91<br />
11.14 Significant performance indicators<br />
31.03.2010 31.03.2009<br />
I ) Interest Income to working funds 8.18% 8.99%<br />
ii) Non-interest income to working funds 1.25% 1.66%<br />
iii) Operating profits to working funds 1.04% 2.25%<br />
iv) Return on Assets 0.67% 1.25%<br />
v) Business (Deposits Plus Advances) per employee (Rs. In crore) 7.27 6.49<br />
vi) Profit per employee (Rs. In crore ) 0.03 0.05<br />
F -32
11.15 Asset Liability Management<br />
Maturity Pattern of certain item of asset and liabilities<br />
(Rs. in crore)<br />
1 day 2 to 7<br />
days<br />
8 to 14<br />
days<br />
15-28<br />
Days<br />
29<br />
Days to<br />
3<br />
Months<br />
Over 3<br />
Month<br />
s to 6<br />
Month<br />
s<br />
Over 6<br />
Month<br />
s to 12<br />
Month<br />
s<br />
Over 1<br />
Year<br />
to 3<br />
years<br />
Over 3<br />
Years<br />
to 5<br />
Years<br />
Over 5<br />
Years<br />
Total<br />
Loans &<br />
Advances 209.67 309.91 347.98 319.78 1,624.24 1,493.93 2,073.35 3,542.73 3,126.18 1,387.92 14,435.69<br />
Investme<br />
nts 306.20 138.94 -- -- 188.54 104.06 46.89 910.05 902.13 7,395.23 9,992.04<br />
Deposits 460.82 491.29 541.59 506.35 2,032.83 2,916.60 4,272.45 5,434.44 6,842.93 231.35 23,730.65<br />
Borrowin<br />
gs 149.85 -- -- -- 27.81 63.68 50.15 50.15 -- -- 341.64<br />
Foreign<br />
Currency<br />
Assets 40.49 370.85 127.46 89.12 1,838.25 602.16 659.73 27.50 -- -- 3,755.56<br />
Foreign<br />
Currency<br />
Liabilitie<br />
s 39.70 377.72 79.58 42.72 1,808.41 628.93 717.85 46.45 12.20 0.10 3,753.66<br />
11.16 Exposure to Sensitive Sectors:<br />
i) Exposure to Real Estate (Rs. In Crore)<br />
31.03.2010 31.03.2009<br />
a) Direct exposure<br />
(i) Residential Mortgages -<br />
Lendings fully secured by mortgages on residential property that is or will be<br />
occupied by the borrower or that is rented.<br />
872.87 781.51<br />
(ii) Commercial Real Estates –<br />
682.53 879.06<br />
Lendings secured by mortgages on commercial real estates including Non-Fund<br />
Based Limits<br />
F -33
(iii) Investments in Mortgage Backed Securities (MBS) and other securitised<br />
exposures –<br />
a) Residential ,<br />
b) Commercial Real Estate<br />
b) Indirect Exposure<br />
2.34<br />
--<br />
3.70<br />
--<br />
Fund based and non fund based exposures on National Housing <strong>Bank</strong> (NHB) and<br />
Housing Finance Companies (HFCs)<br />
338.63 566.32<br />
Total Exposure to Real Estate Sector 1,896.37 2,230.59<br />
ii) Exposure to Capital Market<br />
(Rs in crore)<br />
Category 31.03.2010 31.03.2009<br />
(i) Investments made in equity shares 160.27 138.10<br />
(ii) Investments in convertible bonds / convertible debentures -- --<br />
(iii)Investments in units of equity oriented mutual funds the corpus of which is not<br />
exclusively invested in corporate debt<br />
11.52 24.20<br />
iv) Application Money towards Rights issue -- --<br />
v) Advances against shares/bonds./debentures or other securities or on clean basis<br />
to individuals for investment in shares (including IPOs/RSOPS), convertible bonds<br />
and convertible debentures and units of equity oriented mutual funds.<br />
-- --<br />
vi) advances for any other purposes where shares or convertible bonds or<br />
convertible debentures or units of equity oriented mutual funds are taken as primary<br />
security;<br />
vii) advances for any other purposes to the extent secured by the collateral security<br />
of shares or convertible bonds or convertible debentures or units of equity oriented<br />
mutual funds i.e. where the primary security other than shares /convertible bonds<br />
/convertible debentures /units of equity oriented mutual funds ‘does not fully cover<br />
the advances’.<br />
viii) Secured and unsecured advances to stockbrokers and guarantees issued on<br />
behalf of stockbrokers and market makers:<br />
ix) loans sanctioned to corporate against the security of shares /bonds/debentures or<br />
others securities or on clean basis for meeting promoters contribution to the equity<br />
of new companies in anticipation of raising resources:<br />
0.02 --<br />
-- --<br />
66.01 51.58<br />
-- --<br />
x) bridge loans to companies against expected equity flows/issues -- --<br />
xi)underwriting commitments taken up by the banks in respect of primary issue of<br />
shares or convertible bonds or convertible debentures or units of equity oriented<br />
mutual funds<br />
-- --<br />
xii) Financing to Stockbrokers for margin trading -- --<br />
F -34
xiii)all exposures to Venture capital funds (both registered and unregistered) will be<br />
deemed to be on par with equity and hence will be reckoned for compliance with<br />
the capital market exposure ceilings (both direct and indirect)<br />
-- --<br />
Total capital market exposure 237.82 213.88<br />
* Excluding loans for personal purpose to individuals against collateral of shares.<br />
11.17 Exposure to Country Risk (Rs in crore)<br />
Risk Category<br />
Exposure (net) as at<br />
31.03.2010<br />
Provision held as at<br />
31.03.2010<br />
Exposure (net) as at<br />
31.03.2009<br />
Provision held<br />
as at 31.03.2009<br />
Insignificant 82.40 - 86.60 -<br />
Low 174.42 - 153.39 -<br />
Moderately Low 5.81 - 4.30 -<br />
Moderate 1.09 - 0.07 -<br />
Moderately High 0.90 - 0.75 -<br />
High -- - -- -<br />
Very High -- - -- -<br />
Restricted -- - -- -<br />
Off-Credit -- - -- -<br />
Total 264.62 - 245.11 -<br />
<strong>The</strong> net funded exposure of the bank in respect of foreign exchange transactions with each country is within<br />
1% of the total assets of the <strong>Bank</strong> and hence no country risk provision is required as per extant RBI<br />
guidelines.<br />
11.18 During the year, the bank has not raised any unsecured subordinated debts (Tier II Bond ). (Previous year Rs<br />
200.00 crore)<br />
11.19 Details of Single/Group Borrower limit exceeded by the <strong>Bank</strong><br />
During the year ended 31-03-2010 the <strong>Bank</strong> has not exceeded the exposure ceiling fixed by RBI to Individual<br />
/Group borrowers of 15% /40% of capital funds except in the following cases of single borrower which has<br />
been approved by the Board<br />
( Rs in Crore)<br />
Sl No Name of the Borrower Maximum Limit<br />
during the year<br />
Exposure % Maximum Limit /<br />
Liability as on<br />
31.03.2010<br />
Exposure %<br />
1 Jindal Saw Ltd 314.37 15.79 192.85 9.69<br />
F -35
11.20 Unsecured Advances (Schedule 9)<br />
<strong>The</strong> <strong>Bank</strong> has not granted any advance against intangible securities such as charge over the rights, licences, authority<br />
etc.<br />
11.21 Amount of provision made during the year Rs in crore<br />
Particulars Current Year Previous year<br />
Provision for Income Tax 48.50 194.00<br />
11.22 Penalties imposed by RBI: During the year the RBI levied the penalty of Rs 4400/- on account of<br />
discrepancies detected while processing soiled note remittances received from currency chests in their CVPS /<br />
during inspection of the currency chests for non compliance with operational guidelines.<br />
11.23 Provisions and contingencies comprise of: (Rs. in crore)<br />
i) Provision made towards NPAs / Sacrifice for restructured Standard<br />
Advance/Provision for Standard assets as per RBI guidelines<br />
31.03.2010 31.03.2009<br />
88.56 47.00<br />
ii) Provision towards Income tax (net) 23.18 153.93<br />
iii) Provision towards deferred tax 42.15 -24.55<br />
iv) Provision for Wealth tax 0.11 0.10<br />
v) Provision for Fringe Benefit Tax -- 3.53<br />
vi) Provision for depreciation on investments -18.23 33.35<br />
vii) Provision for Others 0.75 0.15<br />
vii) MAT Credit entitlement -42.80 --<br />
Total 93.72 213.51<br />
11.24 Customer Complaints:<br />
(a) No. of Complaints pending at the beginning of the year (31.03.09) 42<br />
(b) No. of complaints received during the year 4600<br />
(c) No. of complaints redressed during the year 4616<br />
(d) No. of complaints pending at the end of year (31.03.10) 26<br />
11.25 Awards passed by the <strong>Bank</strong>ing Ombudsman<br />
(a) No. of unimplemented awards at the beginning of the year(31.3.09) Nil<br />
(b) No. of awards passed by the <strong>Bank</strong>ing Ombudsman during the year Nil<br />
(c) No. of awards implemented during the year Nil<br />
(d) No. of unimplemented awards at the end of the year (31.03.10) Nil<br />
F -36
11.26 Employee Stock Options (ESOP)<br />
<strong>The</strong> shareholders of the <strong>Bank</strong> have approved the Employees Stock Options Scheme (ESOS) at the Annual General<br />
Meeting held on 15.7.2006 for grant to eligible employee’s upto 1500000 stock options in aggregate. Accordingly<br />
stock options have been granted to the eligible employees at an exercise price of Rs 50 per share. As per the Scheme<br />
the stock options granted would vest in a graded manner i.e 40% after the first year, 30% in the second year and the<br />
remaining 30% before the end of the third year from the date of grant. <strong>The</strong> vested options, subject to other<br />
conditions, are exercisable within a period of 5 years from the respective dates of vesting. During the year ended<br />
March 31, 2010 the <strong>Bank</strong> has provided a sum of Rs 38261525 as employee compensation cost being the<br />
proportionate accounting value in respect of stock options.<br />
11.27 Disclosure of Letter of comforts (LOCs) issued by <strong>Bank</strong>s:<br />
<strong>The</strong> <strong>Bank</strong> issues Letter of comforts on behalf of its various constituents against the credit limits sanctioned to them.<br />
In the opinion of the management, no significant financial impact and cumulative financial obligations have been<br />
assessed under LOCs issued by the <strong>Bank</strong> in the past, during the current year and still outstanding. Brief details of<br />
LOCs issued by the <strong>Bank</strong> are as follows:<br />
(Rs in crore)<br />
1 Letter of comforts issued during the year 266.45<br />
2 Letter of comforts matured/cancelled during the year 277.39<br />
3 Letter of comforts outstanding at the end of the year 82.56<br />
11.28 Government of India has notified “Agricultural Debt Waiver and Debt Relief Scheme 2008” for giving debt<br />
waiver to marginal and small farmers and relief to other farmers who have availed direct agricultural loans. <strong>The</strong><br />
claim for agricultural debt waiver amounting to Rs 23.13 crore lodged by the <strong>Bank</strong> subject to certification by<br />
statutory auditors of the <strong>Bank</strong>, Rs 14.98 crore being 65 % of the amount claimed has been reimbursed by the RBI<br />
during the year ending 31 st March 2010.<br />
11.29 Concentration of Deposits, advances, exposures and NPA’s<br />
i) Concentration of Deposits<br />
Sl No Particulars<br />
1 Total deposits of 20 largest depositors ( Rs in Crore) 1,986.45<br />
2 % age of deposits of 20 largest depositors to total deposits 8.37%<br />
ii) Concentration of Advances<br />
Sl No Particulars<br />
1 Total advances of 20 largest borrowers ( Rs in Crore) 3,144.22<br />
2 % age of advances of 20 largest borrowers to total advances (credit exposures 14.89%<br />
iii) Concentration of exposures<br />
Sl No<br />
Particulars<br />
F -37
1 Total exposures of 20 largest borrowers/Customers ( Rs in Crore) 3,145.53<br />
2 Percentage of Exposures to twenty largest borrowers / customers to Total<br />
Exposure of the bank on borrowers / customers<br />
14.03%<br />
iv) Concentration of NPAs<br />
Rs in crore<br />
Sl No<br />
Particulars<br />
1 Total fund based Exposure to Top Four NPA accounts 155.34<br />
v) Sectorwise NPAs Rs in Crore<br />
Sl No Sector Percentage of NPAs to Total Advances in<br />
that sector<br />
1 Agriculture & allied activities 3.10<br />
2 Industry (Micro & small, Medium and Large) 1.87<br />
3 Services 6.70<br />
4 Personal Loans 2.94<br />
vi) Overseas Assets, NPA and Revenue<br />
(Rs in crores)<br />
Particulars<br />
Total Assets<br />
Total NPAs<br />
Total Revenue<br />
Amount<br />
Nil<br />
Nil<br />
Nil<br />
Vii) Off- balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms)<br />
Name of the SPV Sponsored<br />
Domestic<br />
Nil<br />
Overseas<br />
Nil<br />
11.30 Income from Bancassurance business (Rs in crore)<br />
Sl No Nature of Income March 2010<br />
1 For selling Life Insurance Policies 18.35<br />
2 For selling Non-Life Insurance Policies 3.08<br />
3 For Mutual Fund Products 0.47<br />
4 Others (Specify) 0.12<br />
5 Total 22.02<br />
F -38
Note: Disclosures under 11.29 and 11.30 does not contain corresponding previous year figures as this is the first<br />
year of disclosure requirement mandated by RBI.<br />
11.31 In respect of investment under ‘Held to Maturity ‘category as stated in the significant accounting policy no 4<br />
the excess of acquisition cost over the face value of the security amortised during the year amounting to Rs 28.86<br />
crore (previous year Rs 11.95 crore) has been netted off from interest on investments and shown under ‘Income<br />
from Investments’ in Profit and Loss account in terms of RBI direction. During the year with the intention to<br />
strengthen the trading portfolio, the <strong>Bank</strong> has shifted securities amounting to Rs 1639.91 crore from ‘Held to<br />
Maturity’ to Available for Sale’ category at book value or market value whichever is lower and a sum of Rs nil has<br />
been charged to provision for depreciation on investments. (previous year securities amounting to Rs 420.76 crore<br />
has been shifted from ‘Held to Maturity’ to Available for Sale’ category and securities amounting to Rs 634.44<br />
crore have been shifted from ‘Available for Sale’ to ‘Held to maturity’ category by charging a sum of Rs 28.95<br />
crore to provision for depreciation on investments).<br />
12 (a) Tax demands under appeal: -<br />
A sum of Rs 47.34 crore (Previous year Rs 101.76 crore) is outstanding on account of demands raised by the<br />
Income Tax Department in earlier years which have been paid under protest. No provision is considered necessary<br />
in respect of these demands, as the <strong>Bank</strong> has been advised that there are good chances of success in appeals/<br />
considering favourable appellate orders on identical issues for earlier assessment years.<br />
(b) Provision for income tax for the year has been made after due consideration of decisions of appellate<br />
authorities and advice of counsels.<br />
13. Premises include buildings in possession and occupation of the <strong>Bank</strong> pending execution of title deeds and/or Cooperative<br />
Societies yet to be formed amounting to Rs.0.22 crore (Previous year Rs.0.22 crore)<br />
14. Draw down from Reserves<br />
<strong>The</strong> <strong>Bank</strong> has not made any draw down during the year from the Reserves.<br />
15. Previous year’s figures have been regrouped/rearranged/given in brackets wherever necessary and feasible to<br />
conform to the current year classifications.<br />
F -39
Annexure V<br />
Financial Ratios<br />
Period ended 31.3.2010<br />
Earning Per Share (Rs.) - Basic 13.50<br />
Earning Per Share (Rs.) – Diluted 13.45<br />
Net Asset Value per Share (Rs.) 136.80<br />
Return on Net Worth after tax (%) 9.83<br />
Definition of Key Terms:<br />
1. Earnings per share: Net Profit Divided by weighted average number of equity shares outstanding at the<br />
end of the year<br />
2. Net Asset Value: Net Worth ( excluding revaluation reserves and deferred tax asset ) divided by number<br />
of equity shares outstanding at the end of the year.<br />
3. Return on Net worth: Net Profit / Average Net worth<br />
F -40
ANNEXURE VI<br />
Capitalisation Statement<br />
(Rs. in Crore)<br />
Pre-issue as at<br />
31.03.2010 (Audited)<br />
Post issue*<br />
Borrowings<br />
Short Term Debt@@ 262.93 262.93<br />
Long Term Debt@ 428.71 428.71<br />
Total Debt 691.64 691.64<br />
Shareholders funds<br />
Share capital<br />
- Equity 133.99 188.20<br />
Less Calls in arrears -- --<br />
- Preference -- --<br />
Share premium 312.67 722.70<br />
Reserves & Surplus 1,386.09 1,386.09<br />
Less: Miscellaneous expenditure not written off -- --<br />
Total Shareholders Funds 1,832.75 2,296.99<br />
Long term Debt/Equity ratio 0.23:1 0.19:1<br />
<strong>The</strong> figures for the year ended as on March 31, 2010 are from audited balance sheet.<br />
Post issue figures have been arrived at on the assumption that entire number of shares offered in the rights issue will be<br />
subscribed and includes amount relating shares allotted under ESOP from 1.4.2010 to 31.1.2011 and has also been certified by<br />
the Auditors vide their certificate dated January 31, 2010.<br />
@ Long term debt includes subordinate debt amounting to Rs 350 crore<br />
@@ Short term debts are debts maturing within next one year from the date of above statement and interest accrued thereon.<br />
F -41
AUDITORS REPORT<br />
To,<br />
<strong>The</strong> Board of Directors<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> Ltd<br />
Regd. & Head Office<br />
Kankanady - Mangalore-575002<br />
1. We have reviewed the accompanying Balance Sheet (Annexure 1) of <strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
(“the <strong>Bank</strong>”) as at 30 September, 2010 and the Profit and Loss (Annexure II) for the period ended on that<br />
date and the accompanying Schedules (Annexure III) (together comprising “Reviewed Financial<br />
Statements”). <strong>The</strong>se statements are the responsibility of the <strong>Bank</strong>’s Management and have been approved<br />
by the Board of Directors. Our responsibility is to issue a report on these financial statements based on our<br />
review.<br />
2. We conducted our review in accordance with the Revised Standard on Review Engagements (SRE) 2400<br />
“Engagements to Review Financial Statements”, issued by the Institute of Chartered Accountants of India.<br />
This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the<br />
financial statements are free of material misstatements. A review is limited primarily to inquiries of<br />
Company personnel and analytical procedures applied to financial data and thus provide less assurance than<br />
an audit. We have not performed an audit and accordingly we do not express an audit opinion.<br />
3. In the conduct of our review, we have relied on the review reports in respect of non-performing assets<br />
received from concurrent auditors of 92 branches. <strong>The</strong>se review reports cover 76.67 percent of the advance<br />
portfolio of the <strong>Bank</strong>. Apart from these review reports, in the conduct of our review, we have also relied<br />
upon various returns received from the branches of the bank, various information and explanation made to<br />
us.<br />
4. Attention is drawn to Schedule No. 18 - Notes on Accounts, Note no. (1), regarding accounting for<br />
certain employee benefits and Note no. (2), regarding treatment of eligible advances under Coffee<br />
Debt Relief Package 2010. Based on our review nothing has come to our attention that causes us to believe<br />
that the accompanying statement of unaudited financial results prepared in accordance with applicable<br />
accounting policies stated therein and other recognized accounting practices contain any material<br />
misstatement.<br />
for Vishnu Daya & Co.,<br />
Chartered Accountants<br />
F.R.No.: 008456S<br />
(Venkatesh Kamath S V)<br />
for R. K. Kumar & Co.,<br />
Chartered Accountants<br />
F.R.No.: 001595S<br />
(B.R.ASHOK)<br />
Partner – M. No. 202626 Partner – M. No. 023313<br />
Place: Bangalore<br />
Dated: 15/10/2010<br />
F -42
Annexure I<br />
CAPITAL AND LIABILITIES<br />
BALANCE SHEET AS ON 30TH SEPTEMBER 2010<br />
Schedule As on As on<br />
No. 30.09.2010 31.03.2010<br />
(Rs in Crore) (Rs in Crore)<br />
Capital 1 134.21 133.99<br />
Reserves and Surplus 2 1,775.90 1,698.76<br />
Deposits 3 25,045.31 23,730.65<br />
Borrowings 4 917.25 691.64<br />
Other Liabilities and Provisions 5 727.22 780.11<br />
TOTAL 28,599.89 27,035.15<br />
ASSETS<br />
Cash and balances with Reserve <strong>Bank</strong> of India 6 1,774.83 1,743.10<br />
Balances with <strong>Bank</strong>s and Money at Call & Short Notice 7 40.75 62.45<br />
Investments 8 10,435.04 9,992.05<br />
Advances 9 15,683.07 14,435.68<br />
Fixed Assets 10 146.08 148.07<br />
Other Assets 11 520.12 653.80<br />
TOTAL 28,599.89 27,035.15<br />
Contingent Liabilities 12 9,286.60 10,119.24<br />
Bills for collection 1,244.50 1,032.24<br />
Significant Accounting Policies 17<br />
Notes on Account 18<br />
F -43
Annexure II<br />
PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30 TH SEPTEMBER 2010<br />
Schedule No.<br />
Half year<br />
ended<br />
30.09.2010<br />
Half year<br />
ended<br />
30.09.2009<br />
Year ended<br />
31.03.2010<br />
Rs in Crore Rs in Crore Rs in Crore<br />
I. INCOME<br />
Interest Earned 13 1,116.47 971.65 2,043.42<br />
Other Income 14 132.27 185.94 311.26<br />
Total 1,248.74 1,157.59 2,354.68<br />
II. EXPENDITURE<br />
Interest Expended 15 857.92 869.69 1,707.79<br />
Operating Expenses 16 239.71 189.59 386.05<br />
Provisions and Contingencies 75.91 41.89 93.72<br />
Total 1,173.54 1,101.17 2,187.56<br />
III.PROFIT<br />
Net profit for the year 75.20 56.42 167.12<br />
Profit brought forward 0.02 0.10 0.03<br />
Total 75.22 56.52 167.15<br />
IV. APPROPRIATIONS<br />
Transfer to Statutory Reserve 0.00 0.00 88.00<br />
Transfer to Capital Reserve 0.00 0.00 0.00<br />
Transfer to Revenue Reserve 0.00 0.00 3.00<br />
Transfer to Special Reserve u/s 36 (i) (viii) of IT Act 0.00 0.00 6.68<br />
Transfer to Investment Reserve Account 0.00 0.00 5.70<br />
Transfer to Other Funds 0.00 0.00 1.00<br />
Transfer to Proposed dividend 0.00 0.00 53.63<br />
Transfer to Tax on proposed dividend 0.00 0.00 9.11<br />
Balance carried over to Balance Sheet 75.22 56.52 0.02<br />
Total 75.22 56.52 167.14<br />
F -44
Annexure III<br />
SCHEDULE - 1 – CAPITAL<br />
(Rs. in Crore) (Rs. in Crore)<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
Authorised Capital<br />
20,00,00,000 Equity shares of (Rs. in Crore). 10/- each 200.00 200.00<br />
Issued Capital<br />
13,42,22,840 equity shares of (Rs. in Crore) 10 each 134.22 134.00<br />
Subscribed Capital<br />
13,42,15,762 Equity shares of (Rs. in Crore). 10/- each 134.22 133.99<br />
Called up/Paid-up Capital 134.20 133.98<br />
13,41,99,212 Equity shares of (Rs. in Crore).10/- each<br />
Add : Forfeited Shares 0.01 0.01<br />
Total 134.21 133.99<br />
SCHEDULE -2- RESERVES & SURPLUS<br />
I. Statutory Reserve<br />
Opening balance<br />
Additions during the year<br />
Deductions during the year<br />
1,006.00 918.00<br />
0.00 88.00<br />
1,006.00 1,006.00<br />
0.00 0.00<br />
Total<br />
II. Capital Reserve<br />
1,006.00 1,006.00<br />
Opening balance<br />
Additions during the year ( pursuant to sale of securities<br />
held under HTM category)<br />
Deductions during the year<br />
63.69 63.69<br />
0.00 0.00<br />
63.69 63.69<br />
0.00 0.00<br />
Total<br />
63.69 63.69<br />
F -45
III. Share Premium<br />
Opening balance<br />
Additions during the year<br />
Deductions during the year<br />
Total<br />
IV. Revenue and other Reserves<br />
a) Revenue Reserve<br />
Opening balance<br />
Deductions at the beginning of the year<br />
Additions during the year<br />
Total<br />
b) Special Reserve u/s 36(1)(viii) of IT Act<br />
Opening balance<br />
Additions during the year<br />
Withdrawn during the year<br />
Total<br />
(Rs. in Crore) (Rs. in Crore)<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
312.67 162.94<br />
3.46 149.73<br />
316.13 312.67<br />
0.00 0.00<br />
316.13 312.67<br />
270.00 267.00<br />
0.00 0.00<br />
270.00 267.00<br />
0.00 3.00<br />
270.00 270.00<br />
30.24 23.56<br />
0.00 6.68<br />
30.24 30.24<br />
0.00 0.00<br />
30.24 30.24<br />
c) Employee Stock Option Outstanding<br />
Opening balance 8.94 8.72<br />
Additions during the year 1.04 3.83<br />
9.98 12.55<br />
Deductions during the year 2.56 3.61<br />
Total 7.42 8.94<br />
d) Investment Reserve Account<br />
Opening balance<br />
Additions during the year<br />
Deductions during the year<br />
Total<br />
V. Balance in Profit and Loss Account<br />
TOTAL ( I, II, III,IV and V )<br />
7.20 1.50<br />
0.00 5.70<br />
7.20 7.20<br />
0.00 0.00<br />
7.20 7.20<br />
75.22 0.02<br />
1,775.90 1,698.76<br />
F -46
SCHEDULE -3 DEPOSITS<br />
(Rs. in Crore) (Rs. in Crore)<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
A.I. Demand Deposits<br />
1. From <strong>Bank</strong>s<br />
2. From others<br />
3.37 2.44<br />
2,000.19 1,704.04<br />
2,003.56 1,706.48<br />
II. Savings <strong>Bank</strong> Deposits<br />
4,418.78 3,813.68<br />
III. Term Deposits<br />
1. From <strong>Bank</strong>s<br />
2. From others<br />
24.83 32.05<br />
18,598.14 18,178.44<br />
18,622.97 18,210.49<br />
Total : (I, II and III)<br />
25,045.31 23,730.65<br />
B.1. Deposits of branches in India<br />
2. Deposits of branches outside India<br />
25,045.31 23,730.65<br />
0.00 0.00<br />
Total (1+2)<br />
25,045.31 23,730.65<br />
SCHEDULE -4 BORROWINGS<br />
I. Borrowings in India<br />
1. Reserve <strong>Bank</strong> of India<br />
125.00 0.00<br />
2. Other <strong>Bank</strong>s<br />
32.54 35.00<br />
3. Other Institutions and Agencies<br />
705.02 565.16<br />
Total<br />
862.56 600.16<br />
F -47
(Rs. in Crore) (Rs. in Crore)<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
II. Borrowings outside India<br />
54.69 91.48<br />
Total : (I and II)<br />
917.25 691.64<br />
Secured borrowings included in I & II above<br />
Nil<br />
Nil<br />
SCHEDULE - 5 OTHER LIABILITIES & PROVISIONS<br />
I. Bills Payable<br />
II. Inter Office adjustments (Net)<br />
III. Interest accrued<br />
IV. Subordinated Debt for Tier II Capital<br />
V. Deferred Tax Liability (Net)<br />
VI. Others (Rs. in Crore) (including Provisions)*<br />
175.64 198.65<br />
0.00 3.51<br />
77.53 72.12<br />
0.00 0.00<br />
113.48 102.93<br />
360.57 402.90<br />
Total<br />
727.22 780.11<br />
* Includes Contingent provision of Rs.61.26 crore for Standard Advances<br />
SCHEDULE - 6 CASH & BALANCES WITH THE RBI<br />
(Rs. in Crore)<br />
As on<br />
(Rs. in Crore)<br />
As on<br />
30.09.2010 31.03.2010<br />
I. Cash in hand<br />
(including foreign currency notes)<br />
163.10 146.62<br />
II. Balances with Reserve <strong>Bank</strong> of India<br />
1. In Current Account<br />
2. In Other Accounts<br />
1,611.73 1,596.48<br />
0.00 0.00<br />
Total : (I and II)<br />
1,774.83 1,743.10<br />
F -48
SCHEDULE - 7 BALANCES WITH BANKS AND MONEY AT CALL & SHORT NOTICE<br />
I. IN INDIA<br />
i. Balances with <strong>Bank</strong>s<br />
a) In Current Accounts<br />
b) In other deposit accounts<br />
24.95 39.53<br />
1.85 19.10<br />
ii. Money at Call & Short Notice<br />
a) With <strong>Bank</strong>s<br />
b) With other institutions<br />
26.80 58.63<br />
0.00 0.00<br />
0.00 0.00<br />
Total<br />
0.00 58.63<br />
II. OUTSIDE INDIA<br />
i. In Current Accounts<br />
ii. In Other Deposit Accounts<br />
iii. Money at Call & Short Notice<br />
13.95 3.82<br />
0.00 0.00<br />
0.00 0.00<br />
Total : (i, ii and iii)<br />
13.95 3.82<br />
Grand Total (I & II)<br />
40.75 62.45<br />
SCHEDULE - 8 INVESTMENTS<br />
(Rs. in Crore) (Rs. in Crore)<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
I. Investments in India (Gross at cost)<br />
Less: Provision for depreciation<br />
10,475.68 10,021.65<br />
40.64 29.60<br />
Total<br />
10,435.04 9,992.05<br />
Break-up :<br />
1. Government Securities<br />
2. Other Approved Securities<br />
3. Shares<br />
6,724.17 6,400.98<br />
4.68 4.98<br />
159.76 162.27<br />
F -49
4. Debentures and Bonds<br />
5. Subsidiaries and/or Joint Ventures<br />
6. Others<br />
873.11 809.39<br />
0.00 0.00<br />
2,673.32 2,614.43<br />
Total<br />
10,435.04 9,992.05<br />
II. Investments outside India<br />
0.00 0.00<br />
Total (I+II)<br />
10,435.04 9,992.05<br />
SCHEDULE - 9 ADVANCES<br />
(Rs. in Crore) (Rs. in Crore)<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
A) 1. Bills Purchased & discounted<br />
2. Cash Credits, Overdrafts and<br />
Loans repayable on demand<br />
3. Term Loans<br />
537.74 691.19<br />
8,176.65 7,728.29<br />
6,968.68 6,016.20<br />
Total<br />
15,683.07 14,435.68<br />
B) 1. Secured by Tangible Assets *<br />
2. Secured by <strong>Bank</strong>/Government Guarantees<br />
3. Unsecured<br />
12,192.97 11,553.70<br />
1,651.68 1,841.79<br />
1,838.42 1,040.19<br />
Total<br />
15,683.07 14,435.68<br />
* Includes Advances against Book Debts<br />
C) I. Advances in India<br />
1. Priority Sectors<br />
2. Public Sectors<br />
3. <strong>Bank</strong>s<br />
4. Others<br />
5,889.66 5,252.96<br />
1,273.38 1,228.68<br />
0.16 0.15<br />
8,519.87 7,953.89<br />
Total<br />
15,683.07 14,435.68<br />
F -50
C) II. Advances outside India<br />
1. Due from <strong>Bank</strong>s<br />
2. Due from others<br />
a) Bills Purchased & Discounted<br />
b) Syndicated Loans<br />
c) Others<br />
0.00 0.00<br />
0.00 0.00<br />
0.00 0.00<br />
0.00 0.00<br />
0.00 0.00<br />
Total<br />
0.00 0.00<br />
GRAND TOTAL (C. I and C. II)<br />
15,683.07 14,435.68<br />
SCHEDULE - 10 FIXED ASSETS<br />
I. Premises<br />
At cost as on 31st March of preceding year<br />
Additions during the year<br />
As on<br />
As on<br />
30.09.2010 31.03.2010<br />
(Rs. in Crore) (Rs. in Crore)<br />
106.03 100.38<br />
0.15 5.79<br />
Deductions during the year<br />
106.18 106.17<br />
0.08 0.14<br />
Depreciation to-date<br />
Total<br />
106.10 106.03<br />
24.57 23.10<br />
81.53 82.93<br />
II. Other Fixed Assets<br />
(including Furniture & Fixtures)<br />
At cost as on 31st March of the preceding year<br />
Additions during the year<br />
192.49 171.86<br />
9.18 26.57<br />
Deductions during the year<br />
201.67 198.43<br />
0.23 5.94<br />
Depreciation to date<br />
Total<br />
201.44 192.49<br />
137.88 128.34<br />
63.56 64.15<br />
F -51
III. Leased Fixed Assets<br />
Cost as on 31st March of the preceding year<br />
Additions during the year<br />
15.32 20.16<br />
0.00 0.00<br />
Deductions during the year<br />
15.32 20.16<br />
0.00 4.84<br />
Depreciation to-date<br />
15.32 15.32<br />
6.05 6.05<br />
Less Accumulated Lease Adjustment<br />
Less Other Adjustments<br />
Total<br />
Total (I, II & III)<br />
9.27 9.27<br />
8.15 8.15<br />
1.12 1.12<br />
0.13 0.13<br />
0.99 0.99<br />
146.08 148.07<br />
SCHEDULE -11 OTHER ASSETS<br />
I. Interest accrued<br />
II. Tax paid in advance/tax deducted at source *<br />
III. Stationery and Stamps<br />
IV. Non-<strong>Bank</strong>ing Assets acquired in satisfaction of claims<br />
V. Others<br />
Total<br />
170.10 182.33<br />
150.27 179.00<br />
3.34 2.94<br />
1.47 1.47<br />
194.94 288.06<br />
520.12 653.80<br />
* Includes Rs 4280.00 lakhs being MAT Credit Entitlement.<br />
SCHEDULE - 12 CONTINGENT LIABILITIES<br />
I. Claims against the <strong>Bank</strong> not acknowledged as debts<br />
II. Liability on account of outstanding Forward Exchange Contracts*<br />
28.03 28.33<br />
6,163.67 7,163.96<br />
III. Guarantees given on behalf of constituents<br />
F -52
a) In India<br />
b) Outside India<br />
1,024.34 1,030.37<br />
0.00 0.00<br />
IV. Acceptances, Endorsements & other Obligations<br />
724.95 673.61<br />
V. Other items for which the bank is contingent liable<br />
1,345.61 1,222.97<br />
Total<br />
* Includes derivatives<br />
9,286.60 10,119.24<br />
SCHEDULE - 13 INTEREST EARNED<br />
Half year ended Half year ended Year ended<br />
30.09.2010 30.09.2009 31.03.2010<br />
Rs in Crore Rs in Crore Rs in Crore<br />
I. Interest/discount on advances/bills 780.29 655.06 1,388.98<br />
II. Income on Investments 326.86 315.95 633.46<br />
III. Interest on balances with R.B.I / other Inter-<strong>Bank</strong><br />
funds 0.38 0.49<br />
0.58<br />
IV. Others 8.94 0.15 20.40<br />
Total<br />
1,116.47 971.65 2,043.42<br />
SCHEDULE - 14 OTHER INCOME<br />
I. Commission, Exchange & Brokerage 75.37 49.92 126.28<br />
II. Profit on sale of Investments (net) 17.35 105.11 114.76<br />
III. Profit on Revaluation of Investments (net) 0.00 0.00 0.00<br />
IV. Profit on sale of Land, Buildings & Other Assets<br />
(net) 0.41 0.09<br />
0.21<br />
V. Profit on Exchange Transactions(net) 9.46 10.98 24.53<br />
VI. Income earned by way of dividends etc., from<br />
Subsidiaries/ Companies and /or Joint Ventures abroad/ 0.00 0.00<br />
0.00<br />
F -53
in India<br />
VII. Lease Income 0.00 0.00 0.00<br />
VIII. Miscellaneous income 29.68 19.84 45.48<br />
Total<br />
132.27 185.94 311.26<br />
SCHEDULE - 15 INTEREST EXPENDED<br />
Half year ended Half year ended Year ended<br />
30.09.2010 30.09.2009 31.03.2010<br />
Rs in Crore Rs in Crore Rs in Crore<br />
1. Interest on deposits 829.78 847.05 1,661.95<br />
2. Interest on Reserve <strong>Bank</strong> of India/Inter-<strong>Bank</strong><br />
Borrowings 2.40 0.09<br />
4.39<br />
3. Others 25.74 22.55 41.45<br />
Total<br />
857.92 869.69 1,707.79<br />
SCHEDULE - 16 OPERATING EXPENSES<br />
I. Payments to and provisions for employees 140.15 104.05 206.80<br />
II. Rent, Taxes and Lighting 30.27 23.14 49.45<br />
III. Printing and Stationery 1.80 1.18 3.99<br />
IV. Advertisement and Publicity 1.11 1.76 3.18<br />
V. Depreciation on <strong>Bank</strong>'s property 11.01 10.65 22.23<br />
VI. Director fees, allowances and expenses 0.24 0.25 0.57<br />
VII. Audit fees and expenses (including branch<br />
auditors) 0.80 0.78<br />
1.17<br />
VIII. Law charges 0.66 0.58 1.36<br />
F -54
IX. Postage, telegrams, telephones etc. 4.96 4.66 7.79<br />
X. Repairs and Maintenance 6.15 6.18 12.27<br />
XI. Insurance 13.51 11.71 24.07<br />
XII. Other expenditure 29.05 24.65 53.17<br />
Total<br />
239.71 189.59 386.05<br />
SCHEDULE – 17 - SIGNIFICANT ACCOUNTING POLICIES<br />
1. BASIS OF PREPARATION:<br />
<strong>The</strong> accompanying financial statements is prepared on historical cost convention on the accrual basis of<br />
accounting, unless otherwise stated, and comply with generally accepted accounting principles, statutory<br />
requirements prescribed under the <strong>Bank</strong>ing Regulation Act, 1949, circulars and guidelines issued by the<br />
Reserve <strong>Bank</strong> of India (RBI) from time to time, notified accounting standards by Companies<br />
(Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in banking<br />
industry in India.<br />
