Docstoc

The Karnataka Bank Limited

Document Sample
The Karnataka Bank Limited Powered By Docstoc
					                                                                                                                       Letter of Offer
                                                                                                              Dated February 18, 2011
                                                                                              For Equity Shareholders of our Bank only

                                              The Karnataka Bank Limited
    Our Bank was incorporated on February 18, 1924 as The Karnataka Bank Limited under the Indian Companies Act, 1913. The
  certificate to commence business was obtained on May 23, 1924. Our Bank received its license to carry on the banking business in
  India under the Banking Regulation Act, 1949, from the Reserve Bank of India on April 04, 1966. Our Bank has been allotted CIN
                                   L85110KA1924PLC001128 under the Companies Act, 1956.
                       Registered Office: P.B. No. 599, Mahaveera Circle, Kankanady, Mangalore - 575 002
                                        Tel: +91 (0824) 2228222 Fax: +91 (0824) 2225588
                        Contact Person: Mr. Y V Balachandra, Company Secretary and Compliance Officer
                                  E-mail: info@ktkbank.com; Website: www.karnatakabank.com

             FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF OUR BANK ONLY
ISSUE OF 5,37,69,935 EQUITY SHARES WITH A FACE VALUE OF RS. 10 EACH (“RIGHTS EQUITY SHARES”) FOR
CASH AT A PRICE OF RS. 85 PER EQUITY SHARE INCLUDING SHARE PREMIUM OF RS. 75 PER EQUITY SHARE
AGGREGATING TO RS. 457.04 CRORES BY THE KARNATAKA BANK LIMITED (THE “BANK” OR THE “ISSUER”)
TO THE EXISTING EQUITY SHAREHODERS OF THE BANK ON A RIGHTS BASIS IN THE RATIO OF 2 EQUITY
SHARES FOR EVERY 5 EQUITY SHARES HELD ON THE RECORD DATE, I.E. FEBRUARY 28, 2011 (“THE RIGHTS
ISSUE”). THE ISSUE PRICE FOR THE EQUITY SHARES IS 8.5 TIMES OF THE FACE VALUE OF THE EQUITY
SHARES.
                                                            GENERAL RISK
Investments in equity and equity related securities involve a degree of risk and investors should not invest any funds in this Rights
Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before
taking an investment decision in this Rights Issue. For taking an investment decision, investors must rely on their own examination of
our Bank and the Rights Issue including the risks involved. The securities being offered in the Rights Issue have not been
recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of
this Letter of Offer. Investors are advised to refer “Risk Factors” on Page no 8 of this Letter of Offer before making an
investment in this Rights Issue.
                                              ISSUER’S ABSOLUTE RESPONSIBILITY
Our Bank, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all
information with regard to our Bank and the Rights Issue, which is material in the context of the Rights Issue, that the information
contained in the Letter of Offer is true and correct in all material aspects and is not misleading in any material respect, that the
opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this Letter of
Offer as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.
                                                                 LISTING
Our existing Equity Shares are listed on the Bombay Stock Exchange Limited (“BSE”) and the National Stock Exchange of India
Limited (“NSE”). The Equity Shares offered through this Letter of Offer are proposed to be listed on the BSE and the NSE. We have
received "in-principle" approvals from the BSE and the NSE for listing the Equity Shares to be allotted pursuant to this Rights Issue
vide their letter dated November 10, 2010 and November 11, 2010, respectively. For the purposes of the Rights Issue, the Designated
Stock Exchange is BSE.

 LEAD MANAGER TO THE ISSUE                                              REGISTRAR TO THE ISSUE




 Edelweiss Capital Limited                                       Integrated Enterprises India Limited
 14th Floor, Express Towers,                                     No 30 Ramana Residency 4th Cross,
 Nariman Point, Mumbai – 400 021                                 Sampige Road, Malleswaram,
 Telephone: +91 22 4086 3535                                     Bangalore 560 003
 Facsimile: +91 22 4086 3610                                     Telephone: + 91 80 23460815-818
 E-mail: ktk.rights@edelcap.com                                  Facsimile: + 91 80 23460819
 Investor Grievance E-mail: customerservice.mb@edelcap.com       E-mail: alfint@vsnl.com
 Website: www.edelcap.com                                        Investor Grievance E-mail: ktkbankrights@vsnl.net
 Contact Person: Mr. Sumeet Lath/Mr. Jibi Jacob                  Website:www.iepindia.com
 SEBI Registration No. INM0000010650                             Contact Person: Mr. S. Vijayagopal
                                                                 SEBI Registration No: INR 000000544
                                                      ISSUE PROGRAMME
                                                   LAST DATE FOR REQUEST FOR
              ISSUE OPENS ON                                                                   ISSUE CLOSES ON
                                                    SPLIT APPLICATION FORMS
         TUESDAY, MARCH 8, 2011                      MONDAY, MARCH 14, 2011               TUESDAY, MARCH 22, 2011
                                                             TABLE OF CONTENTS



PRESENTATION OF FINANCIAL INFORMATION .................................................................................... 3

ABBREVIATIONS AND TECHNICAL TERMS............................................................................................. 4

RISK FACTORS .................................................................................................................................................. 8

SUMMARY OF THE ISSUE ............................................................................................................................ 28

SUMMARY FINANCIAL INFORMATION................................................................................................... 29

GENERAL INFORMATION............................................................................................................................ 34

CAPITAL STRUCTURE................................................................................................................................... 38

OBJECTS OF THE ISSUE................................................................................................................................ 45

STATEMENT OF TAX BENEFITS................................................................................................................. 46

REGULATIONS AND POLICIES ................................................................................................................... 53

HISTORY OF OUR BANK AND OTHER CORPORATE MATTERS ....................................................... 54

OUR MANAGEMENT ...................................................................................................................................... 57

FINANCIAL STATEMENTS ........................................................................................................................... 64

MATERIAL DEVELOPMENTS...................................................................................................................... 65

STOCK MARKET DATA FOR EQUITY SHARES OF OUR BANK ......................................................... 71

LEGAL AND OTHER INFORMATION......................................................................................................... 73

LICENSES AND APPROVALS ....................................................................................................................... 85

STATUTORY AND OTHER INFORMATION.............................................................................................. 86

TERMS AND PROCEDURE OF THE ISSUE................................................................................................ 98

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION..................................................... 130

DECLARATION .............................................................................................................................................. 131




                                                                               2
                           PRESENTATION OF FINANCIAL INFORMATION
Unless stated otherwise, the financial information used in this Letter of Offer is derived from our Bank’s
financial statements as of fiscal 2010, reviewed financial statements for the six months ended on September 30,
2010, prepared in accordance with Indian GAAP and in accordance with the SEBI ICDR Regulations, as stated
in the report of our Statutory Auditors, M/s Vishnu Daya & Co, Chartered Accountants and M/s R.K Kumar &
Co., Chartered Accountants and unaudited financial results for the nine months and quarter ended ended
December 31, 2010 filed with the Stock Exchanges in accordance with the requirements under clause 41 of the
listing agreement, included in this Letter of Offer. The current Auditors of our Bank are M/s Vishnu Daya & Co,
Chartered Accountants and M/s R.K Kumar & Co., Chartered Accountants.

Our fiscal year commences on April 1 and ends on March 31 of the next year. Unless stated otherwise,
references herein to a fiscal year are to the fiscal year ended March 31 of a particular year.

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

Unless otherwise stated, throughout this Letter of Offer all figures have been expressed in INR.




                                                        3
                              ABBREVIATIONS AND TECHNICAL TERMS

In this Letter of Offer, all references to “Rupees”, “Rs.” , ‘Re’ or “INR” refer to Indian Rupees, the official
currency of India; references to the singular also refer to the plural and reference to a gender also refers to any
other gender, wherever applicable, and the words “Lakh” or “Lac” mean “100 thousand” and the word “million”
means “10 lakh” and the word “crores” means “10 million” or “100 lakhs” and the word “billion” means “1,000
million” or “100 crores”.

CONVENTIONAL/ GENERAL TERMS
Act                    The Companies Act, 1956, as amended
Articles or AOA        Articles of Association of our Bank
Board                  The Board of Directors of our Bank or the Committee authorized to act
                       on its behalf
Equity Shares          The Issued, Subscribed and Paid Up Equity Share Capital of our Bank
                       and the additional equity shares of our Bank offered pursuant to the
                       Rights Issue
Depository             A depository registered with SEBI under the SEBI (Depository and
                       Participant) Regulations, 1996, as amended from time to time.
Rights Equity Shares   The equity shares of our Bank offered pursuant to the Rights Issue
SEBI ICDR Regulations  Securities and Exchange Board of India (Issue of Capital and Disclosure
                       Requirements) Regulations, 2009 as amended
ISIN                   International Securities Identification Number allotted by the depository
Memorandum or MOA      Memorandum of Association of our Bank


