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Sunday, August 31, 2008

Market may edge higher

The market may extend Friday’s (29 August 2008) strong gains triggered by softening inflation. Inflation has been a major cause of worry for the domestic markets since the past few months. Market will also take cues from another meeting of Nuclear Suppliers group in Vienna that begins on 4 September 2008.

Inflation based on the wholesale price index rose 12.40% in 12 months to 16 August 2008, below the previous week's annual rise of 12.63% due to lower prices of some minerals and fuels, government data released on Thursday, 28 August 2008, showed. Nevertheless, the inflation remains far above the central bank's target of 7%.

On 29 July 2008, the Reserve Bank of India (RBI), at its quarterly policy review, raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9%.

The gross domestic product (GDP) grew 7.9% in the June 2008 quarter from a year earlier, easing from the previous quarter's 8.8% rise as industrial activity slowed due to monetary tightening. The GDP growth in the first quarter of the current fiscal year was lower than market expectations of a rise of a little above 8%.

Market will closely watch developments on the Indo-US nuclear deal. As per reports, Japan plans to support a civil nuclear accord between the US and India. Japan will back the deal, at a two-day session of the Nuclear Suppliers group (NSG) in Vienna that begins on 4 September 2008. US plans to sell nuclear power plant technologies and fuel to India under a bilateral nuclear cooperation agreement. All 45 members of the Nuclear Suppliers Group including Japan must approve the nuclear accord, which the US Congress must also pass for the deal to come through.

A further rise in crude oil prices may act as a spoilsport for the stock markets. Crude oil for October 2008 delivery rose $1.41, or 1.2 %, to $117 a barrel on the New York Mercantile Exchange on Friday 29 August 2008. Crude oil headed for its biggest weekly gain in almost two months and natural gas rose as producers evacuated rigs ahead of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina.

India’s southwest monsoon, crucial for the agriculture sector, was around 1% below the long period average (LPA) during the period from 1 June 2008 to 24 August 2008 and was deficient in six of the 36 meteorological subdivisions.

Foreign institutional investors (FIIs) sold shares worth Rs 1,211.70 crore in August 2008 (till 28 August 2008). FIIs sold shares worth Rs 28,513.60 crore in the calendar year 2008. Mutual funds sold shares worth Rs 700.40 crore in August 2008 (till 27 August 2008).

IndiaBulls Real Estate

The current macro scenario does not augur too well for the real-estate sector with issues such as funding challenges, tapering demand and slowing launches clouding prospects. The sharp de-rating of stocks in the sector in the past one year clearly reflects the market’s pessimism.

Yet, the decline in realty stock prices offers an opportunity to invest in select stocks. Indiabulls Real Estate (IBREL) is one such company.

With projects that are likely to yield revenues in the near future, a bank of prime mill land in Mumbai, a cash-rich balance-sheet and diversification measures that have resulted in the company bagging power projects, IBREL’s per share earnings could well double over the next two years.

At the current price of Rs. 288 the stock trades at ten times its estimated consolidated per share earnings for FY-10. The stock has fallen 60 per cent from the time of our ‘Book Profit’ call in October 2007.

The stock is, however, suitable only for investors with an above-average risk appetite. A complicated holding structure for projects and subsidiaries and aggressive growth plans add to the company’s risk profile.
Rapid growth

IBREL concluded its first full financial year (after the demerger from Indiabulls Financial Services) in 2007-08 and quickly ramped up its sales to Rs 141 crore. Huge cash raised from warrant issues to promoters was parked in interest-earning instruments, taking the ‘other income’ component to a whopping Rs 624 crore, bolstering total income.

While this cannot be viewed as a sustainable income, the deployment of this cash can be expected to ramp up revenues through additional business. One near-term revenue trigger for Indiabulls is likely to arise from lease rentals from the mill projects — Jupiter and Elphinstone — likely to be completed before FY-09.

These projects, listed as real-estate investment trusts in Singapore, would ensure a steady stream of revenues (in the form of dividends) from the rentals.

Equipped with about 3.5 million sq ft of office space at a prime location, a substantial part of the Jupiter Mill complexes have already been leased out. Interestingly, the lease rentals recently signed at the Jupiter Mills complex (at Rs 325 per sq ft) is also substantially higher than the Rs 275 per sq ft given to anchor tenants in the previous year.

The rising rentals suggest that the projects, primarily offering commercial space, could well be an exception to the weakening rates seen in some regions.
Powered assets

The other high potential business for IBREL over the medium term may be its foray into power generation.

Of the Rs 2,190 crore of equity capital of this fully-owned subsidiary, over 70 per cent has come through private funding channels such as Farallon Capital and the LN Mittal group.

That this company has managed to bag power generation projects from State electricity boards through competitive bidding, lends confidence. While 5,447 MW of coal-based projects are under development as per schedule, it has recently bagged a 1,320 MW thermal project. The company’s execution track record in other nascent businesses is a point in its favour.

Another promising revenue stream could arise from its 3,000-acre SEZ at Nashik, an industrial belt between Delhi-Mumbai.
More cautious moves

In the residential segment, the company appears to favour cautious moves on launches; it resorted to just a single pre-sale of premium apartments in New Delhi in recent times.

The premium market, with less sensitivity to interest rates, appears a better target customer at this point in time.

Most of the malls planned by IBREL in major cities are expected to be leased out by late 2009.

While the company is in talks with international single-product retailers for the same, Indiabulls hypermarket and department stores are expected to be the anchor tenants in these malls.

We view this as a backward integration measure that may not, however, help profitability in the short term. We also do not view the retail segment to be a key earnings driver at this point. Increasing supply of mall space may well lead to weakening lease rates over the next couple of years.

IBREL’s main advantage could be its possession of mall space in key space-constrained areas in Mumbai, apart from less penetrated markets.

Cash and investments, amounting to over Rs 5,700 crore on IBREL’s books, are a source of comfort at a time when most realty developers are witnessing a funds crunch and are able to raise funding only at prohibitive rates. That most of the land that is being developed is fully paid for, is a comfort factor. However, the latest annual accounts suggest that a good part of the surplus was parked in inter-corporate deposits with promoter-group companies.

While this amount appears to earn reasonable interest and can be called back at a week’s notice, such a move cannot be viewed as a good practice, from a governance perspective. While low land costs have ensured that the company enjoys strong operating profit margins, rising commodity costs may yet pose a threat.

Infosys Technologies

With bulging cash coffers and inorganic growth aspirations, Infosys Technologies has for long been scouting for suitable acquisitions. It seems to have finally found an ideal candidate in the Axon Group.

Axon has been a consulting and solutions implementation partner of SAP for the past 14 years. Implementation of SAP, Microsoft or Oracle software packages, is usually an enterprise-wide exercise for most clients. These services also command higher billing rates compared to application development and maintenance services. Axon’s strength in consulting and solutions implementation is evident from the fact that the company derives 19 and 69 per cent revenues respectively from these two services.

Strengthening its package implementation (enterprise solutions) and consulting services practice, penetration into a client segment where Infosys does not have a big presence (for instance, government clients) and expanding its EMEA (Europe and Middle-East Area) footprint may be key payoffs for Infosys from this proposed acquisition. The acquisition may also add to Infosys’ strengths in providing enterprise solutions to the BFSI and manufacturing segments. It may, however, be a few years before Axon may add significantly to Infosys’ EPS.
Reasonable valuation?

At £407 million (Rs 3,258 crore), the buyout consideration is approximately twice Axon’s 2007 revenues. Its current market capitalisation is £391.6 million (Rs 3,135 crore). The company has grown its revenues at a compounded annual rate of 53 per cent over the past three years. The valuation may, therefore, not be too expensive. With nearly $2 billion (over Rs 8000 crore)cash in its kitty, funding this acquisition may not be a problem for Infosys.
Lower margin profile

This could have set the tone for the creation of a high-margin business for Infosys. But the (net profit) margin profiles for the two companies are quite different; Axon’s 10 per cent being much lower than Infosys’ 27 per cent levels due to the former’s different cost structure and higher tax rates. A wage cost structure that is 48 per cent of revenues and a tax incidence of 31.5 per cent means that Axon has much lower margins compared to Indian players. Only 350 of its 2,000-odd employees are working offshore (low-cost destinations), that too on application management services. Infosys derived $993 or 24 per cent of its 2007-08 revenues from consulting and package implementation services. Within this, 33 per cent was from SAP package implementation and related services.
Newer verticals

Over the next few years, Infosys could look at creating a larger offshore component and leverage its global delivery model in the enterprise solutions services line to include Axon’s clients, thus optimising costs. Axon’s clients comprise those in segments such as government and oil and gas, areas where Infosys is yet to make significant headway. These offerings may turn out to be complementary. The other benefits that Axon bring are strong business process consulting expertise — an area that is not yet a key strength of Indian players — and a substantial presence in the Europe and the fast growing West Asian region (61 per cent of revenues for Axon).

With enterprises in the Americas and Europe looking to expand in the Asia-Pacific region and West Asia, replication of business processes becomes critical. That could well provide considerable business opportunities for Infosys, with added enterprise solutions expertise to tap. Other opportunities for Infosys include the possibility of up-selling and cross-selling services to Axon’s clients.

In its own business, Infosys has embarked on a series of initiatives for achieving non-linear growth.
Growth initiatives

Its latest version of Finacle tries to offer the entire gamut of banking services and includes features such as Islamic Banking and Wealth Management.

With the investment phase nearly over for this product, this may pave the way for multiple revenue streams in the form of licensing, implementation (with minimum customisation) and maintenance revenues.

Finacle also has substantial domestic presence. Delivering services through a different platform such as Software as a Service (SaaS) is also an initiative.

Together, these initiatives might see a growth in revenues without a proportional growth in manpower recruited, thus enabling margin expansion over a two-three year period.

The acquisition is not a done deal yet. Axon may have counter offers from other suitors that may better Infosys’ offer, hurting the acquisition or escalating the price.

A prolonged slowdown in the US and Europe would mean lowering or postponing spends on enterprise solutions implementation.

The sunset clause on STPI in 2010, may increase tax incidence for Infosys.

However, apart from changing its service mix in favour of high-margin services and initiatives on achieving non-headcount-linked growth, Infosys has headroom to steer key operating metrics and manage margins.

This makes Infosys one of the best placed Tier-1 IT services player in countering the current challenging macro environment and achieving growth. In this light, investors with a two-year horizon can consider buying the stock.

At Rs 1,740, the stock trades at 17 times its likely 2008-09 earnings.

YES Bank - Annual Report - 2007-2008




To The Members,

Your Directors have pleasure in presenting the Fourth Annual Report of your Bank together with the audited Balance Sheet, Profit Loss Account and the report on business and operations of the Bank for the year ended March 31st, 2008.