2. USE OF ESTIMATES:<br />
<strong>The</strong> preparation of the financial statements, in conformity with generally accepted accounting<br />
principles, requires management to make estimates and assumptions that affect the reported amounts of<br />
assets and liabilities, revenue and expenses along with disclosure of contingent liabilities at the date of<br />
the financial statements. Actual results could differ from those estimates. <strong>The</strong> Management believes that<br />
the estimates used in the preparation of the financial statements are prudent and reasonable. <strong>The</strong><br />
differences if any between estimate and actual will be dealt appropriately in future periods.<br />
3. REVENUE RECOGNITION:<br />
Income and expenditure are accounted for on accrual basis except receipt of commission, exchange, rent<br />
on safe deposit lockers all of which are accounted on cash basis. In respect of Non Performing Assets,<br />
the bank has not recognised interest. Recoveries are appropriated towards the principal, interest and<br />
charges in the order of demand. In the case of matured Term Deposits, interest is provided at the rate of<br />
interest applicable to savings bank deposit pending renewal / discharge and the balance overdue interest<br />
is accounted for at the time of renewal.<br />
4. INVESTMENTS:<br />
Investments are classified under the heads “Held to Maturity”, “Available for Sale” and “Held for<br />
Trading” categories and are valued in accordance with the RBI guidelines. <strong>The</strong> value of Investments<br />
stated in the Balance Sheet is net of depreciation. <strong>The</strong> excess of acquisition cost over the face value of<br />
securities under “Held to Maturity” category is amortised over the remaining period to Maturity.<br />
Provision for non-performing investments is made as per RBI guidelines.<br />
F -55
5. ADVANCES:<br />
All outstanding advances are reviewed and classified under 4 categories namely<br />
a) Standard Assets<br />
b) Sub-Standard Assets<br />
c) Doubtful Assets and<br />
d) Loss Assets<br />
Provision for Non-performing and Standard Advances is made on the basis of asset classification and<br />
provisioning requirement over and above the prudential norms laid down by the Reserve <strong>Bank</strong> of India.<br />
Advances shown in the Balance Sheet are net of provisions (including Floating Provision) for Non<br />
Performing Advances and unrealised interest.<br />
6. FIXED ASSETS<br />
Premises and other fixed assets are shown at cost as reduced by depreciation written off to date.<br />
Software is capitalised along with computer and included under Other Fixed Assets.<br />
7. DEPRECIATION:<br />
Depreciation on fixed assets is provided on written down value method as per the rates and in the<br />
manner specified under Schedule –XIV of the Companies Act 1956, except in respect of computers<br />
(including software) where depreciation is provided at a flat rate of 33.33 % as per RBI guidelines<br />
which is more than the amount required under Schedule–XIV of the Companies Act 1956. Depreciation<br />
on assets is purchased is computed for the entire month in which the asset is capitalised, and on assets<br />
sold/scrapped, up to the end of the month in which it is sold/scrapped. Depreciation of leased assets is<br />
calculated so as to spread the depreciable amount over the primary lease period as per RBI guidelines.<br />
Carrying amount of assets is reviewed at each balance sheet date for indication of impairment if any. An<br />
impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable value.<br />
8. FOREIGN CURRENCY TRANSACTIONS:<br />
a) Foreign currency transactions of FCNR/EEFC/RFC accounts are re-valued at the closing spot<br />
rates on the Balance Sheet date as published by Foreign Exchange Dealers Association of India<br />
(FEDAI).<br />
b) Transactions other than FCNR/EEFC/RFC accounts: -<br />
Foreign currency balances both under Assets and Liabilities and outstanding Forward Exchange<br />
Contracts and Swaps are evaluated at the published by FEDAI as on the Balance Sheet Date. <strong>The</strong><br />
resultant profit/loss is shown as Income/Loss.<br />
<strong>The</strong> Gain or Loss on a trading forward exchange contract is computed by multiplying the forward rate<br />
available on the reporting date for the remaining maturity period of the contract, and the difference<br />
between that amount and the contracted forward amount is recognised as profit or loss for the period.<br />
Revenue items are translated at the exchange rates ruling on the dates of transactions.<br />
Contingent liabilities on account of acceptances, endorsements and other obligations including<br />
guarantees and letters of credit issued in foreign currencies are valued at the closing spot rates published<br />
by FEDAI as on the Balance Sheet Date.<br />
F -56
9. STAFF BENEFITS:<br />
Retirement benefits like Gratuity, Pension, Leave encashment, leave fair concession etc., are made on<br />
estimated basis.<br />
10. INCOME TAX :<br />
<strong>The</strong> Provision for tax comprises of current tax and deferred tax.<br />
11. SHARE ISSUE EXPENSES:<br />
Share issue expenses are adjusted from share premium account.<br />
12. EMPLOYEE STOCK OPTION:<br />
Employee Stock Option (ESOP) is valued by using the “Intrinsic Value Method” to account for<br />
compensation cost of stock options granted to employees of the <strong>Bank</strong>. Intrinsic value is the amount by<br />
which the quoted market price of the underlying shares exceeds the exercise price of the options.<br />
13. SEGMENT REPORTING:<br />
(i)<br />
(ii)<br />
<strong>The</strong> Business Segment is the Primary Reporting Segment and Geographical Segment is Secondary<br />
Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard<br />
17.<br />
<strong>The</strong> Business Segment is classified into (a) Treasury (b) Corporate and Wholesale <strong>Bank</strong>ing, (c)<br />
Retail <strong>Bank</strong>ing and (d) Other <strong>Bank</strong>ing Operations.<br />
(iii)<br />
<strong>The</strong> Geographical Segment consists only of the Domestic Segment, as the <strong>Bank</strong> does not have any<br />
foreign branches.<br />
14. NET PROFIT<br />
<strong>The</strong> net profit disclosed in the Profit & Loss Account is after making necessary provisions for taxes,<br />
NPA, Standard Advances, and Investments without recognising unrealised interest on Non-Performing<br />
Assets as per RBI guidelines.<br />
SCHEDULE – 18 – NOTES ON ACCOUNTS:<br />
1. <strong>The</strong> Working results for the period ended September 30, 2010 have been arrived at after considering<br />
provision for loan losses, depreciation on investments and fixed assets on actual basis. <strong>The</strong> bank has<br />
made provisions for various employee benefits like pension, gratuity, etc on an estimated basis. <strong>The</strong><br />
impact of additional liability on (i) pension benefits arising on account of the 9th Bipartite settlement<br />
and (ii) the amendment made to the Payment of Gratuity Act, 1972 has been estimated and amortized<br />
over a period of 5 years on pro-rata basis. Provision for Income-tax and other contingencies are on an<br />
estimated basis subject to adjustment if any.<br />
F -57
2. <strong>The</strong> <strong>Bank</strong> has implemented the decision taken at the meeting of State Level <strong>Bank</strong>ers’ Committee<br />
(SLBC), <strong>Karnataka</strong> held on 29.09.2010 to restructure eligible advances under Coffee Debt Relief<br />
Package 2010 and treat them as Standard assets pending receipt of clarifications /directions from<br />
Reserve <strong>Bank</strong> of India in this regard.<br />
3. Corresponding previous period figures have been regrouped / rearranged wherever necessary.<br />
F -58
MATERIAL DEVELOPMENTS<br />
Our <strong>Bank</strong> has filed its unaudited financial results for the nine months and quarter ended December 31, 2010<br />
with the Stock Exchanges in accordance with the requirements under clause 41 of the listing agreement.<br />
<strong>Limited</strong> Review Report<br />
<strong>The</strong> Board of Directors<br />
<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> Ltd<br />
Mangalore 575 002<br />
We have reviewed the accompanying interim statement of unaudited financial results of ‘<strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong><br />
<strong>Limited</strong>’ (the “<strong>Bank</strong>”) for the quarter/nine months period ended 31-12-2010, except for disclosures regarding<br />
‘Public Shareholding’ and ‘Promoter and Promoter Group Shareholding’, which have been traced from<br />
disclosures made by the management and have not been audited by us. This statement is the responsibility of the<br />
<strong>Bank</strong>’s Management and has been approved by the Board of Directors. Our responsibility is to express a<br />
conclusion on these interim financial results based on our review.<br />
We conducted our review in accordance with the Standard on Review Engagement (SRE) 2410, “Review of<br />
Interim Financial Information Performed by the Independent Auditor of the Entity”, issued by the Institute of<br />
Chartered Accountants of India (ICAI). A review of interim financial information consists of making inquiries,<br />
primarily of persons responsible for financial and accounting matters, and applying analytical and other review<br />
procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on<br />
Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant<br />
matters that might be identified in an audit. Accordingly, we do not express an audit opinion.<br />
In the conduct of our review, we have relied on the reports received from concurrent auditors of 92 branches.<br />
<strong>The</strong>se reports cover 74.93% percent of the advances portfolio of the bank. Apart from these reports, in the<br />
conduct of our review, we have also relied upon various returns received from the branches of the bank and on<br />
the various information/explanations provided to us.<br />
Attention is drawn to Note No. 3 relating to accounting of liability for certain ‘Employee Retirement Benefits’,<br />
pending receipt of clarifications/guidelines from the Reserve bank of India.<br />
Based on our review as above, nothing has come to our attention that causes us to believe that the accompanying<br />
interim statement of unaudited financial results prepared in accordance with applicable Accounting Standards<br />
issued by the Institute of Chartered Accountants of India and other recognized accounting practices and policies:<br />
(i)<br />
(ii)<br />
(iii)<br />
has not disclosed the information required to be disclosed in terms of Clause 41 of the Listing<br />
Agreement including the manner in which it is to be disclosed; or<br />
that it contains any material misstatement; or<br />
that it has not been prepared in accordance with the relevant prudential norms issued by the Reserve<br />
<strong>Bank</strong> of India in respect of income recognition, asset classification, provisioning and other related<br />
matters.<br />
for Vishnu Daya & Co.,<br />
Chartered Accountants<br />
Firm Regn. No: 008456S<br />
for R. K. Kumar & Co.,<br />
Chartered Accountants<br />
Firm Regn. No: 001595S<br />
(Venkatesh Kamath S V)<br />
Partner<br />
Membership No: 202626<br />
(B. R. Ashok)<br />
Partner<br />
Membership No: 023313<br />
Place: Bangalore<br />
Date: January 24, 2011<br />
65
KARNATAKA BANK LTD, REGD & HEAD OFFICE: MANGALORE 575002<br />
UNAUDITED QUARTERLY FINANCIAL RESULTS FOR THE QUARTER ENDED 31.12.2010<br />
(Rs in crores)<br />
UNAUDITED<br />
AUDITED<br />
Quarter ended Nine months ended Year Ended<br />
31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.03.2010<br />
1 Interest Earned (a+b+c+d) 603.14 527.62 1719.61 1499.27 2043.42<br />
a) Interest/Discount on advances/bills 432.14 366.26 1212.43 1021.32 1388.98<br />
b) Income on Investments 164.65 161.10 491.51 477.05 633.46<br />
c) Interest on balances with Reserve<br />
<strong>Bank</strong> of India and other inter bank<br />
funds<br />
0.11 0.02 0.49 0.51 0.58<br />
d) Others 6.24 0.24 15.18 0.39 20.40<br />
2 Other Income 65.31 62.19 197.58 248.12 311.26<br />
3 TOTAL INCOME (1+2) 668.45 589.81 1917.19 1747.39 2354.68<br />
4 Interest expended 441.72 424.46 1299.64 1294.15 1707.79<br />
5 Operating expenses (i+ii) 113.89 95.65 353.60 285.24 386.05<br />
i) Employees Cost 67.79 55.33 207.94 159.38 206.80<br />
ii) Other operating expenses 46.10 40.32 145.66 125.86 179.25<br />
6 TOTAL EXPENDITURE ((4+5)<br />
excluding provisions &<br />
Contingencies)<br />
7 Operating Profit before provisions &<br />
contingencies (3-6)<br />
8 Provisions (other than tax) and<br />
Contingencies<br />
555.61 520.11 1653.24 1579.39 2093.84<br />
112.84 69.70 263.95 168.00 260.84<br />
53.80 64.17 125.63 86.91 71.08<br />
9 Exceptional Items 0 0 0 0 0<br />
10 Profit (+)/Loss (-) from Ordinary<br />
Activities before tax (7-8-9)<br />
59.04 5.53 138.32 81.09 189.76<br />
11 Tax Expense 20.45 -31.08 24.53 -11.93 22.64<br />
66
UNAUDITED<br />
AUDITED<br />
Quarter ended Nine months ended Year Ended<br />
12 Net Profit (+)/Loss (-) from<br />
Ordinary activities after Tax (10-11)<br />
13 Extraordinary Items (net of tax<br />
expense)<br />
38.59 36.61 113.79 93.02 167.12<br />
0 0 0 0 0<br />
14 Net Profit (+)/Loss (-) for the period<br />
(12-13)<br />
38.59 36.61<br />
113.79<br />
93.02 167.12<br />
15 Paid up equity share capital<br />
(Face Value Rs 10/-)<br />
16 Reserves excluding revaluation<br />
reserves (as per balance sheet of<br />
previous accounting year)<br />
134.42 121.85 134.42 121.85 133.99<br />
- 1698.76<br />
17 Analytical Ratios<br />
i) Percentage of shares held by<br />
Government of India<br />
Nil Nil Nil Nil Nil<br />
ii) Capital Adequacy Ratio (%)<br />
i) Basel –I<br />
10.71<br />
12.33<br />
10.71<br />
12.33<br />
11.85<br />
ii) Basel – II<br />
11.37<br />
12.67<br />
11.37<br />
12.67<br />
12.37<br />
iii)<br />
Earning per share (EPS) (Rs)<br />
a) Basic EPS<br />
b) Diluted EPS<br />
2.88*<br />
2.87*<br />
3.01*<br />
2.99*<br />
8.48*<br />
8.46*<br />
7.65*<br />
7.61*<br />
13.50<br />
13.45<br />
before Extraordinary items (net of<br />
Tax expense)<br />
b) ) Basic EPS<br />
Diluted EPS<br />
2.88*<br />
2.87*<br />
3.01*<br />
2.99*<br />
8.48*<br />
8.46*<br />
7.65*<br />
7.61*<br />
13.50<br />
13.45<br />
after Extraordinary items (net of<br />
Tax expense)<br />
* Not Annualized<br />
iv)<br />
NPA Ratios as on date<br />
a) Gross NPA<br />
Net NPA<br />
b) % of Gross NPA<br />
% of Net NPA<br />
637.91<br />
191.22<br />
3.83<br />
1.18<br />
0.54<br />
612.27<br />
233.15<br />
4.50<br />
1.76<br />
0.58<br />
637.91<br />
191.22<br />
3.83<br />
1.18<br />
0.54<br />
612.27<br />
233.15<br />
4.50<br />
1.76<br />
0.51<br />
549.64<br />
188.61<br />
3.73<br />
1.31<br />
0.67<br />
67
UNAUDITED<br />
AUDITED<br />
Quarter ended Nine months ended Year Ended<br />
18 Public Shareholding<br />
-No of Shares<br />
134406767<br />
100%<br />
121835718<br />
100%<br />
134406767<br />
100%<br />
121835718<br />
100%<br />
133976322<br />
100%<br />
-Percentage of Share holding<br />
19 Promoters and Promoter group<br />
shareholding<br />
a) Pledged /encumbered<br />
-Number of shares<br />
- Percentage of shares(as a % of the<br />
total shareholding of promoter and<br />
promoter group)<br />
-Percentage of shares (as a % of the<br />
total share capital of the company.<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
b) Non-encumbered<br />
-Number of shares<br />
- Percentage of shares(as a % of the<br />
total shareholding of promoter and<br />
promoter group)<br />
-Percentage of shares (as a % of the<br />
total share capital of the company.<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
NA<br />
Notes forming part of the un-audited quarterly financial results for the quarter ended 31.12.2010<br />
1. <strong>The</strong> above interim financial results have been reviewed by the Audit Committee of the Board and<br />
approved by the Board of Directors in their meeting held on January 24, 2011. <strong>The</strong> same has been<br />
subjected to limited review by the Statutory Central Auditors of the <strong>Bank</strong>.<br />
2. To the extent applicable to the interim financial reporting, the bank has consistently followed the same<br />
accounting policies and generally accepted practices adopted for the preparation of audited financial<br />
statements for the year ended March 31, 2010.<br />
3. <strong>The</strong> above interim financial results have been arrived at after considering the provision for loan losses,<br />
depreciation on investment and fixed asset on actual basis. Provision for various employees retirement<br />
benefits like pension, gratuity etc., have been made on an estimated basis. <strong>The</strong> impact of additional<br />
liability on (i) Pension benefits arising on account of the 9th Bipartite settlement, and (ii) the<br />
enhancement in the limits made vide amendment to the Payment of Gratuity Act 1972., has been<br />
estimated and amortized over a period of 5 years on pro-rata basis pending issuance of relevant<br />
guidelines by the Regulatory authorities. Provision for income tax and other contingencies are on an<br />
estimated basis and are subject to adjustments, if any.<br />
4. <strong>The</strong> <strong>Bank</strong>’s operations have been categorized under identified four business segment viz, Treasury,<br />
Corporate and wholesale banking, Retail <strong>Bank</strong>ing, and Other <strong>Bank</strong>ing Operations. <strong>The</strong> Geographic<br />
Segment consists of the Domestic Segment only as the <strong>Bank</strong> does not have any foreign branch. <strong>The</strong><br />
Segment results are annexed.<br />
68
5. Status of shareholder complaints is as under.<br />
Complaints pending at<br />
the beginning of the<br />
quarter<br />
Complaints received<br />
during the quarter<br />
Complaints redressed<br />
during the quarter<br />
Complaints pending at<br />
the end of the quarter<br />
Nil 36 36 Nil<br />
6. Corresponding previous period figures have been regrouped/ rearranged wherever necessary.<br />
By order of the Board<br />
Place: Bangalore<br />
Date: 24 January 2011<br />
P Jayarama Bhat<br />
Managing Director & C.E.O.<br />
69
Segment wise Results for the quarter ended 31.12.2010<br />
Business Segments<br />
3 months<br />
ended<br />
31.12.2010<br />
3 months<br />
ended<br />
31.12.2009<br />
9 months<br />
ended<br />
31.12.2010<br />
(Rs in crores)<br />
9 months<br />
ended<br />
31.12.2009<br />
Year<br />
ended<br />
31.03.2010<br />
Segment Revenue<br />
Treasury 188.79 182.39 559.95 622.59 808.29<br />
Corporate /Wholesale <strong>Bank</strong>ing 257.32 149.10 686.44 487.09 661.29<br />
Retail <strong>Bank</strong>ing 209.91 247.06 628.28 606.53 839.41<br />
Other <strong>Bank</strong>ing Operations 12.43 11.26 42.52 31.18 45.69<br />
Total 668.45 589.81 1917.19 1747.39 2354.68<br />
Segment Results<br />
Treasury -48.35 -48.45 -118.14 -62.09 -77.68<br />
Corporate /Wholesale <strong>Bank</strong>ing 46.06 -42.90 64.17 -48.80 -51.35<br />
Retail <strong>Bank</strong>ing 56.95 93.79 174.54 182.70 303.14<br />
Other <strong>Bank</strong>ing Operations 10.42 8.79 34.80 25.63 37.88<br />
Total 65.08 11.23 155.37 97.44 211.99<br />
Unallocable expenses 6.04 5.70 17.05 16.35 22.23<br />
Profit before tax 59.04 5.53 138.32 81.09 189.76<br />
Capital Employed<br />
(a)Treasury Operations 869.25 787.29 869.25 787.29 858.26<br />
(b)Corporate <strong>Bank</strong>ing 618.44 526.57 618.44 526.57 594.64<br />
(c)Retail <strong>Bank</strong>ing 460.81 350.77 460.81 350.77 379.34<br />
(d) Other <strong>Bank</strong>ing Operations 1.30 0.12 1.30 0.12 0.51<br />
Total<br />
Part B - Geographic Segments (*) 1949.80 1664.75 1949.80 1664.75 1832.75<br />
(*)<strong>The</strong>re is only one segment i.e. Domestic segment<br />
70
STOCK MARKET DATA FOR EQUITY SHARES OF OUR BANK<br />
Our <strong>Bank</strong>’s Equity Shares are listed on the BSE and the NSE. As our <strong>Bank</strong>’s Equity Shares are actively traded<br />
on the BSE and NSE, stock market data has been given separately for BSE and NSE only.<br />
<strong>The</strong> monthly high and low price of shares of our <strong>Bank</strong> traded at the BSE and NSE during the past six<br />
months are stated below:<br />
BSE<br />
Month High (Rs.) Date of High Low (Rs.) Date of Low<br />
August, 2010 178.60 August 19, 2010 168.10 August 30, 2010<br />
September, 2010 182.45 September 29, 2010 170.75 September 21, 2010<br />
October, 2010 191.35 October 11, 2010 177.15 October 20, 2010<br />
November, 2010 205.50 November 10, 2010 158.85 November 26, 2010<br />
December, 2010 176.35 December 02, 2010 144.15 December 09, 2010<br />
January, 2011 164.50 January 03, 2011 133.35 January 31, 2011<br />
(Source: www.bseindia.com)<br />
NSE<br />
Month High (Rs.) Date of High Low (Rs.) Date of Low<br />
August, 2010 178.50 August 19, 2010 168.00 August 30, 2010<br />
September, 2010 182.95 September 29, 2010 170.30 September 21, 2010<br />
October, 2010 191.10 October 11, 2010 176.55 October 20, 2010<br />
November, 2010 205.55 November 10, 2010 158.65 November 26, 2010<br />
December, 2010 176.70 December 02, 2010 144.20 December 09, 2010<br />
January, 2011 164.45 January 03, 2011 133.85 January 31, 2011<br />
(Source: www.nseindia.com)<br />
<strong>The</strong> high and low closing prices recorded on the BSE and NSE for the preceding three years are stated<br />
below.<br />
BSE<br />
Fiscal Year High (Rs.) Date of High Low (Rs.) Date of Low<br />
2010 168.85 October 20, 2009 68.35 April 1, 2009<br />
2009 212.25 May 5, 2008 55.90 March 9, 2009<br />
2008 276.00 February 5, 2008 163.15 April 23, 2007<br />
(Source: www.bseindia.com)<br />
NSE<br />
Fiscal Year High (Rs.) Date of High Low (Rs.) Date of Lows<br />
2010 169.20 October 20, 2009 67.95 April 1, 2009<br />
2009 213.00 May 5, 2008 56.20 March 9, 2009<br />
2008 276.25 February 5, 2008 163.60 April 23, 2007<br />
(Source: www.nseindia.com)<br />
<strong>The</strong> closing price of our Equity Shares as on August 2, 2010 (the trading day immediately following the day on<br />
which the Board resolution was passed approving the Rights Issue) was Rs. 169.95 on the BSE and Rs. 170.00<br />
on the NSE.<br />
71
Week end prices of Equity Shares of our <strong>Bank</strong> for the last four weeks on BSE and NSE along with the highest<br />
and lowest price are as below:<br />
BSE<br />
NSE<br />
Week ended on<br />
Closing<br />
Price<br />
Highest<br />
Price<br />
Lowest<br />
Price<br />
Closing<br />
Price<br />
Highest<br />
Price<br />
Lowest<br />
Price<br />
February 11, 2011 118.85 119.90 111.80 119.00 119.90 111.30<br />
February 04, 2011 122.40 128.15 121.55 122.00 128.20 121.30<br />
January 28, 2011 138.10 139.40 132.50 137.65 139.70 132.05<br />
January 21, 2011 149.95 153.85 149.50 149.75 153.45 149.20<br />
Note: High/Low prices based on closing quotations of BSE & NSE (Source: www.bseindia.com and<br />
www.nseindia.com)<br />
<strong>The</strong> market capitalization of our Equity Shares as on December 31, 2010 was Rs. 2,212.34 crores on the BSE<br />
based on a market price of Rs. 164.60 and the market capitalization of our Equity Shares on the NSE was Rs.<br />
2,213.01 crores based on a market price of Rs. 164.65.<br />
<strong>The</strong> Issue price of Rs. 85/- has been arrived at in consultation between our <strong>Bank</strong> and the Lead Manager.<br />
72
LEGAL AND OTHER INFORMATION<br />
Except as described below, there are no outstanding litigations, suits, civil or criminal prosecutions, proceedings<br />
before any judicial, quasi-judicial, arbitral or administrative tribunals, including pending proceedings for<br />
violation of statutory regulations or, alleging criminal or economic offences or tax liabilities or any other<br />
offences (including past cases where penalties may or may not have been awarded and irrespective of whether<br />
they are specified under paragraph (i) of Part 1 of Schedule XIII of the Companies Act) against our <strong>Bank</strong> and<br />
our Directors that would have a material adverse effect on our business. Further there are no defaults, nonpayments<br />
or overdue of statutory dues, institutional/bank dues and dues payable to holders of debentures, bonds<br />
and arrears of cumulative preference shares that would have a material adverse effect on our business. Further,<br />
none of our directors are on the RBI’s list of willful defaulters.<br />
Summary of total Litigation against our <strong>Bank</strong> as of December 31, 2010:<br />
Sl.<br />
No.<br />
Brief Description No. of Cases Amount Involved<br />
(Rs. in Crores)<br />
1. Proceedings filed against our <strong>Bank</strong> on disputed tax claims 35 243.55<br />
2. Suits involving our <strong>Bank</strong> which are not acknowledged as debts. 81 31.71<br />
3. Criminal proceedings against our <strong>Bank</strong> 12 Not quantifiable<br />
4. Labour cases against our <strong>Bank</strong> 28 0.01<br />
Summary of total Litigation by our <strong>Bank</strong> as of December 31, 2010:<br />
Sl.<br />
No.<br />
Brief Description No. of Cases Amount Involved<br />
(Rs. in Crores)<br />
1. Suits filed by our <strong>Bank</strong> against defaulting borrowers. 5,517 261.94<br />
2. Proceedings filed by our <strong>Bank</strong> on disputed tax claims. 13 17.78<br />
In view of our <strong>Bank</strong>, all outstanding civil, labour, consumer and tax related litigations and disputes of value<br />
more than Rs. 18.32 Crores are material to our <strong>Bank</strong>. As on December 31, 2010, our <strong>Bank</strong> had the following<br />
litigation, suits, and cases pending before various courts and authorities. In terms of the Schedule VIII Part E<br />
(XII) of the SEBI ICDR Regulations, the following legal proceedings have been disclosed:<br />
I. Litigation involving our <strong>Bank</strong> as on December 31, 2010<br />
A. Outstanding proceedings initiated against our <strong>Bank</strong><br />
(i)<br />
Criminal Proceedings<br />
Sr.<br />
No.<br />
Forum Filed by Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
1. Judicial<br />
Magistrate,<br />
First Class,<br />
Belur<br />
C.C No.<br />
441/2002<br />
Mr. V.D. Souza<br />
(“Complainant”)<br />
<strong>The</strong> Complainant had filed a<br />
complaint dated August 30, 2000<br />
against the <strong>Bank</strong> under Sections<br />
409, 418 and 420 of the IPC with<br />
the Judicial Magistrate alleging that<br />
proceeds of a cheque that he had<br />
deposited in his account with the<br />
Bikkodu branch of the <strong>Bank</strong> were<br />
not credited to his account.<br />
<strong>The</strong> Judicial Magistrate, by an order<br />
dated July 20, 2002, issued<br />
summons to the <strong>Bank</strong>.<br />
<strong>The</strong> <strong>Bank</strong>’s Bikkodu branch filed a<br />
Criminal Revision Petition No<br />
Current Status<br />
NA <strong>The</strong> matter is<br />
pending before the<br />
Court of Judicial<br />
Magistrate<br />
evidence.<br />
for<br />
73
Sr.<br />
No.<br />
Forum Filed by Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
3612/2002 in the <strong>Karnataka</strong> High<br />
Court for quashing the proceedings<br />
initiated by the Complainant. <strong>The</strong><br />
High Court, by an order dated<br />
January 22, 2008, remanded the<br />
matter back to the Judicial<br />
Magistrate, asking him to<br />
reconsider the matter and pass a<br />
2. Additional<br />
Judicial<br />
Magistrate,<br />
First Class,<br />
Sagar<br />
C.C No.<br />
229/2000<br />
Mr. Tukaram<br />
Anantha Shet<br />
(“Complainant”)<br />
fresh order.<br />
<strong>The</strong> Complainant deposited his<br />
property deeds as co-obligation<br />
towards credit facilities obtained by<br />
a trading firm. Due to irregularities<br />
in the account, the dues were paid<br />
by the Manager, the account closed,<br />
and the loan documents assigned to<br />
the Manager, following which the<br />
Complainant filed a complaint<br />
dated June 27, 1998 against Sri.<br />
Sridhar Jois K.S (the then Branch<br />
Manager of Sagar Branch) and two<br />
others under Sections 406 and 420,<br />
read with Section 34 of the IPC<br />
alleging that the assignment of the<br />
loan was fraudulent.<br />
N.A.<br />
Current Status<br />
<strong>The</strong> Supreme Court<br />
has stayed further<br />
proceedings in the<br />
matter<br />
Sri. Sridhar Jois K.S filed a revision<br />
petition before the <strong>Karnataka</strong> High<br />
Court to quash the order of the<br />
Judicial Magistrate taking<br />
cognizance of the matter in this<br />
matter which was dismissed.<br />
3. Railway<br />
Mobile Court,<br />
Andheri,<br />
Mumbai<br />
C.C. No.<br />
2064/S/2000<br />
Mr. Vishnu<br />
Mordani<br />
(“Complainant”)<br />
Against this order, a Special Leave<br />
petition was filed before the<br />
Supreme Court on August 20, 2009<br />
(SLP(Crl) No 9204/2009).<br />
In the year 1995, a portion of the<br />
office premises in Andheri,<br />
Mumbai measuring 288 sq. ft. used<br />
as a record room by the <strong>Bank</strong> and<br />
forming a portion of Gala No.101<br />
was sold to the Complainant under<br />
a sale agreement (“Sale<br />
Agreement”). In the Sale<br />
Agreement, the portion of premises<br />
sold was referred to as ‘Record<br />
Room’ and the Gala Number of<br />
which it formed a part was not<br />
mentioned.<br />
N.A.<br />
<strong>The</strong> case is pending<br />
before the Railway<br />
Mobile Court<br />
<strong>The</strong> Manish Nagar Shopping Centre<br />
Premises Cooperative Society<br />
<strong>Limited</strong> which was approached by<br />
the Complainant for membership of<br />
the Society has denied the same on<br />
74
Sr.<br />
No.<br />
Forum Filed by Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
the ground that the premises does<br />
not have an independent Gala<br />
Number.<br />
<strong>The</strong> Complainant filed a criminal<br />
complaint dated October 11, 2000<br />
against the <strong>Bank</strong> and its officials<br />
(the “Respondents”) under<br />
Sections 405, 406, 409 and 420 of<br />
the IPC before the Railway Mobile<br />
Court.<br />
Current Status<br />
4. Judicial<br />
Magistrate,<br />
First Class,<br />
Udupi<br />
C.C. 34/2004<br />
Chitrakala<br />
Investment Trade<br />
& Business &<br />
Finance Ltd.<br />
(“Complainant”)<br />
<strong>The</strong> Respondents filed discharge<br />
application/s before the Railway<br />
Mobile Court.<br />
<strong>The</strong> <strong>Bank</strong>’s Udupi branch had<br />
granted credit facilities to<br />
Commercial Corporation of India<br />
Ltd. on various securities, including<br />
a corporate guarantee of the<br />
Complainant. Upon breach of the<br />
repayment terms, the <strong>Bank</strong> realized<br />
the security and liquidated the<br />
shares of the Complainant pursuant<br />
to which the Complainant filed a<br />
complaint dated July 31, 2003<br />
against the <strong>Bank</strong> and two of its<br />
officials (the “Respondents”)<br />
under Sections 406, 409, 306, 420<br />
and 34 of the IPC alleging breach<br />
of trust and cheating.<br />
N.A. <strong>The</strong> <strong>Karnataka</strong><br />
High Court has<br />
stayed the<br />
proceedings and<br />
the matter is<br />
currently pending.<br />
<strong>The</strong> <strong>Bank</strong> officials filed a Writ<br />
Petition No. 2024/2005 before the<br />
<strong>Karnataka</strong> High Court to quash the<br />
complaint which was dismissed by<br />
the High Court.<br />
5. Judicial<br />
Magistrate<br />
First Class,<br />
Kalyan<br />
C.C No<br />
60/2006<br />
Mr. Jaichand<br />
Keswani<br />
(“Complainant”)<br />
<strong>The</strong> <strong>Bank</strong> has filed a Writ Appeal<br />
No 1590/2007 before the High<br />
Court and the High Court has<br />
stayed proceedings in the matter.<br />
<strong>The</strong> Complainant mortgaged his<br />
property as co-obligant to credit<br />
facilities granted by the <strong>Bank</strong> to<br />
Mr. K. Sethuraman. Mr.<br />
Sethuraman defaulted in repayment<br />
of his overdraft facilities and had<br />
absconded, which was brought to<br />
the notice of the <strong>Bank</strong> by the<br />
Complainant, who requested the<br />
<strong>Bank</strong> to thus cancel his guarantee.<br />
Upon refusal of the <strong>Bank</strong> to do so,<br />
the complainant filed a complaint<br />
dated March 14, 2005 against the<br />
<strong>Bank</strong> the then Branch Head and<br />
N.A.<br />
Matter pending for<br />
hearing before the<br />
Judicial Magistrate<br />
for hearing of<br />
discharge<br />
application.<br />
75
Sr.<br />
No.<br />
Forum Filed by Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
three others (the “Respondents”)<br />
under Sections 193, 420, 421, 426,<br />
468 and 477A of the IPC.<br />
Current Status<br />
6. Additional<br />
Chief Judicial<br />
Magistrate,<br />
Dharwad<br />
P.C.R. No.<br />
334/2006<br />
Jagdish<br />
(“Complainant”)<br />
<strong>The</strong> then Branch Head, Sri. Suhas<br />
Ganpat Rao Talageri, has filed a<br />
discharge application before the<br />
Court of Judicial Magistrate.<br />
<strong>The</strong> <strong>Bank</strong> had advanced credit<br />
facilities to the Complainant’s firm<br />
against properties as security. Upon<br />
default by the Complainant’s<br />
company, the <strong>Bank</strong> initiated<br />
recovery proceedings under the<br />
SARFAESI Act upon which the<br />
Complainant filed a complaint<br />
dated October 27, 2006 against Sri.<br />
V.N.Manohar then Regional Head<br />
of Hubli, M.R.Girish then Branch<br />
Manager and seven other <strong>Bank</strong><br />
officials of the Branch under<br />
Sections 120A, 191, 192, 420, 425,<br />
463 and 468 of the IPC alleging<br />
cheating and fraud in the recovery<br />
proceedings initiated by the <strong>Bank</strong>.<br />
N.A. <strong>The</strong> proceedings<br />
have been stayed<br />
by the High Court<br />
of <strong>Karnataka</strong> and<br />
the matter is<br />
currently pending.<br />
7. Additional<br />
Chief<br />
Metropolitan<br />
Magistrate,<br />
Bangalore<br />
C.C. No.<br />
7474/2009<br />
P.D. Devendranath<br />
(“Complainant”)<br />
<strong>The</strong> <strong>Bank</strong> has filed a Writ Petition<br />