ISSUE RELATED TERMS
Abridged Letter of Offer             The abridged letter of offer to be sent to Eligible Equity Shareholders of
                                     our Bank with respect to this Issue in accordance with SEBI ICDR
                                     Regulations
Allotment                            Unless the context otherwise requires, the allotment of Rights Equity
                                     Shares pursuant to the Issue.
Application                          Unless the context otherwise requires, refers to an application for
                                     allotment of the Rights Equity Shares in the Issue.
Allottee(s)                          Unless the context otherwise requires, an Investor(s) to whom Rights
                                     Equity Shares are allotted.
ASBA/Application                     The application (whether physical or electronic) used by an Investor to
Supported by Blocked                 make an application authorizing the SCSB to block the amount payable
Amount                               on application in their specified bank account
ASBA Investor                        An applicant who;
                                     a) holds the shares of our Bank in dematerialized form as on the record
                                     date and has applied for entitlements and / or additional shares in
                                     dematerialized form;
                                     b) has not renounced his/her entitlements in full or in part;
                                     c) is not a renouncee;
                                     d) is applying through a bank account maintained with SCSBs.
Bankers To The Issue                 The Karnataka Bank Limited
CAF / Composite Application          The form used by an Investor to make an application for the Allotment of
Form                                 Equity Shares in the Issue
Controlling Branches                 Such branches of the SCSBs which coordinate applications under the
                                     Issue by the ASBA Investors with the Registrar to the Issue and the Stock
                                     Exchanges       and      a    list   of    which       is     available at
                                     http://www.sebi.gov.in/pmd/scsb.html
Designated Branches                  Such branches of the SCSBs which shall collect CAF from ASBA
                                     investor      and     a     list    of    which       is      available at
                                     http://www.sebi.gov.in/pmd/scsb.html
Designated Stock                     The Designated Stock Exchange shall be BSE.
Exchange/DSE

                                                        4
DLOF/Draft Letter Of Offer          Draft Letter of Offer of our Bank for the rights issue dated October 15,
                                    2010 and filed with SEBI on October 18, 2010.
Equity Shareholders/Eligible        Means a holder/beneficial owner of equity shares of The Karnataka Bank
Equity Shareholders                 Limited as on the record date i.e. February 28, 2011.
Investors                           The Eligible Equity Shareholders of our Bank as on the Record Date and
                                    the Renouncees who have submitted an Application to subscribe to the
                                    Issue.
Issue/Rights Issue                  Issue of 5,37,69,935 equity shares with a face value of Rs. 10/- each
                                    (“Rights Equity Shares”) for cash at a price of Rs. 85 including a
                                    premium of Rs. 75 aggregating to Rs. 457.04 Crores to the existing equity
                                    shareholders of our Bank on rights basis in the ratio of 2 Rights Equity
                                    Shares for every 5 Equity Shares held on the record date i.e. February 28,
                                    2011.
Issue Price                         Rs. 85/- per Rights Equity Share
Issue Closing Date                  Tuesday, March 22, 2011
Issue Opening Date                  Tuesday, March 8, 2011
Issue Proceeds                      The proceeds of this Issue that is available to our Bank.
Lead Manager/ Edelweiss             Edelweiss Capital Limited, 14th floor, Express Towers, Nariman Point,
                                    Mumbai- 400021
Letter of Offer                     This letter of offer filed with the Stock Exchanges after incorporating
                                    SEBI comments on the DLOF.
Record Date                         February 28, 2011
Renouncee(s)                        Any person(s) who has / have acquired Rights Entitlements from the
                                    Eligible Equity Shareholders.
Rights Entitlement                  The number of Equity Shares that an Eligible Equity Shareholder is
                                    entitled to in proportion to his / her shareholding in our Bank as on the
                                    Record Date.
Registrar To The Issue              Integrated Enterprises India Limited
Self Certified Syndicate Bank       The Banks which are registered with SEBI under SEBI (Bankers to an
or SCSB                             Issue) Regulations, 1994 and offers services of ASBA, including blocking
                                    of bank account and a list of which is available on
                                    http://www.sebi.gov.in/pmd/scsb.html
Stock Exchanges                     BSE and NSE

BANK/INDUSTRY RELATED TERMS
“We”, “us”, “our”, “the Issuer”, Unless the context otherwise indicates or implies, refers to “The
“the Bank”, “our Bank”, “The Karnataka Bank Limited”
Karnataka Bank Limited” or
“Karnataka Bank”
Auditors                         The statutory auditors of our Bank – M/s Vishnu Daya & Co, Chartered
                                 Accountants and M/s R K Kumar & Co.
Chairman                         The Chairman of Board of Directors our Bank
Repatriation                     “Investment on repatriation basis” means an investment the sale proceeds
                                 of which are, net of taxes, eligible to be repatriated out of India, and the
                                 expression ‘Investment on non-repatriation basis’, shall be construed
                                 accordingly.
The BR Act                       The Banking Regulation Act, 1949 and subsequent amendments thereto.

ABBREVIATIONS
AY                                  Assessment Year
AGM                                 Annual General Meeting
AS                                  Accounting Standard as Issued By The Institute Of Chartered
                                    Accountants Of India
BPLR                                Benchmark Prime Lending Rate
BG                                  Bank Guarantee
BSE                                 Bombay Stock Exchange Limited
CAGR                                Compounded Annual Growth Rate
CDSL                                Central Depository Services (India) Limited
DEMAT                               Dematerialized (Electronic/Depository as the context may be)

                                                      5
DIN                             Director Identification Number
DLOF                            Draft Letter of Offer
DP                              Depository Participant
EGM                             Extra-Ordinary General Meeting
EPS                             Earnings Per Share
FCNR                            Foreign Currency Non Resident
FDI                             Foreign Direct Investment
FEMA                            Foreign Exchange Management Act, 1999 and the subsequent
                                amendments thereto
FERA                            Foreign Exchange Regulation Act, 1973
FII                             Foreign Institutional Investors (as defined under the Securities and
                                Exchange Board of India (Foreign Institutional Investors) Regulations,
                                1995) registered with SEBI.
FIPB                            Foreign Investment Promotion Board
FINANCIAL YEAR / FY             Financial Year
GOI / Government                Government Of India
HUF                             Hindu Undivided Family
IT                              Income-Tax Act, 1961
ITAT                            Income Tax Appellate Tribunal
LOF                             Letter of Offer
NR                              Non Resident
NRE ACCOUNT                     Non Resident External Account
NRI                             Non Resident Indian
NRO ACCOUNT                     Non Resident Ordinary Account
NSDL                            National Securities Depository Limited
NSE                             National Stock Exchange of India Limited
OCB                             Overseas Corporate Bodies
PAN/GIR No.                     Income Tax Permanent Account Number/General Index Reference
                                Number
RBI                             Reserve Bank Of India
SAF                             Split Application Form
SEBI                            Securities And Exchange Board of India
SEBI (SAST) Regulations, 1997   SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
                                1997 and subsequent amendments thereto
ST                              Service Tax
TAN                             Tax Deduction Account Number

TECHNICAL AND INDUSTRY TERMS AND ABBREVIATIONS
AFS                     Available for sale
ALCO                    Asset Liability Management Committee
ATMs                    Automated Teller Machines
Bps                     Basis points
CAIIB                   Certified Associate of Indian Institute of Bankers
CAR                     Capital Adequacy Ratio
CBS                     Core Banking Solutions
CDR                     Corporate Debt Restructuring
CRAR                    Capital to Risk Weighted Assets Ratio
CRR                     Cash Reserve Ratio
DBOD                    Department of Banking Operations and Development
DRS                     Disaster Recovery Site
DRT                     Debts Recovery Tribunal
ECGC                    Export Credit and Guarantee Corporation of India Ltd
ECS                     Electronic Clearing Services
EPS                     Earnings Per Share
FBT                     Fringe Benefit Tax
GAAP                    Generally Accepted Accounting Principles
HFT                     Held for trading
HTM                     Held to Maturity

                                                 6
IRDA                      Insurance Regulatory and Development Authority
IT                        Income Tax
KYC                       Know Your Customer Norms as stipulated by the Reserve Bank of India
LIC                       Life Insurance Corporation of India
FCNR (Account)            Foreign Currency Non Resident (Account)
FCNR (Banks)              Foreign Currency Non Resident (Banks)
NAV                       Net Asset Value
NPA                       Non-Performing Asset
NEFT                      National Electronic Fund Transfer
NSLR                      Non- Statutory Liquidity Ratio
MSME                      Micro Small and Medium Enterprises. Micro Enterprise shall mean where
                          the investment in plant and machinery does not exceed Rs. 0.25 Crores.
                          Small Enterprise shall mean where the investment in plant and machinery
                          is more than Rs. 0.25 Crores but does not exceed Rs. 5 Crores, and
                          Medium Enterprise shall mean where the investment in plant and
                          machinery is more than Rs. 5 Crores does not exceed Rs. 10 Crores
PAT                       Profit after Tax
PBIT                      Profit before Interest and Tax
RIDF                      Rural Infrastructure Development Fund
RTGS                      Real Time Gross Settlement
SARFAESI Act              Securitisation and Reconstruction of Financial Assets and Enforcement of
2002/Securitisation Act   Security Interests Act, 2002, as amended
SGL                       Subsidiary General Ledger
SLR                       Statutory Liquidity Ratio
Tier I Capital            The core capital of a bank, which provides the most permanent and
                          readily available support against unexpected losses. It comprises paid-up
                          capital and reserves consisting of any statutory reserves, free reserves and
                          capital reserves as reduced by equity investments in subsidiaries,
                          intangible assets, and losses in the current period and those brought
                          forward from the previous period
Tier II Capital           The undisclosed reserves and cumulative perpetual preference shares,
                          revaluation reserves, general provisions and loss reserves, hybrid debt
                          capital instruments, investment fluctuation reserves and subordinated
                          debt.
WDV                       Written down value
YTM                       Yield to Maturity




                                             7
                                                RISK FACTORS


An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information
in this Letter of Offer, including the risks and uncertainties described below, before making an investment in our
Rights Equity Shares. If any of the following risks actually occur, our business, results of operations and
financial condition could suffer, the price of our Equity Shares could decline, and you may lose all or part of
your investment. The financial and other implications of material impact of risks concerned, wherever
quantifiable, have been disclosed in the risk factors mentioned below. However there are a few risk factors
where the impact is not quantifiable and hence the same has not been disclosed in such risk factors.