Financial Performance (Rs. m million)Particulars April, 2007 to April, 2006 to March 31, 2008 March 31, 2008

Deposits 132,732 82,204

Borrowings 9,862 8,673

Advances 94,303 62,897

Total Assets/Liabilities 169,824 1,034

Net Interest Income 3,367 1,713

Non Interest Income 3,545 1,946

Operating Profit 3,500 1,724

Provisions and Contingencies 436 287

Profit before Tax 3,064 1,437

Provision for Taxes 1,064 493

Net Profit 2,000 944

Add: Surplus/(Deficit) brought forward from last period 1,053 377

Amount available for appropriation 3,053 1,321


Statutory Reserve under Section 17 of the Banking 500 236Regulation Act, 1949

Capital Reserve 102 32

Surplus carried to Balance Sheet 2,451 1,053

Key Performance Indicators:

Net Interest Margin 2.74% 2.79%

Return on Annual Average Assets 1.42% 1.24%

Return on Equity 19.00% 13.88%

Cost to Income Ratio 49.36% 52.88%

Non Interest Income to Net Revenues 51.29% 53.17%

Your Bank posted net revenues (net interest income and other income) of Rs.6,912 million and net profit of Rs. 2,000 million for the Financial Year 2007-08. Net revenues and net profit for the Financial Year 2006-07 was Rs.3,659 million and Rs. 944 million respectively. Appropriations from the net profit have been effected as per the table on the earlier page.

Please refer to the section FINANCIAL AND OPERATING PERFORMANCE in the Management Discussion and Analysis for detailed analysis of financial data.


Your Bank is in the initial stages of growth and needs to retain capital to meet the Bank's investment requirements and maintain a healthy Capital Adequacy Ratio to support future growth and capital adequacy requirements. Hence, your Directors do not recommend any dividend for the Financial Year ended March 31, 2008.

Capital Raising & Capital Adequacy Ratio (CAR):

During the Financial Year 2007-08, your Bank completed infusion of equity capital of Rs. 3,307.5 million comprising of private placement of 14.7 million equity shares to Orient Global Tamarind Fund Pte Ltd, Singapore at Rs. 225 per share. The paid up capital of your Bank stood at Rs. 2,957.89 million as at March 31, 2008 as compared to Rs. 2,800 million as at March 31, 2007, post private placement and exercise of employee stock options.

Your Bank is well capitalised with a Capital Adequacy Ratio of 13.6% as at March 31, 2008 as against the stipulated minimum of 10% prescribed by the Reserve Bank of India. Of this, Tier I Capital accounted for 8.5% as against 8.2% as at March 31, 2007 and Tier II capital is at 5.1% as compared to 5.4% as at March 31, 2007.

Your Bank also raised a sum of Rs. 2,489 million by way of Tier II capital during the Financial Year 2007-08. Of this, Rs. 549 million was issued in the form of subordinated debt and Rs. 1,940 million was issued by way of Upper Tier II instruments. Your Bank has utilised the proceeds of the issue of equity and Tier II capital to augment the long term capital resources and to enhance the Capital Adequacy Ratio for successfully implementing its growth plans.

Employees' Stock Option Scheme:

Your Bank has instituted Stock Option Plans to reward and retain employees and to enable them to participate in your Bank's future growth and financial success. The Stock Option Schemes also enable the Bank to hire the best talent for its senior management and key positions. The Bank has four Employee Stock Option Schemes viz. Joining Stock Option Plan I (JSOP I), joining Employee Stock Option Plan II (JESOP II), Joining Employee Stock Option Plan III (JESOP III) and YBL ESOP (consisting of two sub schemes).

The Employee Stock Option Plans are administered by the Board Remuneration Committee of the Bank.

The details of the grants under JSOP I, JESOP II, JESOP III and YBL ESOP respectively are as follows:

JSOP I (Grants):

Total no. of Options granted:


The Pricing Formula:

At par

Options Vested:


Options Exercised:


The total no. of shares arising as a result of exercise of Option:


Options lapsed / Forfeited (During FY 07-08):


Variation of terms of Options:

There is no variation in the terms of the Options during the Financial Year ended March 31, 2008.

Money realized by exercise of Options:


Total no. of Options in force:


Total no. of Options granted to (during FY 07-08):

Senior Management Personnel (SMP):

a. Total no. of Options granted to SMP:


b. SMP receiving grant in any one year amounting to 5% or more of Options granted during that year:

Any other employee who received a grant in any one year of Options, amounting to 5% or more of options granted during that year:


Identified employees who are granted Options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant:


Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options:

Rs. 6.75

JESOP II (Grants):

Total no. of Options granted:


The Pricing Formula:

The closing price on the stock exchange with greater trading volumes on one day prior to the date of grant.

Options Vested:


Options Exercised:


The total no. of shares arising as a result of exercise of Option:


Options lapsed / Forfeited (During FY 07-08):


Variation of terms of Options:

There is no variation in the terms of the Options during the Financial Year ended March 31, 2008.

Money realized by exercise of Options:


Total no. of Options in force:


Total no. of Options granted to (during FY 07-08):

Senior Management Personnel (SMP):

a. Total no. of Options granted to SMP:


b. SMP receiving grant in any one year amounting to 5% or more of Options granted during that year:

Any other employee who received a grant in any one year of Options, amounting to 5% or more of options granted during that year:


Identified employees who are granted Options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant:


Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options:

Rs. 6.75

JSOP III (Grants):

Total no. of Options granted:


The Pricing Formula:

The closing price on the stock exchange with greater trading volumes on one day prior to the date of grant.

Options Vested:


Options Exercised:


The total no. of shares arising as a result of exercise of Option:


Options lapsed / Forfeited (During FY 07-08):


Variation of terms of Options:

There is no variation in the terms of the Options during the Financial Year ended March 31, 2008.

Money realized by exercise of Options:


Total no. of Options in force:

Total no. of Options granted to (during FY 07-08):

Senior Management Personnel (SMP):

a. Total no. of Options granted to SMP:


b. SMP receiving grant in any one year amounting to 5% or more of Options granted during that year:

Any other employee who received a grant in any one year of Options, amounting to 5% or more of options granted during that year:


Identified employees who are granted Options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and

conversions) of the Company at the time of grant:


Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options:

Rs. 6.75


Total no. of Options granted:


The Pricing Formula:

The closing price on the stock exchange with greater trading volumes on one day prior to the date of grant.

Options Vested:


Options Exercised:


The total no. of shares arising as a result of exercise of Option:


Options lapsed / Forfeited (During FY 07-08):


Variation of terms of Options:

There is no variation in the terms of the Options during the Financial Year ended March 31, 2008.

Money realized by exercise of Options:


Total no. of Options in force:


Total no. of Options granted to (during FY 07-08):

Senior Management Personnel (SMP)

a. Total no. of Options granted to SMP:


b. SMP receiving grant in any one year amounting to 5% or more of Options granted during that year:


Any other employee who received a grant in any one year of Options, amounting to 5% or more of options granted during that year:


Identified employees who are granted Options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant:


Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options:

Rs. 6.75


Total no. of Options granted:


The Pricing Formula:

The closing price on the stock exchange with greater trading volumes on one day prior to the date of grant.

Options Vested:


Options Exercised:


The total no. of shares arising as a result of exercise of Option:


Options lapsed / Forfeited (During FY 07-08):


Variation of terms of Options:

There is no variation in the terms of the Options during the Financial Year ended March 31, 2008.

Money realized by exercise of Options:


Total no. of Options in force:


Total no. of Options granted to (during FY 07-08):

Senior Management Personnel (SMP):

a. Total no. of Options granted to SMP:


b. SMP receiving grant in any one year amounting to 5% or more of Options granted during that year:

Aditya Sanghi - 200,000Ajay Mahajan - 200,000

Any other employee who received a grant in any one year of Options, amounting to 5% or more of options granted during that year:

Madhusudan Somani - 200,000

Identified employees who are granted Options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant:


Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options:

Rs. 6.75

JSOP I JSOP II JSOP III YBL ESOP YBL ESOP (Grants) (Grants) (Grants) (JESOP IV- (PESOP I Grants) Grants)

Impact of the Had the Bank adopted Fair Value method for difference between pricing and accounting of Options Instead of the Intrinsic Value Intrinsic Value method, compensation cost would of the Options and have been higher by Rs. 2,38,769 thousand; the net the Fair Value of profit after tax would have been lower by the Options on Rs. 1,57,612 thousand; the basic FPS would have Profits and on EPS been Rs. 6.47 per share (instead of Rs. 7.02 per share) and the diluted EPS would have been Rs. 6.22 per share (instead of Rs. 6.75 per share).

JSOP I JSOP II JSOP III YBL ESOP YBL ESOP (Grants) (Grants) (Grants) (JESOP IV- (PESOP I Grants) Grants)

Weighted average exercise prices: 10.00 89.44 99.89 189.00 191.57

Weighted average fair values of the Options: 5.29 43.34 48.23 95.95 92.75

The Securities and Exchange Board of India (SEBI) has prescribed two methods to accounts for stock grants, (i) the Intrinsic Value method; (ii) The Fair Value method. The Bank adopts the Intrinsic Value method to account for the stock Options it grants to the employees. The Bank also calculates the Fair Value of Options at the time of grant using Black-Scholes pricing model with the following assumptions:

JSOP I JSOP II JSOP III YBL ESOP YBL ESOP (Grants) (Grants) (Grants) (JESOP IV- (PESOP I Grants) Grants)

i) Risk free interest rate 6.54%-6.81% 6.73%-7.45% 7.27%-8.23% 7.63%-8.10% 7.58%-7.71%

ii) Expected life 6.5 to 7.5 6.5 to 7.5 6.5 to 7.5 6.5 to 7.5 5.5 to 7.0 yrs yrs yrs yrs yrs yrs yrs yrs yrs yrs

iii) Expected volati- 50.58% 35.97% 35.82% 39.94% 40.74% lity 49.92% 39.94% 42.04% 42.04%

iv) Expected dividends 1.44% 1.13%-1.23% 1.13% 1.13% 1.13%

v) The price of theunderly-ing share inmarket at the time Not Listed Rs. Rs. Rs. Rs. of Option 89.44 99.89 189.00 191.57 grant


Mr. Bharat Patel and Mr. Wouter Kolff shall retire at the ensuing Annual General Meeting and being eligible offer themselves for re-appointment.

Mr. Kashi Memani, Independent Director resigned from the Board w.e.f. December 11, 2007. Your Directors place on record their appreciation of the valuable contribution made by him to the Bank's growth and development. Mr. H Saikrishnan, Executive Director resigned from the Bank in April 2008, and his resignation was accepted w.e.f. April 25, 2008.

The Board at its meeting held on April 29, 2008 appointed Ms. Radha Singh and Mr. Ajay Vohra as additional Director(s) of the Bank. They hold office up to the date of the forthcoming Annual General Meeting but are eligible for appointment.

Corporate Governance:

Your Bank is committed to achieving the highest standards of Corporate Governance. Accordingly, your Board functions as trustees of the shareholders and seeks to ensure the long term economic value for its shareholders while balancing the interest of the stakeholders.