before the <strong>Karnataka</strong> High Court to<br />
quash the complaint filed.<br />
<strong>The</strong> Complainant filed a complaint<br />
dated June 5, 2007 against Sri.<br />
Vikram Rajwade (dismissed<br />
employee), Mr. Krishna Bhat then<br />
Branch Manager and another under<br />
Sections 420 and 34 of the IPC<br />
alleging that an employee and the<br />
Manager of the <strong>Bank</strong> had<br />
perpetrated fraud and<br />
misappropriated his deposits in the<br />
Bangalore (Malleshawaram) branch<br />
of the <strong>Bank</strong>.<br />
<strong>The</strong> Magistrate issued process<br />
against two of the accused, viz. Mr.<br />
Vikram Rajwade (dismissed since<br />
then) and Mr. Krishna Bhat<br />
(Manager,<br />
Bangalore-<br />
Malleshawaram Branch)<br />
(“Order”). Mr. Krishna Bhat filed<br />
a petition to set aside the Order in<br />
the <strong>Karnataka</strong> High Court. <strong>The</strong><br />
High Court has stayed the<br />
proceedings in the matter.<br />
N.A.<br />
<strong>The</strong> <strong>Bank</strong> has taken<br />
a stand that there is<br />
no fraud and the<br />
deposits were<br />
adjusted to the<br />
deposit loans of the<br />
Complainant. <strong>The</strong><br />
matter is pending<br />
before the<br />
Magistrate’s Court,<br />
awaiting the order<br />
of the <strong>Karnataka</strong><br />
High Court.<br />
76
Sr.<br />
No.<br />
Forum Filed by Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
8. IInd<br />
Additional<br />
Chief Judicial<br />
Magistrate,<br />
Mangalore<br />
C.C. No<br />
No. 215/2005<br />
9. Judicial<br />
Magistrate<br />
First Class,<br />
Kalyan.<br />
C.C No<br />
413/2004<br />
Mrs. Gracy Emilda<br />
Mascarenhas<br />
(“Complainant”)<br />
Mr. Om Prakash<br />
Sarjuprasad<br />
Mishra<br />
(“Complainant”)<br />
<strong>The</strong> Complainant filed a complaint<br />
dated October 30, 2003 against Mr.<br />
Ravindra Bagalody, the then<br />
Branch Head of Balmatta Road-<br />
Mangalore and six others under<br />
Sections 406, 386, 506(ii) 418, 420,<br />
120B R/w Sec 34 of IPC alleging<br />
that Sri. Ravindra S. Baglodi, (then<br />
Branch Manager) has conspired,<br />
connived and abetted in creating<br />
fake document and fabricated<br />
records with sole intention of<br />
causing wrongful loss to the<br />
Complainant.<br />
<strong>The</strong> Complainant filed a complaint<br />
dated August 25, 2004 against the<br />
<strong>Bank</strong> and Sri Suhas Ganapat Rao<br />
Talageri the then Branch Manager<br />
under Sections 196, 198, 211, 406,<br />
500 read with Section 34 of the IPC<br />
before the Court of Judicial<br />
Magistrate, Kalyan alleging that the<br />
<strong>Bank</strong> filed a false criminal<br />
complaint being Criminal<br />
Complaint No 271/2004 against<br />
him to defame him.<br />
N.A.<br />
Current Status<br />
<strong>The</strong> case is pending<br />
before the court.<br />
N.A <strong>The</strong> matter is<br />
currently pending.<br />
10. Judicial<br />
Magistrate,<br />
Patna<br />
C.C NO<br />
1660/2010<br />
Dr. Nirmal<br />
Prakash narain<br />
(“Complainant”)<br />
It was further alleged that the <strong>Bank</strong><br />
flouted all RBI rules and<br />
regulations before giving credit<br />
facility to him and alleged that he<br />
did not give consent/NOC to<br />
mortgage his property.<br />
<strong>The</strong> Complainant has filed a<br />
criminal complaint dated July 17,<br />
2010 against the <strong>Bank</strong>, nonexecutive<br />
Chairman of the <strong>Bank</strong>,<br />
Managing Director of the <strong>Bank</strong><br />
and four Independent Directors of<br />
the <strong>Bank</strong>, the then Regional Head<br />
of Bangalore Region <strong>Bank</strong><br />
officials then Branch Head of<br />
Bangalore-Bellhandur Branch.<br />
Patel group of institutions and Sri.<br />
S.N.Ramdas (the “Respondents”)<br />
under Sections 420, 406, 467, 468,<br />
471 and 120 B of IPC against the<br />
<strong>Bank</strong> before the Court of Judicial<br />
Magistrate, Patna.<br />
N.A <strong>The</strong> case is<br />
currently pending<br />
before the court of<br />
judicial magistrate.<br />
Further, <strong>The</strong><br />
quashing<br />
application filed<br />
before the High<br />
Court is yet to<br />
come up for the<br />
hearing.<br />
<strong>The</strong> Complainant has alleged that<br />
an account payee demand draft<br />
dated May 29, 2009 purchased by<br />
him for Rs. 6,53,785 at Union<br />
<strong>Bank</strong> of India, Patna in favour of<br />
Registrar, RGUHS, (Rajeev<br />
77
Sr.<br />
No.<br />
Forum Filed by Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
Gandhi University of Health<br />
Science) Bangalore, was<br />
fraudulently credited in the<br />
account of Director,<br />
Administration, Patel Group of<br />
Institution on July 9, 2009 at the<br />
<strong>Bank</strong>’s Bangalore - Bellandur<br />
branch and its proceeds were<br />
withdrawn.<br />
<strong>The</strong> Complainant further alleged<br />
that the <strong>Bank</strong> authorities,<br />
connivance with Shri. S.N.<br />
Ramdas, an employee of Patel<br />
group of Institutions<br />
misappropriated this amount by<br />
playing fraud upon him and they<br />
did the same for their wrongful<br />
gain and causing huge loss to the<br />
Complainant.<br />
Current Status<br />
11. Chief Judicial<br />
Magistrate<br />
Court,<br />
Davangere.<br />
CC No -<br />
1174/2010<br />
S.K.Basavaraj<br />
(“Complainant”)<br />
<strong>The</strong> <strong>Bank</strong> filed a petition under<br />
Section 205 of Cr.P.C on August<br />
7, 2010 for dispensing of the<br />
requirement of a personal<br />
appearance. <strong>The</strong> same was allowed<br />
on September 17, 2010. <strong>The</strong><br />
<strong>Bank</strong>, executives of the <strong>Bank</strong> and<br />
Directors of the <strong>Bank</strong> fhave filed<br />
Criminal miscellaneous<br />
application under Sec-482 of CrPC<br />
to quash the proceedings of the<br />
trial court. <strong>The</strong> same is pending.<br />
<strong>The</strong> Complainant filed a complaint<br />
dated July 11, 2006 against the<br />
<strong>Bank</strong> and other parties before the<br />
First Additional Senior Civil Judge<br />
and J.M.F.C-1, Davangere on for<br />
offence under Sections 420, 422<br />
read with Section 34 of the IPC. It<br />
was alleged by the Complainant<br />
that he deposited two cheques of<br />
Rs.12,800 and Rs.20,000 dated<br />
November 3, 2005 and November<br />
8, 2005 respectively (“Cheques”),<br />
drawn on Krishna Grahmina <strong>Bank</strong>,<br />
Bidar (“KGB <strong>Bank</strong>”) with UTI<br />
<strong>Bank</strong> which sent the same to the<br />
<strong>Bank</strong> for collection of the said<br />
amounts from KGB <strong>Bank</strong>.<br />
N.A <strong>The</strong> matter is<br />
currently pending.<br />
UTI <strong>Bank</strong> returned the Cheques to<br />
the Complainant along with the<br />
endorsement issued by the <strong>Bank</strong><br />
stating that the Cheques were<br />
outdated. It was alleged by the<br />
78
Sr.<br />
No.<br />
Forum Filed by Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
Complainant that he presented the<br />
Cheques within six months from<br />
the date of issue and the same were<br />
12. Additional<br />
Chief<br />
Metropolitan<br />
Magistrate<br />
Court - IV,<br />
Nrupathunga<br />
Road,<br />
Bangalore.<br />
CC No -<br />
47966/2010<br />
Block Education<br />
Officer, North<br />
Range I,<br />
Malleswaram,<br />
Bangalore.<br />
(“Complainant”)<br />
B. Outstanding proceedings initiated by our <strong>Bank</strong><br />
not outdated.<br />
<strong>The</strong> Complainant had filed a<br />
complaint against the <strong>Bank</strong>, its<br />
officials and Others (“Other<br />
Accused”) on October 21, 2010.<br />
under Sections 465, 468, 471, 409,<br />
420, 201 read with Sections 34 and<br />
37 of the IPC for misappropriation<br />
of funds.<br />
It was alleged by the Complainant<br />
that during the year 1999 to 2001,<br />
some people prepared bogus salary<br />
bills of certain schools and forged<br />
signature of the Block Educational<br />
Officer, North Range I,<br />
Malleswaram, Bangalore, received<br />
treasury cheques and withdrew the<br />
amount from the <strong>Bank</strong>. Further,<br />
the Complainant alleged that the<br />
<strong>Bank</strong>’s staff did not credit the<br />
amount in the related school’s<br />
bank account but credited the<br />
amount claimed through the bogus<br />
cheques to the accounts of other<br />
accused and helped the accused<br />
misuse the funds of the<br />
Government.<br />
Current Status<br />
N.A <strong>The</strong> matter is<br />
currently pending.<br />
(i)<br />
Sr.<br />
No.<br />
Civil Proceedings<br />
Forum Filed Against Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
Current Status<br />
1. DRT,<br />
Coimbatore<br />
O.A. 38/2002<br />
dated May 2,<br />
2002<br />
transferred to<br />
DRT, Madurai<br />
due to change<br />
of jurisdiction<br />
LSP Agro<br />
<strong>Limited</strong> v.<br />
<strong>Karnataka</strong><br />
<strong>Bank</strong> <strong>Limited</strong><br />
and Lakshmi<br />
Vilas bank<br />
(“LVB”) (now<br />
substituted by<br />
Kotak<br />
Mahindra<br />
bank)<br />
LSP Agro Ltd (“Agro”), a<br />
public <strong>Limited</strong> Company<br />
engaged in manufacture of<br />
vanaspathi, bakery shortening,<br />
refining and trading of edible<br />
oil applied for a loan from our<br />
<strong>Bank</strong>.<br />
Consortium consisting of our<br />
<strong>Bank</strong> and LVB, wherein LVB<br />
was the lead bank, sanctioned<br />
working capital loans under<br />
consortium arrangement on<br />
parripassu charge over the<br />
securities.<br />
21.73 <strong>The</strong> matter is currently<br />
pending before the<br />
DRT, Madurai<br />
79
Sr.<br />
No.<br />
Forum Filed Against Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
Current Status<br />
IDBI bank had also sanctioned<br />
term loans to Agro for purchase<br />
of machineries. <strong>The</strong><br />
Consortium had second charge<br />
over the securities of Agro.<br />
Initially, Agro faced problem<br />
from labour and the Pollution<br />
Control Board. <strong>The</strong>reafter,<br />
Agro expanded its unit by<br />
installing technically advanced<br />
machineries.<br />
Agro incurred heavy losses in<br />
business and became a NPA on<br />
June 4, 2001.<br />
2. DRT-II,<br />
Mumbai<br />
O.A 35/2004<br />
Roofit<br />
Industries Ltd.<br />
v. <strong>Karnataka</strong><br />
<strong>Bank</strong> <strong>Limited</strong><br />
On default of payment by Agro,<br />
our <strong>Bank</strong> and LVB filed joint<br />
application before DRT,<br />
Coimbatore for recovery of<br />
dues which got transferred to<br />
DRT, Coimbatore due change<br />
of territorial jurisdiction.<br />
Roofit Industries <strong>Limited</strong><br />
(“RIL”), a Public <strong>Limited</strong><br />
Company engaged in<br />
manufacture of AC sheets,<br />
pipes and other building<br />
materials, availed credit from<br />
consortium of <strong>Bank</strong>s. <strong>The</strong><br />
Consortium consisted of our<br />
<strong>Bank</strong> with eleven other banks.<br />
44.83 <strong>The</strong> DRT, Mumbai<br />
has stayed further<br />
proceedings on<br />
account of the<br />
application of RIL<br />
pending before the<br />
Board of Industrial<br />
and Financial<br />
Reconstruction<br />
(“BIFR”).<br />
On account of losses incurred<br />
by RIL, it closed down the unit<br />
for which the working capital<br />
loan was availed.<br />
3. DRT-III,<br />
Mumbai<br />
O.A 163/2008<br />
Brown Paper<br />
Technologies<br />
<strong>Limited</strong> v.<br />
<strong>Karnataka</strong><br />
<strong>Bank</strong> <strong>Limited</strong><br />
On default of payment by RIL,<br />
the Consortium filed an<br />
application before the DRT,<br />
Mumbai on February 6, 2004<br />
for recovery of dues.<br />
Brown Paper Technologies<br />
<strong>Limited</strong> (“BPTL”), a Public<br />
<strong>Limited</strong> Company, engaged in<br />
manufacturing of specialty<br />
paper, availed working capital<br />
loan from the Consortium of<br />
<strong>Bank</strong>s led by our <strong>Bank</strong>.<br />
On account of hike in the cost<br />
of raw materials, BPTL<br />
38.10 <strong>The</strong> application is<br />
currently pending<br />
before the DRT-III.<br />
Mumbai.<br />
State Industrial and<br />
Investment<br />
Corporation of<br />
Maharashtra<br />
(“SICOM”), on behalf<br />
80
Sr.<br />
No.<br />
Forum Filed Against Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
suffered losses and applied to<br />
BIFR for declaring it a sick<br />
company. <strong>The</strong> BIFR, vide its<br />
order dated July 17, 2006,<br />
declared BPTL a sick company.<br />
<strong>The</strong> rehabilitation proposal<br />
submitted by BPTL was<br />
rejected by the Consortium.<br />
Current Status<br />
of all the consortium<br />
members, has issued<br />
demand notice dated<br />
February 13, 2008 to<br />
BPTL under the<br />
SARFAESI Act.<br />
4. DRT-I,<br />
Mumbai<br />
O.A 36/2008<br />
Ventron<br />
Chemicals v.<br />
<strong>Karnataka</strong><br />
<strong>Bank</strong> <strong>Limited</strong><br />
Our <strong>Bank</strong> filed an application<br />
before the DRT-III, Mumbai for<br />
recovery of dues on August 14,<br />
2008.<br />
Ventron<br />
Chemicals<br />
(“Ventron”), a Public <strong>Limited</strong><br />
Company, engaged in<br />
manufacturing of specialty<br />
chemicals used mainly in textile<br />
industry availed working capital<br />
loan from our <strong>Bank</strong>.<br />
On account of recession in the<br />
textile industry, the company<br />
was not able to recover its<br />
receivables in time and<br />
defaulted in payment of the<br />
loan.<br />
36.24 <strong>The</strong> DRT, Mumbai<br />
allowed the<br />
application and issued<br />
a recovery certificate<br />
on December 16,<br />
2009.<br />
Recovery proceeding<br />
is currently pending.<br />
Our <strong>Bank</strong> has filed an<br />
application before the DRT-I on<br />
June 6, 2008 for recovery of<br />
dues.<br />
5. DRT-II,<br />
Mumbai<br />
Allotment No:<br />
401/2010) filed<br />
on August 16,<br />
2010<br />
Kalsaria<br />
Diamonds<br />
Private <strong>Limited</strong><br />
v. <strong>Karnataka</strong><br />
<strong>Bank</strong> <strong>Limited</strong><br />
<strong>Bank</strong> of India, on behalf of the<br />
Consortium <strong>Bank</strong>s, filed a joint<br />
application before the DRT-II,<br />
Mumbai against Kalsaria<br />
Diamonds Private <strong>Limited</strong><br />
(“KDPL”).<br />
KDPL, a private limited<br />
company, availed credit<br />
facilities in the Mumbai<br />
overseas branch of our <strong>Bank</strong><br />
and defaulted in payment,<br />
following which our <strong>Bank</strong><br />
along with the Consortium<br />
members, filed an application<br />
for recovery of such dues.<br />
60.97 <strong>The</strong> matter is pending<br />
before the DRT-II,<br />
Mumbai.<br />
<strong>The</strong> recovery action<br />
initiated under the<br />
SARFAESI Act is<br />
under process.<br />
Proceedings under the<br />
SARFAESI Act 2002 have<br />
been initiated by the<br />
Consortium lead bank on behalf<br />
of the consortium members<br />
81
Sr.<br />
No.<br />
Forum Filed Against Brief Particulars Quantum<br />
(Rs. in<br />
Crores<br />
approx.)<br />
vide demand notice dated<br />
March 12, 2010 which is<br />
currently pending for obtaining<br />
orders/permission under<br />
Section 14 of the SARFAESI<br />
Act by the DC/CMM Court.<br />
KDPL has filed a counterclaim<br />
in the matter.<br />
Current Status<br />
C. Other Litigations<br />
1. As on December 31, 2010, there are 188 civil cases (no claim against the bank) and 81 consumer<br />
complaints aggregating to Rs. 31.71 Crores and 3 counter claims aggregating to Rs. 23.04 Crores<br />
pending against our <strong>Bank</strong>.<br />
2. As on December 31, 2010, the <strong>Bank</strong> has filed 5,517 cases for recovery of Book Balance amounting to<br />
Rs. 261.94 Crores<br />
3. As on December 31, 2010, there are 28 cases involving labour, employment and industrial disputes that<br />
are currently pending in various forums. <strong>The</strong> total quantifiable amount is Rs. 0.01 Crores.<br />
4. <strong>The</strong>re are 2 cases involving transfer of shares where the bank has been made a party and has been<br />
asked not to transfer shares involved in such disputes.<br />
5. Writ Petition filed by Smt Jayashree S. Chakkera against <strong>Karnataka</strong> <strong>Bank</strong> Employee Association and<br />
our <strong>Bank</strong><br />
Smt Jayashree S. Chakkera (“Petitioner”) filed a Writ Petition bearing No. 13199/2006 in the High<br />
Court of <strong>Karnataka</strong> at Bangalore on September 17, 2006 under Article 226 of the Constitution of India<br />
against <strong>Karnataka</strong> <strong>Bank</strong> Employee Association (“KBEA”) and others alleging that the KBEA was<br />
collecting donations from the customers which was contrary to the circulars issued by the RBI. <strong>The</strong><br />
petition was rejected by the Hon’ble High Court for want of demand preceding the prayer for writ of<br />
Mandamus. However, liberty was reserved to the Petitioner to approach the Hon’ble court again, if<br />
need arises.<br />
<strong>The</strong> Petitioner made representations to the RBI to direct the <strong>Bank</strong> to take appropriate actions against<br />
the KBEA and its office bearers. RBI issued a letter to the <strong>Bank</strong> and advised to issue administrative<br />
instructions and to investigate the allegations made by the Petitioner. <strong>The</strong> Petitioner also issued a letter<br />
to the <strong>Bank</strong> to initiate prosecution against the delinquent employees and office bearers. <strong>The</strong> Petitioner<br />
then filed a Writ Petition bearing No. 5654/2009 questioning the correctness of the communication<br />
issued by RBI to the <strong>Bank</strong>. A retired District and Sessions Judge was appointed to investigate into the<br />
allegation and to submit a report. <strong>The</strong> Writ Petition was disposed off directing RBI to consider the<br />
investigation report and act upon it. Being aggrieved by the order passed in Writ Petition bearing No.<br />
5654/2009, the Petitioner filed W.A. No. 326/2010 before the Division Bench of the Hon’ble High<br />
Court stating that the order was ineffective. During the hearing Petitioner sought leave of the Court to<br />
permit to withdraw the Writ Appeal with liberty to persue the remedy by way of public interest<br />
litigation. In view of the submission the Appeal is rejected with liberty as sought for.<br />
<strong>The</strong> Petitioner filed a Writ Petition as PIL bearing No 39510/2010 praying that: (1) a Writ of<br />
Mandamus be allowed directing RBI and the <strong>Bank</strong> to take steps to prosecute the KBEA and its office<br />
bearers; and (2) direction to confiscate the assets of the KBEA. <strong>The</strong> matter is currently pending.<br />
82
D. Securities Related Cases<br />
Our <strong>Bank</strong> was granted registration as a <strong>Bank</strong>er to an Issue on January 23, 1995, for a period of three<br />
years. On expiry of the said registration, our <strong>Bank</strong> applied for renewal of the same. However, from the<br />
particulars submitted for the purpose, the Securities and Exchange Board of India (the “SEBI”) noticed<br />
that the Appellant had failed to comply with the requirements of regulation 14 of the SEBI (<strong>Bank</strong>er to<br />
an Issue) Regulations, 1994 and referred the matter to the Adjudicating Officer for inquiry and<br />
adjudication vide its order dated March 31, 1998. <strong>The</strong> Adjudicating Officer vide his letter dated May<br />
21, 1998 asked our <strong>Bank</strong> to show cause as to why action should not be taken against it by way of<br />
imposing penalty in accordance with section 15B and section 15I of the Act, for contravention of the<br />
said regulation 14. Our <strong>Bank</strong> filed a written reply thereto and also made oral submissions before the<br />
Adjudicating Officer denying the charges. However, the Adjudication Officer after enquiry, came to<br />
the conclusion that our <strong>Bank</strong> was guilty of the charge and imposed a monetary penalty of Rs. 25,000/-<br />
vide his order dated November 9, 1998. In terms of Rule 9, our <strong>Bank</strong> was required to deposit the<br />
amount of penalty, as a precondition for entertaining the appeal. Our <strong>Bank</strong> challenged Adjudication<br />
Officer’s order before SAT which vide its order dated April 26, 1999 held that our <strong>Bank</strong> had complied<br />
with the requirements of regulation 14(1) and 14(2) while acting as <strong>Bank</strong>er to the public issues and<br />
hence set aside the Adjudication Officer’s order imposing penalty.<br />
E. Show-cause notice issued by the RBI<br />
<strong>The</strong> RBI issued a show-cause notice to the <strong>Bank</strong> on November 9, 2010 which was received by the<br />
<strong>Bank</strong> on November 15, 2010 (“Notice-2”), wherein the <strong>Bank</strong> was called upon to show-cause why a<br />
penalty of Rs. 0.05 Crores for each contravention of the comprehensive guidelines on derivatives<br />
issued by the RBI (“Directions”) should not be imposed on it for irregularities in the manner in which<br />
certain derivative transaction(s) were entered into and monitored by it. During the annual financial<br />
inspection and scrutiny of derivative transactions, by the RBI, it was observed that:<br />
i. <strong>The</strong> <strong>Bank</strong> failed to carry out due diligence regarding user appropriateness and suitability of products<br />
before offering derivative products to users which was in violation of the Directions;<br />
ii.<br />
iii.<br />
<strong>The</strong> <strong>Bank</strong> failed in documenting the process of determining the pricing and periodical evaluations<br />
and merely relied on Calyon <strong>Bank</strong> for pricing and valuation of products and did not have any<br />
system to measure, monitor, control and manage the risks in derivative transactions which was in<br />
violation of the Directions; and<br />
<strong>The</strong> <strong>Bank</strong> appears to have failed to comply with the requirements regarding restructuring of<br />
derivative products in as much as restructuring deals were not cash settled.<br />
<strong>The</strong> <strong>Bank</strong> responded to the Notice-2 on November 26, 2010 (“Reply-2”) praying that the proposal to<br />
impose penalty may be dropped and requested for a personal hearing in the matter. <strong>The</strong> <strong>Bank</strong> stated in the<br />
Reply-2 that it offered the derivative transactions to its customers of high repute only on their specific<br />
request and with back to back cover from counterparty bank (i.e. Caylon <strong>Bank</strong>). Further, the <strong>Bank</strong> stated<br />
that it has put in place various systems and procedures for managing and monitoring the derivative<br />
portfolio and conducts stress testing of both the default risk and the Mark-to-Market (“MTM”) at<br />
periodic intervals. Further, it was stated in the Reply-2 that the <strong>Bank</strong> has the expertise to predict the likely<br />
future market scenarios, which was sufficient to measure the risk in underlying transactions. Further, it<br />
was also clarified that the <strong>Bank</strong> has not restructured deals after the issue of circular by RBI on<br />
restructuring of derivative contracts in October 2008. Cancellation of deals was made by paying the<br />
termination price quoted by the counter party <strong>Bank</strong>.<br />
<strong>The</strong> <strong>Bank</strong> was granted a personal hearing for the subject matter of Notice-2 on December 15, 2010<br />
wherein the <strong>Bank</strong> has clarified their above stand to the RBI. <strong>The</strong> outcome of the <strong>Bank</strong>’s personal hearing<br />
with RBI is currently pending.<br />
F. Contingent Liabilities<br />
<strong>The</strong> contingent liabilities not provided for as on September 30, 2010 (as disclosed in our <strong>Bank</strong>’s restated<br />
standalone financial statements) are as set out below:<br />
83
Contingent Liabilities As on September 30, 2010<br />
(Rs. in Crores)<br />
Claims against the <strong>Bank</strong> not acknowledged as debts<br />
28.03<br />
Liability on account of outstanding Forward Exchange Contacts* 6,163.67<br />
Guarantees given on behalf of constituents<br />
a) In India<br />
b) Outside India<br />
Acceptances, Endorsements & other Obligations<br />
Other items for which the bank is contingently liable<br />
Total<br />
* Includes derivatives<br />
G. Working results<br />
1,024.34<br />
0<br />
724.95<br />
1,345.61<br />
9,286.60<br />
For Information relating to our <strong>Bank</strong> on sales, gross profit etc as required by the Ministry of Finance Circular<br />
No F2/5/SE/76 dated February 5, 1977 read with amendments of even number dated March 8, 1977, please refer<br />
to “Unaudited Financial Results for nine months ended December 31, 2010 prepared in accordance with the<br />
requirements of the listing agreement” under the section titled “Material Developments” starting on Page no 65<br />
of this Letter of Offer.<br />
H. In the opinion of the Directors of our <strong>Bank</strong>, there has not arisen any circumstances since the date of the<br />
last financial statements as disclosed in this Letter of Offer which will materially and adversely affect or is<br />
likely to affect the trading or profitability of our <strong>Bank</strong>, or the value of its assets, or our ability to pay our<br />
liabilities within the next twelve months. However, we wish to draw attention to our <strong>Bank</strong>’s accounting<br />
treatment with respect to the liability for certain ‘Employee Retirement Benefits’. <strong>The</strong> additional liability<br />
relating to employee benefits viz (i) 2 nd pension option arising on account of 9 th Bipartite settlement and (ii) the<br />
enhancement in ceiling limit for Gratuity payment to Rs 10 lakh w.e.f. 24.5.2010 has been estimated at Rs 255<br />
crore and is being amortised over a period of 5 years pending issuance of clarifications/guidelines from the<br />
Reserve bank of India.<br />
84
LICENSES AND APPROVALS<br />
On the basis of the existing approvals, our <strong>Bank</strong> may undertake this Issue and our <strong>Bank</strong>'s current business<br />
activities and no further major approvals from any government authority/RBI are required to continue these<br />
activities. Further, there is no new line of activity/project. It must be distinctly understood that, in granting these<br />
licences, the Government and/or the RBI does not take any responsibility for our <strong>Bank</strong>'s financial soundness or<br />
for the correctness of any of the statements made or opinions expressed in this behalf.<br />
Licenses applied and pending approval for existing business and expansion plans of our <strong>Bank</strong><br />
Our <strong>Bank</strong> has submitted an application bearing No HO:DEV:BEP:OR No. 1210/2010-11 dated August 11, 2010<br />
to the Chief General Manager, Department of <strong>Bank</strong>ing Operations and Development, RBI, to obtain a license<br />
for opening of 35 new branches in terms of Section 23 of the <strong>Bank</strong>ing Regulation Act, 1949 (“Application”).<br />
<strong>The</strong> RBI vide its letter bearing no DBOD NO.BL. 11029/22.03.036/2010-11 dated January 14, 2011 has given<br />
permission to our <strong>Bank</strong> for opening of 13 branches out of 35 branches within a period of 1 year from the date of<br />
approval.<br />
85
STATUTORY AND OTHER INFORMATION<br />
Authority for the Issue<br />
Pursuant to the resolution passed by the Board of Directors of our <strong>Bank</strong> under Section 81(1) of the Companies<br />
Act at the meeting held on July 30, 2010 and the members of our <strong>Bank</strong> at the Extra-ordianry General Meeting<br />
held on September 9, 2010, it has been decided to make the following offer to the Eligible Equity Shareholders<br />
of our <strong>Bank</strong>, with a right to renounce.<br />
Prohibition by SEBI<br />
Neither our <strong>Bank</strong>, nor its Directors or companies with which our <strong>Bank</strong>’s Directors are associated with as<br />
directors or promoters, have been prohibited from accessing or operating in the capital markets or restrained<br />
from buying, selling or dealing in securities under any order or direction passed by SEBI.<br />
Further neither our <strong>Bank</strong>, nor its Directors have been declared as willful defaulters by RBI or any other<br />
governmental authority and there have been no violations of securities laws committed by them in the past or no<br />
such proceedings are pending against them for violation of securities laws.<br />
Securities Related Business<br />
Given below are the details regarding our Directors/ Group/ Associate company/ entity of our <strong>Bank</strong>, and/ or<br />
any company/ entity with which any of the above is associated as promoter/ director/ partner/ proprietor that is/<br />
was associated with securities related business and registered with SEBI:<br />
1. Name of our Director Mr. R.V. Shastri<br />
2. Name of the Entity Religare Trustee Company <strong>Limited</strong><br />
3. a. Previously associated as Independent director<br />
b. Currently Associated as Independent director<br />
4. Registration No. of companies which are / were registered<br />
with SEBI<br />
86<br />
Religare Mutual Fund –<br />
MF/052/06/01 dated July 24, 2006<br />
under the SEBI (Mutual Funds)<br />
Regulations, 1996<br />
5. If registration has expired, reasons for non renewal Not applicable<br />
6. Details of any enquiry/ investigation conducted by SEBI at Not applicable<br />
any time<br />
7. Penalty imposed by SEBI (Penalty includes deficiency /<br />
warning letter, adjudication proceedings, suspension /<br />
cancellation / prohibition orders)<br />
In case of tv commercial of Religare<br />
PSU Equity Fund, an open ended<br />
equity scheme, SEBI issued a show<br />
cause notice dated November 13,<br />
2009 to Religare Mutual Fund,<br />
Religare Asset Management<br />
Company Ld. (Religare AMC) and<br />
CEO of Religare AMC stating that<br />
the display and voice over for<br />
standard warning was less than 5<br />
seconds and was unintelligible.<br />
Religare AMC filed its responses<br />
with relevant supporting documents<br />
stating that display and voice over for<br />
standard warning in the TVC was 5<br />
seconds and intelligible. SEBI<br />
granted personal hearing before the<br />
Whole Time Member, SEBI. After<br />
considering the submission made by<br />
Religare AMC, Whole Time<br />
Member, SEBI vide its order dated<br />
February 9, 2010 disposed of the<br />
proceeding initiated vide the show<br />
cause notice dated November 13,
8. Outstanding fees payable by SEBI by these persons/ entities,<br />
if any<br />
2009 with a direction to Religare<br />
Mutual Fund, Religare AMC and<br />
CEO of Religare AMC to abide<br />
strictly by the stipulations on<br />
advertisement by mutual funds,<br />
issued by SEBI from time to time,<br />
both in letter and spirit.<br />
Not applicable<br />
1. Name of our Director Mr. U. R. Bhat<br />
2. Name of the Entity Axis Asset Management Company<br />
<strong>Limited</strong> (Axis AMC)<br />
3. a. Previously associated as Not Applicable<br />
b. Currently Associated as Independent Director<br />
4. Registration No. of companies which are / were registered<br />
with SEBI<br />
SEBI vide letter no.<br />
IMD/NS/175723/2009 dated<br />
September 4, 2009 has granted<br />
approval to Axis AMC to act as the<br />
Asset Management Company for<br />
Axis Mutual Fund.<br />
Axis Mutual Fund is a registered<br />
intermediary with registration no.<br />
MF/061/09/02 dated September 4.<br />
Further, SEBI vide letter no.<br />
IMD/DOF 1/JN/189481/2010 dated<br />
January 4, 2010 has granted<br />
certificate of registration to Axis<br />
AMC to act as Portfolio Manager<br />
under SEBI (Portfolio Managers)<br />
Regulations 1993. PMS<br />
Registration no. INP000003534<br />
dated January 4, 2010.<br />
5. If registration has expired, reasons for non renewal Not Applicable<br />
6. Details of any enquiry/ investigation conducted by SEBI at<br />
any time<br />
No enquiry/investigation conducted<br />
by SEBI at any time<br />
7. Penalty imposed by SEBI (Penalty includes deficiency / No penalty imposed by SEBI<br />
warning letter, adjudication proceedings, suspension /<br />
cancellation / prohibition orders)<br />
8. Outstanding fees payable by SEBI by these persons/<br />
entities, if any<br />
Nil<br />
1. Name of our Director Mr. U. R. Bhat<br />
2. Name of the Entity <strong>Edelweiss</strong> Asset Management<br />
<strong>Limited</strong><br />
3. a. Previously associated as --<br />
b. Currently Associated as Independent Director<br />
4. Registration No. of companies which are / were registered<br />
with SEBI<br />
5. If registration has expired, reasons for non renewal N.A.<br />
6. Details of any enquiry/ investigation conducted by SEBI at Nil<br />
any time<br />
Registration no. of <strong>Edelweiss</strong> Mutual<br />
Fund: MF/057/08/02<br />
(<strong>Edelweiss</strong> Asset Management<br />
<strong>Limited</strong> is the asset management<br />
company for <strong>Edelweiss</strong> Mutual<br />
Fund)<br />
87
7. Penalty imposed by SEBI (Penalty includes deficiency /<br />
warning letter, adjudication proceedings, suspension /<br />
cancellation / prohibition orders)<br />
8. Outstanding fees payable by SEBI by these persons/ entities,<br />
if any<br />
Nil<br />
Nil<br />
1. Name of our Director Mr. T.S. Vishwanath<br />
2. Name of the Entity LIC Mutual Fund Asset Management<br />
Company <strong>Limited</strong><br />
3. a. Previously associated as NA<br />
b. Currently Associated as Director<br />
4. Registration No. of companies which are / were registered<br />
with SEBI<br />
MF/012/94/5 dated 09/05/1994<br />