The occurrence of any of the following events could have a material adverse effect on our business, results of
operations, financial condition and prospects and cause the market price of our Equity Shares to fall
significantly, and you may lose all or part of your investment. Additionally, our business operations could also
be affected by additional factors that are not presently known to us or that we currently consider as immaterial
to our operations. The following factors have been considered for determining the materiality:

1. Some events may not be material individually but may be found material collectively;
2. Some events may have material impact qualitatively instead of quantitatively;
3. Some events may not be material at present but may have material impact in future.

INTERNAL RISK FACTORS AND RISK FACTORS RELATING TO OUR BUSINESS

1.   We are involved in certain legal and other proceedings in India. If any of the cases pending is decided
     against us, it may have a material adverse effect on our businesses, reputation, financial condition and
     results of operations.

     Our Bank is involved in various civil, criminal, consumer and tax related litigations which are at different
     stages of adjudications before various forums. We are involved in litigations for a variety of reasons, which
     generally arise in the normal course of business, when we seek to recover our dues from borrowers who
     default in payment of the loans or when customers seek claims against us during the process of recovery of
     our dues or for other service related issues.

     Litigation against our Bank as of December 31, 2010:

     Sl.                           Brief Description                            No. of Cases        Amount
     No.                                                                                         Involved (Rs. in
                                                                                                     crores)
     1.      Proceedings filed against our Bank on disputed tax claims                      35             243.55
     2.      Suits involving our Bank which are not acknowledged as debts.                  81              31.71
     3.      Criminal proceedings against our Bank                                          13    Not quantifiable
     4.      Labour cases against our Bank                                                  28                0.01

     The criminal proceedings against our Bank interalia include complaints in respect of non-credit of cheques
     deposited with our Bank, breach of trust, cheating and other related cases. While the Chairman and
     Managing Director and four Independent Directors have been made party in one of the litigations, our
     Bank’s officials have been made party in ten of the criminal proceedings.

     We cannot assure you that the provisions we have made for the above mentioned litigations will be
     sufficient or that new litigation will not be brought against us in the future. Futher, we will be required to
     devote management and financial resources in their defence or prosecution. If we fail to successfully defend
     these or other claims, or if our current provisions prove to be inadequate, our business, reputation, business,
     financial condition and results of operations could be adversely affected.

     Litigation by our Bank as of December 31, 2010:

       Sl.                       Brief Description                         No. of Cases      Amount Involved
      No.                                                                                     (Rs. in crores)
      1.       Suits filed by our Bank against defaulting borrowers.                5,517                261.94

                                                         8
       Sl.                      Brief Description                         No. of Cases      Amount Involved
      No.                                                                                    (Rs. in crores)
      2.     Proceedings filed by our Bank on disputed tax claims.                    13                 17.78

Our Bank intends to defend or appeal these proceedings and will be required to devote management and
financial resources in their defence or prosecution. It cannot be assured that any new litigation / counter suits
will not be brought against our Bank in the future, in respect to such legal proceedings. If our Bank fails to
successfully defend these or other claims, or if its current provisions prove to be inadequate in relation to such
new litigations / counter suits, its business, financial condition and results of operations could be adversely
affected.

For further details in this regard, please refer to the section titled “Legal and Other Information” beginning on
Page no 73 of this Letter of Offer.

2.   Our results of operations depend to a great extent on our net interest income which to a great extent
     depends on the interest rate movements. Volatility in interest rates and other market conditions could
     adversely impact our business and financial results.

Interest rates are sensitive to many factors beyond our control, including RBI’s monetary policy, de-regulation
of the financial sector in India, domestic and international economic and political conditions and other factors.

Volatility and changes in market interest rates could disproportionately affect the interest we earn on our assets
as compared to the interest we pay on our liabilities. The difference could result in an increase in interest
expense relative to interest income leading to a reduction in net interest income. Unstable interest rates may also
adversely affect the rate of growth of important sectors of the Indian economy such as the corporate, retail and
agricultural sectors, which may adversely impact our business.

Also, under the regulations of the RBI, we are required to maintain a minimum specified percentage in the form
of SLR, currently 24%, of our net demand and time liabilities in Government or other approved securities or in
cash. Yields on these investments are dependent to a large extent on interest rates. In a rising interest rate
environment, especially if the increase was sudden or sharp, we could be adversely affected by the decline in the
market value of our Government securities portfolio and other fixed income securities and may be required to
further provide for depreciation in the Available for Sale (“AFS”) and Held For Trading (“HFT”) categories,
which may adversely impact our business and financial performance of our Bank.

3.   We have, in the past, not met the minimum priority sector lending of 18.00% required to be extended to
     the agricultural sector. Our failure to meet the priority sector lending targets in India may subject us to
     appropriate actions by the RBI and also contribution to Rural Infrastructure Development Fund,
     (“RIDF”) which offers lower rate of interest, which may adversely affect our business prospects,
     financial condition and results of operations.

The priority sector lending norms of the RBI require all banks in India to extend at least 40.00% of their
adjusted net bank credit (“ANBC”) (net bank credit plus investments made by banks in non-SLR bonds held in
Held to Maturity (“HTM”) category) to specified sectors, including agriculture, export credit and small scale
industries, which are known as priority sectors. In accordance with these norms, at least 18.00% of our ANBC
must be extended to the agricultural sector and at least 10.00% to the weaker sections.

As on March 31, 2010 and September 30, 2010, the total credit extended by us to priority sectors
constituted 45.80 % and 41.33 %, respectively of our ANBC; and the credit extended to the agriculture sector
constituted 11.97% and 13.51% , respectively of our ANBC. As on March 31, 2010, our total advances made to
the priority sector stood at 45.80% of the ANBC. Though we have met the target in relation to aggregate lending
required to be made to the priority sector for the year ended March 31, 2010, we have not been able to meet the
sub targets that have been set with respect to separate sectors under it.

Failure to meet the targets/sub targets that are set with respect to priority sector lending have in past made us /
and in future may require us to contribute to the Rural Infrastructure Development Fund, (“RIDF”), or such
other investments as determined by the RBI which offer lower rates of return which may impact our net intrest
income. This may adversely affect our business prospects, financial condition and results of operations.




                                                        9
4.   Our business could suffer if we are unable to manage our risks and control the level of our NPAs. If we
     are not able to control and reduce our NPAs, it could adversely affect our business and future financial
     performance

From Fiscal 2009 to 2010, the total value of our net NPAs have moved from Rs. 116.10 Crores to Rs.188.61
Crores, which represents 0.98% of our net advances as of March 31, 2009 and 1.31% of our net advances as of
March 31, 2010. The value of our net NPAs as at September 30, 2010 was Rs. 172.74 Crores which represents
1.1 % of our net advances as of September 30, 2010. Various factors, like a rise in unemployment, slowdown in
the India and world economy, a sharp and sustained rise in the interest rates, adverse developments in the Indian
economy, movements in global commodity markets and exchange rates may cause an increase in the level of
our NPAs and have an adverse impact on the quality of our loan portfolio. The inability of the borrowers to
repay loans due to inadequate money supply in the economy may translate into mounting NPAs. In addition to
the above, under the directed lending norms of RBI, we are required to extend 40.00% of our adjusted net bank
credit to certain eligible sectors, which are categorised as ‘priority sectors’. We may experience an increase in
NPAs in our lending to priority sectors, particularly with regard to loans that are granted to the agriculture and
small-scale industries sectors, where the borrowers are most vulnerable to economic difficulties.
Although we are increasing our efforts to improve collections, we cannot assure you that we will be successful
in our efforts or that the overall quality of our loan portfolio may not deteriorate in the future. If we are not able
to control and reduce our NPAs, it could adversely affect our business and future financial performance.

5.   We are required to maintain Cash Reserve Ratio (“CRR”) and SLR and increase in these requirements
     could materially and adversely affect our business, financial condition and results of operations.

As a result of the statutory reserve requirements stipulated by the RBI, we may be more exposed structurally to
interest rate risk than banks in many other countries. Under the RBI’s regulations, we are subject to a CRR
requirement under which we are currently required to keep 6.00% of our net demand and time liabilities in
current account with the RBI. We do not earn interest on cash reserves maintained with the RBI. The RBI may
further increase the CRR requirement as a monetary policy measure and has done so on numerous occasions.
Increase in the CRR requirement would reduce funds availability for lending, thereby resulting in reduction in
interest income and hence could materially and adversely affect our business, results of operations and financial
condition. In addition, under the RBI’s regulations, we are required to maintain a SLR, according to which
24.00% of our net demand and time liabilities need to be invested in Government securities, state government
securities and other securities approved by the RBI from time to time. In our experience, these securities
generally carry fixed coupons. When the interest rate rises, the value of these fixed coupon securities depreciates
thereby having an adverse impact on our interest income. Hence any increase in the CRR and the SLR
requirements could materially and adversely affect our business, financial condition and results of operations.

6.   In order to grow our business, we are required to maintain our capital adequacy ratio at the minimum
     level required by the RBI. There is no guarantee that we will be able to access capital as and when it is
     needed for growth. If we fail to meet capital adequacy requirements, the RBI may take certain actions,
     including restricting our lending and investment activities, and the payment of dividends by us. These
     actions could materially and adversely affect our reputation and financial results.