A separate section on Corporate Governances standards followed by your Bank as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges is enclosed as an Annexure to this report.


M/s. S. R. Batliboi & Co., Chartered Accountants will retire at the forthcoming Annual General Meeting. They have been Statutory Auditors of the Bank for the last four years, which is the maximum term of appointment of Auditors permitted by Reserve Bank of India. As recommended by Audit & Compliance Committee, the Board has proposed the appointment of M/s B S R & Co, Chartered Accountants as Statutory Auditors for the Financial Year 2008-09. Their appointment is subject to approval by the Reserve Bank of India. Members are requested to consider their appointment on a remuneration to be decided by the Board or Committee thereof for the ensuing Financial Year i.e. 2008-09.

Statutory Disclosures:

The statement containing particulars of employees as required under Section 217 (2A) of the Companies Act, 1956 forms part of this report. In terms of Section 219(1)(b)(iv) of the Act, the same is open for inspection at the Registered Office of your Bank. Copies of this statement may be obtained by the members by writing to the Company Secretary of your Bank.

The provisions of Section 217(1)(e) of the Companies Act, 1956 do not apply to your Bank. Your Bank is constantly pursuing its goal of technological upgradation in a cost efficient manner for delivering quality customer service.

Directors' Responsibility Statement:

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, it is hereby confirmed that:

(i) In the preparation of the accounts for the Financial Year ended March 31, 2008 the applicable Accounting Standards have been followed along with proper explanation relating to material departures.

(ii) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at March 31, 2008 and of the profit of the Bank for the year under review.

(iii) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; and

(iv) The Directors have prepared the annual accounts of the Bank on a 'going concern' basis.


Your Directors take this opportunity to express their deep and sincere gratitude to the customers of the Bank for their confidence and patronage as well as to the Reserve Bank of India, Government of India and Regulatory Authorities for their co-operation, support and guidance. Your Directors would like to express a deep sense of appreciation for the commitment shown by the executives in supporting the Bank in its endeavour to create the 'World's Best Quality Bank in India'. Your Directors would also like to express their gratitude to the members for their trust and support.

For and on behalf of the Board

Ashok Kapur Rana KapoorNon-Executive Chairman Managing Director & CEO

Place: Mumbai Date : April 29, 2008



India's economy is on course of mild moderation, clocking 9.0% growth in real GDP in the Financial Year 2007-08, after posting 9.5% average growth in the preceding two years. Amidst the global financial markets turmoil, India's economic performance has demonstrated a fair degree of resilience.

The services sector maintained a buoyant growth of 10.7% in the Financial Year, led by an impressive performance by subgroups viz. trade, hotels, transport, communication, finance, real estate, insurance and business services. However, moderation in economic activity can be traced to a slowing industrial sector that posted 8.1% growth in value terms in the Financial Year 2007-08 as against 10.6% seen in the preceding year. Past measures of monetary tightening, uncertainties arising on account of global investment environment, hardening inflation, escalating commodity prices in the international markets together, contributed to the slowing economic activity.

A distinguishing feature demonstrating the resilience of the Indian economy was the continuing strength in investment demand. This was reflected in robust growth of 17.3% in domestic production of capital goods during the Financial Year along with a strong growth of 36.2% in capital goods' imports (April-January FY 2007-08).

Robust growth in capacity expansion adequately offset the slowing consumption demand in the economy.

Growing confidence among global investors in the India growth story led to an unprecedented growth in capital inflows, as reflected in the dramatic jump in foreign exchange reserves of record US $109.9 billion in FY 2007-08. The Indian Rupee (INR) witnessed an unprecedented strength in the wake of a 'dollar deluge'. The INR/USD exchange rate appreciated by 11.1% during the Financial Year 2007-08 based on the annual average exchange rate. Easy liquidity fuelled by capital infows prompted the Reserve Bank of India (RBI) to raise the Cash Reserve Ratio (CRR) from 6.00% to 7.50%. With a view to anchor inflationary expectations, the RBI also raised the repo rate from 7.50% to 7.75%. Easy liquidity led the bond yields to drift lower. 10-year G-Sec yields moved lower from 8.3% levels in June 2007 to 7.5-7.9% levels by March 2008.

The last quarter of the year witnessed an unprecedented escalation in the headline inflation, as measured by the Wholesale Price Index (WPI). Inflation jumped from 3.83% in end-December 2007 to 7.41% in end-March 2008. While the price pressures were relentless across board, from primary articles to fuel group, it was the sharp escalation in prices of iron and steel products and iron ore in the concluding weeks of March 2008 that caused this significant hardening in the headline inflation numbers. Clearly, domestic and global demand-supply mismatches were largely responsible for this spiraling inflation scenario. The yields on 10-year G-sec firmed up to around 7.95%.

Reflecting moderation in the economic activity, Scheduled Commercial Banks' credit growth too witnessed some softening. During the Financial Year 2007-08, Bank credit grew by 21.6% against a growth of 28.1% posted in the Financial Year 2006-07. Growth in non-food credit too maintained a similar pattern, growing by 22.4% versus a growth of 28.4% in the preceding year. Aggregate deposits of Scheduled Commercial Banks however maintained their pace, growing 22.2% against a growth of 23.8% in the preceding year.

Sharp escalation in inflation in recent weeks has prompted the Government to take a gamut of fiscal measures. The Government scrapped import duties on edible oils, banned exports of non-basmati rice, cut duties on maize imports to zero from 15 per cent and extended a ban on export of pulses for a year. In addition, the Government also banned exports of edible oils and withdrew export incentives for steel and cement.

With inflation shooting up by more than 2% in just one month, the policy balance has emphatically tilted towards inflation management. That this spike in inflation has largely emanated from supply side constraints is well accepted. However, with supply side factors inherently slow in response, the onus is now on monetary measures to rein in inflation, In the light of the current monetary and anticipated liquidity conditions, and to contain inflation expectations, the RBI raised the CRR further from 7.50% to 8.0% in two stages with effect from April 26, 2007 (25 bps) and May 10, 2007 (25 bps).

The policy dilemma has accentuated further, especially with economic growth set to moderate in the coming months. However, we expect growth in real GDP to clock around 8.0% and growth in credit around 20% in the Financial Year 2008-09 with the fiscal stimulus provided through the Union Budget measures likely to induce demand in the economy, especially during the second half of the Financial Year 2008-09. Containing inflation within acceptable limits poses a significant challenge during the year as current high inflation has a large 'imported' component through high global prices of agricultural and industrial commodities, like oil and metals. Meanwhile the economy may yet be able to demonstrate its resilience by posting a decent growth amidst a global slowdown in 2008.


The customer-centric strategy of your Bank is founded around key pillars of GROWTH, TRUST, TECHNOLOGY, KNOWLEDGE DRIVEN HUMAN CAPITAL, TRANSPARENCY and RESPONSIBLE BANKING.

Your Bank's stated objective is to build the World's Best Quality Bank in India - that will be recognised as a benchmark of Service Excellence. It is this same belief that also led to the creation of the brand name 'YES'. Symbolising Optimism, Positivity and a 'Can Do' attitude, the word 'YES' re-affirms the Bank's commitment of providing customers with a 'Consistent Superior Service Experience' founded in excellence.

By continuously striving to create, innovate and transform, your BANK goes beyond the traditional realm of banking. Your Bank has a well balanced combination of banking as well as industry experts - each contributing their in-depth knowledge and expertise individually and through collective thinking, thereby ensuring that every solution, product and service works in tandem with your Bank's customers, at every stage of evolution of their business.

Consequently this approach has resulted in receiving recognitions across leading banking league tables from independent institutions of repute while winning multiple awards and accolades across product and service categories both national and global. Your Bank has been ranked # 1 on CREDIT QUALITY amongst all Banks and overall # 3 and # 1 on GROWTH amongst New Generation Private Sector Banks, in the Financial Express - E&Y Survey of India's Best Banks of 2007. Further, your Bank was also ranked overall SECOND and the Fastest Growing Bank among Medium Size Banks, at the Business Today - KPMG Survey of India's Best Banks, 2007. Whilst on the technology front, your Bank has received the much lauded Financial Insights Innovation Award (FIIA) for the Most Innovative E-Payments Solution in Asia. Additionally, your Bank has emerged within the Top 10 in the Banking Segment with a ranking of #7 in the annual Business Today - Cirrus Report 2007, which tracks India's Biggest News-making Corporations.

Founded on the core proposition of Knowledge, your Bank strives to exceed expectations by adhering to an impeccable and consistent superior service experience by offering a combination of Relationship, Product, Knowledge and Service Capital to all customers through a unique 'One-Bank Model' approach.


Your Bank's 'One-Bank Model' approach, built on a 3-dimensional organisational structure of Relationship, Product and Knowledge Managers create a unique proposition and informed engagement, resulting in a deeper and broader relationship throughout the clients' business life cycle across multiple and differentiated customer segments and knowledge clusters as defined below:


The Corporate & Institutional Banking (C&IB) business at your Bank provides comprehensive financial and risk management solutions to clients having a turnover of over Rs. 7,500 million. The relationship experts across this business unit, offer an array of services to the following categories of institutions:

* Large Indian Corporate Groups * Public Sector Enterprises * Central and State Governments * Government Bodies * Multinational Companies * Financial Institutions and Banks

Your Bank provides a comprehensive range of client-focused Corporate Banking Services, including Working Capital Finance, specialised Corporate Finance, Trade, Cash Management & Transactional Services, Treasury Services, Investment Banking Solutions and Liquidity Management Solutions to name a few. All product offerings are suitably structured taking into account the client's risk profile and specific needs, because at your Bank maintaining high credit quality, is of utmost priority.

Leveraging on superior product delivery, knowledge-based advisory and financial solutions, industry benchmark service levels and a strong client orientation, your Bank has made significant inroads into a number of Indian companies while joining hands with various Governmental institutions at the central, state and city levels. Companies include multinationals, domestic business houses and public sector organisations. Mapped with the advantage of lowering entry barriers, strengthening business relationships, superior structuring and risk mitigation through early warning signals, the knowledge-driven sectoral approach helps derive industry specific financial solutions by offering tailor-made services to best suit their requirements. After all, we do have many minds working towards the success of your Bank

EMERGING CORPORATES BANKING By continuously evolving sector-specific products and services, your Bank paves the path for a brighter future for Emerging Corporates. At your Bank, through the foresight and collective knowledge of many minds, Emerging Corporates Banking (ECB) has been institutionalised nationally to service the needs of today's growth focused, fast-paced enterprises with an annual turnover between Rs. 1,500 million and Rs. 7,500 million.

ECB targets companies in the 'high octane' middle market segment, operating across Future Industries of India like Food and Agribusiness, Life Sciences, Media and Entertainment, Auto Components Engineering, Telecommunications, Information Technology, Infrastructure and Retailing. Empowered with CRM tools and a relationship driven team, ECB delivers financial solutions to identified customers across the above mentioned sectors.