5. If registration has expired, reasons for non renewal NA<br />
6. Details of any enquiry/ investigation conducted by SEBI at NIL<br />
any time<br />
7. Penalty imposed by SEBI (Penalty includes deficiency /<br />
warning letter, adjudication proceedings, suspension /<br />
cancellation / prohibition orders)<br />
Penalty of Rs.0.01 Crores each was<br />
imposed on LIC Mutual Fund and<br />
LIC MF AMC <strong>Limited</strong> (earlier<br />
known as Jeevan Bima Sahayog<br />
AMC Ltd) for violation of investment<br />
norms as per SEBI (Mutual Funds)<br />
Regulations, 1996 vide adjudication<br />
order dated 31/12/2002 and the same<br />
stands paid by both LIC Mutual Fund<br />
and Jeevan Beema Sahayog AMC<br />
8. Outstanding fees payable by SEBI by these persons/ entities,<br />
if any<br />
<strong>Limited</strong>.<br />
NIL<br />
Except as indicated above, there are no other entities related to Directors or Associate company/ entity of our<br />
<strong>Bank</strong>, and/ or any company/ entity with which any of the above is associated as promoter/ director/ partner/<br />
proprietor that is/ was associated with securities related business and registered with SEBI.<br />
Eligibility for the Issue<br />
Our <strong>Bank</strong> is an existing listed company registered under the Companies Act whose Equity Shares are listed on<br />
BSE and NSE. It is eligible to offer this issue in terms of Chapter IV of the SEBI ICDR Regulations.<br />
Our <strong>Bank</strong> is eligible to make disclosures in the Letter of Offer as per Part E of Schedule VIII of the SEBI ICDR<br />
Regulations as it is in compliance with the following:<br />
(a) our <strong>Bank</strong> has been filing periodic reports, statements and information in compliance with the listing<br />
agreement for the last three years immediately preceding the date of filing this Letter of Offer with the<br />
Board;<br />
(b) the reports, statements and information referred to in sub-clause (a) above are available on the website of<br />
any recognised stock exchange with nationwide trading terminals or on a common e-filing platform<br />
specified by the Board;<br />
(c) our <strong>Bank</strong> has investor grievance-handling mechanism which includes meeting of the Shareholders’ or<br />
Investors’ Grievance Committee at frequent intervals, appropriate delegation of power by the Board of<br />
Directors as regards share transfer and clearly laid down systems and procedures for timely and satisfactory<br />
redressal of investor grievances.<br />
DISCLAIMER CLAUSE OF SEBI<br />
AS REQUIRED, A COPY OF THE DRAFT LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI.<br />
IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THE DRAFT LETTER OF<br />
OFFER TO SEBI SHOULD NOT, IN ANY WAY BE DEEMED / CONSTRUED THAT THE SAME<br />
88
HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY<br />
EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH<br />
THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS<br />
MADE OR OPINIONS EXPRESSED IN THE DRAFT LETTER OF OFFER. THE LEAD MANAGER,<br />
EDELWEISS CAPITAL LIMITED HAVE CERTIFIED THAT THE DISCLOSURES MADE IN THE<br />
DRAFT LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH<br />
SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 IN<br />
FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO<br />
TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT<br />
SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS<br />
PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL<br />
RELEVANT INFORMATION IN THE DRAFT LETTER OF OFFER, THE LEAD MANAGER IS<br />
EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE BANK DISCHARGES ITS<br />
RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD<br />
MANAGER, EDELWEISS CAPITAL LIMITED HAD FURNISHED TO SEBI A DUE DILIGENCE<br />
CERTIFICATE DATED OCTOBER 15, 2010 WHICH READS AS FOLLOWS:<br />
1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO<br />
LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH<br />
COLLABORATORS, ETC. AND OTHER MATERIAL IN CONNECTION WITH THE<br />
FINALISATION OF THE DRAFT LETTER OF OFFER PERTAINING TO THE RIGHTS<br />
ISSUE;<br />
2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE BANK,<br />
THE DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, AND INDEPENDENT<br />
VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE,<br />
PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS AND OTHER<br />
PAPERS FURNISHED BY THE BANK, WE CONFIRM THAT:<br />
(a)<br />
(b)<br />
(c)<br />
THE DRAFT LETTER OF OFFER FILED WITH THE BOARD IS IN CONFORMITY<br />
WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE<br />
RIGHTS ISSUE;<br />
ALL THE LEGAL REQUIREMENTS RELATING TO THE RIGHTS ISSUE AS<br />
ALSO THE REGULATIONS GUIDELINES, INSTRUCTIONS, ETC.<br />
FRAMED/ISSUED BY THE BOARD, THE CENTRAL GOVERNMENT AND ANY<br />
OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY<br />
COMPLIED WITH; AND<br />
THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE TRUE,<br />
FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL<br />
INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED RIGHTS<br />
ISSUE AND SUCH DISCLOSURES ARE IN ACCORDANCE WITH THE<br />
REQUIREMENTS OF THE COMPANIES ACT, 1956, THE SECURITIES AND<br />
EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE<br />
REQUIREMENTS) REGULATIONS, 2009 AND OTHER APPLICABLE LEGAL<br />
REQUIREMENTS.<br />
3. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN<br />
THE DRAFT LETTER OF OFFER ARE REGISTERED WITH THE BOARD AND THAT<br />
TILL DATE SUCH REGISTRATION IS VALID.<br />
4. WE HAVE SATISFIED OURSELVES ABOUT THE CAPABILITY OF THE<br />
UNDERWRITERS TO FULFIL THEIR UNDERWRITING COMMITMENTS – NOT<br />
APPLICABLE<br />
5. WE CERTIFY THAT WRITTEN CONSENT FROM SHAREHOLDERS HAS BEEN<br />
OBTAINED FOR INCLUSION OF THEIR SPECIFIED SECURITIES AS PART OF<br />
PROMOTERS’ CONTRIBUTION SUBJECT TO LOCK-IN AND THE SPECIFIED<br />
SECURITIES PROPOSED TO FORM PART OF PROMOTERS’ CONTRIBUTION SUBJECT<br />
TO LOCK-IN SHALL NOT BE DISPOSED / SOLD / TRANSFERRED BY THE PROMOTERS<br />
DURING THE PERIOD STARTING FROM THE DATE OF FILING THE DRAFT LETTER<br />
89
OF OFFER WITH THE BOARD TILL THE DATE OF COMMENCEMENT OF LOCK-IN<br />
PERIOD AS STATED IN THE LETTER OF OFFER – NOT APPLICABLE<br />
6. WE CERTIFY THAT REGULATION 33 OF THE SECURITIES AND EXCHANGE BOARD<br />
OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS,<br />
2009, WHICH RELATES TO SPECIFIED SECURITIES INELIGIBLE FOR COMPUTATION<br />
OF PROMOTERS CONTRIBUTION, HAS BEEN DULY COMPLIED WITH AND<br />
APPROPRIATE DISCLOSURES AS TO COMPLIANCE WITH THE SAID REGULATION<br />
HAVE BEEN MADE IN THE DRAFT LETTER OF OFFER/LETTER OF OFFER – NOT<br />
APPLICABLE<br />
7. WE UNDERTAKE THAT SUB-REGULATION (4) OF REGULATION 32 AND CLAUSE (C)<br />
AND (D) OF SUB-REGULATION (2) OF REGULATION 8 OF THE SECURITIES AND<br />
EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE<br />
REQUIREMENTS) REGULATIONS, 2009 SHALL BE COMPLIED WITH. WE CONFIRM<br />
THAT ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS’<br />
CONTRIBUTION SHALL BE RECEIVED AT LEAST ONE DAY BEFORE THE OPENING<br />
OF THE ISSUE. WE UNDERTAKE THAT AUDITORS’ CERTIFICATE TO THIS EFFECT<br />
SHALL BE DULY SUBMITTED TO THE BOARD. WE FURTHER CONFIRM THAT<br />
ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS’<br />
CONTRIBUTION SHALL BE KEPT IN AN ESCROW ACCOUNT WITH A SCHEDULED<br />
COMMERCIAL BANK AND SHALL BE RELEASED TO THE ISSUER ALONG WITH THE<br />
PROCEEDS Of THE PUBLIC ISSUE – NOT APPLICABLE<br />
8. WE CERTIFY THAT THE PROPOSED ACTIVITIES OF THE ISSUER FOR WHICH THE<br />
FUNDS ARE BEING RAISED IN THE PRESENT RIGHTS ISSUE FALL WITHIN THE<br />
‘MAIN OBJECTS’ LISTED IN THE OBJECT CLAUSE OF THE MEMORANDUM OF<br />
ASSOCIATION OR OTHER CHARTER OF THE ISSUER AND THAT THE ACTIVITIES<br />
WHICH HAVE BEEN CARRIED OUT UNTIL NOW ARE VALID IN TERMS OF THE<br />
OBJECT CLAUSE OF ITS MEMORANDUM OF ASSOCIATION.<br />
9. WE CONFIRM THAT NECESSARY ARRANGEMENTS HAVE BEEN MADE TO ENSURE<br />
THAT THE MONEYS RECEIVED PURSUANT TO THE ISSUE ARE KEPT IN A SEPARATE<br />
BANK ACCOUNT AS PER THE PROVISIONS OF SUB-SECTION (3) OF SECTION 73 OF<br />
THE COMPANIES ACT, 1956 AND THAT SUCH MONEYS SHALL BE RELEASED BY THE<br />
SAID BANK ONLY AFTER PERMISSION IS OBTAINED FROM ALL THE STOCK<br />
EXCHANGES MENTIONED IN THE LETTER OF OFFER. WE FURTHER CONFIRM<br />
THAT THE AGREEMENT ENTERED INTO BETWEEN THE BANKERS TO THE ISSUE<br />
AND THE ISSUER SPECIFICALLY CONTAINS THIS CONDITION. – NOT APPLICABLE<br />
10. WE CERTIFY THAT A DISCLOSURE HAS BEEN MADE IN THE DRAFT LETTER OF<br />
OFFER THAT THE INVESTORS SHALL BE GIVEN AN OPTION TO GET THE SHARES<br />
IN DEMAT OR PHYSICAL MODE.<br />
11. WE CERTIFY THAT ALL THE APPLICABLE DISCLOSURES MANDATED IN THE<br />
SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND<br />
DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 HAVE BEEN MADE IN<br />
ADDITION TO DISCLOSURES WHICH, IN OUR VIEW, ARE FAIR AND ADEQUATE TO<br />
ENABLE THE INVESTOR TO MAKE A WELL INFORMED DECISION.<br />
12. WE CERTIFY THAT THE FOLLOWING DISCLOSURES HAVE BEEN MADE IN THE<br />
DRAFT LETTER OF OFFER:<br />
(a)<br />
(b)<br />
AN UNDERTAKING FROM THE ISSUER THAT AT ANY GIVEN TIME, THERE<br />
SHALL BE ONLY ONE DENOMINATION FOR THE EQUITY SHARES OF THE<br />
ISSUER AND<br />
AN UNDERTAKING FROM THE ISSUER THAT IT SHALL COMPLY WITH SUCH<br />
DISCLOSURE AND ACCOUNTING NORMS SPECIFIED BY THE BOARD FROM<br />
TIME TO TIME.<br />
13. WE UNDERTAKE TO COMPLY WITH THE REGULATIONS PERTAINING TO<br />
ADVERTISEMENT IN TERMS OF THE SECURITIES AND EXCHANGE BOARD OF INDIA<br />
(ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 WHILE<br />
MAKING THE RIGHTS ISSUE.<br />
90
14. WE ENCLOSE A NOTE EXPLAINING HOW THE PROCESS OF DUE DILIGENCE HAS<br />
BEEN EXERCISED BY US IN VIEW OF THE NATURE OF CURRENT BUSINESS<br />
BACKGROUND OR THE ISSUER, SITUATION AT WHICH THE PROPOSED BUSINESS<br />
STANDS, THE RISK FACTORS, PROMOTERS EXPERIENCE ,ETC.<br />
15. WE ENCLOSE A CHECKLIST CONFIRMING REGULATION-WISE COMPLIANCE WITH<br />
THE APPLICABLE PROVISIONS OF THE SECURITIES AND EXCHANGE BOARD OF<br />
INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009,<br />
CONTAINING DETAILS SUCH AS THE REGULATION NUMBER, ITS TEXT, THE<br />
STATUS OF COMPLIANCE, PAGE NUMBER OF THE DRAFT LETTER OF OFFER<br />
WHERE THE REGULATION HAS BEEN COMPLIED WITH AND OUR COMMENTS, IF<br />
ANY.<br />
<strong>The</strong> filing of this Letter of Offer does not, however, absolve our <strong>Bank</strong> from any liabilities under Section 63 or<br />
Section 68 of the Companies Act or from the requirement of obtaining such statutory or other clearance as may<br />
be required for the purpose of the proposed issue. SEBI further reserves the right to take up, at any point of time,<br />
with the lead manager any irregularities or lapses in this Letter of Offer.<br />
Disclaimer from our <strong>Bank</strong> and Lead Manager<br />
Our <strong>Bank</strong> and the Lead Manager accept no responsibility for statements made otherwise than in this Letter of<br />
Offer or in any advertisement or other material issued by our <strong>Bank</strong> or by any other persons at the instance of our<br />
<strong>Bank</strong> and anyone placing reliance on any other source of information would be doing so at his own risk.<br />
<strong>The</strong> Lead Manager and our <strong>Bank</strong> shall make all information available to the Eligible Equity Shareholders and no<br />
selective or additional information would be available for a section of the Eligible Equity Shareholders in any<br />
manner whatsoever including at presentations, in research or sales reports etc. after filing of the Letter of Offer<br />
with SEBI.<br />
Investors who invest in the issue will be deemed to have been represented by our <strong>Bank</strong> and Lead Manager and<br />
our respective directors, officers, agents, affiliates and representatives that they are eligible under all applicable<br />
laws, rules, regulations, guidelines and approvals to acquire equity shares of our <strong>Bank</strong>, and are relying on<br />
independent advice / evaluation as to their ability and quantum of investment in this issue.<br />
Disclaimer with respect to jurisdiction<br />
This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and<br />
regulations there under. Any disputes arising out of this Issue will be subject to the jurisdiction of the<br />
appropriate court(s) in Mangalore, India only.<br />
Designated Stock Exchange<br />
<strong>The</strong> Designated Stock Exchange for the purpose of the Issue will be the BSE.<br />
Disclaimer Clause of the BSE<br />
Bombay Stock Exchange <strong>Limited</strong> (the “Exchange”) has given vide its letter dated November 10, 2010<br />
permission to this <strong>Bank</strong> to use the Exchange’s name in this Letter of Offer as one of the stock exchanges on<br />
which this <strong>Bank</strong>’s securities are proposed to be listed. <strong>The</strong> exchange has scrutinized this letter of offer for its<br />
limited internal purpose of deciding on the matter of granting the aforesaid permission to this <strong>Bank</strong>. <strong>The</strong><br />
Exchange does not in any manner:<br />
i. warrant, certify or endorse the correctness or completeness of any of the contents of this letter of offer; or<br />
ii. warrant that this <strong>Bank</strong>’s securities will be listed or will continue to be listed on the Exchange; or<br />
iii. take any responsibility for the financial or other soundness of this <strong>Bank</strong>, its promoters, its management, or<br />
any scheme or project of this <strong>Bank</strong>;<br />
and it should not for any reason be deemed or construed that this letter of offer has been cleared or approved by<br />
the Exchange. Every person who desires to apply for or otherwise acquires any securities of this <strong>Bank</strong> may do<br />
so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the<br />
Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in<br />
connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated<br />
91
herein or for any reason whatsoever.<br />
Disclaimer Clause of the NSE<br />
As required a copy of this letter of offer has been submitted to National Exchange Stock of India <strong>Limited</strong><br />
(hereinafter referred to as NSE). NSE has given vide its letter Ref. No. NSE/LIST/151147-5 dated November<br />
11, 2010 permission to the Issuer to use the exchange’s name in this letter of offer as one of the stock exchanges<br />
on which this <strong>Bank</strong>’s securities are proposed to be listed. <strong>The</strong> exchange has scrutinized this letter of offer for its<br />
limited internal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be<br />
distinctly understood that the aforesaid permission given by NSE should not be deemed or construed that this<br />
letter of offer has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the<br />
correctness or completeness of any of the contents of this letter of offer; nor does it warrant that this Issuer’s<br />
securities will be listed or will continue to be listed on the Exchange; nor does it take any responsibility for the<br />
financial or other soundness of the <strong>Bank</strong>, its promoters, its management, or any scheme or project of this Issuer.<br />
Every person who desires to apply for or otherwise acquires any securities of this Issuer may do so pursuant to<br />
an independent inquiry, investigation and analysis and shall not have any claim against the Exchange<br />
whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with<br />
such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other<br />
reason whatsoever.<br />
Disclaimer Clause of the RBI<br />
A license authorising our <strong>Bank</strong> to carry on banking business has been obtained from the Reserve <strong>Bank</strong> of India<br />
in terms of Section 22 of our <strong>Bank</strong>ing Regulation Act, 1949. It must be distinctly understood, however, that in<br />
issuing the license the Reserve <strong>Bank</strong> of India does not undertake any responsibility for the financial soundness<br />
of our <strong>Bank</strong> or for the correctness of any of the statements made or opinion expressed in this connection<br />
Delisting of Equity Shares from Bangalore Stock Exchange <strong>Limited</strong><br />
Pursuant to the application made under SEBI (Delisting of Securities) Guidelines, 2003, the Equity Shares of<br />
our <strong>Bank</strong> stands delisted from Bangalore Stock Exchange <strong>Limited</strong> with effect from November 24, 2004 vide<br />
their letter 03/2004/ 971 dated November 24, 2004.<br />
Delisting of Equity Shares from Mangalore Stock Exchange <strong>Limited</strong><br />
Pursuant to the application made under SEBI (Delisting of Securities) Guidelines, 2003, the Equity Shares of<br />
our <strong>Bank</strong> stands delisted from Mangalore Stock Exchange <strong>Limited</strong> with effect from June 25, 2005 vide their<br />
letter Mg.SE/LCF12/2005-06/118 dated June 24, 2005.<br />
Filing<br />
<strong>The</strong> Draft Letter of Offer has been filed with SEBI, Plot No. C4 A, ‘G’ Block, Bandra Kurla Complex Bandra<br />
(East), Mumbai and also with BSE and NSE. This Letter of Offer will be filed with the Designated Stock<br />
Exchange as per the provisions of the Companies Act. All the legal requirements applicable till the date of filing<br />
this Letter of Offer with the Stock Exchanges shall be complied with.<br />
Selling restrictions<br />
<strong>The</strong> distribution of this Letter of Offer and the Issue of Rights Equity Shares to persons in certain jurisdictions<br />
outside India may be restricted by the legal requirements prevailing in those jurisdictions. Persons into whose<br />
possession the Letter of Offer may come are required to inform themselves about and observe such restrictions.<br />
Our <strong>Bank</strong> is making this Issue of Rights Equity Shares to the Eligible Equity Shareholders of our <strong>Bank</strong> and will<br />
dispatch the Abridged Letter of Offer and CAFs to the Eligible Equity Shareholders who have provided an<br />
Indian address.<br />
No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for<br />
that purpose, except that the Draft Letter of Offer was filed with SEBI for observations. Accordingly, the Rights<br />
Equity Shares represented thereby may not be offered or sold, directly or indirectly, and the Letter of Offer may<br />
not be distributed in any jurisdiction, except in accordance with the legal requirements applicable in such<br />
92
jurisdiction.<br />
Receipt of the Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to<br />
make such an offer and, under those circumstances, the Letter of Offer must be treated as sent for information<br />
only and should not be copied or redistributed. Accordingly, persons receiving a copy of the Letter of Offer<br />
should not, in connection with the Issue of the Rights Equity Shares or the Rights Entitlements, distribute or<br />
send the same in or into the United States or any other jurisdiction where to do so would or might contravene<br />
local securities laws or regulations. If the Letter of Offer is received by any person in any such territory, or by<br />
their agent or nominee, they must not seek to subscribe to the Rights Equity Shares or the Rights Entitlements<br />
referred to in the Letter of Offer.<br />
Neither the delivery of this Letter of Offer nor any sale hereunder, shall under any circumstances create any<br />
implication that there has been no change in our <strong>Bank</strong>’s affairs from the date hereof or that the information<br />
contained herein is correct as of any time subsequent to this date.<br />
United States Restrictions<br />
NEITHER THE RIGHTS ENTITLEMENTS NOR THE EQUITY SHARES THAT MAY BE PURCHASED<br />
PURSUANT THERETO HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS<br />
AMENDED (THE “SECURITIES ACT”), OR ANY U.S. STATE SECURITIES LAWS, AND MAY NOT BE<br />
OFFERED, SOLD, RESOLD OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OF<br />
AMERICA OR THE TERRITORIES OR POSSESSIONS THEREOF (THE “UNITED STATES” OR THE<br />
“U.S.”) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, “US PERSONS” (AS DEFINED IN<br />
REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”)), EXCEPT IN A TRANSACTION<br />
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE RIGHTS<br />
REFERRED TO IN THIS LETTER OF OFFER ARE BEING OFFERED IN INDIA, BUT NOT IN THE<br />
UNITED STATES. THE OFFERING TO WHICH THIS LETTER OF OFFER RELATES IS NOT, AND<br />
UNDER NO CIRCUMSTANCES IS TO BE CONSTRUED AS, AN OFFERING OF ANY SHARES OR<br />
RIGHTS FOR SALE IN THE UNITED STATES OR AS A SOLICITATION THEREIN OF AN OFFER TO<br />
BUY ANY OF THE SAID SHARES OR RIGHTS. ACCORDINGLY, THIS LETTER OF OFFER SHOULD<br />
NOT BE FORWARDED TO OR TRANSMITTED IN OR INTO THE UNITED STATES AT ANY TIME,<br />
EXCEPT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE<br />
SECURITIES ACT. NEITHER OUR BANK NOR ANY PERSON ACTING ON BEHALF OF OUR BANK<br />
WILL ACCEPT SUBSCRIPTIONS FROM ANY PERSON, OR THE AGENT OF ANY PERSON, WHO<br />
APPEARS TO BE, OR WHO OUR BANK OR ANY PERSON ACTING ON BEHALF OF OUR BANK HAS<br />
REASON TO BELIEVE IS, A RESIDENT OF THE UNITED STATES AND TO WHOM AN OFFER, IF<br />
MADE, WOULD RESULT IN REQUIRING REGISTRATION OF THIS LETTER OF OFFER WITH THE<br />
UNITED STATES SECURITIES AND EXCHANGE COMMISSION.<br />
Impersonation<br />
Attention of the Investors is specifically drawn to the provisions of subsection (1) of Section 68A of the<br />
Companies Act which is reproduced below:<br />
“Any person who makes in a fictitious name an application to a <strong>Bank</strong> for acquiring, or subscribing for, any<br />
shares therein, or otherwise induces a <strong>Bank</strong> to allot, or register any transfer of shares therein to him, or any<br />
other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five<br />
years”<br />
Listing<br />
<strong>The</strong> Equity Shares of our <strong>Bank</strong> are listed on the BSE and NSE. Our <strong>Bank</strong> has made applications to the Stock<br />
Exchanges for permission to deal in and for an official quotation in respect of the Rights Equity Shares being<br />
offered in terms of the Letter of Offer. Our <strong>Bank</strong> has received in-principle approvals from the BSE by its letter<br />
dated November 10, 2010 and the NSE by its letter dated November 11, 2010. Our <strong>Bank</strong> will apply to the BSE<br />
and the NSE for listing of the Rights Equity Shares to be issued pursuant to this Issue.<br />
If the permission to deal in and for an official quotation of the Rights Equity Shares is not granted by any of the<br />
Stock Exchanges mentioned above, our <strong>Bank</strong> shall forthwith repay, without interest, all monies received from<br />
Investors in pursuance of the Letter of Offer. If such money is not paid within 8 days after our <strong>Bank</strong> becomes<br />
93
liable to repay it, then our <strong>Bank</strong> and every Director of our <strong>Bank</strong> who is an officer in default shall, on and from<br />
expiry of 8 (eight) days, be jointly and severally liable to repay the money with interest as prescribed under the<br />
Section 73 of the Companies Act.<br />
Compliances<br />
Our <strong>Bank</strong> has complied during the financial year immediately preceding the date of the Draft Letter of Offer<br />
with respect to the following:<br />
• provisions of the listing agreement with respect to reporting and compliance under clause 35, 41 and 49.<br />
• provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with respect to<br />
reporting in terms of Regulation 8(3) pertaining to disclosure of changes in shareholding.<br />
• provisions of SEBI(Prohibition of Insider Trading)Regulations, 1992 with respect to reporting in terms of<br />
Regulation 13<br />
Further, clause 40A of the listing agreement and Regulation 8(A) of the SEBI (SAST) Regulations are not<br />
applicable to our <strong>Bank</strong> as there are no identifiable promoters of our <strong>Bank</strong>. Further, there is no shareholders<br />
agreement in place whereby any special right to appoint a director of our <strong>Bank</strong> has been given to any<br />
shareholder of our <strong>Bank</strong>.<br />
Consents<br />
Consents in writing of the Auditors, Lead Manager, Legal Advisor, Registrar to the Issue and <strong>Bank</strong>ers to the<br />
Issue to act in their respective capacities have been obtained and filed with Stock Exchanges, along with a copy<br />
of the Letter of Offer and such consents have not been withdrawn up to the time of delivery of the Letter of<br />
Offer for registration with the Stock Exchanges.<br />
<strong>The</strong> Auditors of our <strong>Bank</strong> have given their written consent for the inclusion of their Report in the form and<br />
content as appearing in this Letter of Offer and such consents and reports have not been withdrawn up to the<br />
time of delivery of this Letter of Offer for registration with the Stock Exchanges.<br />
To the best of our knowledge there are no other consents required for making this Issue. However, should the<br />
need arise, the necessary consents shall be obtained by us.<br />
Estimated Issue Expenses<br />
<strong>The</strong> total expenses of the Issue are estimated to be approximately Rs. 3.58 Crores. <strong>The</strong> Issue related expenses<br />
include, among others, Issue management fees, Registrar fees, printing and distribution expenses, fees of the<br />
legal counsels, advertisement, listing fees to the Stock exchanges etc. <strong>The</strong> break-up of total issue expenses is as<br />
under –<br />
Category<br />
Estimated expenses<br />
(Rs. in Crores)<br />
% of the Issue<br />
Expenses<br />
% of total<br />
Issue Size<br />
Fees to the Lead Manager 0.66 18.44 0.14<br />
Fees to the Registrar to the Issue 0.26 7.26 0.06<br />
Fees to the Legal advisors 0.20 5.59 0.04<br />
Fees to the Auditors 0.06 1.68 0.01<br />
Advertising and Publicity Expenses 0.50 13.97 0.11<br />
Printing, Postage, Stationery Expenses 1.08 30.16 0.24<br />
Contingency, Stamp duty, Listing Fees, etc 0.82 22.90 0.18<br />
Total 3.58 100.00 0.78<br />
Expert Opinion, if any<br />
Except for the Auditors’ Report for March 31, 2010 and reviewed financial statements for six months ended<br />
September 30, 2010 under the section titled “Financial Information” on Page no 64 of this Letter of Offer and<br />
the Statement of Tax Benefits on Page no 46 of this Letter of Offer, no expert opinion has been obtained by our<br />
<strong>Bank</strong> in relation to this Letter of Offer.<br />
94
Fees Payable to the Lead Manager to the Issue<br />
<strong>The</strong> fee payable to the Lead Manager to the Issue is set out in the Engagement Letter entered into by our <strong>Bank</strong><br />
with <strong>Edelweiss</strong> Capital <strong>Limited</strong>, copy of which is available for inspection at the Registered Office of our <strong>Bank</strong>.<br />
Fees Payable to the Registrars to the Issue<br />
<strong>The</strong> fee payable to the Registrars to the Issue is as set out in the relevant documents, copies of which are kept<br />
open for inspection at the Registered Office of our <strong>Bank</strong>.<br />
Minimum Subscription<br />
If our <strong>Bank</strong> does not receive the minimum subscription of 90% of the Issue, the entire subscription amount shall<br />
be refunded to the Investors within fifteen days from the date of closure of the Issue. If there is delay in the<br />
refund of subscription by more than 8 days after our <strong>Bank</strong> becomes liable to pay the subscription amount (i.e.<br />
fifteen days after closure of the issue), our <strong>Bank</strong> will pay interest for the delayed period, at rates prescribed<br />
under sub-sections (2) and (2A) of Section 73 of the Companies Act.<br />
Issue Schedule<br />
Issue Opening Date: Tuesday, March 8, 2011<br />
Last date for receiving requests for split forms: Monday, March 14,<br />
2011<br />
Issue Closing Date: Tuesday, March 22,<br />
2011<br />
<strong>The</strong> Board may however decide to extend the Issue period as it may determine from time to time but not<br />
exceeding 30 days from the Issue Opening Date.<br />
Allotment Advices / Refund Orders<br />
Our <strong>Bank</strong> will issue and dispatch allotment advice / share certificates/ demat credit and/or letters of regret along<br />
with refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of<br />
15 days from the date of closure of the Issue. If such money is not repaid within eight days from the day our<br />
<strong>Bank</strong> becomes liable to pay it, our <strong>Bank</strong> shall pay that money with interest as stipulated under section 73 of the<br />
Companies Act.<br />
Investors residing in the 68 cities specified by SEBI pursuant to its circular dated February 1, 2008, will get<br />
refunds through ECS only except where Investors are otherwise disclosed as applicable / eligible to get refunds<br />
through direct credit and RTGS provided the MICR details are recorded with the Depositories or the <strong>Bank</strong>.<br />
In case of those Investors who have opted to receive their Rights Equity Share in dematerialized form using<br />
electronic credit under the depository system, and advice regarding their credit of the Rights Equity Shares shall<br />
be given separately. Investors to whom refunds are made through electronic transfer of funds will be sent a letter<br />
through certificate of posting intimating them about the mode of credit of refund within 15 working days of<br />
closure of the Issue.<br />
In case of those Investors who have opted to receive their Rights Equity Share in physical form, our <strong>Bank</strong> will<br />
issue the corresponding share certificates under Section 113 of the Companies Act or other applicable<br />
provisions.<br />
Refund orders of value of Rs. 1,500 and above would be sent by registered post/speed post to the sole/first<br />
Investors' registered address. Refund orders less than the value of Rs.1,500 would be sent under certificate of<br />
posting. Such refund orders would be payable at par at all places where the applications were originally<br />
accepted. <strong>The</strong> same would be marked ‘Account Payee only’ and would be drawn in favour of the sole / first<br />
Investor. Adequate funds would be made available to the Registrar to the Issue for this purpose.<br />
Disputed Shares<br />
95
Equity Shares which are the subject matter of a dispute or sub-judice will not be allotted to the claimant’s<br />
account pending resolution of the dispute in accordance with our <strong>Bank</strong>'s policy or receipt of an order from the<br />
relevant court or authority removing the restriction thereon. Entitlement for such shares will be held in abeyance<br />
and retained separately by our <strong>Bank</strong><br />
Investor Grievances and Redressal System<br />
Our <strong>Bank</strong> has adequate arrangements for redressal of Investor complaints as well as a well-arranged<br />
correspondence system developed for letters of routine nature. <strong>The</strong> share transfer and dematerialization for our<br />
<strong>Bank</strong> is being handled by our Registrar, Integrated Enterprises India <strong>Limited</strong>. Letters are filed category wise<br />
after being attended to. <strong>The</strong> Redressal norm for response time for all correspondence including shareholders<br />
complaints is 7-10 days.<br />
<strong>The</strong> Shareholders/Investors Grievances Committee consists of three directors comprising of Mr. R.V. Shastri,<br />
Mr. U.R. Bhat and Mr. T.S. Vishwanath. All investor grievances received by our <strong>Bank</strong> has been handled by the<br />
Registrar which is monitored by the Company Secretary<br />
<strong>The</strong> contact details of our Registrar are as follows<br />
Integrated Enterprises India <strong>Limited</strong><br />
No 30 Ramana Residency 4th Cross,<br />
Sampige Road, Malleswaram,<br />
Bangalore 560 003<br />
Telephone: 080-23460815-818<br />
Facsimile: 080-23460819<br />
E-mail: alfint@vsnl.com<br />
Investor Grievance E-mail: ktkbankrights@vsnl.net<br />
Website:www.iepindia.com<br />
Contact Person: Mr. S. Vijayagopal<br />
SEBI Reg. No: INR 000000544<br />
Status of Complaints<br />
(a) No. of shareholders complaints outstanding as of March 31, 2010: Nil<br />
(b) Total number of complaints received during Fiscal 2009: 92<br />
(c) Total number of complaints received during Fiscal 2010: 132<br />
(d) Status of the complaints: Out of the 132 complaints received our <strong>Bank</strong> in Fiscal 2010, we have<br />
resolved all 132 complaints.<br />
(e) Time normally taken for disposal of various types of investor grievances: 5-10 days<br />
Investor Complaints for the period 01 April 2010 to February 16, 2011:<br />
Complaints pending at<br />
the beginning of the<br />
period<br />
Complaints received<br />
during the period<br />
Complaints redressed<br />
during the period<br />
NIL 89 89 NIL<br />
Investor Grievances arising out of this Issue<br />
Complaints pending at<br />
the end of the period<br />
<strong>The</strong> investor grievances arising out of the Issue will be handled by Mr. Y V Balachandra, Compliance Officer<br />
and Company Secretary, and Integrated Enterprises India <strong>Limited</strong>, Registrars to the Issue. <strong>The</strong> Registrar to the<br />
Issue will have a separate team of personnel handling only our post-Issue correspondence.<br />
<strong>The</strong> agreement between us and the Registrar to the Issue provides for retention of records with the Registrars for<br />
a period of at least one year from the last date of dispatch of letter of allotment/ share certificates / warrant/<br />
refund order to enable the Registrars to redress grievances of Investors.<br />
All grievances relating to the Issue may be addressed to the Registrar to the Issue giving full details such as folio<br />
no., name and address, contact telephone / cell numbers, email id of the first Investors, number and type of<br />
shares applied for, application form serial number, amount paid on application and the name of the bank and the<br />