We are required by the RBI to maintain a minimum capital adequacy ratio of 9.00% in relation to our total risk-
weighted assets. We must maintain this minimum capital adequacy level to support our growth. Our capital
adequacy ratio was 11.41% (Basel I) and 11.71% (Basel II) as of September 30, 2010. We are exposed to the
risk of the RBI increasing the applicable risk weightage for different asset classes from time to time. Although
we currently meet the applicable capital adequacy requirements, certain adverse developments could affect our
ability to continue to satisfy the capital adequacy requirements, including deterioration in our asset quality,
decline in the values of our investments and changes in the minimum capital adequacy requirements.
Furthermore, our ability to support and grow our business could be limited by a declining capital adequacy ratio
if we are unable to access or have difficulty accessing the capital markets or have difficulty in obtaining capital
in any other manner. If we fail to meet capital adequacy requirements, the RBI may take certain actions,
including restricting our lending and investment activities and the payment of dividends by us. These actions
could materially and adversely affect our reputation, results of operations and financial condition. The Basel II
guidelines for the capital adequacy framework also require maintenance of Tier-1 capital at 6.00%. The
implementation of Basel II norms which became effective from March 31, 2009 and which introduces the
concept of capital for operational risk as well as Risk rating based approach for Credit risk may increase our
capital requirement. There can be no assurance that we will be able to raise adequate additional capital in the
future on terms favourable to us.

                                                         10
7.   The value of our collateral may decrease or we may experience delays in enforcing our collateral if
     borrowers default on their obligations, which may result in failure to recover the expected value of
     collateral security exposing us to a potential loss. This can adversely affect our business and the
     financial performance of our Bank.

A substantial portion of our loans are secured by collateral, including real estate assets such as property, plant,
equipment, inventory, receivables, current assets and pledges of financial assets such as marketable securities
and corporate guarantees. The loans to corporate customers also include working capital credit facilities that are
typically secured by a first lien on inventory, receivables and other current assets. In certain cases, we may have
taken further security of a first or second lien on fixed assets and a pledge of financial assets like marketable
securities, corporate guarantees and personal guarantees. In the event of our borrowers defaulting on the
repayment of the loans, we may not be able to realize the full value of the collateral due to various reasons,
including a possible decline in the realisable value of the collateral, defective title, prolonged legal proceedings
and fraudulent actions by borrowers.

Foreclosure on collateral generally requires a written petition to an Indian court or tribunal. An application,
when made, may be subject to delays and administrative requirements that may result, or be accompanied by, a
decrease in the value of the collateral. In the event a corporate borrower makes a reference to a specialised
quasi-judicial authority called the Board for Industrial and Financial Reconstruction (BIFR), foreclosure and
enforceability of collateral is stayed. The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act), has strengthened the ability of lenders to resolve
NPAs by granting them greater rights as to enforcement of security and recovery of dues from corporate
borrowers. There can be no assurance that the legislation will have a favourable impact on our efforts to resolve
NPAs. There can be no assurance that we will be able to realize the full value of the collateral, as a result of,
among other factors, delays in bankruptcy and foreclosure proceedings, defects in the perfection of collateral
and fraudulent transfers by borrowers. A failure to recover the expected value of collateral security could expose
us to a potential loss. Any unexpected losses could adversely impact our business, financial condition and the
price of the Equity Shares.

Such difficulties in realizing our collateral fully or at all, including if we are compelled to restructure our loans,
could adversely affect our business and financial results.

In addition, the RBI’s guidelines on corporate debt restructuring specify that for debt amounts of Rs. 10 Crores
and above, 60% of the creditors by number and 75% of creditors by value can decide to restructure the debt and
that such a decision would be binding on the remaining creditors. If we own 25% or less of the debt of a
borrower, we could be forced to agree to an extended restructuring of debt which may not be in our interests. As
on December 31, 2010, there are total of 3 cases of Bank’s recovery issues under corporate debt restructuring
aggregating to Rs. 109.54 Crores, constituting about 0.66 % of our Bank’s advances. In all the 3 cases, our Bank
owns 25% or less of the debt of a borrower and may be bound by the decision of other creditors. The details of 3
cases of Bank’s recovery issues under corporate debt restructuring are:

         Sr. No                   Exposure to all Creditors              Our Exposure           Our Exposure (%)
                                       (Rs. In Crores)                   (Rs. In Crores)

A                                                  2,724.52                     58.06                   2.13%

B                                                    505.07                     10.96                   2.17%

C                                                    205.79                     40.52                  19.69%

Total                                              3,435.38                    109.54

8.   Our risk management policies and procedures may not adequately address unanticipated risks. Inability
     to develop and implement effective risk management policies may adversely affect our business,
     prospects, financial condition and results of operations.




                                                         11
We have devoted significant resources to developing our risk management policies and procedures and expect to
continue to do so in the future. Despite this, our policies and procedures to identify, monitor and manage risks
may not be fully effective. Some of our methods of managing risk are based upon the use of observed historical
market behaviour. As a result, these methods may not accurately predict future risk exposures which could be
significantly greater than indicated by the historical measures. As we seek to expand the scope of our operations,
we also face the risk of inability to develop risk management policies and procedures that are properly designed
for those new business areas. Implementation and monitoring may prove particularly challenging with respect to
businesses that we have recently initiated. Inability to develop and implement effective risk management
policies may adversely affect our business, prospects, financial condition and results of operations.

9.      Our Regional Offices may have weak control over our branches which may adversely affect our
        reputation, operations, or otherwise have a material adverse effect on our business, financial condition
        or results of operation.

Our Regional Offices may have weak control over the branches especially in areas such as transgression of
delegated powers, prevention and follow up of frauds, monitoring adherence to KYC norms etc. which may lead
to increase in incidences of frauds in our branch offices which may adversely affect our reputation, operations,
or otherwise have a material adverse effect on our business, financial condition or results of operation.

The Bank has established risk management systems and the roles of the regional offices have been revisited to:

   i.       mitigate the risks and consequences of transgression of delegated powers;
  ii.       prevent and monitor fraud cases;
 iii.       monitor adherence to KYC norms.

Following are the details of fraud cases where transgression of power has been observed:

                                                                                            (Amount Rs. In Crores)
          01.04.2007                   01.04.2008                    01.04.2009                  01.04.2010
          31.03.2008                   31.03.2009                    31.03.2010                  31.12.2010
     No. of                       No. of                        No. of                        No. of
                 Amount                        Amount                        Amount                      Amount
     cases                        cases                         cases                         cases
       5           3.01             4           4.43              1           0.14              2          1.04

10. As on September 30, 2010, we had a contingent liability amounting to Rs. 9,286.60 Crores including
    derivatives. Any crystallization of our significant contingent liabilities could materially and adversely
    affect our business, financial conditions, result of operations and prospects.

As on September 30, 2010, we had a contingent liability amounting to Rs. 9,286.60 Crores. Most of the
liabilities have been incurred during the normal course of business, in the event of there being a crystallization
of any of the above liabilities, we may be required to honour the demands raised. This may materially and
adversely impact our business, financial conditions, result of operations and prospects.

        Contingent Liabilities                                       As on March 31,           As on September 30,
                                                                           2010                         2010
                                                                      Rs. in Crores                Rs. in Crores
        Claims against the Bank not acknowledged as debts                         28.33                          28.03
        Liability on account of outstanding Forward Exchange                   7,163.96                       6,163.67
        Contacts*
        Guarantees given on behalf of constituents
           a) In India                                                         1,030.37                       1024.34
           b) Outside India                                                             0                            0
        Acceptances, Endorsements & other Obligations                            673.61                        724.95
        Other items for which the bank is contingently liable                  1,222.97                       1345.61
        Total                                                                 10,119.24                       9,286.60
        * Includes derivatives



                                                          12
    Note: In the past the Bank had entered into certain derivative transactions, back to back with other banks
    on behalf of our Clients. As on September 30, 2010, there were three outstanding transactions with a
    balance of Rs.174.98 Crores. Mark to market value (negative to the clients) relating to the above
    transactions was Rs. 273.05 Crores as of September 30, 2010. In future if our clients do not honor their
    commitments to bear the losses, we may have to bear such losses which would have a material adverse
    effect on our business, financial condition and results of operations.

11. There are operational risks associated with the banking industry, including the risk of fraud or other
    misconduct by employees etc., which when realised may have an adverse impact on our results.

We are exposed to many types of operational risk, including the risk of fraud or other misconduct by employees
or outsiders, unauthorized transactions by employees or operational errors, including clerical or recordkeeping
errors or errors resulting from faulty computer or telecommunications systems. Though we carefully recruit all
our employees, we have in the past been held liable for the fraudulent acts committed by our employees. We
cannot guarantee you that such events will not recur in the future. Any such event could adversely affect our
reputation, operations, or otherwise have a material adverse effect on our business, financial condition or results
of operation. Given the high volume of transactions, certain errors may be repeated or compounded before they
are discovered and successfully rectified. In addition, our dependence upon automated systems to record and
process transactions may further increase the risk that technical system flaws or employee tampering or
manipulation of those systems will result in losses that are difficult to detect. We may also be subject to
disruptions of our operating systems, arising from events that are wholly or partially beyond its control
(including, for example, computer viruses or electrical or telecommunication outages), which may lead to a
deterioration in customer service and to loss or liability. We also face the risk that the design of our controls and
procedures prove to be inadequate, or may be circumvented, thereby causing delays in detection of errors in
information. Although we maintain a system of controls designed to keep operational risk at appropriate levels,
there can be no assurance that we will not suffer losses from operational risks in the future.

12. We do not own the trademark and logo           and our ability to use the trademark and logo may be
    impaired, which may materially and adversely affect our goodwill and business.

We have not registered the trademark and logo             and our ability to use the trademark and logo may be
impaired.

We are in a business where customer trust is critical and if the customers no longer identify us, it may affect our
financial condition and result of operation. We also operate in a competitive environment where retention and
recognition will be a significant element of our business strategy. Further, in the event we lose our right to use
the trademark and our logo, our business could be adversely affected.Any legal proceedings which result in a
finding that we have breached third parties’ intellectual property rights may require us to give financial
compensation to such third parties and/or to make changes to our marketing strategies or to the brand names of
our products, which could have a material adverse effect on our business, prospects, financial condition and
results of operations. No legal proceedings have been initiated till date against our Bank with regard to breach of
intellectual property rights of third parties. However, there cannot be any assurance that in future any such legal
proceedings will not be initiated against our bank and any such proceedings, if initiated, could require us to
incur additional costs and may adversely impact our reputation, business, financial condition and results of
operations.