ECB's relationship managers aim to deliver the highest standards in service to its customers by following a diagnostic approach of evaluating client specific financial needs and providing tailor-made solutions to them. These include structured products based on the customer's risk profile and growth requirements as well as general banking products and services like Working Capital, Term Funding, Liabilities, Investments, Insurance, Trade Finance and Treasury amongst others.


Backed by a team of experts along with an array of products, services and resources, your Bank ensures that identified Small & Medium Businesses excel in the future. Business Banking is a dedicated business unit to service these Small and Medium Enterprises (SME) in India, with an annual sales turnover between Rs. 200 million to Rs. 1,500 million. SME Relationship Managers at your Bank invest in understanding the diverse and dynamic needs of these enterprises and service them through 30 branches located across 25 significant SME clusters nationally. These services are expected to be extended to 60 branches across 45 locations in 2008.

The core objective of Business Banking is to improve SME access to finance (including term finance), and business development services, thereby fostering growth, competitiveness and employment creation that are key to achieving economic growth.

Your Bank's strategy to attract SME customers include:

1. Offering a customised service proposition tailor-made for high transactional volumes in the key businesses of IT/ITES, Exporters/ Importers, Freight Forwarders, Travel/ fours, Media and Entertainment, Gems and jewellery, Trusts, Societies and NGOs using a combination of Relationship, Knowledge and Product Capital.

2. Offering holistic banking solutions to customers through the services of Business Banking Relationship Managers and Service Managers for all their banking needs (including business, wealth management and advisory) at the branch level.

3. Offering liability products like Cash Management Services (CMS), Payment Solutions, Net Banking, Phone Banking and Trade Services.

4. Extending its distribution through alliances and partnerships with industry associations and chambers of commerce.


Retail Banking & Wealth Management business (RB&WM) at your Bank caters to the Banking and Wealth Management needs of individuals (Indian Residents and NRIs) and small businesses. Unleashing the power of many minds enables your Bank to go beyond the traditional realm of banking by delivering service excellence through:

1. Relationship Segments 2. Premium Touch points - Branch Network and Direct Access 3. Advisory & Wealth Services

1. Relationship Segments

Your Bank categorizes its relationship base of Retail Banking & Wealth Management customers into three distinct categories based on the relationship size:

YES/ provides value added services to custolmers by offering them a combination of superior service standards and expertise in wealth management.

Yes/ FIRST offers a combination of superior service standards, expertise in wealth management and value added services like convenience benefits, concierge solutions and lifestyle services to its HNI customers.

YES Private offers personalised, confidential and tailor made wealth management and financial solutions to its HNIs with additional services in the area of Private Equity, Art and Real Estate Advisory along with convenience benefits, concierge solutions and lifestyle services.

GLOBAL INDIAN BANKING straddles the above three segments with the unanimous objective to provide a superior service experience to the NRI customer segment through facilitation of basic banking services, remittances, differentiated wealth management and investments in alternate asset classes.

2. Premium Touch points - Branch Network & Direct Access

Your Bank aims at providing every Retail Banking client, an array of customised solutions to meet all financial needs, combined with a world-class Branch Ambience, convenience of Direct Access, an exemplary Service Culture and Knowledge Expertise to deliver a 'Consistent Superior Service Experience.

2 (a). Branch Network

Backed by aesthetic design, your Bank's retail branches are not only strategically located close to catchment areas of community interaction but also meant to ensure smoother and convenient customer engagement. Accessibility to your

Bank's branches is a non-issue in a given location as also the fact that the various consistent and evocative touch points facilitate warmth, coherent communication and a consistent customer experience. The focus is not only in transacting but also in engaging, informing and involving, in a personalised manner thereby providing incremental value to the time spent inside the branch by the customer.

The uniquely designed Knowledge Cafe facilitates information exchange and the state-of-the art Business Lounges enable premium customers to bank in luxury as well as conduct their personal business meetings with convenience. Currently, your Bank's customers are being served through an extensive branch network, comprising of 67 branches nationally and 75 off-site ATMs in Mumbai and the NCR region. Your Bank is currently in the process of expanding the branch network to a total of 117 branches and 200 ATMs.

2(b). Direct Access

Irrespective of the location of your Bank's branches, customers can avail of a 240 consistent superior service experience through various direct access touch points, branded 'YES TOUCH'. These services are being extended in record time, across various channels like Internet, Mobile, ATM and Phone using the latest technology and the collaborative efforts of many minds. Customers can access all your Bank's products and services through a well structured website at

3. Advisory & Wealth Services

Since inception, your Bank has developed and followed an integrated approach to providing complete 'Wealth Management Solutions', based on comprehensive Risk Profiling, Asset Allocation and Investment Monitoring Process.

These solutions are anchored on timely advice provided to customers in the form of regular performance updates and reports on product and market developments, based on their investment strategy. Your Bank provides an impressive line-up of reputed third party products including Investments (across mutual funds of 28 AMCs), Bancasurance (Life Insurance - Max New York Life Insurance, General Insurance - Bajaj Allianz General Insurance), Structured Products and Alternative Investments (art advisory and realty funds) to customers, thereby helping them attain a higher level of diversification in their investment portfolio.

Your Bank also provides regular liability products like Savings Accounts, Non-resident Accounts, Current Accounts and Fixed Deposits catering to basic client needs.

Industry Redefining Features

Your Bank has created and implemented several industry redefining features, whilst creating a consistently superior banking experience. These include:

* Single PIN access for all channels, including Internet ATM and Debit Card.

* 'Two Factor Authentication' security process where customers need to include a second transaction password, which is served as an instant SMS on their mobile phone to complete the fund transfer.

* Online Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) services available to customers to transfer funds to third party accounts in over 47,000 branches nationally.

* Mobile Payments Solution in partnership with Obopay, USA which enables customers to Get, Send and Spend Money at the speed of sending an SMS.

* Stop payment instructions for cheques, using the SMS facility on mobile phones.

* Access to 30,000 ATMs affiliated to Master Card, National Financial Switch and Cash Tree networks in India and over 1.25 million ATMs associated with MasterCard globally.

* Waivers on petrol surcharge, zero lost card liability, unlimited free ATM transactions across partner networks, higher daily withdrawal and purchase limits.

* 7 A.M. - 11 P.M. banking in select branches across 6 days of the week. Primarily aimed at small businesses and young professionals to discuss in person, a variety of financial and wealth management opportunities with YES BANK's Wealth experts at the branch, at their convenience.

* Online Mutual Funds platform - 'MFONLINE' enables customers to purchase and sell mutual funds over the internet on a daily basis. The product not only provides Marked to Market (MTM) updates but also tracks dividend performance and the Internal Rate of Return (IRR) of each transaction, within the consolidated portfolio thereby tracking the growth and progress of the portfolio.

* Periodic research, analysis and market updates, well documented in a report format are provided to customers on the managed products segment. These reports, like the 'Daily Fund Watch', provide valuable information on market trends and investment opportunities for customers and fund managers to optimise their portfolio returns.

* Integrated YES TOUCH Phone Banking Service, where clients can call-in on a 24x7 basis.

* Centralised Customer Query Management System, diligently tracks customer feedback and propels it towards a positive closure.

* Wi-Fi enabled branch environment provides a superior service experience.

* Online feature rich facilities include:

* Requests for demand drafts, cheque books, query cheque status, stop payments, purchase fixed deposits and TDS enquiry on fixed deposits amongst others.

* Pay utility bills and make donations to various religious and charitable institutions.

* View and download account statements across multiple formats. * View and initiate standing instructions.

* Set various email alerts based on transaction thresholds and account activities.

* Integrated view across Corporate and Cash Management services (payments and collections) Differential bulk transactions along with file-level encryption, for corporate clients Air-ticket reservations and e-shopping funded by direct debit to the customer's account s Real time payments to various e-brokerage accounts.

* Foreign exchange trading for corporate clients.

* Request and view real-time balances and transaction information.


Financial Institutions Relationship Management (FIRM) spearheads the relationship development efforts of your Bank with the various Banks and Financial Institutions nationally. The team harmoniously achieves this by supporting product delivery while creating and sharing industry knowledge with internal and external stakeholders.

Financial Institutions Relationship Management (FIRM) experts at your Bank offer an array of services to the following set of clients:

* Domestic Banks Mutual Funds * Insurance Companies* Non Banking Finance Companies (NBFC) * Private Equity Funds * Brokers (both Capital market and Commodity market)

The Relationship Managers of FIRM use their excellent association with various Banks and Financial Institutions to raise resources and in setting up counter party limits for your Bank. Additionally, FIRM helps various Corporate Banking relationships and product managers to offer a wide variety of products including Debt, Trade Finance, Guarantees, Treasury Services, Working Capital Finance, Cash Management & Transactional Services and Liquidity Management Solutions to your Bank's customers by setting up facilities and entering into various partnerships with other Banks and Financial Institutions. Currently your Bank has a strategic tie-up with NABARD to offer Food and Agriculture Consultancy Services and with SIDBI to offer SME Consultancy to your Bank's customers respectively.

The excellent relationship with other Banks & Financial Institutions is also leveraged for syndications of various loans for your Bank's Corporate Banking customers and to raise resources through refinance of your Bank's loan portfolios.


International Banking is a new initiative within your Bank and has been set up to further strengthen its international business strategy with the objective to augment the network and visibility of its brand and presence internationally. Additionally the division provides a suite of advisory services to international corporations eager to either expand or enter the Indian market under the aegis of a dedicated India Business Facilitation Desk (IBFD). These initiatives are a consequence of many minds seeking to innovate and evolve customer centric solutions for your Bank's International customers.

International Banking at your Bank, caters to the following set of customers:

* Foreign Banks with or without any presence in India.

* Multilateral Agencies such as World Bank, KFW, ADB, JBIC, DEG amongst others.

* Foreign Institutions such as US-EXIM, Coface, Euler Hermes amongst others.

* Private Equity Fund houses with a focus on India.

The International Banking business offers a complete suite of products including Debt, Trade Finance, Treasury services, Investment Banking solutions, Financial Advisory and Global Indian Banking to international customers of your Bank. These products are offered through partnerships and tie-ups with International Banks and Institutions in the target geographies. The Knowledge Banking approach has not only created a niche position for your Bank in the international market but has also helped the division to reach out across multiple geographies while providing specialised services to corporations eager to enter India.

The dedicated India Business Facilitation Desk (IBFD) compliments international corporations at every step of business establishment ranging from providing sectoral advisory to complete banking solutions including support services like setting up of an office/establishment in India. Value-added services include macro-economic analysis, trade and investment assessment, advisory, regulatory and country specific framework, education and knowledge exchange, cultural adaptability and exchange.


Your Bank has created a range of products to effectively service customers across differentiated market segments. The 'One Bank Model' approach built on a 3-Dimensional organizational structure of Relationship, Product & Knowledge enables greater cross-sell and up-sell of these products to customers. This approach helps deepen existing relationships by providing multiple engagement opportunities, to introduce products across the customer's growth life cycle.