branch where the application was deposited, along with a photocopy of the acknowledgement slip. In case of<br />
renunciation, the details of the Renouncees should be furnished.<br />
96
<strong>The</strong> average time taken by the Registrar to the Issue for redressal of to routine grievances will be 7 days from<br />
the date of receipt. In case of non-routine grievances where verification at other agencies is involved, it would<br />
be the endeavour of the Registrar to the Issue to attend to them as expeditiously as possible. We undertake to<br />
resolve the Investor grievances in a time bound manner.<br />
Investors may contact the Compliance Officer / Company Secretary in case of any pre-Issue/ post -Issue<br />
related problems such as non-receipt of letters of allotment/share certificates/demat credit/refund orders<br />
etc. His address is as follows:<br />
Mr. Y V Balachandra<br />
Company Secretary and Compliance Officer<br />
P.B. No. 599, Mahaveera Circle,<br />
Kankanady, Mangalore - 575 002<br />
India<br />
Telephone: +91 (0824) 2228222<br />
Fascimile: +91 (0824) 2225588<br />
Website: www.karnatakabank.com<br />
E-mail: comsec@ktkbank.com<br />
<strong>The</strong> contact particulars of the Registrar to the Issue are as under:<br />
Integrated Enterprises India <strong>Limited</strong><br />
No 30 Ramana Residency 4th Cross,<br />
Sampige Road, Malleswaram,<br />
Bangalore 560 003<br />
Telephone: 080-23460815-818<br />
Facsimile: 080-23460819<br />
E-mail: alfint@vsnl.com<br />
Investor Grievance E-mail: ktkbankrights@vsnl.net<br />
Website:www.iepindia.com<br />
Contact Person: Mr. S. Vijayagopal<br />
SEBI Reg. No: INR 000000544<br />
97
TERMS AND PROCEDURE OF THE ISSUE<br />
<strong>The</strong> Equity Shares proposed to be issued on rights basis, are subject to the terms and conditions contained in<br />
the Draft Letter of Offer, this Letter of Offer, the Abridged Letter of Offer, the Composite Application Form<br />
(“CAF”), the Memorandum of Association and Articles of Association of our <strong>Bank</strong>, the provisions of the<br />
Companies Act, the terms and conditions as may be incorporated in the Foreign Exchange Management Act,<br />
1999, as amended ("FEMA"), guidelines and regulations issued by SEBI, guidelines, notifications and<br />
regulations for issue of capital and for listing of securities issued by Government of India and/or other statutory<br />
authorities and bodies from time to time, the listing agreements entered into by our <strong>Bank</strong> with the stock<br />
exchanges, terms and conditions as stipulated in the allotment advice or letter of allotment or security certificate<br />
and rules as may be applicable and introduced from time to time.<br />
Authority for the Issue<br />
Pursuant to the resolution passed by the Board of Directors of our <strong>Bank</strong> under Section 81(1) of the Companies<br />
Act, 1956 at the meeting held on July 30, 2010 and subsequently approved by the members of our <strong>Bank</strong> at the<br />
Extra-Ordinary General Meeting held on September 9, 2010, it has been decided to make the offer to the<br />
Eligible Equity Shareholders of our <strong>Bank</strong> on rights basis, with a right to renounce.<br />
Basis for the Issue<br />
<strong>The</strong> Equity Shares are being offered for subscription for cash to those existing Equity Shareholders whose<br />
names appear as beneficial owners as per the list to be furnished by the Depositories in respect of the Equity<br />
Shares held in the Electronic Form and on the Register of Members of our <strong>Bank</strong> in respect of the Equity<br />
Shares held in physical form at the close of business hours on the Record Date i.e. February 28, 2011 fixed<br />
in consultation with the Designated Stock Exchange.<br />
Rights Entitlement Ratio<br />
As your name appears as beneficial owner in respect of the shares held in the electronic form or appears in the<br />
register of members as an Equity Shareholder of our <strong>Bank</strong> as on the Record Date i.e. February 28, 2011, you are<br />
entitled to the number of shares in Block I of Part A of the enclosed CAF.<br />
<strong>The</strong> Eligible Equity Shareholders are entitled to 2 (two) Equity Share for every 5 (five) fully paid up Equity<br />
Share held on the Record Date i.e. February 28, 2011.<br />
For Eligible Equity Shareholders wishing to apply through the ASBA process for the Rights Issue, kindly<br />
refer to the section titled “Procedure for Application through the Applications Supported by Blocked<br />
Amount (“ASBA”) Process” on Page no 119 of this section.<br />
I<br />
General Terms of the Issue<br />
1. Market lot<br />
<strong>The</strong> Equity Shares of our <strong>Bank</strong> are tradable only in dematerialized form, and the market lot is one Equity Share.<br />
In case of holding of Equity Shares in physical form, our <strong>Bank</strong> would issue to the allottees separate certificate<br />
for the Equity Shares allotted on rights basis with a split performance.<br />
Our <strong>Bank</strong> would issue one certificate for the entire allotment. However, our <strong>Bank</strong> would issue split certificates<br />
on written requests from the shareholders. Our <strong>Bank</strong> shall not charge a fee for splitting any of the share<br />
certificates.<br />
Investors may please note that the Equity Shares of our <strong>Bank</strong> can be traded on the Stock Exchange in<br />
dematerialized form only.<br />
2. Nomination facility<br />
In terms of Section 109A of the Act, nomination facility is available in case of Equity Shares. <strong>The</strong> applicant can<br />
nominate any person by filling the relevant details in the CAF in the space provided for this purpose.<br />
98
A sole Equity Shareholder or first Equity Shareholder, along with other joint Equity Shareholders being<br />
individual(s) may nominate any person(s) who, in the event of the death of the sole holder or all the jointholders,<br />
as the case may be, shall become entitled to the Equity Shares. A person, being a nominee, becoming<br />
entitled to the Equity Shares by reason of the death of the original Equity Shareholder(s), shall be entitled to the<br />
same advantages to which he would be entitled if he were the registered holder of the Equity Shares. Where the<br />
nominee is a minor, the Equity Shareholder(s) may also make a nomination to appoint, in the prescribed<br />
manner, any person to become entitled to the Equity Share(s), in the event of death of the said holder, during the<br />
minority of the nominee. A nomination shall stand rescinded upon the sale of the Equity Share by the person<br />
nominating the said share. A transferee will be entitled to make a fresh nomination in the manner prescribed.<br />
When the Equity Share is held by two or more persons, the nominee shall become entitled to receive the amount<br />
only on the demise of all the Equity Shareholders. Fresh nominations can be made only in the prescribed form<br />
available on request at the Registered Office of our <strong>Bank</strong> or such other person at such addresses as may be<br />
notified by our <strong>Bank</strong>.<br />
Only one nomination would be applicable for one folio. Hence, in case the Equity Shareholder(s) has/have<br />
already registered the nomination with our <strong>Bank</strong>, no further nomination needs to be made for Equity Shares to<br />
be allotted in this Issue under the same folio.<br />
In case the allotment of Equity Shares is in dematerialised form, there is no need to make a separate<br />
nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective<br />
Depository Participant of the applicant would prevail. If the applicant wishes to change the nomination,<br />
they are requested to inform their respective DP.<br />
3. Joint-Holders<br />
Where two or more persons are registered as the holders of any Equity Share, they shall be deemed to hold the<br />
same as joint-holders with benefits of survivorship subject to provisions contained in the Articles of Association<br />
of our <strong>Bank</strong>.<br />
4. Minimum Subscription<br />
If our <strong>Bank</strong> does not receive the minimum subscription of 90% of the Issue, or the subscription level falls below<br />
90%, after the Issue Closing Date on account of cheques being returned unpaid or withdrawal of applications,<br />
our <strong>Bank</strong> shall refund the entire subscription amount received within 15 days from the Issue Closing Date. If<br />
there is delay in the refund of the subscription amount by more than eight days after our <strong>Bank</strong> becomes liable to<br />
pay the subscription amount (i.e. 15 days after the Issue Closing Date), our <strong>Bank</strong> will pay interest for the<br />
delayed period at 15% per annum as prescribed under sub-sections (2) and (2A) of Section 73 of the Companies<br />
Act.<br />
Other than meeting the requirements indicated in the section titled “Objects of the Issue” on Page no 45 of this<br />
Letter of Offer, there is no other intention or purpose for the Issue.<br />
Presently, our <strong>Bank</strong> is complying with clause 40A of the listing agreement and the minimum public<br />
shareholding required to be maintained for continuous listing is 25% of the total paid up Equity Capital of our<br />
<strong>Bank</strong>.<br />
For further details of under subscription and allotment, please refer to “Basis of Allotment” below under this<br />
section titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of Offer.<br />
5. Notices<br />
All notices to the Equity Shareholder(s) required to be given by our <strong>Bank</strong> shall be published in one English<br />
national daily with wide circulation, one Hindi national daily with wide circulation and one regional daily<br />
newspaper in Mangalore with wide circulation and/or will be sent by registered post or speed post to the<br />
registered holders of the Equity Share at the address registered with the registrar/ depository from time to time.<br />
6. Listing and trading of the Equity Shares proposed to be issued<br />
Our <strong>Bank</strong>'s existing Equity Shares are currently traded on the Stock Exchanges under the ISIN INE614B01018<br />
and with Scrip Code No 532652 on BSE and script name of KTKBANK on NSE. <strong>The</strong> fully paid up Equity<br />
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Shares proposed to be issued on a rights basis shall be listed and admitted for trading on the Stock Exchanges<br />
under the existing ISIN INE614B01018. All steps for the completion of the necessary formalities for listing and<br />
commencement of trading of the Equity Shares pursuant to the Issue shall be taken within seven working days<br />
of the finalization of the Basis of Allotment. Our <strong>Bank</strong> made an application for "in-principle" approval for<br />
listing of the Equity Shares respectively to the BSE and the NSE through letters dated October 19, 2010 and has<br />
received such approval from the BSE pursuant to the letter no. DCS/PREF/HS/IP-RT/756/10-11, dated<br />
November 10, 2010 and from the NSE pursuant to letter no. NSE/LIST/151147-5, dated November 11, 2010.<br />
Our <strong>Bank</strong> will apply to the Stock Exchanges for final approval for the listing and trading of the Equity Shares.<br />
No assurance can be given regarding the active or sustained trading in the Equity Shares or the price at which<br />
the Equity Shares offered under the Issue will trade post listing.<br />
7. Offer to Non-Resident Equity Shareholders/Applicants/ Foreign Institutional Investors<br />
As per Regulation 6 of Notification No. FEMA 20/200-RB dated May 3, 2000, the RBI has given general<br />
permission to Indian companies to issue rights shares to non-resident shareholders including additional shares.<br />
Applications received from NRIs and non-residents for allotment of Equity Shares shall be inter alia, subject to<br />
the conditions imposed from time to time by the RBI under the FEMA Act in the matter of refund of application<br />
moneys, allotment of Equity Shares and issue of letter of allotment. <strong>The</strong> Abridged Letter of Offer and CAF<br />
shall be dispatched to non-resident Eligible Equity Shareholders at their Indian address only. <strong>The</strong> Board<br />
of Directors may at its absolute discretion, agree to such terms and conditions as may be stipulated by RBI while<br />
approving the allotment of Equity Shares, payment of dividend etc. to the non-resident shareholders. <strong>The</strong> Rights<br />
Equity Shares purchased by non-residents shall be subject to the same conditions including restrictions in regard<br />
to the repatriation as are applicable to the original shares against which Equity Shares are issued on rights basis.<br />
CAFs will be made available for eligible NRIs at our Registered Office and with the Registrar to the Issue.<br />
No single FII can hold more that 10% of the <strong>Bank</strong>’s post-Issue paid-up share capital (subject to RBI approval<br />
for holding beyond 5%). In respect of an FII investing in the Equity Shares on behalf of its subaccounts, the<br />
investment on behalf of each sub-account shall not exceed 5% of the total paid-up share capital of the <strong>Bank</strong>, in<br />
case such sub-account is a foreign corporate or an individual.<br />
In case of change of status of holders i.e. from Resident to Non-Resident, a new demat account shall be opened<br />
for the purpose.<br />
DETAILS OF SEPARATE COLLECTING CENTRES FOR NON-RESIDENT APPLICATIONS<br />
SHALL BE PRINTED ON THE CAF.<br />
8. No Offer in the United States<br />
Neither the Rights Entitlements nor entitlements to apply for the issue of Equity Shares that may be purchased<br />
pursuant thereto have been, and will be, registered under the United States Securities Act of 1933, as amended<br />
(the “Securities Act”), or any U.S. state securities laws, and may not be offered, sold, resold or otherwise<br />
transferred within the United States of America or the territories or possessions thereof or to, or for the account<br />
or benefit of, “U.S. Persons” (as defined in Regulation S under the Securities Act), except in a transaction<br />
exempt from, or in a transaction not subject to, the registration requirements of the Securities Act. <strong>The</strong> Equity<br />
Shares referred to in this Letter of Offer are being offered in India but not in the United States of America. <strong>The</strong><br />
offering to which this Letter of Offer relates is not, and under no circumstances is to be construed as, an offering<br />
of any shares or rights for sale in the United States of America, the territories or possessions thereof, or as a<br />
solicitation therein of an offer to buy any of the said shares or rights. Accordingly, the Letter of Offer, Abridged<br />
Letter of Offer and the CAF should not be forwarded to or transmitted in or to, and the Letter of Offer, Abridged<br />
Letter of Offer and the CAF shall not be dispatched to, the United States of America at any time, except in a<br />
transaction exempt from, or in a transaction not subject to, the registration requirements of the Securities Act.<br />
None of our <strong>Bank</strong>, the Registrar, the Lead Manager or any other person acting on behalf of our <strong>Bank</strong> will accept<br />
subscriptions from any person, or the agent of any person, who appears to be, or who our <strong>Bank</strong>, the Registrar,<br />
the Lead Manager or any other person acting on behalf of our <strong>Bank</strong> has reason to believe is, a resident of the<br />
United States of America and to whom an offer, if made, would result in requiring registration of this Letter of<br />
Offer with the United States Securities and Exchange Commission. Rights Entitlements or entitlements to apply<br />
for the issue of Equity Shares may not be transferred or sold to any U.S. Persons.<br />
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9. Utilisation of Issue Proceeds<br />
<strong>The</strong> Board of Directors declare that:<br />
(i)<br />
<strong>The</strong> funds received against this Issue will be transferred to a separate bank account other than our <strong>Bank</strong><br />
account referred to sub-section (3) of Section 73 of the Companies Act, 1956 and our <strong>Bank</strong> will not<br />
have any access to such funds unless only after the basis of allotment is finalized.<br />
10. Undertakings by our <strong>Bank</strong><br />
1. <strong>The</strong> complaints received in respect of the Issue shall be attended to by our <strong>Bank</strong> expeditiously and<br />
satisfactorily.<br />
2. All steps for completion of the necessary formalities for listing and commencement of trading at the<br />
Stock Exchange where the equity shares are to be listed are taken within seven working days of<br />
finalization of basis of allotment.<br />
3. <strong>The</strong> funds required for dispatch of refunds to unsuccessful applicants as per the modes disclosed shall<br />
be made available to the Registrar to the Issue by our <strong>Bank</strong>.<br />
4. Where refunds are made through electronic transfer of funds, a suitable communication shall be sent to<br />
the investors within 15 days of closure of the Issue giving details of the <strong>Bank</strong> where refunds shall be<br />
credited along with the amount and expected date of electronic credit of refund.<br />
5. Adequate arrangements shall be made to collect all ASBA applications and to treat all ASBA<br />
applications similar to non – ASBA applications while finalizing the basis of allotment.<br />
6. Our <strong>Bank</strong> accepts full responsibility for the accuracy of information given in this Letter of Offer and<br />
confirms to the best of his knowledge and belief, there are no other facts or the omission of which<br />
makes any statement made in this Letter of Offer misleading and further confirms that it has made all<br />
reasonable inquiries to ascertain such facts.<br />
11. Arrangements for disposal of odd lots<br />
Since the market lot for our <strong>Bank</strong>’s Equity Shares is one (1), there is no question of disposal of odd<br />
lots.<br />
II<br />
Principal Terms and Conditions of the Issue of Equity Shares<br />
1. Face value<br />
Each Equity Share shall have the Face Value of Rs. 10.<br />
2. Fractional entitlements<br />
For Rights Equity Shares being offered under this Issue, if the shareholding of any of the Eligible Equity<br />
Shareholders is less than 5 Equity Shares or not in the multiple of 5 as on the Record Date, the fractional<br />
entitlement of such Eligible Equity Shareholders shall be ignored. Eligible Equity Shareholders whose fractional<br />
entitlements are being ignored would be given preference in allotment of one additional share each if they apply<br />
for additional shares.<br />
An illustration stating the Rights Entitlement for number of Equity Shares is set out below:<br />
Number of Equity Shares<br />
Rights Entitlement<br />
1 0<br />
3 1<br />
6 2<br />
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Number of Equity Shares<br />
Rights Entitlement<br />
8 3<br />
11 4<br />
13 5<br />
Those Eligible Equity Shareholders holding less than 3 Equity Shares and therefore entitled to zero Rights<br />
Equity Shares under this Issue shall be dispatched a CAF with zero entitlement. Such Eligible Equity<br />
Shareholders are entitled to apply for additional Rights Equity Shares and they would be given preference in<br />
allotment for one additional Rights Equity Share if they apply for the same. However, they cannot renounce the<br />
same in favour of third parties. A CAF with zero entitlement will be non-negotiable / non-renounceable.<br />
3. Issue Price<br />
Each Equity Share shall be offered at an Issue Price of Rs. 85 for cash at a premium of Rs. 75 per Equity Share.<br />
<strong>The</strong> Issue Price has been arrived at after consultation with the Lead Manager.<br />
4. Terms of payment<br />
<strong>The</strong> entire amount of Rs. 85 per Equity Share shall be payable on application.<br />
<strong>The</strong> payment on Application would be applied as under:<br />
Towards Share Capital<br />
Towards share premium account<br />
On Application Rs. 10 per Equity Share Rs. 75 per Equity Share<br />
A separate cheque/ demand draft/ pay order must accompany each application form.<br />
All payments should be made by cheque/bank demand draft/ pay order drawn on any bank (including a cooperative<br />
bank) which is situated at and is a member or a sub-member of the bankers clearing house located at<br />
the center where the CAF is accepted. Outstation cheques /money orders/postal orders will not be accepted and<br />
CAFs accompanied by such cheque/money orders/postal orders are liable to be rejected. <strong>The</strong> Registrar to the<br />
Issue will not accept any payments against applications, if such payments are made in cash.<br />
Pursuant to the RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the<br />
Stockinvest scheme has been withdrawn and accordingly, payment through Stockinvest will not be accepted in<br />
the Issue.<br />
Where an applicant has applied for additional shares and is allotted lesser number of shares than applied for, the<br />
excess application money shall be refunded. <strong>The</strong> excess application monies would be refunded within 15 days<br />
from the closure of the Issue, and if there is a delay beyond 8 days from the stipulated period, our <strong>Bank</strong> and<br />
every Director of our <strong>Bank</strong> who is an officer in default shall be jointly and severally liable to repay the money<br />
with interest for the delayed period at 15% per annum as stipulated under sub-sections (2) and (2A) of section<br />
73 of the Companies Act, 1956.<br />
5. Ranking of Equity Shares<br />
<strong>The</strong> Rights Equity Shares allotted pursuant to this Issue shall rank pari passu with the existing Equity Shares in<br />
all respects including dividend.<br />
6. Rights of Equity Shareholders<br />
Subject to applicable laws, Equity Shareholders shall have the following rights:<br />
1. Right to receive dividend, if declared<br />
2. Right to attend general meetings and exercise voting power, unless prohibited by law;<br />
3. Right to vote on poll, either in person or proxy;<br />
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4. Right to receive offer for right shares and be allotted bonus shares if announced;<br />
5. Right to receive surplus on liquidation;<br />
6. Right of free transferability of share; and<br />
7. Such other rights as may be available to a shareholder of a <strong>Bank</strong>ing Company incorporated under the<br />
Companies Act and Memorandum and Articles of Association of our <strong>Bank</strong> and the terms of the listing<br />
agreements entered into with the Stock Exchange.<br />
Subject to such restrictions as may be imposed by RBI from time to time or as contained in the <strong>Bank</strong>ing<br />
Regulation Act, 1949.<br />
7. Issue of Duplicate Share Certificates<br />
If any Share Certificate is mutilated or defaced or the pages for recording transfers of the Equity Shares are fully<br />
utilized, our <strong>Bank</strong> against the surrender of such Share Certificate may replace the Share Certificate, provided<br />
that it shall be replaced as aforesaid only if the Share Certificate number and the distinctive numbers are legible.<br />
If any Share Certificate is destroyed, stolen, lost or misplaced, then upon production of proof thereof to the<br />
satisfaction of our <strong>Bank</strong> and upon furnishing such indemnity/surety and/or such other documents as our <strong>Bank</strong><br />
may deem adequate, a duplicate Share Certificate shall be issued.<br />
8. Quoting of Permanent Account Number (PAN) Mandatory<br />
As per the circular no. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007, quoting of PAN has been<br />
made mandatory for all primary market transactions. Further, in accordance with the circular no.<br />
SEBI/CFD/DIL/MB/IS/1/2008/11/03 dated March 11, 2008, SEBI has stated that the applicants are not required<br />
to submit the photocopies of PAN.<br />
III<br />
How to Apply?<br />
1. Procedure for Application<br />
<strong>The</strong> CAF will be printed in black ink for all Equity Shareholders. In case the original CAFs are not received by<br />
the Investor or is misplaced by the Investor, the Investor may request the Registrars to the Issue, for issue of<br />
a duplicate CAF, by furnishing the registered folio number, DP ID Number, Client ID Number and their full<br />
name and address. In case the signature of the Equity Shareholder(s) does not agree with the specimen<br />
registered with our <strong>Bank</strong>, the application is liable to be rejected.<br />
<strong>The</strong> CAF consists of four parts:<br />
Part A: Form for accepting the Rights Equity Shares offered and applying for additional Equity Shares;<br />
Part B: Form for renunciation of Equity Shares;<br />
Part C: Form for application for Equity Shares by renouncees; and<br />
Part D: Form for request for split application forms.<br />
2. Options available to the Equity Shareholders<br />
<strong>The</strong> CAF clearly indicates the number of Equity Shares that an Equity Shareholder is entitled to.<br />
An Equity Shareholder will have the following five options:<br />
A. Apply for his Rights Entitlement in full;<br />
B. Apply for his Rights Entitlement in part (without renouncing the other part);<br />
C. Apply for his Rights Entitlement in full and apply for additional Equity Shares;<br />
D. Renounce his entire Rights Entitlement; or<br />
E. Apply for his Rights Entitlement in part and renounce the other part.<br />
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Options A and B: Acceptance of the Rights Entitlement<br />
<strong>The</strong> Equity Shareholders may accept their Rights Entitlement and apply for the Equity Shares offered, either (i)<br />
in full or (ii) in part, without renouncing the other part, by completing Part A of the CAF. For details in relation<br />
to submission of the CAF and mode of payment please refer to the sub-section titled “Submission of<br />
Application and Modes of Payment for the Issue” under this section titled “Terms and Procedure of the Issue”<br />
on Page no 98 of this Letter of Offer.<br />
Option C: Acceptance of the Rights Entitlement and Application for Additional Equity Shares<br />
<strong>The</strong> Equity Shareholders are eligible to apply for additional Equity Shares, over and above their Rights<br />
Entitlements, provided that such Equity Shareholders have applied for all the Equity Shares without renouncing<br />
some or all of them in favor of any other person(s).<br />
<strong>The</strong> application for the additional Equity Shares shall be considered and allotment shall be made at the sole<br />
discretion of the Board of Directors, in consultation, if necessary, with the Designated Stock Exchange. Where<br />
the number of Equity Shares applied for exceeds the number of Equity Shares available for allotment, the<br />
allotment of additional Equity Shares shall be made on a fair and equitable basis with reference to the number of<br />
Equity Shares held by the applicant on the Record Date. For details of the manner in which applications for<br />
additional Equity Shares with shall be considered and allotment completed, please refer to the sub-section titled<br />
“Basis of Allotment” under this section titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of<br />
Offer.<br />
If you desire to apply for additional Equity Shares, please indicate your requirement in the place provided for<br />
additional Equity Shares in Part A of the CAF.<br />
Options D and E: Renunciation of the Rights Entitlement<br />
As an Equity Shareholder, you have the right to renounce your entitlement to the Equity Shares, in full or in<br />
part, in favor of one or more persons. Your attention is drawn to the fact that our <strong>Bank</strong> shall not allot and/or<br />
register any Equity Shares, in favor of:<br />
• More than three persons, including joint holders;<br />
• Partnership firms or their nominees;<br />
• Minors;<br />
• Hindu Undivided Families (HUFs); or<br />
• Trusts or societies (unless registered under the Societies Registration Act, 1860 or the Indian Trusts<br />
Act, 1882 or any other law applicable to trusts and societies and is authorised under its constitution or<br />
bye-laws to hold equity shares of a company).<br />
<strong>The</strong> person(s) in whose favor any Equity Shares are renounced should complete and sign Part C of the CAF and<br />
submit the CAF to the <strong>Bank</strong>ers to the Issue on or prior to the Issue Closing Date along with the Application<br />
Money. Renouncees need not be existing Equity Shareholders of our <strong>Bank</strong>. Renouncees who have subscribed<br />
for all the Equity Shares renounced in their favor may also apply for additional Equity Shares. A Renouncee<br />
cannot further renounce.<br />
However, the right of renunciation is subject to the express condition that the Board of Directors shall be<br />
entitled, in its absolute discretion, to reject the request from the renouncees for the allotment of Equity<br />
Shares without assigning any reason therefore.<br />
Renunciation by and/or in favor of Non Residents<br />
Any renunciation (i) from a resident Indian Equity Shareholder to a Non Resident, or (ii) from a Non Resident<br />
Equity Shareholder to a resident Indian, or (iii) from a Non Resident Equity Shareholder to a Non Resident, in<br />
light of RBI Master circular on Foreign Investment in India dated July 01, 2010;RBI Notification No. FEMA<br />
20/2000-RB dates May 03, 2000 and RBI circular No. 38 dated December 03, 2003 would not require approval<br />
from RBI.<br />
Procedure for Renunciation<br />
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(a) To renounce the entire Rights Entitlement in favor of one renouncee<br />
If you wish to renounce the Rights Entitlement indicated in Part A, in whole, please complete Part B of the CAF<br />
and send it to the renouncee. In case of joint holding, all joint holders must sign Part B of the CAF. <strong>The</strong><br />
renouncee should complete and sign Part C of the CAF. In case of joint renouncees, all joint renouncees must<br />
sign Part C of the CAF.<br />
Renouncees shall not be entitled to further renounce their entitlement in favor of any other person.<br />
(b) To renounce a part of the Rights Entitlement or the entire Rights Entitlement to more than one person<br />
If you wish to either (i) accept the Rights Entitlement in part and renounce the balance or (ii) renounce the entire<br />
Rights Entitlement in favor of two or more renouncees, the CAF must be first split into the requisite number of<br />
forms. For this purpose, you shall have to apply to the Registrar to the Issue. Please indicate your requirement of<br />
split application forms in the space provided for this purpose in Part D of the CAF and return the CAF to the<br />
Registrar to the Issue so as to reach them at the latest by the close of business hours on the last date for receiving<br />
requests for split application forms.<br />
On receipt of the required number of split application forms from the Registrar to the Issue, the procedure as set<br />
out in paragraph (a) above will have to be followed.<br />
In case the signature of the Equity Shareholder, who has renounced the Equity Shares, does not tally with the<br />
specimen registered with our <strong>Bank</strong>, the application is liable to be rejected.<br />
A summary of the options available to the Equity Shareholders is set out below. You may exercise any of the<br />
following options with regard to the Equity Shares, using the CAF:<br />
Option Option Available Action Required<br />
A.<br />
Accept your Rights Entitlement in<br />
full<br />
Complete and sign Part A. (All joint holders must Sign)<br />
B.<br />
Accept your Rights Entitlement in<br />
part without renouncing the balance<br />
Complete and sign Part A. (All joint holders must sign)<br />
C.<br />
Accept your Rights Entitlement in<br />
full and apply for additional Equity<br />
Shares<br />
Complete and sign Part A including Block III relating to the<br />
acceptance of the Rights Entitlement and Block IV relating to<br />
additional Equity Shares (All joint holders must sign)<br />
D.<br />
Renounce your Rights Entitlement<br />
in full to:<br />
1. One person (Joint renounces<br />
are considered as one)<br />
1) Complete and sign Part B (all joint holders must sign)<br />
indicating the number of Equity Shares renounced and hand it<br />
over to the renounce. <strong>The</strong> renounce must complete and sign<br />
Part C. (All joint renounces must sign)<br />
105
Option Option Available Action Required<br />
2) Complete and sign Part D (all joint holders must sign)<br />
requesting for split application forms. Send the CAF to the<br />
Registrar to the issue, so as to reach the Registrar on or prior<br />
to the last date for receiving requests for split application<br />
forms. Splitting will be permitted only once<br />
2. More than one person<br />
Upon receipt of the split application form, take action as<br />
indicated below:<br />
1. Complete and sign Part B indicating the number of Equity<br />
Shares renounced and hand it over to the renounces.<br />
E.<br />
F<br />
Accept a part of your Rights<br />
Entitlement and renounce the<br />
balance to one or more person(s)<br />
Introduce a joint holder or change<br />
the sequence of joint holders<br />
2. Each of the renounces should complete and sign Part C for<br />
the Equity Shares with accepted by them<br />
Complete and sign Part D (all joint holders must sign)<br />
requesting for split application forms. Send the CAF to the<br />
Registrar to the Issue, so as to reach the Registrar on or prior<br />
to the last date for receiving requests for split application<br />
forms, Splitting will be permitted only once.<br />
Upon receipt of the split application form, take action as<br />
indicated below<br />
1. For the Equity Shares you wish to accept, complete and<br />
sign Part A ( All joint holders must sign)<br />
2. For the Equity Shares you wish to renounce, complete<br />
and sign Part B indicating the number of Equity Shares<br />