13. We are exposed to various industry sectors. Deterioration in the performance of any of the industry
    sectors where we have significant exposure may adversely impact our business.

Our credit exposure to borrowers is dispersed across various sectors including, cotton and jute, infrastructure,
gems and jewellery, iron and steel, food and food product, chemicals and chemical products, construction and
other industries. Our credit exposure in the ‘Other Textile’ industry is the largest wherein we have lent Rs.
583.53 Crores as on December 31, 2010, which constituted 15.61% of our total funded industry exposure. Any
significant deterioration in the performance of a particular sector, including due to regulatory action or policy
announcements by Government or State government authorities, could adversely impact the ability of borrowers
in that industry to service their debt obligations owed to us. As a result, we would experience increased
delinquency risk which may adversely impact our business, prospects, financial condition and results of
operations, and the market price of our Equity Shares.




                                                         13
As as on December 31, 2010, our Bank’s total industrial advances was Rs. 3,738.15 Crores. Out of our Banks’
total industrial advances, exposure to other industries which constitutes more than 10% of our Bank's total
funded industrial advances are given below:

                       Outstanding Balance as on December 31,
                                                                          Percentage of our total industrial
      Industry         2010
                                                                          advances
                       (Amount in Crores)

 Other Textiles                                                 583.53                                          15.61
 Gems & Jewellery                                               548.83                                          14.68
 Cotton Textiles                                                517.91                                          13.85

14. The base rate system is a new method for pricing loans, and its impact on the future results of our Bank
    is unclear.

As of July 1, 2010, RBI guidelines replacing the benchmark prime lending rate regime with a base rate regime
became effective. The Bank plans to implement the new base rate regime and has declared that its initial base
rate, the minimum benchmark lending rate that banks can charge customers, is to be set at 8.75% per annum.
Because the base rate regime is newly implemented, its long-term effects on the lending practices of our Bank
and other banks are unclear as of the date of this Letter of Offer. If the base rate regime is successful in
promoting transparency and enhancing competition in the bank lending markets in India, our Bank may lose
business to its competitors, who may benefit more from the new regime than our Bank does. As banks are
unable to lend at rates below their base rate, regardless of the creditworthiness of the borrower, it is possible that
the Bank will be restricted from making loans that would otherwise result in a profit, thereby adversely affecting
the Bank‘s results of operations. It is also possible that the base rate regime will increase deposit rates, which
would raise our Bank‘s cost of funding, lower the Bank‘s net interest margin and adversely affect its financial
condition and results of operations

15. Renunciation by any shareholder in favour of a non-resident or FII may require prior approval of the
    RBI. There can be no certainty as to the conditions subject to which the approval will be granted or if the
    approval will be granted at all.

Renunciation of rights entitlement in our Bank by any shareholder in favour of a non-resident or a FII may
require prior approval of the RBI. There can be no certainty as to the conditions subject to which the approval
will be granted or if the approval will be granted at all. For more details on the restrictions applicable to non
residents or FIIs please refer to the section titled “Terms and Procedure of the Issue” beginning on Page no 98 of
this Letter of Offer.

16. Our Bank has received notice from the RBI for contravention of comprehensive guidelines on derivative
    issued by the RBI. There can be no assurance that RBI will not pass an order that would restrict, stop or
    hamper our operations or services, or a part thereof, and/or levy penalties in connection therewith. This
    may, in turn, adversely affect our operations and profitability

In the past, our Bank had entered into certain derivative transactions, back to back with other banks on behalf of
our Clients. The RBI had issued a show-cause notice to our Bank on November 9, 2010 which was received by
our Bank on November 15, 2010, wherein our Bank was called upon to show-cause why a penalty of Rs. 0.05
Crores each for contravention of the comprehensive guidelines on derivatives issued by the RBI should not be
imposed on it for irregularities in the manner in which certain derivative transaction(s) were entered into and
monitored by it. RBI observed that our Bank (i) failed to carry out due diligence before offering derivative
products; (ii) failed to document the process of determining the pricing and periodical evaluations; and (iii)
appears to have failed to comply with the requirements regarding restructuring of derivative products.

Our Bank responded to the RBI’s notice on November 26, 2010 stating that it has put in place various systems
and procedures for managing and monitoring the derivative portfolio and conducts stress testing of both the
default risk and the Mark-to-Market at periodic intervals. Further, our Bank has also stated that it has the
expertise to predict the likely future market scenarios, which was sufficient to measure the risk in underlying
transactions.




                                                         14
In lieu of the aforesaid, our Bank prayed that the proposal to impose penalty may be dropped and requested for a
personal hearing in the matter.

While our Bank was granted a personal hearing for the above matter on December 15, 2010, outcome of the
same is currently pending. There can be no assurance that RBI will not pass an order that would restrict, stop or
hamper our operations or services, or a part thereof, and/or levy penalties in connection therewith. This may, in
turn, adversely affect our operations and profitability. For further details on the RBI notice, please refer to the
section “Legal and Other Information” on Page no 73 of this Letter of Offer.

17. We have previously been penalized for not being in compliance with the RBI circulars and may face
    further penalties from the RBI and/or other regulatory bodies that govern us in cases of non-compliance
    in future.

In FY 2010, we have been penalized by the RBI with penalty of Rs 4,400/- on account of certain deficiencies
noticed by RBI on account of discrepancies detected while processing soiled notes remittances received from
currency chest in their CVPS/ during inspection of the currency chests for non compliance with operational
guidelines. This has been the only instance in the last three financial years wherein RBI has levied penalty on us.
However, we cannot assure you that we will not be subject to such penalties in the future.

18. Expansion of our fee based earning is dependent on our arrangements with third parties including
    insurance companies and mutual funds. Termination of these arrangements may adversely impact our
    results of operations.

We intend to increase our fee-based income by expanding our third party product offerings and by increasing
our fee-based services. We have entered into an agreement with Franklin Templeton (I) Private Ltd, TATA
Mutual Fund and ICICI Prudential Asset Management Company Limited for the distribution of mutual fund
products. We also market and sell the life insurance products of MetLife India Insurance Company Private
Limited and general insurance products of Universal Sompo General Insurance Company Ltd in conjunction
with certain of our savings account and term deposit products. We earn fees and commissions for the
distribution and sale of these products. However, termination of these agencies or distribution agreements with
such third party business associates or any weakening of our relationship with these third party associates may
have an adverse impact on our fee based revenues and results of operations.

19. The Government of India (“GoI”) has in the past and may in the future direct us to implement certain
    schemes that are aimed at serving the interest of farmers and/or a cross section of the public. Such
    schemes may not necessarily be aimed at maximizing our profits and may adversely affect our business,
    financial condition and results of operations.

In year 2010, the GoI implemented the “Coffee Debt Relief Package 2010” under which waiver of 50% of the
total liability subject to a maximum benefit of Rs. 0.05 Crores per farmer will be borne by Government of India
and an additional 25% shall be waived by the banks and balance shall be rescheduled. In view of this scheme,
our Bank has waived off Rs. 16.15 Crores till December 31, 2010. In future, the GoI may further require us to
waive off or reduce the outstanding amount due on loans provided to customers in certain sectors, in particular
the agricultural sector, to serve the larger interests of India which could adversely affect our business and
financial condition.

We also provide special schemes under which credit facilities and loans are extended to persons belonging to
weaker sections, which is aimed at facilitating the GoI’s initiative to empower them. Such schemes and credit
facilities provided to members of the weaker sections may not be as profitable as compared to lending in the
non-priority sector. This is because historically, NPAs are higher in the priority sector lending compared with
non-priority sector lending and due to above reasons, our profitability and financial condition gets affected
adversely.

20. Most of our branches are located on leased premises. We may not be able to renew the lease agreements
    for our branches upon favourable terms or at all which could have a material adverse affect on our
    business and results of operations.

As of December 31, 2010, we have 466 branches and 235 ATMs, of which except 23 branches and six ATMs,
all our branches are housed on leased premises and are not owned by us. The general duration of the lease
agreements is 10 years. If any of the owners of these premises do not renew the agreements under which we


                                                        15
occupy the premises, or if they seek to renew such agreements on terms and conditions unfavourable to us, we
may suffer a disruption in our operations or increased costs, or both, which may adversely affect our business
and results of operations.

Additionally, as of December 31, 2010, 13 of our leases for our branches and other office premises had expired.
All or any of the leases may not be renewed on similar terms or at all, or we may be evicted from all or a
number of these premises and be required to pay damages to the landlord. This may adversely impact our
business and financial condition

21. We may undertake mergers or acquisitions which may pose management and integration challenges. We
    also could experience difficulty in combining operations and cultures and may not realise the anticipated
    synergies or efficiencies from such transactions which may have an adverse impact on the business of
    our Bank in the long run.

We may make acquisitions and investments to expand our customer base, acquire new service or product
offerings or enhance our technical capabilities. Our future acquisitions or investments may not necessarily
contribute to our profitability and may, in some cases, require us to assume operational and financial problems
of the acquired entity, including high levels of NPAs. We also could experience difficulty in combining
operations and cultures and may not realise the anticipated synergies or efficiencies from such transactions.

22. Any downgrading in our credit rating could adversely affect our business, financial condition and results
    of operations.