At your Bank, the Financial Markets (FM) business model is customer centric and provides effective Risk Management solutions relating to foreign currency and interest rate exposures of clients. FM assists clients in creating a complete understanding of market rates faced by them in respect of Capital Raising, Investments, Exports, Imports and any other market risks. Your Bank provides innovative and customized solutions to clients to enhance returns/reduce cost of financing through a host of product offerings including Foreign Exchange Forwards, Options and Swaps. The client offerings are supported by professionals comprising of Economists and Research Analysts who provide latest analysis and tools for generating quality Risk Management ideas and solutions.

Your Bank was amongst the first to implement the MUREX trading platform and launch Forex Solutions - a real time online foreign exchange trading solution which provides corporations a medium to hedge their currency risks online through the Bank's Corporate Net Banking platform. Your Bank continues to excel as reflected hereunder:

* ICRA (Moody's affiliate in India) has reaffirmed your Bank's Al+ rating for its Rs. 40 billion certificate of deposit programme. Al+ rating indicates the highest level of safety in the short-term.

* FM in association with other business groups successfully raised Rs.2,489 million of Debt Capital which includes Rs. 549 million of subordinated Tier II and Rs. 1,940 million of Upper Tier II Capital during the Financial Year 2007-2008. The subordinated bond was rated LAA- by ICRA and AA- by CARE while the Upper Tier II issue was rated LA+ by ICRA and A+ by CARE.

* Your Bank was ranked 2nd (proceeds upto $50 million) and 6th (proceeds upto $ 100 million) in the Top Book Runners of Indian Rupee Bonds by Thomson Financial for CY 2007.

* Your Bank was ranked 6th in the Thomson Financial's Top Lead managers of Indian Rupee Bonds for the period starting January 2007 to July 2007.


Effectively understanding customers' business needs enables every business opportunity to be spotted and seized. Your Bank has reinforced its position as a provider of high quality and knowledge based advisory service provider in the Investment Banking sector. The year under review has seen several additions to the client base and consummation of over 60 mandates since inception across various product categories within the Corporate Finance and Capital Markets offerings of the Financial Advisory (FA)/Investment Banking Group. The performance of the team is reflected in the consistent ranking received by your Bank of being amongst the TOP 10 deal makers across the prestigious league tables.

Your Bank's Investment Banking division constantly endeavours to work as a 'trusted advisor' at every stage of the client's life cycle, which has led to generation of repeat business from clients. The approach is characterised by proactively partnering with customers in their business cycle by developing long-term advisory and banking relationships from origination to deal execution. This is based on a balanced mix of domestic and cross-border Mergers and Acquisitions, joint venture advisory services, private equity placement as well as merchant banking (Initial Public Offers, Open Offers, etc.) services across chosen industry verticals. The enviable cross-border Mergers and Acquisitions (M&A) franchise built by your Bank over the years, advising Indian entrepreneurs in their global aspirations, has led to the development of a deep network of relationships with Banks, Investment Banks and Advisory Boutiques in countries across Asia, Europe, Africa and the Americas which enables proactive research to generate acquisition ideas and identification of suitable targets. As an integral part of the cross border M&A Advisory, your Bank also plays a pivotal role in assisting clients raise acquisition finance from leading Indian and International financial institutions.

Some of the noteworthy transactions advised during this fiscal year include:

* Mergers & Acquisitions Advisory - Suzlon's acquisition of RE Power Systems, Germany (including arrangement of acquisition finance); ICICI Ventures sale of Infomedia to Network 18; Sintex's acquisition of Wausaukee Composites, USA and of the automotive business of Bright Brothers Ltd, India; Spentex acquisition of Schoeller Litvinov, Czech Republic.

* Private Equity / Venture Capital / Real Estate Investments Advisory - Investment by Barings in Infrasoft Technologies; Investment by Temasek Holdings in First Flight Couriers; Investment by ICICI Ventures in Rubamin and Arrow Webtex; Investment by Samara Capital in Global Coal and Mining; Investment by Sequoia

* Capital in Sai Advantium. Capital Markets Transactions - Co-Book Running Lead Manager - Qualified Institutional Placement of Suzlon Energy, Book Runner -Initial Public Offering of Advanta India; Manager - Open offer to the shareholders of Phoenix Lamps by Actis; Manager - Open offer to the shareholders of Automotive Stampings by Gestamp Servicios S.L.


Your Bank's Corporate Finance practice offers a combination of advisory services and customized products to assist clients in obtaining superior financial returns in a risk mitigated manner based on 'Knowledge Arbitrage'. Your Bank has built a robust internal system for tracking the exposure to sensitive sectors such as capital markets and real estate on a daily basis, vis-a-vis internal limits and the regulatory limits as stipulated by the Reserve Bank of India.

Your Bank's Corporate Finance practice focuses on providing diversified product offerings catering to specific industry verticals that meet the precise requirements of customers. These offerings include:

Infrastructure Banking and Project Finance (IBPF) - The team leverages on its sectoral expertise across various infrastructure sectors viz.; transportation, power, renewable energy, telecom, special economic zones (SEZ), agri and social infrastructure to offer specialised services in project finance, thereby capitalising on rewarding opportunities across the infrastructure segment.

The Group had several stellar transactions to its credit with some of the best names in the industry.

Realty Banking - The team provides advisory and funding services like project conceptualisation and structuring, JV partner identification, and raising/arranging financing in the commercial and residential real estate sectors across diverse geographies and Special Economic Zones.

The Group successfully completed several transactions involving some of the best names in the industry.

Structured Finance - Structuring capabilities coupled with an in-depth understanding of potential issues and optimal solutions enables this team to execute complex transactions at a faster pace. The Structured Finance team works closely with Infrastructure Banking and Realty Banking, in addition to handling other complex transactions.

During the year, this specialised cell successfully concluded structured credit facilities for import of capital goods such as dredgers and aircrafts, including securitisation transactions for clients across the transportation sector. Specifically, the business team successfully developed a structuring product providing financing aggregation against rental receivables from several organisations.

Project Advisory arid Syndication - The group provides comprehensive project advisory and syndication services to clients. With its proven domestic and international credentials, the group caters to the all term financing requirements of corporates as well as specialised financing for acquisitions, asset purchases and leveraged buyouts.

The group worked with several prestigious clients like IVRCL, the Sical group, the Shriram group and Cambridge Solutions, and several reputed international Banks and Financial Institutions.

Financial Restructuring - A team of diversified professionals continuously develops an 'out-of-the-box' approach to create win-win solutions for companies as well as lenders, which include developing viable business and financial plans, providing resolution services to banks and asset reconstruction companies, negotiating with existing lenders for debt restructuring, strategic equity syndication/partner search, financial equity syndication and debt syndication.

During the year, the group worked with numerous clients (individual corporate entities as well as ARCS) in advisory and structured financing roles. The group has advised stressed companies on business and capital restructuring, and resource raising from diverse sources. Advisory activities also included debt aggregation and resolution mandates. The group ventured into NPA purchase and successfully resolved the acquired cases.

Corporate (Finance Private Equity - The group was started in FY 2008 to complement your Bank's established Corporate Finance and Wholesale Banking activities, providing companies the option of equity financing through specialised private equity vehicles. This would enable your Bank to provide holistic funding solutions and maximize the revenue potential from a relationship. The group has entered into a partnership with Global Environment Fund (GEF), which manages over USD I billion in the Clean and Renewable Energy space. Your Bank is the exclusive Indian representative of GEF's USD 350 million Emerging Market Fund III, besides being a joint Venture Partner for a proposed USD 200 million South Asia dedicated Clean Energy/Clean Technology Fund.


Your Bank has expanded the scope of customer service right from transaction execution to information facilitation, serving the core. objective of optimum management of all operational, administrative and regulatory activities. To fulfill this promise, the Transaction Banking Group (TBG) at your Bank has integrated and upgraded its product suite to offer a 'Composite Package' enabling total outsourcing of the corporate treasury functions for its clientele across all relationship segments viz. Corporate & Institutional; Emerging Corporates; Small and Medium Enterprises and Government Corporations.

The Transaction Banking Group at your Bank is a core product group focused on 'Financial Supply Chain Management' of the corporate and broadly consists of three specialised product domains namely Cash Management Services, Trade Finance and Services and Capital Markets and Escrow Account Services. The group has successfully developed and implemented unique and customised product propositions for specific industry verticals, at times playing a pioneering role in the market.

The Cash Management Services offers value added solutions for Working Capital Management of the corporate customer aimed at streamlining the domestic supply chain business flows by optimizing the payables and receivables cycles and providing superior liquidity management options.

The Trade Finance and Services is aimed at addressing the trade related requirements of the corporate customer, both on the domestic and international front, covering Import and Export services and the underlying financing structures like Letters of Credit, Bank Guarantees, Buyers Credit, Packing Credit, Pre-shipment Credit, Postshipment Credit and Open Account Remittances. Trade Finance also covers Channel Financing and Bill Discounting facilities for domestic corporate customers.

The Capital Markets and Escrow Account Services domain caters to a range of corporate customers' requirements of Bankers to Issue services for Initial Public Offers, Rights Issues and Qualified Institutional Placements. Additionally the domain offers Interest/Dividend Payouts and Escrow Account Services for transactions including Open Offers, Sale Shares and Purchase, Lease Rental Discounting, Business Transfer Arrangements and Trust & Retention Account Arrangements.

Powered with a highly efficient transaction banking desk, a continuously expanding product suite developed through a knowledge banking led strategy, strong delivery channels and consistent superior services, your Bank meets and exceeds the expectations of all its corporate customers with unmatched credibility.


Knowledge Capital is one of the core differentiators of your Bank and has been established with an objective of creating knowledge verticals across key sectors and developing innovative solutions to reinforce long-term partnerships with key stakeholders. Knowledge has been institutionalised as a key ingredient in all internal and external processes in your Bank and is primarily utilized to create solutions for client specific requirements.


Bank focuses on Knowledge sectors which it believes are tomorrows winners, to attain the stated objective of being a Bank for the Future Industries of India like Food and Agribusiness, Life Sciences, Media and Entertainment, Auto Components Engineering, Telecommunications, Information Technology, Infrastructure and Retailing amongst others. While several divisions work together for the above objective, there are three main units that specifically reflect the Knowledge Banking approach.

Food and Agribusiness Strategic Advisory and Research (FASAR) is a specialised knowledge division that has been institutionalised to undertake Strategic Advisory and Research in the Food and Agribusiness sector. The FASAR team brings with it thorough knowledge and expertise on the key sub-sectors across the agribusiness value chain, both for internal as well as external stakeholders. Services include providing inputs pertaining to sectoral knowledge (on industry trends, growth prospects, sectoral research and reports, etc.) to internal clientele, and fee-based business advisory to external clientele (both Government as well as Corporate clients).