with renounced and hand it over to the renounces<br />
3. Each of the renounces should complete and sign Part C<br />
for the Equity Shares being accepted by them<br />
This will be treated as a renunciation. Fill in and sign Part B<br />
and the Renouncee must fill in and sign Part C.<br />
3. Change and/ or introduction of additional holders<br />
If you wish to apply for the Equity Shares jointly with any other person(s), not more than three, who is/are not<br />
already a joint holder(s) with you, it shall amount to a renunciation and the procedure for renunciation, as<br />
applicable, set out above will have to be followed. Even a change in the sequence of the names of joint holders<br />
shall amount to a renunciation and the procedure for renunciation, as applicable, set out above will have to be<br />
followed.<br />
Please note that:<br />
1. Part A of the CAF must not be used by any person(s) other than the Equity Shareholder to whom this LOF<br />
has been addressed. If used, this will render the application invalid.<br />
2. While applying for or renouncing their Rights Entitlement, joint holders must sign in the same order and as<br />
per the specimen signatures registered with our <strong>Bank</strong>.<br />
3. Request for split application form should be made for a minimum of one (1) Equity Share or in multiples of<br />
one (1) Equity Share;<br />
4. Request by the applicant for the Split Application Form should reach our <strong>Bank</strong> on or before Monday,<br />
March 14, 2011.<br />
106
5. Only the person to whom the Abridged Letter of Offer has been addressed to and not the renouncee(s) shall<br />
be entitled to renounce and to apply for Split Application Forms. Forms once split cannot be split again.<br />
6. Split form(s) will be sent to the applicant(s) by post at the applicant’s risk.<br />
7. In the case of a renunciation, the submission of the CAF to the <strong>Bank</strong>ers to the Issue at the collecting<br />
branches specified on the reverse of the CAF together with Part B of the CAF duly completed shall be<br />
conclusive evidence of the right of the person applying for the Equity Shares to receive allotment of such<br />
Equity Shares.<br />
For details on completing the CAF and other general instructions, please follow the instructions indicated on the<br />
reverse of the CAF. In addition, please refer to the sub-section titled “General Instructions for Applicants” under<br />
this section titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of Offer.<br />
Availability of duplicate CAF<br />
In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will issue a<br />
duplicate CAF on the request of the applicant who should furnish the registered folio number/ DP and Client ID<br />
number and his/ her full name and address to the Registrar to the Issue. Please note that the request for duplicate<br />
CAF should reach the Registrar within 8 days from the Issue opening date. Please note that those who are<br />
making the application in the duplicate form should not utilize the original CAF for any purpose including<br />
renunciation, even if it is received/ found subsequently. Thus in case the original and duplicate CAFs are lodged<br />
for subscription, allotment will be made on the basis of the duplicate CAF and the original CAF will be ignored.<br />
If any Investor’s request is in contravention of the above stipulation, he/ she shall face the risk of rejection of<br />
both the applications.<br />
Our <strong>Bank</strong> or the Registrar to the Issue will not be responsible for postal delays or loss of duplicate CAF in<br />
transit, if any.<br />
Application on Plain Paper<br />
An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate<br />
CAF may make an application to subscribe to the Issue on plain paper, along with Demand Draft (after<br />
deducting banking and postal charges) payable at Mangalore which should be drawn in favour of “<strong>Karnataka</strong><br />
<strong>Bank</strong>-Rights Issue-R” in case of resident shareholders and non-resident shareholders applying on nonrepatriable<br />
basis; and in favour of “<strong>Karnataka</strong> <strong>Bank</strong>-Rights Issue-NR” in case of non-resident shareholders<br />
applying on repatriable basis and send the same by registered post directly to the Registrar to the Issue so as to<br />
reach them on or before the closure of the Issue. <strong>The</strong> envelope should be superscribed "THE KARNATAKA<br />
BANK LIMITED -Rights Issue" in case of resident shareholders and non-resident shareholders applying on<br />
non-repatriable basis, and in favour of "THE KARNATAKA BANK LIMITED -Rights Issue - NR" in case of<br />
non-resident shareholders applying on repatriable basis. Application on plain paper will not be accepted from<br />
any U.S. address.<br />
<strong>The</strong> application on plain paper, duly signed by the applicant(s) including joint holders, in the same order as per<br />
specimen recorded with our <strong>Bank</strong>, must reach the office of the Registrar to the Issue before the Issue Closing<br />
Date and should contain the following particulars:<br />
1. Name of Issuer, <strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong><br />
2. Name and address of the Equity Shareholder including joint holders<br />
3. Registered Folio Number/ DP ID No. and Client ID No.<br />
4. Number of shares held as on Record Date<br />
5. Certificate numbers and distinctive numbers, if held in physical form.<br />
6. Number of Rights Equity Shares entitled<br />
7. Number of Rights Equity Shares applied for<br />
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8. Number of additional Equity Shares applied for, if any<br />
9. Total number of Equity Shares applied for<br />
10. Total amount paid on application at the rate of Rs. 85 per Equity Share<br />
11. Particulars of demand draft<br />
12. In case of Equity Shares allotted in physical form, Savings/Current Account Number and name and<br />
address of the bank where the Equity Shareholder will be depositing the refund order. In case of equity<br />
shares allotted in demat code, the bank account details will be obtained from the information available<br />
with the depositories<br />
13. <strong>The</strong> permanent account number (PAN) of the Equity Shareholder and where relevant, for each joint<br />
holder, except in respect of central and state government officials, residents of Sikkim and officials<br />
appointed by the court (e.g. official liquidators and court receivers) who, in terms of a SEBI circular<br />
dated June 30, 2008, may be exempt from specifying their PAN for transaction in the securities market,<br />
subject to submitting sufficient documentary evidence in support of their claim for exemption, provided<br />
that such transactions are undertaken on behalf of the central and State Government and not in their<br />
personal capacity<br />
14. Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records<br />
of our <strong>Bank</strong>.<br />
15. In case of Non Resident Shareholders, NRE/ FCNR/ NRO A/c No. Name and Address of our <strong>Bank</strong> and<br />
Branch;<br />
16. If payment is made by a draft purchased from NRE/ FCNR/ NRO A/c No., as the case may be, an<br />
Account debit certificate from the bank issuing the draft, confirming that the draft has been issued by<br />
debiting NRE/ FCNR/ NRO Account.<br />
17. A representation that the Equity Shareholder is not a “U.S. Person” (as defined in Regulation S under the<br />
Securities Act);<br />
18. Additionally, Non Resident applicants shall include the representation in writing that:<br />
“I/We understand that the Rights Entitlement have not been, and will not be, registered under the<br />
United States Securities Act of 1933, as amended (the “US Securities Act”) or any United States state<br />
securities laws, and may not be offered, sold, resold or otherwise transferred within the United States or<br />
to the territories or possessions thereof or to, or for the account or benefit of, “U.S. Persons” (as<br />
defined in Regulation S under the US Securities Act), except in a transaction exempt from, or in a<br />
transaction not subject to, the registration requirements of the US Securities Act. <strong>The</strong> Equity Shares<br />
referred to in this application are being offered in India but not in the United States of America. None<br />
of our <strong>Bank</strong>, the Registrar, the Lead Manager or any other person acting on behalf of our <strong>Bank</strong> will<br />
accept subscriptions from any person, or the agent of any person, who appears to be, or who our <strong>Bank</strong>,<br />
the Registrar, the Lead Manager or any other person acting on behalf of our <strong>Bank</strong> has reason to believe<br />
is, a resident of the United States and to whom an offer, if made, would result in requiring registration<br />
of this application with the United States Securities and Exchange Commission.<br />
I/We am/are both an institutional investor and an “accredited investor” within the meaning of Rule<br />
501(a)(1), (2), (3) or (7) of Regulation D under the US Securities Act and we have such knowledge and<br />
experience in financial and business matters as to be capable of evaluating the merits and risks of our<br />
investment in the Equity Shares, and we are, and any accounts for which we are acting are each, able to<br />
bear the economic risk of our or its investment.<br />
I/We will not offer, sell or otherwise transfer any of the Equity Shares which may be acquired by us in<br />
any jurisdiction or under any circumstances in which such offer or sale is not authorised or to any<br />
person to whom it is unlawful to make such offer, sale or invitation except under circumstances that<br />
will result in compliance with any applicable laws or regulations. We satisfy, and each account for<br />
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which we are acting satisfies, all suitability standards for investors in investments of the type<br />
subscribed for herein imposed by the jurisdiction of our residence.<br />
I/We understand and agree that the Equity Shares may not be reoffered, resold, pledged or otherwise<br />
transferred except in an offshore transaction in compliance with Regulation S, or otherwise pursuant to<br />
an exemption from, or in a transaction not subject to, the registration requirements of the US Securities<br />
Act.”<br />
Please note that Equity Shareholders who are making an application otherwise than on a CAF (i.e., on<br />
plain paper as stated above) shall not be entitled to renounce their rights and should not utilize the CAF<br />
for any purpose, including renunciation, even if it is received subsequently. If the Equity Shareholder<br />
does not comply with any of these requirements, he/she shall face the risk of rejection of both the<br />
applications and the Application Money received shall be refunded. However, our <strong>Bank</strong> and/or any<br />
Director of our <strong>Bank</strong> will not be liable to pay any interest whatsoever on the Application Money so<br />
refunded.<br />
<strong>The</strong> Equity Shareholders are requested to strictly adhere to these instructions. Failure to do so could<br />
result in the application being rejected, with our <strong>Bank</strong>, the Lead Manager and the Registrar not having<br />
any liability to such Equity Shareholders.<br />
IV.<br />
Submission of Application and Modes of Payment for the Issue (other than ASBA Applicants)<br />
1. Resident Equity Shareholders/ Applicants<br />
1. Applicants who are applying through CAF and residing at places where the bank collection centres<br />
have been opened by our <strong>Bank</strong> for collecting applications, are requested to submit their applications at<br />
the corresponding collection centre together with cheque / bank demand draft drawn on any bank<br />
(including a co-operative bank), for the full application amount favouring “<strong>Karnataka</strong> <strong>Bank</strong>-Rights<br />
Issue-R” and marked ‘A/c Payee only’.<br />
2. Applicants who are applying through CAF and residing at places other than places where the bank<br />
collection centres have been opened for collecting applications, are requested to send their applications<br />
together with a demand draft of amount after deducting bank and postal charges, for the full application<br />
amount favouring “<strong>Karnataka</strong> <strong>Bank</strong>-Rights Issue-R” and marked ‘A/c Payee only’ payable at<br />
Mangalore directly to the Registrar to the Issue by registered post so as to reach them on or before the<br />
Issue Closing Date. Our <strong>Bank</strong> or the Registrar to the Issue will not be responsible for postal delays or<br />
loss of applications in transit, if any.<br />
3. Applicants who are applying on plain paper, are requested to send their applications on plain paper<br />
together with a demand draft of amount after deducting bank and postal charges, for the Equity Shares<br />
favouring “<strong>Karnataka</strong> <strong>Bank</strong>-Rights Issue-R” and marked ‘A/c Payee only’ payable at Mangalore<br />
directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue<br />
Closing Date. Our <strong>Bank</strong> or the Registrar to the Issue will not be responsible for postal delays or loss of<br />
applications in transit, if any.<br />
2. Non-Resident Equity Shareholders / Applicants<br />
Application with repatriation benefits<br />
Non-Resident Equity Shareholders / Applicants, applying on a repatriation basis, are required to submit the<br />
completed CAF / application on plain paper, as the case may be, alongwith the payment made through any of<br />
the following ways:<br />
1. By Indian Rupee drafts purchased from abroad and payable at Mangalore or funds remitted from<br />
abroad (submitted along with Foreign Inward Remittance Certificate); or<br />
2. By Local cheque / bank drafts remitted through normal banking channels or out of funds held in Non-<br />
Resident External Account (NRE) or FCNR Account maintained with banks authorized to deal in<br />
foreign currency in India, along with documentary evidence in support of remittance; or<br />
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3. FIIs registered with SEBI must remit funds from special non-resident rupee deposit account.<br />
4. For Equity Shareholders / Applicants, applying through CAF, the CAF is to be sent at the bank<br />
collection centre specified in the CAF along with cheques/drafts in favour of “<strong>Karnataka</strong> <strong>Bank</strong>-Rights<br />
Issue-NR” and crossed ‘A/c Payee only’ for the amount payable.<br />
5. For Equity Shareholders / Applicants, applying on a plain paper, the applications are to be directly sent<br />
to the Registrar to the Issue by registered post along with drafts (after deducting bank and postal<br />
charges) in favour of “<strong>Karnataka</strong> <strong>Bank</strong>-Rights Issue-NR” payable at Mangalore and crossed ‘A/c<br />
Payee only’ for the amount payable so as to reach them on or before the Issue Closing Date.<br />
6. For Equity Shareholders/ Applicants applying through CAF but not residing at places where the<br />
collection centre is located, shall send the CAF to the Registrar to the Issue by registered post along<br />
with drafts of an amount after deducting bank and postal charges in favour of “<strong>Karnataka</strong> <strong>Bank</strong>-Rights<br />
Issue-NR” payable at Mangalore and crossed ‘A/c Payee only’ for the amount payable so as to reach<br />
them on or before the Issue Closing Date.<br />
A separate cheque or bank draft must accompany each application form. Applicants may note that where<br />
payment is made by drafts purchased from NRE/FCNR accounts as the case may be, an Account Debit<br />
Certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/FCNR<br />
account should be enclosed with the CAF. In the absence of the above the application shall be considered<br />
incomplete and is liable to be rejected.<br />
In the case of NRIs who remit their application money from funds held in FCNR/NRE Accounts, refunds and<br />
other disbursements, if any shall be credited to such account details of which should be furnished in the<br />
appropriate columns in the CAF. In the case of NRIs who remit their application money through Indian Rupee<br />
Drafts from abroad, refunds and other disbursements, if any will be made in U.S Dollars at the rate of exchange<br />
prevailing at such time subject to the permission of RBI. Our <strong>Bank</strong> will not be liable for any loss on account of<br />
exchange rate fluctuation for converting the Rupee amount into U.S. Dollar or for collection charges charged by<br />
the applicant’s <strong>Bank</strong>ers.<br />
Our <strong>Bank</strong> or the Registrar to the Issue will not be responsible for postal delays or loss of application in transit, if<br />
any<br />
Payments through Non Resident Ordinary Account (NRO account) will not be permitted.<br />
Application without repatriation benefits<br />
For non-residents Equity Shareholders / Applicants applying on a non-repatriation basis, in addition to the<br />
modes specified above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary)<br />
Account maintained at Mangalore or Rupee Draft purchased out of NRO Account maintained elsewhere in India<br />
but payable at Mangalore. In such cases, the allotment of Equity Shares will be on non-repatriation basis.<br />
For Non Resident Equity Shareholders/Applicants, applying through CAF, the CAF is to be sent at the bank<br />
collection centre specified in the CAF along with cheques/demand drafts drawn after deducting bank and postal<br />
charges in favor of “<strong>Karnataka</strong> <strong>Bank</strong>-Rights Issue-R” and crossed ‘A/c Payee only’ for the amount payable.<br />
For Equity Shareholders/Applicants, applying on a plain paper, the applications are to be directly sent to the<br />
Registrar to the Issue by registered post along with demand drafts after deducting bank and postal charges drawn<br />
in favor of “<strong>Karnataka</strong> <strong>Bank</strong>-Rights Issue-R” payable at Mangalore so as to reach them on or before the Issue<br />
Closing Date.<br />
For Equity Shareholders/ Applicants applying through CAF but not residing at places where the collection<br />
centre is located, shall send the CAF to the Registrar to the Issue by registered post along with drafts of an<br />
amount after deducting bank and postal charges in favour of “<strong>Karnataka</strong> <strong>Bank</strong>-Rights Issue-R” payable at<br />
Mangalore for the amount payable so as to reach them on or before the Issue Closing Date.<br />
If the payment is made by a draft purchased from an NRO account, an Account Debit Certificate from the bank<br />
issuing the draft, confirming that the draft has been issued by debiting the NRO account, should be enclosed<br />
110
with the CAF. In the absence of the above, the application shall be considered incomplete and is liable to be<br />
rejected.<br />
New dematerialised accounts shall be opened for Equity Shareholders who have had that change in status from<br />
resident Indian to NRI.<br />
Our <strong>Bank</strong> or the Registrar to the Issue will not be responsible for postal delays or loss of application in transit, if<br />
any, on this account and applications received through mail after closure of the Issue are liable to be rejected.<br />
Applications through mails should not be sent in any other manner except as mentioned above. <strong>The</strong> CAF along<br />
with the application money must not be sent to our <strong>Bank</strong> or the Lead Manager or the Registrar except stated<br />
otherwise. <strong>The</strong> Investors are requested to strictly adhere to these instructions.<br />
Renouncees who are NRIs/FIIs/Non-Resident should submit their respective applications either by hand<br />
delivery or by registered post with acknowledgement due to the Registrar to the Issue only along with the<br />
cheque/demand draft payable at Mangalore so that the same are received on or before the closure of the Issue.<br />
Note:<br />
1. In case where repatriation benefit is available, interest, dividend, sales proceeds derived from the<br />
investment in Equity Shares can be remitted outside India, subject to tax, as applicable according to<br />
Income Tax Act, 1961.<br />
2. In case Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the<br />
Equity Shares cannot be remitted outside India.<br />
3. <strong>The</strong> CAFs duly completed together with the amount payable on application must be deposited with the<br />
collecting bank indicated on the reverse of the CAFs before the close of business hours on or before the<br />
Issue Closing Date. Separate cheque or bank draft must accompany each CAF.<br />
4. In case of a CAF received from non-residents, allotment, refunds and other distribution, if any, will be<br />
made in accordance with the guidelines/ rules prescribed by RBI as applicable at the time of making<br />
such allotment, remittance and subject to necessary approvals.<br />
Last date of Application<br />
<strong>The</strong> last date for submission of the duly filled in CAF is Tuesday, March 22, 2011, i.e. the Issue Closing Date.<br />
<strong>The</strong> Issue will be kept open for a minimum of 15 (Fifteen) days and the Board or any committee thereof will<br />
have the right to extend the said date for such period as it may determine from time to time but not exceeding 30<br />
(Thirty) days from the Issue Opening Date.<br />
If the CAF together with the amount payable is not received by the <strong>Bank</strong>ers to the Issue/ Registrar to the Issue<br />
on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Board,<br />
the offer contained in this Letter of Offer shall be deemed to have been declined and the Board shall be at liberty<br />
to dispose of the Equity Shares hereby offered, as provided under the paragraph titled “Basis of Allotment”<br />
beginning on Page no 111 of this Letter of Offer.<br />
V. Basis of Allotment<br />
Subject to the provisions contained in this Letter of Offer, the Articles of Association of our <strong>Bank</strong> and the<br />
approval of the Designated Stock Exchange, the Board will proceed to allot our Equity Shares in the following<br />
order of priority:<br />
(a)<br />
(b)<br />
Full allotment to those Equity Shareholders who have applied for their Rights Entitlement either in full or<br />
in part and also to the Renouncee(s) who has/have applied for Equity Shares renounced in their favour,<br />
in full or in part.<br />
For Rights Equity Shares being offered under this Issue, if the shareholding of any of the Eligible<br />
Equity Shareholders is less than 5 Equity Shares or not in the multiple of 5 as on the Record Date, the<br />
fractional entitlement of such Eligible Equity Shareholders shall be ignored. Eligible Equity<br />
Shareholders whose fractional entitlements are being ignored would be given preference in allotment of<br />
111
one additional share each if they apply for additional Rights Equity Shares.<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
Allotment under this head shall be considered if there are any unsubscribed Rights Equity Shares after<br />
allotment under (a) above. If the number of Rights Equity Shares required for allotment under this head<br />
are more than the number of Rights Equity Shares available after allotment under (a) above, the<br />
allotment would be made on a fair and equitable basis in consultation with the Designated Stock<br />
Exchange.<br />
Allotment to the Equity Shareholders who having applied for all the Equity Shares offered to them as<br />
part of the Issue and have also applied for additional Equity Shares. <strong>The</strong> allotment of such additional<br />
Equity Shares will be made as far as possible on an equitable basis having due regard to the number of<br />
Equity Shares held by them on the Record Date, provided there is an under-subscribed portion after<br />
making full allotment in (a). <strong>The</strong> allotment of such Equity Shares will be at the sole discretion of the<br />
Board / Committee of Directors in consultation with the Designated Stock Exchange, as a part of the<br />
Issue and will not be a preferential allotment.<br />
Allotment to Renouncees who having applied for all the Equity Shares renounced in their favour, have<br />
applied for additional Equity Shares provided there is surplus available after making full allotment under<br />
(a) and (b) above. <strong>The</strong> allotment of such Equity Shares will be at the sole discretion of the<br />
Board/Committee of Directors in consultation with the Designated Stock Exchange, as a part of the<br />
Issue and not preferential allotment.<br />
Allotment to any other person as the Board may in its absolute discretion deem fit provided<br />
there is surplus available after making full allotment under (a), (b) (c) and (d) above.<br />
After taking into account allotment to be made under (a) and (b) above, if there is any unsubscribed portion, the<br />
same shall be deemed to be ‘unsubscribed’ for the purpose of regulation 3(1)(b) of the Takeover Code which<br />
would be available for allocation under (b), (c) (d) and (e) above.<br />
After such allotments as above, including the application for rights/renunciation and additional Equity Shares,<br />
any additional Equity Shares shall be disposed off by the Board of our <strong>Bank</strong>, in such manner as they think most<br />
beneficial to our <strong>Bank</strong> and the decision of the Board of our <strong>Bank</strong> in this regard shall be final and binding.<br />
In the event of oversubscription, allotment will be made within the overall size of the Issue<br />
Our <strong>Bank</strong> expects to complete the allotment of Equity Shares within a period of 15 days from the date of closure<br />
of the Issue in accordance with the listing agreement with NSE and BSE. In case of delay in allotment our <strong>Bank</strong><br />
shall, as stipulated under Section 73(2A) of the Act, be required to pay interest on the same at a rate of 15 per<br />
cent p.a.<br />
Our <strong>Bank</strong> shall retain no oversubscription.<br />
Underwriting<br />
Our <strong>Bank</strong> has not currently entered into any underwriting arrangement.<br />
VI.<br />
Allotment and Refund<br />
Our <strong>Bank</strong> will issue and dispatch allotment advice/letters of allotment/Share Certificates/demat credit and/or<br />
letters of regret along with refund orders or credit the allotted securities to the respective beneficiary accounts, if<br />
any, within a period of 15 days from the Issue Closing Date. If the amount to be refunded is not paid within<br />
eight days from the day our <strong>Bank</strong> becomes liable to pay it, our <strong>Bank</strong> and every Director of our <strong>Bank</strong> who is an<br />
officer in default shall be jointly and severally liable to repay the money with interest for the delayed period at<br />
15% per annum as stipulated under sub-sections (2) and (2A) of Section 73 of the Companies Act.<br />
Investors residing at centers where clearing houses are managed by the Reserve <strong>Bank</strong> of India ("RBI") will get<br />
refunds through National Electronic Clearing Service ("NECS") except where Investors are otherwise disclosed<br />
as applicable/eligible to get refunds through direct credit and real time gross settlement ("RTGS").<br />
112
In case of those Equity Shareholders or applicants who have opted to receive the Equity Shares in<br />
dematerialized form using electronic credit under the depository system, advice regarding their credit of the<br />
Equity Shares shall be given separately. Applicants to whom refunds are made through electronic transfer of<br />
funds will be sent a letter through ordinary post intimating them about the mode of credit of refund within 15<br />
working days of closure of Issue.<br />
In case of those Equity Shareholders or applicants who have opted to receive the Equity Shares in physical form<br />
and in respect of which our <strong>Bank</strong> issues letters of allotment, the corresponding Share Certificates will be<br />
delivered within three months from the date of allotment thereof or such extended time as may be approved by<br />
the Company Law Board under Section 113 of the Companies Act or other applicable provisions, if any.<br />
Allottees are requested to preserve such letters of allotment, which will subsequently be exchanged for the Share<br />
Certificates.<br />
<strong>The</strong> allotment advice/letters of allotment and refund orders of value Rs. 1,500 and above will be sent by<br />
registered post/speed post to the sole/first applicant’s registered address in India. Refund orders less than the<br />
value of Rs.1, 500/- will be sent under certificate of posting. Such refund orders will be payable at par at all<br />
places where the applications were originally accepted. <strong>The</strong> same will be marked “account payee only” and will<br />
be drawn in favor of the sole/first applicant. Adequate funds will be made available to the Registrar to the Issue<br />
for this purpose.<br />
Our <strong>Bank</strong> shall ensure at par facility is provided for encashment of refund orders or pay orders at the places<br />
where applications are accepted.<br />
As regards allotment/refund to Non-Residents, the following further conditions shall apply:<br />
In the case of Non Resident Equity Shareholders or applicants who remit their application money from funds<br />
held in NRE/FCNR Accounts, refunds and/or payment of interest or dividend and other disbursements, if any,<br />
shall be credited to such accounts, the details of which should be furnished in the CAF. Subject to the approval<br />
of the RBI, in case of Non Resident Equity Shareholders or applicants who remit their application money<br />
through Indian Rupee demand drafts purchased from abroad, refund and/or payment of dividend or interest and<br />
any other disbursement, shall be credited to such accounts and will be made after deducting bank charges or<br />
commission in US Dollars, at the rate of exchange prevailing at such time. <strong>The</strong> <strong>Bank</strong> will not be responsible for<br />
any loss on account of exchange rate fluctuations for conversion of the Indian Rupee amount into US Dollars.<br />
<strong>The</strong> Share Certificate(s) will be sent by registered post to the address in India of the Non Resident Equity<br />
Shareholders or applicants.<br />
Mode of making Refund<br />
Applicants should note that on the basis of name of the applicants, Depository Participant’s name, Depository<br />
Participant-Identification number and Beneficiary Account Number provided by them in the Composite<br />
Application Form, the Registrar to the Issue will obtain from the Depositories, the applicant’s bank account<br />
details including nine digit MICR code. Hence, applicants are advised to immediately update their bank<br />
account details as appearing on the records of the depository participant. Please note that failure to do so<br />
could result in delays in credit of refunds to applicants at the applicant’s sole risk and neither the Lead Manager<br />
nor our <strong>Bank</strong> shall have any responsibility and undertake any liability for the same.<br />
<strong>The</strong> payment of refund, if any, would be done through various modes in the following order of preference:<br />
I. NECS<br />
Payment of refund would be done through NECS for applicants having an account at one of the centres<br />
specified by the RBI, where such facility has been made available.<br />
This would be subject to availability of complete <strong>Bank</strong> Account Details including MICR code<br />
wherever applicable from the depository. <strong>The</strong> payment of refund through ECS is mandatory for<br />
applicants having a bank account at any of the centres where ECS facility has been made available by<br />
the RBI (subject to availability of all information for crediting the refund through ECS), except where<br />
applicant is otherwise disclosed as eligible to get refunds through NEFT or Direct Credit or RTGS.<br />
113
II.<br />
NEFT<br />
Payment of refund shall be undertaken through NEFT wherever the applicants’ bank has been assigned<br />
the Indian Financial System Code (IFSC), which can be linked to a Magnetic Ink Character<br />
Recognition (MICR) , if any, available to that particular bank branch. IFSC Code will be obtained<br />
from the website of RBI as on a date immediately prior to the date of payment of refund, duly mapped<br />
with MICR numbers. Wherever the applicants have registered their nine digit MICR number and<br />
their bank account number while opening and operating the demat account, the same will be<br />
duly mapped with the IFSC Code of that particular bank branch and the payment of refund will<br />
be made to the applicants through this method.<br />
III.<br />
Direct Credit<br />
Applicants that have bank accounts with the <strong>Bank</strong>ers to the Issue shall be eligible to receive refunds<br />
through direct credit. Charges, if any, levied by the <strong>Bank</strong>ers to the Issue for the same will be borne by<br />
our <strong>Bank</strong>.<br />
IV.<br />
RTGS<br />
Applicants having a bank account at any of the centres specified by RBI where such facility has been<br />
made available and whose refund amount exceeds Rs. 0.01 Crores, have the option to receive refund<br />
through RTGS. Such eligible applicants who indicate their preference to receive refund through RTGS<br />
are required to provide the IFSC code in the CAF. In the event the same is not provided, refund shall be<br />
made through ECS. Charges, if any, levied by the Refund <strong>Bank</strong>(s) for the same would be borne by our<br />
<strong>Bank</strong> opting for RTGS as a mode of refund. Charges, if any, levied by the applicant’s bank receiving<br />
the credit would be borne by the applicant.<br />
Only or all the other applicants except for whom payment of refund is possible through I, II, III and IV, the<br />
refund orders would be dispatched “Under Certificate of Posting” for refund orders less than Rs.1,500/- and<br />
through Speed Post/Registered Post for refund orders of value of Rs 1,500 and above. Such refunds will be<br />