The rating agencies ICRA and CARE have reaffirmed “LA +” and “A+” ratings respectively for Rs 350 crores
Lower Tier II Subordinated debt instruments and CARE has given “A1+” rating for certificate of Deposits
programme of Rs. 2,000 Crores. Credit rating is considered as an assessment of our ability to honour our
financial commitments and obligations as and when they become due. A downgrade in our credit rating may
adversely affect our ability to obtain funds and may increase financing costs by increasing the interest rates of
our outstanding debt or the interest rates at which we will be able to refinance existing debt or incur new debt,
which will adversely affect our business, financial condition and results of operations.

23. Significant security breaches and failure in our computer systems, and calamities could materially and
    adversely impact our business.

We depend on our computer systems to process a large number of transactions on an accurate and timely basis,
and to store and process substantially all of our business and operating data. We seek to protect our computer
systems and network infrastructure from physical break-ins as well as security breaches and other disruptive
problems. These concerns could intensify with our increased use of technology, internet based resources and
advanced internet banking platform.

Computer break-ins and power disruptions could affect the security of information stored in and transmitted
through these computer systems and network infrastructure. Our Bank’s computer systems and network
infrastructure have only been recently migrated to Core Banking Solution (“CBS”). Certain parts of the system
may not be properly protected from security breaches and other attacks. Our Bank employs security systems
including firewalls and password encryption, designed to minimise the risk of security breaches. Although our
Bank intends to continue to implement security technology and establish operational procedures to prevent
break-ins, damage and failures, there can be no assurance that these security measures will be adequate or
successful. A failure of security measures could have a material adverse effect on our Bank’s business, its future
financial performance and the trading price of the Equity Shares. We may also be subject to disruptions of our
operating systems, arising from events that are wholly or partially beyond our control (including, for example,
computer viruses or electrical or telecommunication outages), which may give rise to deterioration in customer
service and to loss or liability to us.

24. Non Compliance with RBI inspection/observations may have a material adverse effect on our business,
    financial condition or results of operation

We are subject to annual financial inspection by RBI. In the past certain observations were made by RBI during
the inspection regarding our business and operations. In case we are not able to meet the requirements suggested
by RBI, RBI may impose strict enforcement of its observations on us which may have a material adverse effect
on our business, financial condition or results of operation.


                                                       16
25. Our business and financial performance are dependent on increasing our area coverage through the
    branch network, any failure to do so, will affect our future growth, thereby having a material adverse
    impact on the business operations of our Bank

As on December 31, 2010, we have 466 branches across India. Scheduled Commercial Banks in India are
required to obtain RBI approval before opening a branch office office in Tier 1 and Tier 2 centres (centres with
population of 50,000 and above as per 2001 census), except in the case of North Eastern States and Sikkim
where the general permission would cover semi-urban and urban centres also. We had obtained permission from
the RBI by a letter dated September 09, 2009 to open 30 additional branches, in order to expand our coverage.
We opened 17 new branches in Fiscal 2010. Any hindrance in obtaining such approval from RBI for opening
branch office in Tier 1 and Tier 2 centres in the future could delay/prevent us from opening new branches. This
would affect our future growth, thereby having a material adverse impact on the business operations of our
Bank.

26. A major part of our branch network is concentrated in southern India and thereby exposing us to
    regional risks.

As of December 31, 2010, out of our 466 branches, 359 branches are located in the southern states of India. 65
% of our business (advances + deposits) is conducted in the southern states of India as of December 31, 2010.
Our concentration in the southern states exposes us to any adverse geological, ecological, economic and/or
political circumstances in that region as compared to other public and private sector banks that have diversified
national presence. Any disruption, disturbance or breakdown in the economy of southern India could adversely
affect the result of our business and operations.

27. We may face labour disruptions that could interfere with our operations. Any such disruption in future
    may have a material adverse effect on our business, financial condition or results of operation.

We are exposed to the risk of strikes and other industrial actions. As of December 31, 2010, we employed 5,876
employees. Majority of our employees are members of Karnataka Bank Employees Association and Karnataka
Bank Officers Organization. We cannot guarantee that our employees will not undertake or participate in strikes,
work stoppage or other industrial action in the future. Any such event could disrupt our operations, possibly for
a significant period of time, result in increased wages and other benefits or otherwise have a material adverse
effect on our business, financial condition or results of operation.

28. We operate in a regulated industry and any changes in the regulations or enforcement initiatives may
    adversely affect our business, financial condition or results of operation.

We are subject to a wide variety of banking and financial services laws and regulations and a large number of
regulatory and enforcement authorities in each of the jurisdictions in which we operate. The laws and
regulations or the regulatory or enforcement environment in any of those jurisdictions may change at any time
and that may have an adverse effect on the products or services we offer, the value of our assets or our business
in general. Also, the laws and regulations governing the banking and financial services industry have become
increasingly complex governing a wide variety of issues, including interest rates, liquidity, capital adequacy,
securitisation, investments, ethical issues, money laundering, privacy, record keeping, marketing and selling
practices, with sometimes overlapping jurisdictional or enforcement authorities. Any change in RBI policy,
including directed lending norms, may result in our inability to meet the priority sector lending requirements as
well as require us to increase our lending to relatively riskier segments and may result in an increase in NPAs in
the directed lending portfolio. Future changes in laws and regulations and failure or the apparent failure to
address any regulatory changes or enforcement initiatives could have an adverse impact on our business, our
future financial performance and our shareholders’ funds, harm our reputation, subject us to penalties, fines,
disciplinary actions or suspensions of any kind or increase our litigation risks and have an adverse effect on the
price of our Equity Shares.

There are a number of restrictions under the Banking Regulation Act, which impede our operating flexibility
and affect or restrict investors’ rights. These include the following:

•        Section 12(2) of the Banking Regulation Act states that “no person holding shares in a banking
         company shall exercise voting rights on poll in excess of 10.00% of the total voting rights of all the
         shareholders of the banking company”.


                                                       17
•        Section 15(1) of the Banking Regulation Act states that “no banking company shall pay any dividend
         on its shares until all its capitalised expenses (including preliminary expenses, organization expenses,
         share-selling commission, brokerage, amounts of losses incurred and any other item of expenditure not
         represented by tangible assets) have been completely written off”.

•        Section 17(1) of the Banking Regulation Act requires every banking company to create a reserve fund
         and to transfer out of the balance of the profit of each year as disclosed in the profit and loss account a
         sum equivalent to not less than 20.00% (the RBI circular dated September 23, 2000 has fixed this limit
         at 25.00%) of such profit before paying any dividend.

•        Section 19 of the Banking Regulation Act restricts the forming of subsidiaries by banks, which may
         prevent us from exploiting emerging business opportunities. Similarly, Section 23 of the Banking
         Regulation Act contains certain restrictions on banking companies regarding the opening of new places
         of business and transfers of existing places of business, which may hamper our operational flexibility.

•        Section 25 of the Banking Regulation Act requires each banking company to maintain assets in India
         equivalent to not less than 75.00% of its demand and time liabilities in India, which in turn may restrict
         us from building overseas asset portfolios and exploiting overseas business opportunities.

•        We are required to obtain approval of RBI for the appointment and remuneration of our part time
         chairman and other whole time directors. RBI has powers to remove managerial and other persons
         from office, and to appoint additional directors. We are also required to obtain approval of the RBI for
         the creation of floating charges on our borrowings, thereby hampering leverage. The Banking
         Regulation Act also contains provisions regarding production of documents and availability of records
         for inspection.

•        A compromise or arrangement between us and our creditors or any class of them or between us and our
         shareholders or any modification in such arrangement or compromise will not be sanctioned by any
         High Court unless such compromise or arrangement or modification, as the case may be, is certified by
         RBI in writing as capable of being implemented and as not being detrimental to the interests of our
         depositors. Our amalgamation with any other banking company will require the sanction of RBI and
         shall be in accordance with the provisions of the Banking Regulation Act. The provisions for winding-
         up of banking companies as specified in the Banking Regulation Act are at variance with the provisions
         of the Companies Act. Further, RBI can also apply for winding up of a banking company in certain
         circumstances and can also be appointed as the liquidator and the GoI could acquire the undertakings
         of banking companies in certain cases.

•        The forms of business in which we may engage are specified and regulated by the Banking Regulation
         Act. Pursuant to the provisions of section 8 of Banking Regulation Act, we cannot directly or indirectly
         deal in the buying, selling or bartering of goods by itself or for others, except in connection with the
         realisation of security given to us or held by us, or in connection with bills of exchange received for
         collection or negotiation, or in connection with the administration of estates as executor, trustee or
         otherwise, or in connection with any business specified under section 6(1)(o) of the Banking
         Regulation Act. Goods for this purpose means every kind of movable property, other than actionable
         claims, stocks, shares, money, bullion and specie and all instruments referred to in section 6(1)(a) of
         Banking Regulation Act. Unlike a company incorporated under the Companies Act, which may amend
         the objects clause of its Memorandum of Association to commence a new business activity, banking
         companies may only carry on business activities permitted by Section 6 of the Banking Regulation Act
         or specifically permitted by the Reserve Bank of India. This may restrict our ability to pursue profitable
         business opportunities as they arise.

29. We may face maturity mismatch between assets and liabilities which may result in an adverse impact on
    our business and operations.

Most of our funding requirements are met through short-term and medium-term funding sources, primarily in
the form of deposits. A portion of our assets have long-term maturities, creating a possibility for funding
mismatches. In our experience, a substantial portion of our customer deposits have been rolled over on maturity
and have been, over time, a stable source of funding. However, in the event that a substantial number of our
depositors do not roll over deposits on maturity, our liquidity position and business could be adversely affected.

                                                        18
If the depositors do not renew deposits or our Bank is unable to raise new deposits, our Bank may face a
liquidity problem and may be required to pay higher interest rates to attract deposits, which may have an adverse
impact on our Bank’s business and operations.

30. If we are unable to adapt to rapid technological changes, our business, future financial performance
    could suffer.