FASAR's initiatives have resulted in brand building through knowledge positioning at apex level policy planners and industry associations, leading to the recognition of your Bank as a specialised Knowledge Bank, with thorough understanding of the food and agribusiness sector.

Strategic Initiatives and Advisory Government (SIG) is a specialised division undertaking strategic advisory and development research efforts with a core focus on initiating interventions through Public-Private Partnerships (PPP). SIG works in partnership with Union Government Ministries and State Governments across the country to identify the key development lacunae and showcases investment opportunities.

Agri and Rural Banking (ARB) is a domain focused on the financial needs of the agriculture sector, extending banking products and services to the un-banked and under-banked rural communities, and promoting financial inclusion and inclusive growth at the base of the pyramid.


Responsible Banking is one of the key platforms of your Bank with the objective of developing innovative business solutions to social and environmental matters. Your Bank operates in a 'Sustainability Zone', where wider economic, environmental and social objectives are met by supporting new emerging businesses. These businesses not only promote financial growth but also highlight social and environmental causes across clients, which comprehensively constitutes the economic pyramid. Your Bank not only makes direct investments in sustainable development, it also leverages its position of indirect control over investment and management decisions of its partner clients thereby influencing the business community at large. This allows your Bank to lead by example by aligning itself with broader sustainability goals.

Your Bank has created a differentiated proposition in the cluttered financial services market-space by institutionalising sustainability as a key ingredient in all internal and external processes, creating customised solutions for client specific requirements.

Your Bank has an approach to Responsible Banking, in Thought (providing cutting edge thought leadership in this space) and in Action (developing specific banking products and services in line with our Responsible Banking strategy). This philosophy is delivered by three highly integrated and empowered divisions working for an effective implementation of your Bank's Responsible Banking strategy.

Responsible Banking in Thought

* Corporate Social Responsibility and Sustainability Initiatives

Responsible Banking in Action

* Microfinance

* Microfinance Institutions Group (MIG)

* YES SAMPANN / Sustainable Investment Banking (SIB)

Responsible Banking in Thought

Your Bank provides thought leadership and incubates new business opportunities in the development space through CSR and sustainability initiatives while establishing linkages with like minded players of repute, both locally and internationally. It also actively finds innovative business approaches to development along with a new set of investors, i.e. the Socially Responsible Investor Community as well as community development organisations. The division serves as a specialised resource cell for mainstreaming sustainability into other key business groups in the Bank.

Your Bank is the First Indian Bank to become signatory to UNEP-Fl principals for sustainable development, and remains committed to work with UNEP-FI to influence the financial sector in India and internationally. Additionally, your Bank is also the first Indian signatory to the Carbon Disclosure Project (CDP).

In recognition of these initiatives at such a nascent stage, your Bank received the Best Corporate Social Responsibility Practice Award, 2007 instituted by the Bombay Stock Exchange and NASSCOM Foundation.

Responsible Banking in. Action

At your bank Responsible Banking in Action encompasses special business verticals and products aligned to the Bank's sustainability strategy, which identify new markets and promote sustainable development. Your Bank has successfully established dedicated business verticals viz. Microfinance and Sustainable Investment Banking (SIB).


Your Bank is committed to creating equal financial opportunities and enabling financial inclusion. The Bank has a two-pronged strategy to provide easy access to suitable financial products and services to un-Banked/under-Banked, low-income communities across urban and rural India.

Wholesale microfinance lending - Microfinance Institutions Group (MIG) is a relationship management group, which works with commercially sustainable microfinance institutions to provide innovative financial solutions, thereby ensuring long-term sustainability and playing a pro-active role in advocacy on policy and regulatory issues, for enabling the growth of the sector.

Direct Microfinance Lending

YES SAMPANN, the specialized division of your Bank, setup in technical collaboration with ACCION International focuses on providing easy access to fairly priced, transparent, and suitable financial products and services

accompanied with appropriate financial education to un-banked, low-income communities across urban and rural India. With the start of commercial operations in July 2007 in Mumbai, your Bank is now amongst the pioneers in India to provide direct microcredit to micro-entrepreneurs. In partnership with ACCION International, the Bank offers its customers the convenience of doorstep banking with a quick turn around time across a range of customised financial products that have been specifically designed to cater to the financial needs of target customers, helping them plan their economic life in a more efficient and effective manner. Apart from innovation in product design, YES SAMPANN intends to build superior support infrastructure, particularly enabled by feld technology, proactively using tools such as a credit bureau for scoring and PDAs for faster and more efficient evaluations on-field, to further enhance service delivery while simultaneously lowering transaction costs.

Sustainable Investment Banking (SIB)

Your Bank has established a dedicated business vertical that addresses the need for specialist investment advisory in sustainable ventures such as Social, Alternative Energy and Environment. Additionally the business provides support to several sectors being covered under Carbon Finance such as Renewable Energy, Energy Efficiency, Biofuels, Carbon Sequestration, Hydrofluoro Carbons, Land Use/Land Use Change and Forestry.


The clockwork operations of your Bank's Service Capital is the binding factor, which enables an environment of Service Excellence and ensures the continuous running of various functions across the Bank. These critical back-end functions include key Business Processes, Quality Assurance, External & Internal Service Delivery standards, Technology architecture, Risk Management and Internal Audit as well as your Bank's high quality Human Capital.


At your Bank the evolution and benchmarking of international best practices and leading business processes has resulted in 'Service' and 'Quality Assurance' being synonymous with each other. Key business processes have been instituted in your Bank, to deliver a consistent superior service experience that exceeds customer expectations at all times.

These processes ensure an effective maintenance mechanism through ongoing feedback as well as complaint resolution from employees as well as customers. Prudent internal & external audit policies, effective risk management systems, state-of-the-art technology platforms help ensure implementation of optimum business processes, both internally and externally.

Some of the on-going business processes initiatives implemented within the Bank include:

* Establishment of two state-of-the-art National Operations Centres (NOC) based out of Mumbai and DLF Cyber City Gurgaon, with a focus on providing a quick response to customer requests as also to provide business continuity planning. The NOC's house the centralised back office functions of various businesses. Specifically the YES TOUCH Phone Banking Service Centre is located at the NOC at Gurgaon.

* Adherence to Quality practices such as 5 S, 6 Sigma and Sub Clauses of the ISO 9001:2000 Standards. All business processes at both the NOC's and 5 key branches are ISO certifed.

* Synergised efforts of business solutions and information technology, support business processes to implement new methods for optimum productivity (based on Time and Motion and Time and Material studies).

* Benchmarking and critical evaluation of all quality parameters with competition.

* Robust methodology of customer feedback and data collection such as customer complaint registers, customer satisfaction surveys, mystery shopping and employee feedback.

* Clear process of handling, escalating and resolving customer grievances achieved through the use of the Customer Query Management System (CQMS).

* The Query Resolution Unit (QRU) formed as a part of the YES TOUCH Phone Banking Service, ensures effective follow-up and resolution of customer queries and complaints.

* End to End (E2E) analysis of liability and trade business processes.

* Participation in the Gallups Survey, initiated by the Indian Bankers' Association for customer satisfaction and adherence to BCSBI, Goiporia Committee recommendations and CPPAPS guidelines.

Quality Assurance

In line with your Bank's Quality Policy and Quality Objectives, the specific Quality Goals have been classified into the categories of 'Process Management' and 'External & Internal Service Delivery'.

Process Management (PM) aims to continually monitor current processes, benchmark them against competition and introduce robust mechanisms for process improvements, while identifying wastages to drive effective waste management and cost control. PM evaluates simplification of the laid down standards and guidelines in line with regulatory/statutory/strategic requirements, while driving improvements and productivity across functions and product sets, by rationalising, streamlining and centralising processes as appropriate. It also drives standardisation of Dashboards and MIS formats for control and review purposes, basis the metrics identified through the complaint resolution feedback mechanism. PM also uses Quality tools to facilitate ease of execution of transactions through automation of manual processes and ensures adequacy and effectiveness of training for the employees.

External Service Delivery

Your Bank seeks to enhance Customer Satisfaction levels, which are measured by Dashboards, Voice of the Customer (VOC), Branch Service Committee Meetings and Sigma Score Cards. These initiatives not only help forge mutually beneficial customer relationships but also ensure stringent Service Level Agreements (SLAB) with relevant Operations Units across the Bank. Additionally, it provides an efficient MIS support platform for effective decision making at the management level.

Internal Service Delivery

At your Bank, external service delivery is a reflection of the internal service principles instituted within the Bank, that seeks to influence the behavior of your Bank's Human Capital towards delivering on the stated service value proposition of providing customers with a 'Consistent Superior Service Experience'.

The Internal Service proposition is disseminated through a well-defined and on-going Service Marketing Programme branded YES SERVICE and measured through Mystery Shopping, On job Monitoring and in Branch Executive Leadership Team (BELT) programmes held periodically across key branches nationally.


Your Bank's Information Technology systems and practices enhance the level of convenience, security and efficiency in banking operations. This is done with a view to make your Bank's technology, a strategic business tool for building a competitive advantage for all customers. This technology platform has helped the Bank support the requirements of Corporate and Retail clients who access the Direct Banking channels such as Internet, ATMs, Mobile and POS machines for fulfilling their Banking, Investment and Payment needs with a real-time interface. This has ensured that the core IT team in your Bank concentrates on designing a strong and scaleable IT framework that builds efficiency at lower costs.

Your Bank has gained substantial advantages of deploying the latest technology without investing huge amounts of capital, through an innovative IT outsourcing structure with Wipro Infotech for Technology Services, Reliance for Networking and Data Centre and with eFunds for ATM switching. This arrangement has led to significant reductions in the Total Cost of Operations (TCO).

Additionally your Bank continues to forge strategic partnerships with some of the best known IT majors globally, to develop innovative system features in order to improve process efficiencies and create sector-specific banking solutions. Additionally the development of a robust Business Continuity plan in your Bank addresses risks and secures systems that are vital to business operations.

Your Bank has completed the following initiatives:

1. Interfaces to the Cash Tree Network thereby, providing access to over 30,000 ATMs in India.

2. Interactive Kiosks from Nixdorf.

3. YES TOUCH Phone Banking Service enabled in partnership with CISCO, Scansoft for speech-recognition and Servion Global for system integration and implementation.

4. IP Telephony deployment in consultation with Cisco and Wipro.

5. Disaster Recovery (DR) implementation in consultation with SANOVI to set-up a DR Data Centre at Chennai.

6. Wireless (Wi-Fi) Banking solutions for branches in technical collaboration with Intel.

7. Global Innovation Centre at the South Extension branch in New Delhi.,

8. Mutual Funds Online (MF Online) platform to buy, sell and manage your mutual funds portfolio online.

9. Retail Assets solutions (FinnOne) from Nucleus Software.

10. NSDL's DPM GISMO Depository Participant solution and the back office solution to support Depository Participant (DP) operations. Back office solution applied is DPSecure from CMC Ltd.