made by cheques, pay orders or demand drafts drawn in favour of the sole/first applicant and payable at par.<br />
For shareholders opting for allotment in physical mode, bank account details as mentioned in the CAF<br />
shall be considered for electronic credit or printing of refund orders, as the case may be. Refund orders<br />
will be made by cheques, pay orders or demand drafts drawn on the Refund <strong>Bank</strong>(s) and payable at par<br />
at places where the applications were received and will be marked account payee and will be drawn in the<br />
name of Sole/First Applicant. <strong>The</strong> bank charges, if any, for encashing such cheques, pay orders or<br />
demand drafts at other centres will be payable by the Applicants.<br />
Refund payment to Non-Resident<br />
Where applications are accompanied by Indian rupee drafts purchased abroad and payable at Mangalore (as<br />
otherwise specified in this section titled “Terms and Procedure of the Issue”), refunds will be made in<br />
convertible U.S. dollars equivalent to Indian rupees to be refunded. Indian rupees will be converted into U.S.<br />
dollars at the rate of exchange, which is prevailing on the date of refund. <strong>The</strong> exchange rate risk on such refunds<br />
shall be borne by the concerned applicant and our <strong>Bank</strong> shall not bear any part of the risk.<br />
Where the applications made are accompanied by NRE/FCNR/NRO cheques, refunds will be credited to<br />
NRE/FCNR/NRO accounts respectively, on which such cheques were drawn and details of which were provided<br />
in the CAF. Export of letters of allotment (if any)/ share certificates/ demat credit to non-resident allottees will<br />
be subject to the approval of RBI.<br />
Interest in Case of Delay in Dispatch of Allotment Letters/ Refund Orders<br />
Our <strong>Bank</strong> will issue and dispatch letters of allotment/ share certificates and/ or letters of regret along with refund<br />
order or credit the allotted securities to the respective beneficiary accounts, if any within a period of fifteen days<br />
from the date of closure of the Issue. <strong>The</strong> dispatch of share certificates/ refund orders and demat credit will be<br />
completed and the allotment and listing documents will be submitted to the stock exchanges within 15 days<br />
from the closure of the Issue.<br />
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If such money is not repaid within 8 days from the day our <strong>Bank</strong> becomes liable to pay it, our <strong>Bank</strong> shall pay<br />
that money with interest at the rate of 15% per annum as stipulated under sub-sections (2) and (2A) of Section<br />
73 of the Companies Act. .<br />
Option to receive Equity Shares in Dematerialized Form<br />
Applicants to the Equity Shares of our <strong>Bank</strong> issued through this Issue shall be allotted the securities in<br />
dematerialised (electronic) form at the option of the applicant. Our <strong>Bank</strong> has signed agreements dated October<br />
16, 2000 and October 14, 2000 with NSDL and CDSL respectively, which enables the Investors to hold and<br />
trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates.<br />
In this Issue, the allottees who have opted for Equity Shares in dematerialised form will receive their Equity<br />
Shares in the form of an electronic credit to their beneficiary account with a depository participant. <strong>The</strong> CAF<br />
shall contain space for indicating number of shares applied for in demat and physical form or both. Investor will<br />
have to give the relevant particulars for this purpose in the appropriate place in the CAF. Applications, which do<br />
not accurately contain this information, will be given the securities in physical form. No separate applications<br />
for securities in physical and/or dematerialized form should be made. If separate applications are made, the<br />
application for physical securities will be treated as multiple applications and is liable to be rejected. In case of<br />
partial allotment, allotment will be done in demat option for the shares sought in demat and balance, if any, will<br />
be allotted in physical shares.<br />
INVESTORS MAY PLEASE NOTE THAT THE EQUITY SHARES OF OUR BANK CAN BE TRADED<br />
ON THE STOCK EXCHANGES ONLY IN DEMATERIALIZED FORM.<br />
Procedure for availing the facility for allotment of Equity Shares in this Issue in the electronic form is as under:<br />
1. Open a beneficiary account with any depository participant (care should be taken that the beneficiary<br />
account should carry the name of the holder in the same manner as is exhibited in the records of our <strong>Bank</strong>.<br />
In the case of joint holding, the beneficiary account should be opened carrying the names of the holders in<br />
the same order as with our <strong>Bank</strong>). In case of Investors having various folios in our <strong>Bank</strong> with different<br />
joint holders, the Investors will have to open separate accounts for such holdings. Those Equity<br />
Shareholders who have already opened such Beneficiary Account (s) need not adhere to this step.<br />
2. For Equity Shareholders already holding Equity Shares of our <strong>Bank</strong> in dematerialized form as on the<br />
Record Date, the beneficial account number shall be printed on the CAF. It may be noted that the<br />
allotment of Equity Shares arising out of this Issue may be made in dematerialized form even if the<br />
original Equity Shares of our <strong>Bank</strong> are not dematerialized. Nonetheless, it should be ensured that the<br />
Depository Account is in the name(s) of the Equity Shareholders and the names are in the same order as in<br />
the records of our <strong>Bank</strong>.<br />
3. Responsibility for correctness of information (including applicant’s age and other details) filled in the CAF<br />
vis-à-vis such information with the applicant’s depository participant, would rest with the applicant.<br />
Applicants should ensure that the names of the applicants and the order in which they appear in CAF<br />
should be the same as registered with the applicant’s depository participant.<br />
4. If incomplete / incorrect beneficiary account details are given in the CAF or where the investor does not<br />
opt to receive the Rights Equity shares in dematerialized form, the applicant will get Equity Shares in<br />
physical form.<br />
5. Applicants must necessarily fill in the details (including the beneficiary account number or client ID<br />
number) appearing in the CAF under the heading ‘Request for shares in Electronic Form’.<br />
6. Applicants should ensure that the names of the Applicants and the order in which they appear in the CAF<br />
should be the same as registered with the Applicant’s depository participant.<br />
7. <strong>The</strong> Rights Equity Shares pursuant to this Issue allotted to investors opting for dematerialized form, would<br />
be directly credited to the beneficiary account as given in the CAF after verification. Allotment advice,<br />
refund order (if any) would be sent directly to the applicant by the Registrar to the Issue but the applicant’s<br />
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depository participant will provide to him the confirmation of the credit of such Equity Shares to the<br />
applicant’s depository account.<br />
8. Renouncees will also have to provide the necessary details about their beneficiary account for allotment of<br />
securities in this Issue. In case these details are incomplete or incorrect, the application is liable to be<br />
rejected.<br />
9. Renouncees can also exercise the option to receive Equity Shares in the demat form by indicating in the<br />
relevant column in the CAF and providing the necessary details about their beneficiary account. It may be<br />
noted that Equity Share arising out of this Issue can be received in demat form even if the existing Equity<br />
Shares are held in physical form. Nonetheless, it should be ensured that the depository participant account<br />
is in the name of the Applicant(s) in the same order as per specimen signatures appearing in the records of<br />
the depository participant/<strong>Bank</strong>. It may be noted that shares in electronic form can be traded only on the<br />
Stock Exchange having electronic connectivity with NSDL or CDSL.<br />
10. Dividend or other benefits with respect to the Equity Shares held in dematerialised form would be paid to<br />
those Equity Shareholders whose names appear in the list of beneficial owners given by the depository<br />
participant to our <strong>Bank</strong> as on the Record Date.<br />
VII.<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
General instructions for applicants<br />
Please read the instructions printed on the enclosed CAF carefully.<br />
Application should be made on the printed CAF, provided by our <strong>Bank</strong> except as mentioned under the<br />
head “Application on Plain Paper” and should be completed in all respects. <strong>The</strong> CAF found<br />
incomplete with regard to any of the particulars required to be given therein, and/ or which are not<br />
completed in conformity with the terms of this Letter of Offer are liable to be rejected and the money<br />
paid, if any, in respect thereof will be refunded without interest and after deduction of bank<br />
commission and other charges, if any. <strong>The</strong> CAF must be filled in English and the names of all the<br />
applicants, details of occupation, address, father’s / husband’s name must be filled in block letters.<br />
<strong>The</strong> applicant may accept the issue and apply for the Equity Shares offered, either in full or in part by<br />
filling Block III of Part A of the enclosed CAF and submit the same along with the application money<br />
payable to the <strong>Bank</strong>ers to the Issue or any of the branches as mentioned on the reverse of the CAF<br />
before the close of the banking hours on or before the Issue Closing Date or such extended time as be<br />
specified by the Board of Directors thereof in this regard.<br />
Payments should be made in cheque/demand draft drawn on any bank which is situated at and is a<br />
member of sub-member of the banker’s clearing house located at the centre where application is<br />
accepted. Outstation cheques/ demand drafts will not be accepted and application(s) accompanied by<br />
such cheques/demand drafts will be rejected. <strong>The</strong> Registrar will not accept cash along with CAF.<br />
<strong>The</strong> CAF together with cheque / demand draft should be sent to the <strong>Bank</strong>ers to the Issue / Collecting<br />
<strong>Bank</strong> or to the Registrar to the Issue and not to our <strong>Bank</strong> or Lead Manager to the Issue. Applicants<br />
residing at places other than cities where the branches of the <strong>Bank</strong>ers to the Issue have been authorised<br />
by our <strong>Bank</strong> for collecting applications, will have to make payment by Demand Draft payable at<br />
Mangalore of amount after deducting bank and postal charges, and send their application forms to the<br />
Registrar to the Issue by REGISTERED POST. If any portion of the CAF is / are detached or separated<br />
or if the application is sent to anyone other than the <strong>Bank</strong>ers to the Issue / Collecting <strong>Bank</strong> or to the<br />
Registrar to the Issue such application is liable to be rejected.<br />
PAN Number: Whenever the application(s) is/are made, the applicant or in the case of an application in<br />
joint names, each of the applicants, should mention his/her Permanent Account Number (PAN) allotted<br />
under the IT Act. <strong>The</strong> copy of the PAN card or PAN allotment letter is not required to be submitted<br />
with the CAF. Applications without this information and documents will be considered incomplete and<br />
are liable to be rejected. It is to be specifically noted that Applicant should not submit the GIR number<br />
instead of the PAN as the application will get rejected on this ground. In terms of SEBI Circular<br />
bearing no. MRD/DoP/Cir-20/2008 dated June 30, 2008, certain categories of investors (namely the<br />
Central Government, State Government, residents of Sikkim and the officials appointed by the courts<br />
e.g. Official liquidator, Court receiver etc. (under the category of Government)) shall be exempted<br />
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from submitting their PAN, only if such organisations submit sufficient documentary evidence to<br />
support the veracity of their claim for such exemption.<br />
(g)<br />
(h)<br />
(i)<br />
(j)<br />
(k)<br />
(l)<br />
(m)<br />
(n)<br />
(o)<br />
(p)<br />
<strong>Bank</strong> Account Details: It is mandatory for applicants to provide information as to their savings/current<br />
account number and the name of the bank with whom such account is held in the CAF to enable the<br />
Registrar to the Issue to print the said details in the refund orders, if any, after the names of the payees.<br />
Application not containing such details is liable to be rejected. SHAREHOLDERS MAY PLEASE<br />
NOTE THAT FOR SHARES HELD IN DEMAT MODE, THE BANK ACCOUNT DETAILS<br />
SHALL BE OBTAINED FROM THE DEPOSITORIES. SHAREHOLDERS MAY ENSURE<br />
THAT THE BANK ACCOUNT DETAILS ARE UPDATED WITH THE DEPOSITORIES.<br />
Payment by cash: <strong>The</strong> Registrar will not accept any payments against any applications, if made in cash.<br />
In case payment is effected in contravention of this, the application may be deemed invalid and the<br />
application money will be refunded and no interest will be paid thereon.<br />
Signatures should be either in English or Hindi or in any other language specified in the Eight Schedule<br />
to the Constitution of India. Signatures other than in English or Hindi and thumb impression must be<br />
attested by a Notary Public or a Special Executive Magistrate under his/ her official seal. <strong>The</strong> Equity<br />
Shareholders must sign the CAF as per the specimen signature recorded with our <strong>Bank</strong> or depositories.<br />
In case of an application under power of attorney or by a body corporate or by a society, a certified true<br />
copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the<br />
relevant investment under this Issue and to sign the application and a copy of the Memorandum and<br />
Articles of Association and / or bye laws of such body corporate or society must be lodged with the<br />
Registrar to the Issue giving reference of the serial number of the CAF. In case the above referred<br />
documents are already registered with our <strong>Bank</strong>, the same need not be a furnished again. In case these<br />
papers are sent to any other entity besides the Registrar to the Issue or are sent after the Issue Closing<br />
Date, then the application is liable to be rejected. In no case should these papers be attached to the<br />
application submitted to the <strong>Bank</strong>ers to the Issue.<br />
In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as<br />
per the specimen signature(s) recorded with our <strong>Bank</strong>. Further, in case of joint applicants who are<br />
renouncees, the number of applicants should not exceed three. In case of joint applicants, reference, if<br />
any, will be made in the first applicant’s name and all communication will be addressed to the first<br />
applicant.<br />
Application(s) received from Non-Resident / NRIs, or persons of Indian origin residing abroad for<br />
allotment of Equity Shares shall, inter alia, be subject to conditions, as may be imposed from time to<br />
time by the RBI under FEMA in the matter of refund of application money, allotment of Equity Shares,<br />
subsequent issue and allotment of Equity Shares, interest, export of share certificates, etc. In case a<br />
Non-Resident or PIO/NRI Equity Shareholder has specific approval from the RBI, in connection with<br />
his shareholding, he should enclose a copy of such approval with the CAF. <strong>The</strong> Abridged Letter of<br />
Offer and CAF shall be dispatched to non-resident Eligible Equity Shareholders at their Indian<br />
address only.<br />
All communication in connection with application for the Equity Shares, including any change in<br />
address of the Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of<br />
allotment in this Issue quoting the name of the first / sole applicant Equity Shareholder, folio numbers<br />
and CAF number. Please note that any intimation for change of address of Equity Shareholders, after<br />
the date of allotment, should be sent to Registrar to our <strong>Bank</strong>; Integrated Enterprises India <strong>Limited</strong>,<br />
No 30 Ramana Residency 4th Cross, Sampige Road, Malleswaram, Bangalore 560 003 in the case of<br />
Equity Shares held in physical form and to the respective depository participant, in case of Equity<br />
Shares held in dematerialized form.<br />
Split Application Forms cannot be re-split.<br />
Only the person or persons to whom Equity Shares have been offered and not renouncee(s) shall be<br />
entitled to obtain split forms.<br />
Applicants must write their CAF number at the back of the cheque / demand draft.<br />
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(q)<br />
(r)<br />
(s)<br />
(t)<br />
Only one mode of payment per application should be used. <strong>The</strong> payment must be by cheque / demand<br />
draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member or<br />
a sub member of the <strong>Bank</strong>ers Clearing House located at the centre indicated on the reverse of the CAF<br />
where the application is to be submitted.<br />
A separate cheque / draft must accompany each CAF.<br />
No receipt will be issued for application money received. <strong>The</strong> <strong>Bank</strong>ers to the Issue / Collecting <strong>Bank</strong>/<br />
Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at<br />
the bottom of the CAF.<br />
An applicant which is a mutual fund can make a separate application in respect of each scheme of the<br />
mutual fund registered with SEBI and such applications in respect of more than one scheme of the<br />
mutual fund shall not be treated as multiple applications provided that the application clearly indicate<br />
the scheme concerned for which the application has been made. <strong>The</strong> application made by the asset<br />
management company or custodian of a mutual fund shall clearly indicate the name of the concerned<br />
scheme for which the application is made.<br />
Procedure for Applications by Mutual Funds<br />
A separate application can be made in respect of each scheme of an Indian mutual fund registered with<br />
the SEBI and such applications shall not be treated as multiple applications. <strong>The</strong> applications made by<br />
asset management companies or custodians of a mutual fund should clearly indicate the name of the<br />
concerned scheme for which the application is being made.<br />
Grounds for Technical Rejections<br />
Applicants are advised to note that applications are liable to be rejected on technical grounds, including the<br />
following:<br />
1. Applications which are not completed or are not accompanied with the application money payable, are<br />
liable to be rejected;<br />
2. Amount paid does not tally with the amount payable for;<br />
3. In case of physical shareholders, bank account details (for refund) are not given;<br />
4. Age of first applicant not given while completing Part C of CAFs;<br />
5. PAN allotted under the IT Act has not been mentioned by the applicant, except for CAFs on behalf of<br />
central or state government officials appointed by the Courts or residents of Sikkim;<br />
6. In case of Application under power of attorney or by limited companies, corporate, trust, etc., relevant<br />
documents are not submitted;<br />
7. If the signature of the existing shareholder does not match with the one given on the Application Form<br />
and for renouncees if the signature does not match with the records available with their depositories;<br />
8. If the Applicant desires to receive Equity Shares in electronic form, but the CAF does not have the<br />
Applicant’s depository account details;<br />
9. CAF are not submitted by the Applicants within the time prescribed as per the CAF and the Letter of<br />
Offer and the Abridged Letter of Offer;<br />
10. Applications not duly signed by the sole/joint Applicants;<br />
11. Applications by OCBs unless approved by RBI;<br />
12. Applications accompanied by Stockinvest;<br />
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13. In case no corresponding record is available with the Depositories that matches three parameters,<br />
namely, names of the Applicants (including the order of names of joint holders), the Depositary<br />
Participant’s identity (DP ID) and the beneficiary’s identity;<br />
14. Applications by ineligible Non-residents on account of restriction or prohibition under applicable local<br />
laws.<br />
15. Applications that do not include the certification set out in the CAF to the effect that the subscriber is<br />
not a U.S. Person and is purchasing the Equity Shares in an “offshore transaction” (as defined in<br />
Regulation S), and is authorised to acquire the Equity Shares in compliance with all applicable laws<br />
and regulations; and where a registered address in India has not been provided<br />
16. Applications which have evidence of being executed in/dispatched from the US<br />
17. Applications where our <strong>Bank</strong> believes that the CAF is incomplete or acceptance of such CAF may<br />
infringe applicable legal or regulatory requirements; or<br />
18. Multiple applications, including where an applicant submits a CAF and a plain paper application.<br />
19. Duplicate Applications, including cases where an investor submits CAFs along with plain paper<br />
applications.<br />
20. Applications by Renouncees who are persons not competent to contract under the Indian Contract Act,<br />
1872, including minors;<br />
21. Please read the Abridged Letter of Offer and the instructions contained therein and in the CAF<br />
carefully before filling in the CAF. <strong>The</strong> instructions contained in the CAF are an integral part of the<br />
Letter of Offer and Abridged Letter of Offer and must be carefully followed. An application is liable to<br />
be rejected for any non-compliance of the provisions contained in this Letter of Offer or the CAF.<br />
As a matter of abundant caution, attention of the Investors is specifically drawn to the provisions of subsection<br />
(1) of section 68A of the Companies Act which is reproduced below:<br />
"Any person who makes in a fictitious name an application to a Company for acquiring, or subscribing for,<br />
any shares therein, or otherwise induces a Company to allot, or register any transfer of shares therein to<br />
him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may<br />
extend to five years".<br />
Procedure for Application through the Applications Supported by Blocked Amount (“ASBA”) Process<br />
SEBI, by its circular dated August 20, 2009, introduced in rights issue -application supported by blocked<br />
amount wherein the application money remains in the ASBA Account until allotment. Mode of payment<br />
through ASBA in Rights Issue became effective on August 20, 2009. Since this is a new mode of payment in<br />
Rights Issues, set forth below is the procedure for applying under the ASBA procedure, for the benefit of the<br />
shareholders.<br />
This section is only to facilitate better understanding of aspects of the procedure which is specific to<br />
ASBA investors. ASBA investors should nonetheless read this document in entirety.<br />
<strong>The</strong> <strong>Bank</strong> and the Lead Manager are not liable for any amendments or modifications or changes in applicable<br />
laws or regulations, which may occur after the date of this Letter of Offer. Equity shareholders who are eligible<br />
to apply under the ASBA process are advised to make their independent investigations and ensure that the<br />
number of Equity Shares applied for by such equity shareholders do not exceed the applicable limits under laws<br />
or regulations.<br />
ASBA Process<br />
An ASBA Investor can submit his application through CAF/plain paper, either in physical or electronic mode, to<br />
the SCSB with whom the bank account of the ASBA Investor or bank account utilised by the ASBA Investor is<br />
119
maintained. <strong>The</strong> SCSB shall block an amount equal to the application amount in the ASBA Account specified in<br />
the CAF, physical or electronic, on the basis of an authorisation to this effect given by the account holder at the<br />
time of submitting the CAF. <strong>The</strong> application data shall thereafter be uploaded by the SCSB in the web enabled<br />
interface of the Stock Exchanges as prescribed under circular issued by SEBI -<br />
SEBI/CFD/DIL/DIP/38/2009/08/20 dated August 20, 2009 or in such manner as may be decided in consultation<br />
with the Stock Exchanges. <strong>The</strong> amount payable on application shall remain blocked in the ASBA Account until<br />
finalisation of the Basis of Allotment and consequent transfer of the amount against the allocated Equity Shares<br />
to the separate account opened by the <strong>Bank</strong> for Rights Issue or until failure of the Issue or until rejection of the<br />
ASBA application, as the case may be. Once the basis of Allotment is finalized, the Registrar to the Issue shall<br />
send an appropriate request to the Controlling Branch for unblocking the relevant ASBA Accounts and for<br />
transferring the amount allocable to the successful ASBA Investors to the separate account opened by the <strong>Bank</strong><br />
for Rights Issue. In case of withdrawal/failure of the Issue, the blocked amount shall be unblocked on receipt of<br />
such information from the Registrar to the Issue<br />
<strong>The</strong> Lead Manager, our <strong>Bank</strong>, its directors, and officers and the Registrar to the Issue shall not take any<br />
responsibility for acts, mistakes, errors, omissions and commissions etc. in relation to applications<br />
accepted by SCSBs, Applications uploaded by SCSBs, applications accepted but not uploaded by SCSBs<br />
or applications accepted and uploaded without blocking funds in the ASBA Accounts. It shall be<br />
presumed that for applications uploaded by SCSBs, the amount payable on application has been blocked<br />
in the relevant ASBA Account.<br />
Equity Shareholders who are eligible to apply under the ASBA Process<br />
<strong>The</strong> option of applying for Equity Shares in the Issue through the ASBA Process is only available to a<br />
shareholder of our <strong>Bank</strong> on the Record Date and who:<br />
CAF<br />
• Is holding Equity Shares in dematerialised form and has applied for entitlements or additional Equity<br />
Shares in the Issue in dematerialised form;<br />
• Has not renounced his entitlements in full or in part;<br />
• Has not split the CAF;<br />
• Is not a Renouncee to the Issue;<br />
• Who applies through a bank account with one of the SCSBs.<br />
<strong>The</strong> Registrar will dispatch the CAF to all Equity Shareholders as per their entitlement on the Record Date for<br />
the Issue. Those Equity Shareholders who wish to apply through the ASBA payment mechanism will have to<br />
select for this mechanism in Part A of the CAF and provide necessary details. Equity Shareholders desiring to<br />
use the ASBA Process are required to submit their applications by selecting the ASBA Option in Part A of the<br />
CAF only. Application in electronic mode will only be available with such SCSB who provides such facility.<br />
<strong>The</strong> Equity Shareholder shall submit the CAF to the SCSB for authorizing such SCSB to block an amount<br />
equivalent to the amount payable on the application in the said bank account maintained with the same SCSB.<br />
Please note, no more than 5 applications (including CAF and plain paper) can be submitted per bank account in<br />
the Issue.<br />
Application on Plain Paper<br />
An Equity Shareholder who has neither received the original CAF nor is in a position to obtain a duplicate CAF<br />
and wanting to apply under ASBA process may make an application to subscribe for the Issue on plain paper.<br />
<strong>The</strong> application on plain paper, duly signed by the applicants including joint holders, in the same order as per<br />
specimen recorded with our <strong>Bank</strong>, must be submitted at a designated branch of a SCSB on or before the Issue<br />
Closing Date and should contain the following particulars;<br />
• Name of the issuer, being <strong>The</strong> <strong>Karnataka</strong> <strong>Bank</strong> <strong>Limited</strong>;<br />
• Name and address of the Equity Shareholder, including any joint holders;<br />
• DP ID number and client ID number;<br />
120
• Number of Equity Shares held as on the Record Date;<br />
• Rights Entitlement;<br />
• Number of Equity Shares applied for;<br />
• Number of additional Equity Shares applied for, if any;<br />
• Total number of Equity Shares applied for;<br />
• Savings/Current Account Number along with name and address of the SCSB and Branch from which<br />
the money will be blocked ;<br />
• <strong>The</strong> permanent account number (PAN) of the Equity Shareholder and where relevant, for each joint<br />
holder, except in respect of Central and State Government officials, residents of Sikkim and officials<br />
appointed by the court (e.g., official liquidators and court receivers) who, in terms of a SEBI circular<br />
dated June 30, 2008, may be exempt from specifying their PAN for transacting in the securities market,<br />
subject to submitting sufficient documentary evidence in support of their claim for exemption,<br />
provided that such transactions are undertaken on behalf of the Central and State Government and not<br />
in their personal capacity;<br />
• A representation that the Equity Shareholder is not a “U.S. Person” (as defined in Regulation S under<br />
the Securities Act);<br />
• Signature of the Equity Shareholders to appear in the same sequence and order as they appear in the<br />
records of our <strong>Bank</strong>;<br />
• In case of Non Resident Shareholders, NRE/FCNR/NRO A/c no., Name and address of the SCSB and<br />
Branch<br />
• In the application, the ASBA Investor shall, inter alia, give the following confirmations/declarations:<br />
a. That he/she is an ASBA Investor as per the SEBI ICDR Regulations; and<br />
b. That he/she has authorized the SCSBs to do all acts as are necessary to make an application in the<br />
Issue, upload his/her application data, block or unblock the funds in the ASBA Account and transfer<br />
the funds from the ASBA Account to the separate account maintained by our <strong>Bank</strong> for Rights Issue<br />
after finalization of the basis of Allotment entitling the ASBA Investor to receive Equity Shares in<br />
the Issue etc<br />
<strong>The</strong> Equity Shareholder shall submit the plain paper application to the SCSB for authorising such SCSB to<br />
block an amount equivalent to the amount payable on the application in the said bank account maintained with<br />
the same SCSB<br />
If an applicant makes an application in more than one mode i.e. both in the Composite Application Form and on<br />
plain paper, then both the applications may be liable for rejection.<br />
<strong>The</strong> list of banks that have been notified by SEBI to act as SCSB for the ASBA Process are provided on<br />
http://www.sebi.gov.in/pmd/scsb.html. For details on designated branches of SCSB collecting the CAF, please<br />
refer the above mentioned SEBI link.<br />
If the Investor violates any of these requirements, he/she shall face the risk of rejection of both the applications.<br />
Our <strong>Bank</strong> shall refund such application amount to the Investor without any interest thereon.<br />
Acceptance of the Issue<br />
You may accept the Issue and apply for the Equity Shares offered, either in full or in part, by filling Part A of<br />
the CAF sent by the Registrar, selecting the ASBA process option in Part A of the CAF and submit the same to<br />
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the SCSB before the close of the banking hours on or before the Issue Closing Date or such extended time as<br />
may be specified by the Board of Directors of our <strong>Bank</strong> in this regard.<br />
Mode of payment<br />
<strong>The</strong> shareholder applying under the ASBA Process agrees to block the entire amount payable on application<br />
(including for additional Equity Shares, if any) with the submission of the CAF, by authorizing the SCSB to<br />
block an amount, equivalent to the amount payable on application, in a bank account maintained with the SCSB.<br />
After verifying that sufficient funds are available in the bank account provided in the CAF, the SCSB shall<br />
block an amount equivalent to the amount payable on application mentioned in the CAF until it receives<br />
instructions from the Registrar. Upon receipt of intimation from the Registrar, the SCSBs shall transfer such<br />
amount as per Registrar’s instruction allocable to the Shareholders applying under the ASBA Process from bank<br />
account with the SCSB mentioned by the Shareholder in the CAF. This amount will be transferred in terms of<br />
the SEBI ICDR Regulations, into the separate bank account opened by our <strong>Bank</strong> for the Rights Issue. <strong>The</strong><br />
balance amount remaining after the finalisation of the basis of allotment shall be unblocked by the SCSBs on<br />
the basis of the instructions issued in this regard by the Registrar to the Issue and the Lead Manager to the<br />
respective SCSB.<br />
<strong>The</strong> shareholders applying under the ASBA Process would be required to block the entire amount payable on<br />
their application at the time of the submission of the CAF. <strong>The</strong> SCSB may reject the application at the time of<br />
acceptance of CAF if the bank account with the SCSB details of which have been provided by the Shareholder<br />