Our future success and ability to compete with other banks will depend, in part, on our ability to respond to
technological advances and emerging banking industry standards and practices on a cost-effective and timely
basis. The development and implementation of such technology entails significant technical and business risks.
There can be no assurance that our Bank will successfully upgrade or implement new technologies effectively or
adapt its transaction processing systems to customer requirements or emerging industry standards. If our Bank is
unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing
market/technological conditions, customer requirements or technological changes, our business, the future
financial performance of our Bank could be materially affected.

31. We rely on the accuracy and completeness of information provided to us about our customers and
    counterparties which if not accurate and complete may have a negative impact on our financial
    condition.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may
rely on information furnished to us by or on behalf of customers and counterparties, including financial
statements and other financial information. We may also rely upon certain representations as to the accuracy and
completeness of that information and, with respect to financial statements, on reports of independent auditors.
For example, in deciding whether to extend credit, we may assume that a customer’s audited financial
statements conform to generally accepted accounting principles and present fairly, in all material respects, the
financial condition, results of operations and cash flows of the customer. Our financial condition and results of
operations could be negatively affected by relying on financial statements that do not comply with generally
accepted accounting principles or other information that is materially misleading or by relying on information
furnished to us by or on behalf of our customers and counterparties.

32. If we are not able to renew or maintain our statutory and regulatory permits and approvals and licenses
    required to operate our business, it may have a material and adverse effect on our business, financial
    condition and results of operations.

We require certain statutory and regulatory permits and approvals and licenses to operate our business.
Applicaion dated August 11, 2010 addressed to the Chief General Manager, Department of Banking Operations
and Development, Reserve Bank of India for opening 35 new branches in terms of Section 23 of the Banking
Regulation Act, 1949 has been made. The RBI has given its approval on January 14, 2011 for opening of 13
branches out of 35 branches within a period of 1 year from the date of approval.

Further, in the future, we will be required to renew our permits and approvals and obtain new permits and
approvals for our proposed operations. While we believe that we will be able to renew or obtain such permits
and approvals as and when required, there can be no assurance that the relevant authorities will issue any of
such permits or approvals in the time-frame anticipated by us or at all. Our failure to renew, maintain or obtain
the required permits or approvals in the future may result in the interruption of our operations or delay or
prevent our expansion plans and may have a material and adverse effect on our business, financial condition and
results of operations.

33. New product/services offered by us may not be successful and we may not grow in any new business area
    which may have a material adverse effect on our business, financial condition or results of operation

We introduce new products/services to explore new business opportunities on a regular basis. We cannot assure
you that all our new products/services will gain customer acceptance and this may result in our incurring pre-
operative expenses and launch costs without any assurance that such products will be successful or may fail
market penetration. Further, our inability to grow in any new business areas could adversely affect our business
and financial performance.




                                                       19
34. We may not maintain historical dividends in the future as the same depends upon, among other factors,
    our earnings, financial position, cash requirements and availability of profits, as well as the provisions of
    relevant laws in India from time to time.

While we have paid dividends in the past, there can be no assurance as to whether we will pay dividends in the
future and, if so, the level of such future dividends. The declaration, payment and amount of any future
dividends is subject to the discretion of the Board and will depend upon, among other factors, our earnings,
financial position, cash requirements and availability of profits, as well as the provisions of relevant laws in
India from time to time. The details of dividend paid by our Company in the last 5 years are as follows:

   Financial Year        Dividend Per Share        Dividend Percentage
                               (In Rs)                    (%)
       2009-10                    4                        40
       2008-09                    6                        60
       2007-08                    5                        50
       2006-07                    3                        30
       2005-06                    3                        30

35. Any inability to attract and retain talented professionals may materially and adversely impact our
    business.

Our performance and success depends largely on our ability to nurture and retain the continued service of our
management team and skilled personnel. There is significant competition for management and other skilled
personnel in the banking industry. We are dependent on our key personnel. Further, we do not have a key-man
insurance policy to cover for loss of our skilled personnel. We are dependent on our key personnel for smooth
operations of our business activities. Attracting and retaining talented professionals is a key element of our
strategy and we believe it to be a significant source of competitive advantage. Our inability to attract and retain
talented professionals or the loss of key management personnel could have a material and adverse impact on our
business, our future financial performance and the price of our Equity Shares.

36. Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the
    market price of our Equity Shares.

We may be required to finance our growth through additional equity offerings. Any future issuance of our
equity shares could dilute the holdings of investors in our Bank and could adversely affect the market price of
our Equity Shares.

We established an Employees Stock Option Scheme 2006 for our employees (ESOS). Pursuant to the ESOS, as
at February 16, 2011, 4,85,345 options were outstanding to be exercised by our employees. During Fiscal 2009
and Fiscal 2010, we have not granted any options. The exercise of these options will increase our equity share
capital and will dilute our EPS. This may affect the price of the Equity Shares.

37. A nation-wide credit bureau has become operational in India only recently and may not provide
    adequate information. Until such time, we may be more susceptible to higher NPAs compared to banks
    in more developed economies which may have an adverse impact on the financials of our Bank.

The credit risk of borrowers in India is higher than in more developed countries. A nation-wide credit bureau,
Credit Information Bureau (India) Limited (“CIBIL”), has become operational in India in the year 2000.
CIBIL’s database is in the process of developing which may affect the quality of information available to us
about the credit history of our borrowers, especially individuals and small businesses. Until such time, we may
be more susceptible to higher NPAs compared to banks in more developed economies.

38. We are exposed to certain risks of the Indian financial system and could be impacted by the financial
    difficulties of other financial institutions in India.

Along with other banks in India, we are exposed to the risks of the Indian financial system,which in turn may be
affected by financial difficulties, and other problems faced by Indian financial institutions. As an emerging
market system, the Indian financial system faces risks of nature and extent not typically faced in developed
countries. Additionally, the credit risk of borrowers in India is higher than in developed countries. India’s
nationwide credit bureau is still developing, which may affect the quality of information available to us about

                                                        20
the credit history of our borrowers, especially individuals and small businesses. The problems faced by
individual Indian financial institutions and any instability in or difficulties faced by the Indian financial system
generally could create adverse market perception about Indian financial institutions and banks. This in turn
could materially and adversely affect our business, financial condition and results of operations.

EXTERNAL RISK FACTORS

1.   The Indian and global banking industry is very competitive and if we are unable to effectively respond to
     competitive pressures it may adversely affect our business and growth.

We compete with public and private sector Indian commercial banks as well as foreign commercial banks. Some
of our competitors are large institutions, and may have much larger customer and deposit bases, larger branch
networks and more capital than us. Some of our competitors may be better positioned to take advantage of
market opportunities than us. We face competition in some or all of our products and services from Indian and
foreign commercial banks, NBFCs, mutual funds and other entities operating in the Indian financial sector. In
particular, private banks in India may have operational advantages in implementing new technologies,
rationalising branches and recruiting employees through incentive-based compensation. In terms of the
Consolidated FDI Policy, 2010 (“FDI Policy”), foreign banks are permitted to operate in India through its
branches or establish wholly-owned subsidiaries in India or invest up to 74% in the equity of Indian private
sector banks, which is likely to further increase competition in the Indian banking industry. The foreign banks
that have established branches in India have aggressively pursued market share.

Additionally, the RBI has recently indicated that it intends to issue new banking licenses in order to expand the
banking sector which would lead to higher competition amongst the banks. In August 2010, RBI released a
discussion paper on ―Entry of New Banks in the Private Sector which, inter alia, includes discussion on the
minimum capital requirements for new banks and promoters contribution, foreign shareholding in the new
banks, whether industrial or business houses should be permitted to promote banks and whether non-banking
financial companies should be entitled to convert to banks. Further, the GoI is also encouraging banks and other
financial institutions to significantly increase their lending to the agriculture sector, which will make this
segment more competitive.

Increased competitive pressure may have an adverse impact on our earnings, our future financial performance
and the market price of the Equity Shares. Our future success will depend in large part on our ability to respond
in an effective and timely manner and our ability to compete effectively.

2.   Investing in securities that carry emerging market risks can be affected generally by volatility in the
     emerging markets.

The markets for securities bearing emerging market risks, such as risks relating to India, are, to varying degrees,
influenced by economic and securities market conditions in other emerging market countries. Although
economic conditions differ in each country, investors’ reactions to developments in one country may affect
securities of issuers in other countries, including India. Accordingly, the price and liquidity of our Equity Shares
may be subject to significant fluctuations, which may not necessarily be directly or indirectly related to our
financial performance.

Indian stock exchanges have, in the past, experienced problems that have affected the market price and liquidity
of the securities of Indian companies, such as temporary exchange closures, broker defaults, settlement delays
and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time
restricted securities from trading, limited price movements and increased margin requirements. Further, disputes
have occurred on occasion between listed companies and the Indian stock exchanges and other regulatory bodies
that, in some cases, have had a negative effect on market sentiment. If similar problems occur in the future, the
market price and liquidity of our Equity Shares could be adversely affected. A closure of, or trading stoppage
on, either the BSE or the NSE could adversely affect the trading price of our Equity Shares.

3.   Conditions in the Indian securities market may affect the price or liquidity of the Equity Shares.

The Indian securities markets are smaller and may be more volatile than securities markets in more developed
economies. The regulation and monitoring of Indian securities markets and the activities of investors, brokers
and other participants differ, in some cases significantly, from those in the U.S. and Europe. Indian stock
exchanges have in the past experienced substantial fluctuations in the prices of listed securities.