11. Cheque Truncation solutions from NEWGEN Software Technologies.

12. Messaging solution (MS Exchange 2007) from Microsoft. (Your Bank is the first Banking site in Asia Pacific to implement MS Exchange 2007).

13. Core-banking solutions (Flexcube) from i-flex to manage retail and corporate accounts.

Your Bank, believes in seeking new customers through the platform of Service Excellence with a host of varied service offerings while retaining them for a lifetime. This is achieved by providing them with innovative and fexible product offerings customised to suit their needs. Towards further enhancing customer satisfaction and improving the operational effectiveness, several initiatives are being launched, on an ongoing basis during the Fiscal Year 2008-2009.


Your Bank has formed strategic relationships with eminent Indian and global companies. After all, service excellence leads to wider platforms for mutual benefit.

Organisation Purpose

Agricultural Insurance Company Agricultural Insurance

Bajaj Allianz General Insurance

Bharti Airtel Telecom Connectivity

Bill Desk Online Bill Payment Facility

CashTech Cash Management and Financial Supply Chain Solutions

CMC NSDL Depository Participation (DP)

Cisco Technology Innovation and Infrastructure

De La Rue Teller Automation and Cash Dispenser Machines

eFunds ATM and Card Payments Solutions

IBM Technology Hardware

i-flex Core Banking and Internet Banking Solution

Intel Technologies Wireless Fidelity (Wi-Fi) Branch Banking Solutions

J P Morgan Chase International Pre-paid Travel Card

MasterCard International International Gold and Silver Debit Cards

Max New York Life Life Insurance

Murex Integrated Risk Management and Treasury Solution

Microsoft Enterprise Agreement for Servers, Desktops and other products

NABARD/NABCONS Strategic Advisory for Food and Agribusiness Sector

NewGen Software Technologies Cheque Truncation Solution

NSIC Financial Solutions and Advisory for Small Scale Industries

Nuance YES TOUCH Phone Banking Service - Speech Recognition Solution

Nucleus Software Retail Assets Platform

Obopay Mobile Payments

Portwise Internet Banking Security Solutions

Reliance Infocomm WAN MPLS Backbone and Data Centre Hosting

Reuters Dealing Solution and Online Forex Trading Platform

Servion Global Integration Partners for the YES TOUCH Phone Banking Service

SIDBI Financial Solutions for SMEs

Sify Communications Redundant WAN MPLS Backbone and ATM Connectivity

VSNL Data Centre Hosting

Wipro Total Technology Outsourcing

Wincor Nixdorf Self Service Solutions: Automated Teller Machines (ATM) and Financial Kiosks

Yodlee Online Personal Finance Management


Your Bank's robust risk management machinery is specifically designed to scrutinise the exposure of the Bank's key risk areas and measure, monitor and manage them efficiently. To ensure optimum results, your Bank has appointed a Risk Management Committee (RMC), a board level sub-committee, that acts independently and articulates to put in place specific policies and procedures, for managing the credit policy framework of the Bank, as per RBI's Guidance Note on the same. These policies and procedures are constantly reviewed and updated at regular intervals.

Credit Risk

Your Bank follows a comprehensive and well-defined credit approval process for all proposals to clearly outline the quantum of risk associated with them. These processes encompass a comprehensive risk assessment and rating of all obligors using the Bank's rating models. These models have been developed in conjunction with a reputed external credit rating agency and cover all business segments of the Bank.

The exercise of creating a comprehensive risk assessment and rating system also involved the development of a comprehensive capital calculator in line with the New Basel Capital Accord (Basel II), which has undergone intensive testing and is in the process of being formally adopted. Parallel runs in this regard are already under progress.

Market Risk

Your Bank's Market Risk management is governed by a comprehensive Market Risk Policy, ALM Policy, Investment Policy and Customer Appropriateness Policy, to iterate consistency across business activities and aggregate similar risks. These policies have been benchmarked with industry best practices and RBI regulations. The Bank has an integrated and straight-through processing state-of-the-art treasury system for enabling better risk management.

Your Bank measures liquidity, currency, and interest rate risks through various internal risk models viz. EVVMA based Value at Risk (VaR), Earnings at Risk (EaR), Duration of Equity, etc. The risk reporting mechanism comprises of internal disclosures and reporting systems. The above have ensured that your Bank is fully compliant with the requirements of the Basel II capital accord for Market Risk.

Operational Risk

Your Bank has established and implemented a comprehensive system for internal control to mitigate the operational risks. Adequate mechanisms are in place to measure productivity, efficiency, quality, risk identification and mitigation across all the businesses. Your Bank also has a Board approved Operational Risk Management policy in place and has further initiated an exercise to develop a detailed operational risk framework, by way of identifying the major operational risks, which the various business are exposed towards. Your Bank has already commenced monitoring of the potential risk events, duly categorized as per the BASEL II requirements and the Reserve Bank of India Guidelines.


Your Bank's Internal Audit Department performs the independent and objective assessment to measure adequacy and effectiveness of the internal

controls instituted by the management. This initiative supports your Bank's role in safeguarding its assets. The Internal Audit Function reports to the Managing Director and CEO for regular activities, and to the Audit and Compliance Committee for audit planning and reporting. The function has adopted a Risk-based approach of Audit (RBIA). The primary focus of the audit is on key risk areas, which are of substantial importance to the Bank. The RBIA approach has been thoughtfully structured taking into account RBI guidelines and international best practices. Additionally, your Bank also subjects its operations to Concurrent Audit by reputable audit firms to complement its internal audit function. The Concurrent Audit covers core activities such as credit portfolio, financial markets, operations, and branches. All audit reports are immediately acted upon by the Management and the Audit and Compliance Committee of the Board.


Whether the goal is to equip your Bank's teams with skills to work effectively across organisational boundaries, or build a culture that shifts the focus from activities to outcomes, your Bank ensures Service Excellence through quality human capital. Equipped with a team of industry and banking experts, your Bank continuously develops quality performance while realising customer service objectives, creating positive employee attitudes through effective recognition programs and measuring results through consistent customer feedback.

The aim is to build a culture and environment that supports professional entrepreneurship and is built on the core philosophy of creating and sharing value.

The Human Capital engagement practices at your Bank are targeted at developing the Bank brand as the Preferred Employer of Choice. The Bank continues to be strongly focused on attracting and retaining the best talent from India and abroad. Within a short span of time, Management Talent at your Bank is regarded as one of the best in the Indian Banking sector, as demonstrated by the several recognitions and awards received over the last three years. Some of the key features of your Bank's policies and practices are illustrated as below:

Human Capital Atquisition

Your Bank aims to become an 'aspirational employer' for the brightest and best quality Human Capital available in the market. The total employee strength of your Bank, as on March 31, 2008, was 3,150 - an increase of 29% over March 31, 2007.

Your Bank has developed strategic relationships with Business Schools and Universities through campus engagement, alumni networks etc. to employ talented young officers in various management levels across all business groups. Your Bank is amongst the few Indian banks to engage all Human Capital as permanent employees directly on the Bank's rolls.

Your Bank continues to be highly focused on inducting the highest quality of management talent through its unique and differentiated programs like the YES Professional Entrepreneurship Program (Y-PEP). More than 20 top class CA's were hired from the ICAI campus in November 2007. Your Bank has also recruited more than 60 management professionals from 21 leading business schools in India & Asia, under this program during FY 2007-2008.

Talent Development

The YES SCHOOL Banking (YSB) has been institutionalised with a vision to create and deliver Benchmark Learning and Development initiatives for all employees of the Bank and to become a Banking Industry Talent Creator by building a pool of qualified executives with practical skill sets required for the Banking Industry.

Various Learning and Talent Development initiatives are currently run through the aegis of YSB, like YESSENTIALs, the Bank's branded induction program for all new joinees. The Bank has recently launched a YSB Trainers Forum to ensure effective and customised knowledge transfer within YES BANKers by utilising our in-house subject matter experts (on Products/Process/Banking domain) as Specialist Knowledge Trainers.


Your Bank has launched 'YES for YOU' the HR - IT system in January, 2008. This is in line with the Bank's vision -to leverage the best in class technology, make it a significant differentiator and achieve our vision to become The Most Technologically Architected Bank of India. The key objectives are:

* To make relevant information available to employees at all times e.g. Leave & Attendance Rules, HCM policies, self service tools like salary slip and tax forecasts, etc.

* To create a communication platform that bonds employees across the Bank.

* To have a comprehensive, cost effective system to manage HCM processes and information.

* To improve the overall HCM service delivery.

* Better and meaningful administrative control with a view to business expansion.

With its superior differentiated strategy on Human Capital, the Bank has garnered several recognitions in the form of multiple awards and accolades from leading industry bodies in the field of Human Resources as mentioned earlier in the Report.



The Balance Sheet of your Bank rapidly grew by a healthy 53% for the year ended March 31, 2008 compared to the last Financial Year ended March 31, 2007. During this fiscal period, your Bank recorded a growth of 50% in its loan book with loans increasing to Rs. 94,303 million, while, deposits demonstrated a growth of 61% to reach Rs. 132,732 million as on March 31, 2008. Complimenting the surge in total assets, your Bank's net revenues (comprising of net interest income and other income) increased by 89% to Rs. 6,912 million for FY 2007-08 from Rs. 3,659 million for FY 2006-07.

Keeping in mind the need to rapidly grow the Bank's infrastructure resulting in higher than average operating expenses during this period, your Bank continued to focus on fee and other income to drive profitability. Operating profit before tax increased 103% to Rs. 3,500 million for FY 2007-08 compared to Rs. 1,724 million for FY 2006-07. The increase in operating profit was generated by a 97% growth in net interest income to Rs. 3,367 million and a 82% increase in fee, treasury and other income to Rs. 3,545 million. Operating Expenses during this period was Rs.3,412 million. Net Profit after tax was Rs. 2,000 million for FY 2007-08, an increase of I 12% when compared to a net profit of Rs. 944 million for FY 2006-07. The effective tax rate in FY 2007-08 was 34.74%. The return on average assets was 1.42% while return on equity was 19.0% during FY 2007-08.

Your Bank's total assets increased 53% to Rs. 169,824 million as at March 31, 2008 from Rs. I I 1,034 million as at March 31, 2007. Advances grew by 50% to Rs. 94,303 million, primarily due to increase in corporate wholesale lending, offset in part by, repayments and loan securitisation. Corporate and Institutional advances (customers which have turnover in excess of Rs.7,500 million and Government entities) constituted nearly 54% of the Bank's total advances as at March 3 I , 2008 (73% as at March 31, 2007). Emerging Corporates and Business Banking SME advances were 44% of total advances as at March 31, 2008 (26% as at March 31, 2007).

Total investments as at March 31, 2008 increased 66% to Rs. 50,937 million from Rs. 30,731 million as at March 31, 2007. This growth is on account of increase in SLR investments and investments qualifying towards priority sector lending consequent to the increase in total assets of your Bank.