in the CAF does not have sufficient funds equivalent to the amount payable on application mentioned in the<br />
CAF. Subsequent to the acceptance of the application by the SCSB, our <strong>Bank</strong> would have a right to reject the<br />
application only on technical grounds.<br />
Options available to the shareholder applying under the ASBA Process<br />
<strong>The</strong> summary of options available to the Shareholders is presented below. You may exercise any of the<br />
following options with regard to the Equity Shares offered, using the CAF received from Registrar:<br />
Option Available<br />
1 Accept whole or part of your entitlement without<br />
renouncing the balance.<br />
2 Accept your entitlement in full and apply for<br />
additional Equity Shares<br />
Action Required<br />
Fill in and sign Part A of the CAF (All joint holders<br />
must sign)<br />
Fill in and sign Part A of the CAF including Block III<br />
relating to the acceptance of entitlement and Block IV<br />
relating to additional Equity Shares (All joint holders<br />
must sign)<br />
<strong>The</strong> shareholder applying under the ASBA Process will need to select the ASBA option process in the<br />
CAF and provide required necessary details. However, in cases where this option is not selected, but the<br />
CAF is tendered to the SCSB with the relevant details required under the ASBA process option and<br />
SCSB blocks the requisite amount, then that CAF would be treated as if the shareholder has selected to<br />
apply through the ASBA process option.<br />
Additional Equity Shares<br />
You are eligible to apply for additional Equity Shares over and above the number of Equity Shares (as the case<br />
may be) that you are entitled too, provided that you have applied for all the Shares (as the case may be) offered<br />
without renouncing them in whole or in part in favour of any other person(s). Applications for additional shares<br />
shall be considered and allotment shall be made at the sole discretion of the Board, in consultation with the<br />
Designated Stock Exchange and in the manner prescribed under paragraph titled “Basis of Allotment” on Page<br />
111 of this Letter of Offer.<br />
If you desire to apply for additional shares, please indicate your requirement in the place provided for additional<br />
Securities in Part A of the CAF.<br />
Renunciation under the ASBA Process<br />
Renouncees cannot participate in the ASBA Process.<br />
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Last date of Application<br />
<strong>The</strong> last date for submission of the duly filled in CAF is Tuesday, March 22, 2011. <strong>The</strong> Issue will be kept open<br />
for a minimum of 15 (fifteen) days and the Board or any committee thereof will have the right to extend the said<br />
date for such period as it may determine from time to time but not exceeding 30 (thirty) days from the Issue<br />
Opening Date. If the CAF together with the amount payable is not received by the <strong>Bank</strong>ers to the Issue/Registrar<br />
to the Issue or if the CAF is not received by the SCSB on or before the close of banking hours on the aforesaid<br />
last date or such date as may be extended by the Board/Committee of Directors, the offer contained in this Letter<br />
of Offer shall be deemed to have been declined and the Board/Committee of Directors shall be at liberty to<br />
dispose of the Equity Shares hereby offered, as provided under paragraph titled “Basis of Allotment” on Page no<br />
111 of this Letter of Offer.<br />
Option to receive Equity Shares in Dematerialized Form<br />
SHAREHOLDERS UNDER THE ASBA PROCESS MAY PLEASE NOTE THAT THE EQUITY<br />
SHARES OF OUR BANK UNDER THE ASBA PROCESS CAN ONLY BE ALLOTTED IN<br />
DEMATERIALIZED FORM AND TO THE SAME DEPOSITORY ACCOUNT IN WHICH THE<br />
EQUITY SHARES ARE BEING HELD ON RECORD DATE.<br />
Issuance of Intimation Letters<br />
Upon approval of the basis of Allotment by the Designated Stock Exchange, the Registrar to the Issue shall send<br />
the Controlling Branches, a list of the ASBA Investors who have been allocated Equity Shares in the Issue,<br />
along with:<br />
• <strong>The</strong> number of Equity Shares to be allotted against each successful ASBA;<br />
• <strong>The</strong> amount to be transferred from the ASBA Account to the separate account opened by our <strong>Bank</strong> for<br />
Rights Issue, for each successful ASBA; and<br />
• <strong>The</strong> details of rejected ASBAs, if any, along with reasons for rejection to enable SCSBs to unblock the<br />
respective ASBA Accounts.<br />
General instructions for shareholders applying under the ASBA Process<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
Please read the instructions printed on the CAF carefully.<br />
Application should be made on the printed CAF/ plain paper only and should be completed in all<br />
respects. <strong>The</strong> CAF/ plain paper application found incomplete with regard to any of the particulars<br />
required to be given therein, and/or which are not completed in conformity with the terms of this Letter of<br />
Offer are liable to be rejected. <strong>The</strong> CAF/ plain paper application must be filled in English.<br />
<strong>The</strong> CAF/ plain paper application in the ASBA Process should be submitted at a Designated Branch of<br />
the SCSB and whose bank account details are provided in the CAF and not to the <strong>Bank</strong>ers to the<br />
Issue/Collecting <strong>Bank</strong>s (assuming that such Collecting <strong>Bank</strong> is not a SCSB), to our <strong>Bank</strong> or Registrar or<br />
Lead Manager to the Issue.<br />
All applicants, and in the case of application in joint names, each of the joint applicants, should mention<br />
his/her PAN number allotted under the Income-Tax Act, 1961, irrespective of the amount of the<br />
application. CAFs without PAN will be considered incomplete and are liable to be rejected.<br />
All payments will be made by blocking the amount in the bank account maintained with the SCSB. Cash<br />
payment is not acceptable. In case payment is affected in contravention of this, the application may be<br />
deemed invalid and the application money will be refunded and no interest will be paid thereon.<br />
Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule<br />
to the Constitution of India. Thumb impression and Signatures other than in English or Hindi must be<br />
attested by a Notary Public or a Special Executive Magistrate under his/her official seal. <strong>The</strong> shareholders<br />
must sign the CAF as per the specimen signature recorded with our <strong>Bank</strong>/or Depositories.<br />
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(g)<br />
(h)<br />
(i)<br />
In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as<br />
per the specimen signature(s) recorded with our <strong>Bank</strong>. In case of joint applicants, reference, if any, will<br />
be made in the first applicant’s name and all communication will be addressed to the first applicant.<br />
All communication in connection with application for the Rights Equity Shares, including any change in<br />
address of the shareholders should be addressed to the Registrar to the Issue prior to the date of allotment<br />
in this Issue quoting the name of the first/sole applicant Shareholder, folio numbers and CAF number.<br />
Only the person or persons to whom the Rights Equity Shares have been offered and not renouncee(s)<br />
shall be eligible to participate under the ASBA process.<br />
Do’s:<br />
Don’ts:<br />
a. Ensure that the ASBA Process option is selected in part A of the CAF and necessary details are filled<br />
in. In case of non- receipt of the CAF, the application can be made on plain paper indicating the<br />
application through ASBA payment mechanism with all necessary details as indicated in this section<br />
titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of Offer.<br />
b. Ensure that you submit your application in physical mode only. Electronic mode is only available with<br />
certain SCSBs and not all SCSBs and you should ensure that your SCSB offers such facility to you.<br />
c. Ensure that the details about your Depository Participant and beneficiary account are correct and the<br />
beneficiary account is activated as Equity Shares will be allotted in the dematerialized form only.<br />
d. Ensure that the CAFs are submitted at the SCSBs whose details of bank account have been provided in<br />
the CAF.<br />
e. Ensure that you have mentioned the correct bank account number in the CAF.<br />
f. Ensure that there are sufficient funds (equal to {number of Equity Shares applied for} X {Issue Price<br />
per Equity Share as the case may be}] available in the bank account maintained with the SCSB<br />
mentioned in the CAF before submitting the CAF to the respective Designated Branch of the SCSB.<br />
g. Ensure that you have authorised the SCSB for blocking funds equivalent to the total amount payable<br />
on application mentioned in the CAF, in the bank account maintained with the respective SCSB, of<br />
which details are provided in the CAF and have signed the same.<br />
h. Ensure that you receive an acknowledgement from the SCSB for your submission of the CAF in<br />
physical form.<br />
i. Each applicant should mention their Permanent Account Number (“PAN”) allotted under the I. T. Act.<br />
j. Ensure that the name(s) given in the CAF is exactly the same as the name(s) in which the beneficiary<br />
account is held with the Depository Participant. In case the CAF is submitted in joint names, ensure<br />
that the beneficiary account is also held in same joint names and such names are in the same sequence<br />
in which they appear in the CAF.<br />
k. Ensure that the Demographic Details are updated, true and correct, in all respects.<br />
1. Do not apply on duplicate CAF after you have submitted a CAF to a Designated Branch of the SCSB.<br />
2. Do not pay the amount payable on application in cash, by money order or by postal order.<br />
3. Do not send your physical CAFs to the Lead Manager to Issue / Registrar / Collecting <strong>Bank</strong>s (assuming<br />
that such Collecting <strong>Bank</strong> is not a SCSB) / to a branch of the SCSB which is not a Designated Branch<br />
of the SCSB / <strong>Bank</strong>; instead submit the same to a Designated Branch of the SCSB only.<br />
4. Do not submit the GIR number instead of the PAN as the application will get rejected on this ground.<br />
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5. Do not instruct their respective banks to release the funds blocked under the ASBA Process.<br />
6. Do not submit more than 5 applications (including CAF and plain paper applications) per bank account<br />
maintained with an SCSB for the Issue.<br />
Grounds for Technical Rejection for ASBA Process:<br />
In addition to the grounds listed under paragraph titled “Grounds for Technical Rejection” mentioned on Page<br />
no 118 of this Letter of Offer, applications under ASBA Process can be rejected on following additional<br />
grounds:<br />
a. Application on split form.<br />
b. Application for entitlements or additional shares in physical form.<br />
c. DP ID and Client ID mentioned in CAF not matching with the DP ID and Client ID records available<br />
with the Registrar.<br />
d. Sending CAF to a Lead Manager / Registrar / Collecting <strong>Bank</strong> (assuming that such Collecting <strong>Bank</strong> is<br />
not a SCSB) / to a branch of a SCSB which is not a Designated Branch of the SCSB / <strong>Bank</strong>.<br />
e. Renouncee applying under the ASBA Process.<br />
f. Insufficient funds are available with the SCSB for blocking the amount.<br />
g. Funds in the bank account with the SCSB whose details are mentioned in the CAF having been frozen<br />
pursuant to regulatory orders.<br />
h. Application for RTS entitlements or additional shares in physical form.<br />
i. Account holder not signing the CAF or declaration mentioned therein.<br />
j. Application by shareholder holding Equity Shares in physical form<br />
COMMUNICATIONS<br />
All future communication in connection with ASBA applications made in this Issue should be addressed<br />
to the Registrar to the Issue quoting the full name of the sole or first ASBA Investor, CAF number,<br />
details of Depository Participant, number of Equity Shares applied for, date of CAF, name and address of<br />
the Designated Branch where the application was submitted and bank account number of the ASBA<br />
Account, with a copy to the relevant SCSB. <strong>The</strong> Registrar to the Issue shall obtain the required<br />
information from the SCSBs for addressing any clarifications or grievances. <strong>The</strong> SCSB shall be<br />
responsible for any damage or liability resulting from any errors, fraud or willful negligence on the part<br />
of any employee of the concerned SCSB, including its Designated Branches and the branches where the<br />
ASBA Accounts are held.<br />
ASBA Investors can contact the Compliance Officer, the Designated Branch where the application was<br />
submitted, or the Registrar to the Issue in case of any pre or post-Issue related problems such as<br />
nonreceipt of credit of Allotted Equity Shares in the respective beneficiary accounts, blocking of excess<br />
Amount, etc.<br />
Depository account and bank details for shareholders applying under the ASBA Process<br />
IT IS MANDATORY FOR ALL THE SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS<br />
TO RECEIVE THEIR EQUITY SHARES IN DEMATERIALISED FORM. ALL SHAREHOLDERS<br />
APPLYING UNDER THE ASBA PROCESS SHOULD MENTION THEIR DEPOSITORY<br />
PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND<br />
BENEFICIARY ACCOUNT NUMBER IN THE CAF. SHAREHOLDERS APPLYING UNDER THE<br />
ASBA PROCESS MUST ENSURE THAT THE NAME GIVEN IN THE CAF IS EXACTLY THE SAME<br />
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AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. IN CASE THE CAF IS<br />
SUBMITTED IN JOINT NAMES, IT SHOULD BE ENSURED THAT THE DEPOSITORY ACCOUNT<br />
IS ALSO HELD IN THE SAME JOINT NAMES AND ARE IN THE SAME SEQUENCE IN WHICH<br />
THEY APPEAR IN THE CAF.<br />
Shareholders applying under the ASBA Process should note that on the basis of name as provided by<br />
them, Depository Participant’s name and identification number and beneficiary account number<br />
provided by them in the CAF, the Registrar to the Issue will obtain from the Depository their<br />
demographic details such as address, bank account details for printing on refund orders / advice and<br />
occupation (“Demographic Details”). Hence, shareholders applying under the ASBA Process should<br />
carefully fill in their Depository Account details in the CAF.<br />
<strong>The</strong>se Demographic Details would be used for all correspondence with such shareholders including mailing of<br />
the letters intimating unblock of bank account of the respective Shareholder. <strong>The</strong> Demographic Details given by<br />
shareholders in the CAF would not be used for any other purposes by the Registrar. Hence, shareholders are<br />
advised to update their Demographic Details as provided to their Depository Participants. By signing the CAFs,<br />
the shareholders applying under the ASBA Process would be deemed to have authorised the Depositories to<br />
provide, upon request, to the Registrar to the Issue, the required Demographic Details as available on its records.<br />
Letters intimating allotment and unblocking or refund (if any) would be mailed at the address of the<br />
shareholder applying under the ASBA Process as per the Demographic Details received from the<br />
Depositories. Refunds, if any, will be made directly to the bank account in the SCSB and which details are<br />
provided in the CAF and not the bank account linked to the DP ID. Shareholders applying under the<br />
ASBA Process may note that delivery of letters intimating unblocking of bank account may get delayed if<br />
the same once sent to the address obtained from the Depositories are returned undelivered. In such an<br />
event, the address and other details given by the shareholder in the CAF would be used only to ensure<br />
dispatch of letters intimating unblocking of bank account.<br />
Note that any such delay shall be at the sole risk of the shareholders applying under the ASBA Process<br />
and none of the <strong>Bank</strong>, the SCSBs or the Lead Manager shall be liable to compensate the Shareholder<br />
applying under the ASBA Process for any losses caused to such Shareholder due to any such delay or<br />
liable to pay any interest for such delay.<br />
In case no corresponding record is available with the Depositories that matches three parameters, namely, names<br />
of the shareholders (including the order of names of joint holders), the DP ID and the beneficiary account<br />
number, then such applications are liable to be rejected.<br />
Disposal of application and application money<br />
No acknowledgment will be issued for the application moneys received by our <strong>Bank</strong>. However, the <strong>Bank</strong>ers to<br />
the Issue / Registrar to the Issue receiving the CAF will acknowledge its receipt by stamping and returning the<br />
acknowledgment slip at the bottom of each CAF.<br />
In case an application is rejected in full, the whole of the application money received will be refunded.<br />
Wherever an application is rejected in part, the balance of application money, if any, after adjusting any money<br />
due on Equity Shares allotted, will be refunded to the applicant within fifteen days from the close of the Issue.<br />
<strong>The</strong> dispatch of share certificates/ refund orders and demat credit will be completed and the allotment and listing<br />
documents will be submitted to the stock exchanges within fifteen days from the close of Issue.<br />
For further instruction, please read the paragraph titled “Options available to the Equity Shareholders”<br />
beginning on Page no 103 of this Letter of Offer carefully.<br />
Restriction on Share Capital and Voting Rights<br />
<strong>Bank</strong>s can issue only ordinary shares. <strong>The</strong> <strong>Bank</strong>ing Regulation Act specifies that no shareholder in a banking<br />
company can exercise voting rights on poll in excess of 10% of total voting rights of all the shareholders of the<br />
banking company.<br />
Any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or more of the<br />
paid up capital of the bank would require acknowledgement of RBI in terms of the criteria laid down in the RBI<br />
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guidelines contained in the Circular DBOD. NO.PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004.<br />
Further, in terms of the guidelines on ownership and governance issued on February 28, 2005 any acquisition<br />
that will take the shareholding of any entity/ group, directly or indirectly, to 10% or more of the paid-up capital<br />
of the bank will require the prior approval of RBI<br />
Restriction on foreign ownership of <strong>Bank</strong>s<br />
<strong>The</strong> Government of India regulates foreign ownership in private sector banks. Under guidelines issued by the<br />
Government, total foreign ownership in a private sector <strong>Bank</strong> from all sources (FDI, FII, NRI) cannot exceed 74<br />
percent of the paid-up capital. <strong>The</strong> limit of 74 per cent will be reckoned by taking the direct and indirect<br />
holding. In other words, at all times, at least 26 per cent of the paid up capital of the private sector bank will<br />
have to be held by residents. Presently, the FII shareholding limit of our <strong>Bank</strong> is 49% of our paid up capital as<br />
approved by the shareholders at its meeting held on July 7, 2006.<br />
RELEVANT RBI PROVISIONS<br />
Rights issues by private sector banks – Acknowledgement of transfer / allotment of shares<br />
1) In terms of RBI Circular DBOD.No.PSBS.BC.79/16.13.100 /2001-2002 dated March 20, 2002, listed as<br />
well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue.<br />
2) While reviewing the following issues have emerged with reference to percentage of holding at the time of<br />
rights issue:-<br />
a) When some shareholders (individuals/ entities / groups) pick up unsubscribed shares which would<br />
result in his / its holding going up as a percentage of total paid up capital of the bank.<br />
b) When Some shareholders not picking up their entitlements, holdings of the other shareholders would<br />
go up in percentage even if they pick up their own entitlements.<br />
<strong>The</strong> above matter has been examined from the point of view of applicability of RBI Circular DBOD. NO.PSBS.<br />
BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004 on acknowledgement of transfer/ allotment of shares in<br />
private sector banks and DBOD. NO. BP.BC.71/ 21.01.01/ 2004-05 dated February 28, 2005 on ownership and<br />
governance and also the regulatory limits such as the cap for the aggregate FDI/FII/NRI holdings and the 5%<br />
limit for a bank’s investment in equity of another bank.<br />
<strong>The</strong> RBI has advised banks going for rights issue to make complete disclosure of the regulatory requirements in<br />
the offer documents, including the following that:<br />
i. Subscription to rights other than own entitlement will not be permitted if such subscription would<br />
result in breach of any statutory / regulatory ceilings<br />
ii.<br />
iii.<br />
Any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or<br />
more of the paid up capital of the bank would require acknowledgement of RBI in terms of the<br />
criteria laid down in the RBI guidelines contained in the Circular DBOD. NO.PSBS. BC. 64/<br />
16.13.100/ 2003-04 dated February 3, 2004. Further, in terms of the guidelines on ownership and<br />
governance issued on February 28, 2005 any acquisition that will take the shareholding of any<br />
entity/ group, directly or indirectly, to 10% or more of the paid-up capital of the bank will require<br />
the prior approval of RBI<br />
If the holding of any shareholder breaches any statutory / regulatory ceilings as a result of nonsubscription<br />
of rights by other shareholders, the shareholder concerned will not be able to acquire<br />
any further shares till his/ its shareholding is brought within the stipulated ceilings.<br />
In case the permission to deal in and for an official quotation of the Equity Shares is not granted by the Stock<br />
Exchanges, our <strong>Bank</strong> shall forthwith repay without interest, all monies received from the applicants in<br />
pursuance of this Letter of Offer and if such money is not repaid within eight days after the day from which our<br />
<strong>Bank</strong> is liable to repay it, i.e. fifteen days after closure of the Issue, we shall pay interest at the rate of 15% p.a.<br />
as prescribed under Section 73 (2) / 73 (2A) of the Companies Act, 1956.<br />
<strong>The</strong> above is subject to the terms mentioned under the section titled “Basis of Allotment” on page 111 of this<br />
Letter of Offer.<br />
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General Instructions<br />
Issue Period<br />
Issue Opens on Tuesday, March 8, 2011<br />
Last date for receiving request for Split<br />
Monday, March 14, 2011<br />
Application Forms<br />
Issue Closes on<br />
Tuesday, March 22, 2011<br />
8. <strong>The</strong> Board may however decide to extend the Issue period as it may determine from time to time but not<br />
exceeding 30 days including the Issue Opening Date.<br />
9. Allotment Schedule<br />
1. Our <strong>Bank</strong> agrees that as far as possible allotment of the Rights Equity Shares offered to the<br />
shareholders shall be made within 15 days from the date of the closure of the Issue.<br />
2. Our <strong>Bank</strong> further agrees that it shall pay interest @ 15% per annum for the delayed period if the<br />
allotment has not been made and/or allotment letters / the refund orders have not been dispatched to the<br />
applicants/ refund instruction beyond 8 days from the date specified above.<br />
10. General<br />
Applications should be made only on the prescribed CAFs provided by our <strong>Bank</strong> and should be complete in all<br />
respects. Applications which are not complete or which are not accompanied with remittance of the proper<br />
amount calculated as aforesaid are liable to be rejected and the money paid in respect thereof will be refunded<br />
without interest.<br />
<strong>The</strong> CAF must be filled in English in BLOCK LETTERS.<br />
In case of joint holders, all joint holders must sign the CAF at the appropriate places in the same order as per<br />
specimen signatures recorded in the Register of Members of our <strong>Bank</strong> / Depository.<br />
In case of renouncee(s), the name of the applicant(s), details of occupation, address and father’s/husband’s name<br />
must be filled in Block Letters.<br />
<strong>The</strong> CAF must be submitted to the Collection Centres as mentioned in the CAF/ Registrar to the Issue, as the<br />
case may be, in its entirety. If any of the parts A, B, C, D and the acknowledgement of the CAF is/are detached<br />
or separated; such applications will be rejected forthwith.<br />
Any dispute or suit or action or proceeding arising out of or in relation to this Letter of Offer or this Issue or in<br />
respect of any matter or thing contained therein and any claim by either party against the other shall be instituted<br />
or adjudicated upon or decided solely by the appropriate Court in Mangalore .<br />
All communications in connection with your application for the Equity Shares should be addressed to the<br />
Registrars to the Issue.<br />
Shareholder’s Depository Account and <strong>Bank</strong> details<br />
Shareholder’s applying for shares in demat mode should note that on the basis of the name of the shareholder(s),<br />
Depository Participant’s Name, Depository Participant’s Identification Number and Beneficiary Account<br />
Number provided by them in the CAF, the Registrars to the Issue will obtain from the Depository the<br />
demographic details including the address, Shareholders bank account details, MICR code and occupation<br />
(hereinafter referred to as ‘Demographic Details’). <strong>The</strong>se bank account details would be used for giving refunds<br />
to the shareholder(s). Hence, the shareholder(s) are requested to immediately update their bank account details<br />
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as appearing in the records of the Depository Participant. Please note that failure to do so could result in delays<br />
in dispatch / credit of refunds to the shareholder(s) at the shareholder(s) sole risk and neither the Lead<br />
Manager’s or the Registrars or the Refund <strong>Bank</strong>er nor our <strong>Bank</strong> shall have any responsibility and undertake any<br />
liability for the same. Hence, applicants should carefully fill their Depository Account details in the Composite<br />
Application Form.<br />
<strong>The</strong>se demographic details would be used for all correspondences with the shareholder(s) including mailing of<br />
Allotment advice and printing of bank particulars on the refund order or for refunds through electronic transfer<br />
of funds, as applicable. By signing the Composite Application Form the shareholder(s) would be deemed to<br />
have authorized the depositories to provide, upon request, to the Registrar to the Issue, the required<br />
Demographic Details as available in its records.<br />
In case of shareholder(s) receiving refunds through electronic transfer of funds, delivery of refund<br />
orders/allocation advice gets delayed if the same once sent to the address obtained from the depositories are<br />
returned undelivered.<br />
INVESTORS MAY PLEASE NOTE THAT THE EQUITY SHARES OF OUR BANK CAN BE<br />
TRADED ON THE STOCK EXCHANGE ONLY IN DEMATERIALIZED FORM.<br />
Important<br />
1. Please read this Letter of Offer carefully before taking any action. <strong>The</strong> instructions contained in the<br />
Composite Application Form (CAF) are an integral part of the conditions of this Letter of Offer and the<br />
Abridged Letter of Offer and must be carefully followed otherwise the application is liable to be<br />
rejected.<br />
All enquiries in connection with the Letter of Offer or accompanying CAF and requests for Split Application<br />
Forms must be addressed (quoting the Registered Folio Number/ DP and Client ID number, the CAF number<br />
and the name of the first Equity Shareholder as mentioned on the CAF and superscribed THE KARNATAKA<br />
BANK LIMITED -Rights Issue on the envelope) to the Registrar to the Issue at the following address:<br />
Integrated Enterprises India <strong>Limited</strong><br />
No 30 Ramana Residency 4th Cross,<br />
Sampige Road, Malleswaram,<br />
Bangalore 560 003<br />
Telephone: + 91 80 23460815-818<br />
Facsimile: + 91 80 23460819<br />
E-mail: alfint@vsnl.com<br />
Investor Grievance E-mail: ktkbankrights@vsnl.net<br />
Website:www.iepindia.com<br />
Contact Person: Mr. S. Vijayagopal<br />
SEBI Registration No: INR 000000544<br />
2. It is to be specifically noted that this Issue of Equity Shares is subject to the section entitled “Risk<br />
Factors” beginning on Page no 8 of this Letter of Offer<br />
3. Our <strong>Bank</strong> will not be liable for any postal delays and applications received through mail after the<br />
closure of the Issue, are liable to be rejected and returned to the applicants.<br />
<strong>The</strong> Issue will not be kept open for more than 15 days unless extended, in which case it will be kept open for a<br />
maximum of 30 days.<br />
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MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION<br />
<strong>The</strong> contracts referred to below (not being contracts entered into in the ordinary course of business carried on by<br />
our <strong>Bank</strong> or entered into more than two years prior to the date of the Draft Letter of Offer) which are or may be<br />
deemed material have been entered into by our <strong>Bank</strong> or are to be entered into by our <strong>Bank</strong>. Copies of these<br />
contracts, together with the copies of the documents referred to below, may be inspected at the Registered and<br />
Head Office of our <strong>Bank</strong> between 10.00 A.M. and 3.00 P.M. on any working day of our <strong>Bank</strong> from the date of<br />
the Draft Letter of Offer until the date of closing of the subscription list.<br />
A) Material contracts<br />
1. Engagement Letter dated September 20, 2010 between our <strong>Bank</strong> and <strong>Edelweiss</strong> Capital <strong>Limited</strong> appointing<br />
them as the Lead Manager to the Issue.<br />
2. Issue Agreement between our <strong>Bank</strong> and <strong>Edelweiss</strong> Capital <strong>Limited</strong> dated October 15, 2010.<br />
3. Agreement between our <strong>Bank</strong> and Integrated Enterprises India <strong>Limited</strong> dated October 15, 2010 to act as<br />
Registrar to the Issue.<br />
4. Escrow letter dated January 28, 2011 from the <strong>Bank</strong>ers to the Issue to <strong>Edelweiss</strong> Capital <strong>Limited</strong>.<br />
B) Documents<br />
1. Our Memorandum and Articles of Association as amended from time to time.<br />
2. Board resolution in relation to the Issue passed on July 30, 2010.<br />
3. Shareholders Resolution in relation to the Issue passed on September 9, 2010.<br />
4. Letter of Offer of the Rights Issue (being the last rights issue) dated January 07, 2005.<br />
5. RBI letter no. DBOD No. 20953/08.40.001/2008-09 dated June 8, 2009 granting approval for appointment<br />
of Mr P Jayarama Bhat as Managing Director of our <strong>Bank</strong>.<br />
6. RBI letter No. DBOD.No. 20957/08.40.001/2008-09 dated June 8, 2009 granting approval for the<br />
appointment of Mr. Ananthakrishna as Part-time Non-Executive Chairman of our <strong>Bank</strong>.<br />
7. Consents of Lead Manager, Registrar to the Issue, Legal Advisor to the Issue, Auditors, Directors of our<br />
<strong>Bank</strong>, Compliance Officer, as referred to, in their respective capacities.<br />
8. Annual reports of our <strong>Bank</strong> for last five years.<br />
9. <strong>Limited</strong> Review of the Auditors dated January 24, 2011 for the unaudited financial results for the nine<br />
months and quarter ended December 31, 2010<br />
10. Report of the Auditors dated October 15, 2010 in relation to the Financial Statements of our <strong>Bank</strong> for the<br />
year ended March 31, 2010.<br />
11. Report of the Auditors dated October 15, 2010 in relation to the <strong>Limited</strong> Review of Financial Statements<br />
of our <strong>Bank</strong> for the half year ended September 30, 2010.<br />
12. Statement of Tax Benefits dated January 24, 2011.<br />
13. Initial listing applications for this Rights Issue dated October 19, 2010 filed with the BSE and the NSE<br />
respectively.<br />
14. In-principle listing approval dated November 10, 2010 and November 11, 2010 received from the BSE and<br />
the NSE respectively.<br />
15. Tripartite Agreement between NSDL, our <strong>Bank</strong> and the Registrar and the Alpha Systems Private <strong>Limited</strong>*<br />
for the <strong>Bank</strong> dated October 16, 2000.<br />
16. Tripartite Agreement between CDSL, our <strong>Bank</strong> and the Alpha Systems Private <strong>Limited</strong>* for the <strong>Bank</strong><br />
dated October 14, 2000.<br />
17. Due diligence certificate dated October 15, 2010 to SEBI from the Lead Manager.<br />
18. SEBI Observation Letter bearing no. CFD/DIL/SM/1689/2011 dated January 14, 2011.<br />
*Pursuant to the scheme of merger Alpha Systems Private <strong>Limited</strong> has merged with Integrated Enterprises India<br />
<strong>Limited</strong>.<br />
Any of the contracts or documents mentioned in this Letter of Offer may be amended or modified at any time if<br />
so required in the interest of our <strong>Bank</strong> or if required by the other parties, without reference to the shareholders<br />
subject to compliance of the applicable laws.<br />
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