Your Bank's deposits increased by 61 % to Rs. 132,732 million as at March 31, 2008 which comprised of Rs. 9,821 million of demand deposits, Rs. 1,465 million of savings deposits, Rs. 121,445 million of term deposits and Certificates of Deposit. Term and Certificates of Deposit increased by 57% in FY 2007-08 from Rs. 77,465 million as at end of FY 2006-07. Savings deposits increased by 153% and current deposits increased by 136% as at March 31, 2008 over March 31, 2007.

Your Bank has adopted a 'One Bank' approach and has leveraged the existing client relationships to effectively cross-sell a wide range of financial products and services, in line with its strategy to boost its profits through fee and fund based income. Total deposits at March 31, 2008 constituted 89% of total funding (i.e. deposits, borrowings) and subordinated debts) compared to 86% as at March 31, 2007. The increase in deposits has helped decelerate the hike in overall cost of funds; however on account of hardening of interest rates; the average cost of funds for FY 2007-08 was 8.48% and the net interest margin was 2.74%.

Summarised Financial Position: Rs. in Million March 31, March 31, Growth 2008 2007 % over March 31, 2007


Advances 94,303 62,897 50%Investments 50,937 30,731 66%Others 24,584 17,406 41%Total Assets 169,824 111,034 53%


Shareholders' funds 13,189 7,871 68%Deposits 132,732 82,204 61%Borrowings 9,862 8,673 14%Others 14,041 12,286 14% Total Liabilities 169,824 111,034 53%

Your Bank's shareholders' funds as at March 31, 2008 increased to Rs.13,189 million from Rs. 7,871 million as at March 31, 2007 as a result of private placement of 14.7 million equity shares for Rs. 3,308 million; exercise of 1.089 million share options for Rs. 10.89 million and Rs. 2,000 million net profit after tax for FY 2007-08, enhancing the reserves and surplus balance.

The increase in net interest income to Rs. 3,367 million in FY 2007-08 was driven by 102% increase in interest bearing assets and an average net interest margin of 2.74%. Increase in the average interest bearing assets was primarily due to robust growth in advances and investments portfolio during the FY 2007-08. Strong focus on non-interest income enabled your Bank to earn Rs. 3,545 million of other income for FY 2007-08 as compared to Rs. 1,946 million for FY 2006-07.

Selective Operating Result Data:

Rs. in Million FY 2007-08 FY 2006-07 Growth % over March 31, 2007 Net Interest Income 3,367 1,713 97%Non Interest Income 3,545 1,946 82%Total Income 6,912 3,659 89%Operating Expenses 3,412 1,935 76%Employee Costs 2,024 1,175 72%Other Costs 1,388 760 83%Operating Profit 3,500 1,724 103%Provisions and Contingencies 436 287 52%Profit before Tax 3,064 1,437 113%Provision for Taxes 1,064 493 116%Net Profit 2,000 944 112%


Key Ratios FY 2007-08 FY 2006-07

Return on Equity (%) 19.00% 13.88%Return on Annual Average Assets (%) 1.42% 1.24%Basic Earnings per share Rs. 7.02 3.46Diluted Earnings per Share Rs. 6.75 3.34Book Value Rs. 44.60 28.1 Non Interest Income to Net revenues (%) 51.29% 53.17%Cost to Income (%) 49.36% 52.88%

The percentage of non-interest income to net revenues (net interest income plus non-interest income) was 51.29% in FY 2007-08 (53.17% in FY 2006-07). Non-interest income consists of revenue originating from sales of Foreign Exchange and Treasury Products, managing Financial Advisory & Merchant Banking Transactions, distribution of third party products, Transaction Banking and Trade Finance activities. Operationalisation of new branches helped your Bank improve its fee income from distribution of third party products derived from retail banking channels.

Your Bank continued to make substantial investments towards information technology, branch expansion and human resources to meet its growth targets. Operating (non-interest) expenses increased by 76.31% from Rs.1,935 million for FY 2006-07 to Rs. 3,412 million in FY 2007-08. Employee costs accounted for 59% of non-interest expenses for FY 2007-08 as against 61% for FY 2006-07.

The Bank had a low Net Non Performing Assets (NPA) to Net Advances ratio of 0.09% as at March 31, 2008 despite commendable growth in advances. The general loan loss provision required to be made as at March 31, 2008 stood at 2% for personal loans, loans to specified sectors/borrowers; 1% for specific advances; 0.25% for qualified agricultural and SME advances and 0.40% for the balance advances portfolio as per recent RBI guidelines. The general loan loss provision balance was Rs. 526 million as at March 31, 2008. The general loan loss provision made during FY 2007-08 was Rs. 180 million as compared to Rs. 254 million for FY 2006-07. Decrease in the provisioning can be attributed to the change in Advances mix of your Bank.

Net Profit after tax increased to Rs. 2,000 million for FY 2007-08 as against Rs. 944 million for FY 2006-07. For the Financial Year 2007-08, return on average assets was 1.42% whereas the return on equity was 19.00%. Increased branch network, significant growth in total assets and non-interest income have enabled your Bank to maintain consistent performance during FY 2007-08.

Sectoral Distribution of Loans

Your Bank continues to focus on industry sectors (which have been selected based on the overview of macro economic factors, industry analysis, the Bank's domain knowledge and expertise in addition to the directives from the Reserve Bank and Government of India) to drive its portfolio growth. Accordingly, your Bank's portfolio is largely distributed amongst Food and Agribusiness contributing (25%), Engineering (18%), Infrastructure (16%), Telecommunications Media and Information Technology (TMT) (8%), Retailing and Textiles (6%) and Life sciences (3%). To meet priority sector lending targets, your Bank is working with channel partners including micro-finance companies and NBFCs for origination, monitoring and collections. Your Bank has also built structured credit solutions around agriculture input suppliers of large corporates, thereby using the distribution network of these companies to originate and lend to agricultural producers.

Sectoral Distribution of Loans Given below:

Food and Agribusiness 25%Infrastructure 16%Lifesciences 3%Retailing & Textiles 6%Engineering 18%TMT 8%other 23%

Shareholders' Funds & Capital Management

Your Bank's shareholder funds were Rs. 13,189 million as at March 31, 2008 as compared to Rs. 7,871 million as at March 31, 2007.

Tier-I Capital

During the Financial Year ended March 31, 2008, your Bank privately placed 14.7 million equity shares of Rs.10 each for cash at a price of Rs. 225 per share to Orient Global Tamarind. The issue of above shares as well as the exercise of 1.089 million employee stock options resulted in an increase in the networth of the Bank by Rs. 3,318.89 million.

Tier- II Capital

During the Financial Year 2007-08, your Bank issued subordinated debt for an amount of Rs. 549 million for a period ranging from 9 years, 3 months to 9 years, 7 months. The issue was rated LAA- by ICRA and AA- by CARE. Additionally, your Bank also issued Upper Tier II Debt for an amount of Rs.1,940 million for a period of 15 years to augment your Bank's Tier II Capital during FY 2007-08. The issue of Upper tier II was rated LA+ by ICRA and A+ by CARE. Your Bank had a capital adequacy ratio of 13.6% as at the end of FY 2007-08, substantially above the requirement of 10% prescribed by Reserve Bank of India. Of this, Tier I capital amounted to 8.5%, while Tier II capital was at 5.1% of the risk weighted assets of your Bank.

Preparation for Basel II Implementation

Your Bank has designed a detailed plan for ensuring successful implementation and compliance of the BASEL II requirements with respect to calculation of capital charge for operational, market and credit risk. With regard to credit risk your Bank has implemented an integrated comprehensive rating methodology, loan approval system with in-built credit risk rating models that have been developed in conjunction with a leading rating agency. The Bank will initially commence the capital calculation for credit risk on the Standardized Approach and migrate to the Foundation IRB Approach over time. The Bank will calculate capital charge for market risk on the Standardized Duration approach and has set up internal systems for its effective measurement. Your Bank has established and implemented a comprehensive system for internal control to mitigate the operational risks. Adequate mechanisms are in place to measure productivity, efficiency, quality, risk identification and mitigation across all the businesses. Your Bank also has a Board approved Operational Risk Management policy in place and has further initiated an exercise to develop a detailed operational risk framework, by way of identifying the major operational risks, which the various business are exposed to. Your Bank has already commenced monitoring of the potential risk events, duly categorized as per the BASEL II requirements and the Reserve Bank of India Guidelines.

The Bank has also commenced a parallel run under the extant RBI guidelines and expects to be fully compliant with the Capital Adequacy requirements for Basel II.

The following table provides Capital Adequacy Ratios, computed in accordance with applicable RBI guidelines:

Particular March 31, March 31, 2008 2007

Total Capital Adequacy Ratio (CAR) in percent 13.6 13.6Out of the above:

Tier I Capital 8.5 8.2Tier II Capital 5.1 5.4



* Expansion of branch network resulting in increased brand awareness, market penetration and mobilisation of low cost retail deposits.

* Cross sell opportunities across varied financial products and services to existing and potential customer base.

* Employment of highly skilled and specialised human resources to facilitate greater productivity and improved quality.

* Improved economic activity leading to higher demand for credit.

* Investing in state-of-the-art technology for assuring quality, increased process efficiency and complete customer satisfaction.

* Initiating new businesses and launching new products.


* Unfavourable fluctuations in the Interest rate.

* Unexpected volatility in foreign exchange rates.

* Highly competitive environment with the presence of a number of aggressive local and multinational Banks and Financial Institutions.

* Attrition of key management personnel.

* Technology obsolescence leading to recurring and increased capital requirements.

* Major changes in the banking regulations that significantly impact performance.

* Natural calamities and disasters like earthquake and floods.

* Civil war, war with another country, terrorist attack.


A balanced economic growth in the sectors of industry and services with consistent capital inflows is expected in the coming financial year. The banking industry, given its integral role in economic growth, would be able to sustain robust performance in near future. However, further liberalisation and infrastructure growth would be necessary to sustain this growth. There could be impediments in the form of rising oil prices, US dollar price volatility, high asset prices, natural disasters and political or civil instability. In the backdrop of the above described milieu, your Bank is convinced that it will be able to meet the set aggressive targets and continue on its path of profitable growth.

Safe Harbour

This document contains certain forward looking statements based on current perception at the Bank. All forward looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated. Important factors that could cause actual results to differ materially from expectations include changes in general economic and business conditions in and outside India, changes in applicable laws, political conditions and fluctuations in foreign exchange rates, which may adversely affect the Bank's ability to successfully implement its strategy and growth plans as envisioned. The Bank does not have any obligation to, and does not intend to, update or otherwise revise any such forward looking statement even in the event of underlying assumptions not materialising.

This document does not constitute an offer or recommendation to buy or sell any securities of your Bank or any of its associate companies. This document does not constitute an offer or recommendation to buy or sell any financial products offered by your Bank or any of its associate companies.