                                                        21
Indian stock exchanges have, in the past, experienced problems that have affected the market price and liquidity
of the securities of Indian companies, such as temporary exchange closures, broker defaults, settlement delays
and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time
restricted securities from trading, limited price movements and increased margin requirements. Further, disputes
have occurred on occasion between listed companies and the Indian stock exchanges and other regulatory bodies
that, in some cases, have had a negative effect on market sentiment. If similar problems occur in the future, the
market price and liquidity of the Equity Shares could be adversely affected. A closure of, or trading stoppage on,
either the BSE or the NSE could adversely affect the trading price of the Equity Shares. Historical trading
prices, therefore, may not be indicative of the prices at which the Equity Shares will trade in the future.

4.   While our scrip has from October 29, 2010 moved into trading in F&O segment and we are currently not
     subject to a daily “circuit breaker” imposed by all stock exchanges in India there cannot be any
     assurance that our scrip will continue to remain in F&O segment and circuit breaker will not apply to
     our scrip

There can be two types of circuit breakers applicable to the stocks listed on the Stock Exchanges (i) daily “price
based circuit breaker” which specifies the band within which the price of a particular stock is allowed to move
freely and (ii) index based market wide circuit breaker which applies to a stock at three stages of the index
movement either way at 10%, 15% and 20%. While the daily price based circuit breaker is applicable to a stock
depending on whether it is traded in F&O segment, an index based market wide circuit breaker is applicable to
all the stocks listed on all the Stock Exchanges. Further, the daily “price based circuit breaker” operates
independently of the index based market wide circuit breakers imposed by SEBI on Indian stock exchanges.

While our scrip has from October 29, 2010 moved into trading in F&O segment and we are currently not subject
to a daily “price based circuit breaker” imposed by the Stock Exchanges in India, which does not allow
transactions beyond specified increases or decreases in the price of the Equity Shares, there cannot be any
assurance that our scrip will continue to remain in F&O segment and daily “price based circuit breaker” will not
apply to our scrip in future.

However, the index based market-wide circuit breaker system are still applicable to our scrip and these circuit
breakers bring about a coordinated trading halt in trading on all equity and equity derivatives markets across the
country. The breakers are triggered by movements in either Nifty 50 or Sensex, whichever is breached earlier. In
past the Stock Exchanges halted trading due to the index-based market-wide circuit breaker on May 18, 2009
after the index crossed the threshold of such circuit breaker. There cannot be any assurance that the Stock
Exchanges will not halt trading due to the index-based market-wide circuit breaker in future and closure of, or
trading stoppage on, either the BSE or the NSE could adversely affect the trading price of our Equity Shares.

5.   There is no guarantee that the Equity Shares issued in this Issue will be listed on the BSE and the NSE
     in a timely manner.

In accordance with Indian law and practice, permission for listing of the Equity Shares will not be granted until
after those Equity Shares have been issued and allotted. Approval will require all other relevant documents
authorizing the issuing of Equity Shares to be submitted. There could be delay in listing the Equity Shares on
the BSE and/or the NSE. Any delay in obtaining the approval would restrict your ability to dispose off your
Equity Shares allotted in the Issue.

6.   Significant differences exist between Indian GAAP and other accounting principles, such as U.S. GAAP
     and IFRS, which may be material to investors’ assessments of our financial condition. Our failure to
     successfully adopt IFRS could have a material adverse effect on our stock price.

Our financial statements, including the financial statements provided in this Letter of Offer are prepared in
accordance with Indian GAAP. We have not attempted to quantify the impact of U.S. GAAP or IFRS on the
financial data included in this Letter of Offer, nor do we provide a reconciliation of our financial statements to
those of U.S. GAAP or IFRS. Each of U.S. GAAP and IFRS differs in significant respects from Indian GAAP.
Accordingly, the degree to which the Indian GAAP financial statements included in this Letter of Offer will
provide meaningful information is entirely dependent on the reader’s level of familiarity with Indian accounting
practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures
presented in this Letter of Offer should accordingly be limited.

The Ministry of Corporate Affairs and the ICAI, the accounting body that regulates the accounting firms in
India, have announced a road map for the adoption of, and convergence of Indian GAAP with the IFRS (the

                                                       22
“converged accounting standards”) pursuant to which all scheduled commercial banks in India will be
required to prepare their annual and interim financial statements under converged accounting standards
beginning with fiscal period commencing April 1, 2013. Because there is significant lack of clarity on the
adoption of and convergence with IFRS and there is not yet a significant body of established practice on which
to draw in forming judgments regarding its implementation and application, we have not determined with any
degree of certainty the impact that such adoption will have on our financial reporting. There can be no
assurance that our financial condition, results of operations, cash flows or changes in shareholders' equity will
not appear materially worse under converged accounting standards than under Indian GAAP. As we transition to
converged accounting standards, we may encounter difficulties in the ongoing process of implementing and
enhancing our MIS. Moreover, there is increasing competition for the small number of IFRS-experienced
accounting personnel available as more Indian companies begin to prepare financial statements based on
converged accounting standards. There can be no assurance that our adoption of converged accounting standards
will not adversely affect our reported results of operations or financial condition and any failure to successfully
adopt converged accounting standards by April 2013 could have a material adverse effect on our stock price.

7.   You may be subject to Indian taxes arising out of capital gains. Any gain realised on the sale of equity
     shares held for more than 12 months to an Indian resident, which are sold other than on a recognised
     stock exchange and as result of which no STT has been paid, will be subject to capital gains tax in India.

Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian bank are
generally taxable in India. Any gain realised on the sale of listed equity shares on a stock exchange held for
more than 12 months will not be subject to capital gains tax in India if the STT has been paid on the transaction.
The STT will be levied on and collected by a domestic stock exchange on which equity shares are sold. Any
gain realised on the sale of equity shares held for more than 12 months to an Indian resident, which are sold
other than on a recognised stock exchange and as result of which no STT has been paid, will be subject to
capital gains tax in India. Further, any gain realised on the sale of listed equity shares held for a period of 12
months or less will be subject to capital gains tax in India.

Capital gains arising from the sale of our Equity Shares will be exempt from tax in India in cases where such
exemption is provided under the tax treaty between India and the country of which the seller is a resident.
Generally, Indian tax treaties, do not limit India’s ability to impose tax on capital gains. As a result, residents of
certain countries may be liable for tax in India, as well as in their own jurisdictions on gain upon a sale of our
Equity Shares.

8.   You will be subject to market risks until the Equity Shares credited to your demat account are listed and
     permitted to trade.

You can start trading the Equity Shares Allotted to you only after they have been credited to your demat
account, are listed and permitted to trade. Since our Equity Shares are currently traded on the Stock Exchanges,
you will be subject to market risk from the date you pay for the Equity Shares to the date when trading approval
is granted for the same. Further, there can be no assurance that the Equity Shares Allocated to you will be
credited to your demat account or that trading in the Equity Shares will commence in a timely manner. This risk
factor is for the information of investors and does not in any way dilute the right of investors and our
obligations.

9.   Future issues or sales of Equity Shares may significantly affect the trading price of the Equity Shares.

The future issue of Equity Shares or the disposal of Equity Shares by any of our major Equity Shareholders or
the perception that such issues or sales may occur may significantly affect the trading price of the Equity Shares.
There is no restriction on our ability to issue Equity Shares or the relevant Equity Shareholders’ ability to
dispose of their Equity Shares, and there can be no assurance that we will not issue Equity Shares or that any
such Equity Shareholder will not dispose of, encumber, or pledge, its Equity Shares.

10. The Issue Price of our Equity Shares may not be indicative of the market price of our Equity Shares
    after the Issue.

The Issue Price Equity Share may not be indicative of the market price for our Equity Shares after the Issue. The
market price of our Equity Shares could be subject to significant fluctuations after the Issue, and may decline
below the Issue Price. There can be no assurance that the investor will be able to resell their shares at or above
the Issue Price. Among the factors that could affect our share price are:


                                                         23
•    quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income
     and revenues;
•    changes in revenue or earnings estimates or publication of research reports by analysts;
•    speculation in the press or investment community;
•    general market conditions; and
•    domestic and international economic, legal and regulatory factors unrelated to our performance.

11. A significant change in the Government’s economic liberalization and deregulation policies could
    adversely affect our business and the price of our Equity Shares.

Our business and customers are predominantly located in India or are related to and influenced by the Indian
economy. The Indian government has traditionally exercised, and continues to exercise, a dominant influence
over many aspects of the economy. Government policies could adversely affect business and economic
conditions in India, our ability to implement our strategy and our future financial performance. Since 1991,
successive Indian governments have pursued policies of economic liberalization, including significantly
relaxing restrictions on the private sector and encouraging the development of the Indian financial sector. For
the past several years, coalition governments have governed India. The leadership of India and the composition
of the coalition in power are subject to change and election results are sometimes not along expected lines. It is
difficult to predict the economic policies that will be pursued by the Government. The rate of economic
liberalization could change and specific laws and policies affecting banking and finance companies, foreign
investment, currency exchange and other matters affecting investment in our securities could change as well.
Any significant change in India’s economic liberalization and deregulation policies could adversely affect
business and economic conditions in India generally and our business in particular.

12. Civil unrest, acts of violence including terrorism or war involving India and other countries could
    materially and adversely affect the financial markets and our business.

Civil unrest, acts of violence including terrorism or war, may negatively affect the Indian markets where our
Equity Shares will be traded and also materially and adversely affect the worldwide financial markets. These
acts may also result in a loss of business confidence, make travel and other services more difficult and
ultimately materially and adversely affect our business. Diplomatic relations between the GoI and neighbouring
countries have suffered post the terrorist attacks on November 26, 2008. While the GoI has been trying to
engage in conciliatory efforts any further tension or deterioration of relations might result in investor concern
about stability in the region, which could materially and adversely affect the price of the Equity Shares.

India has also witnessed civil disturbances in recent years and it is possible that future civil unrest as well as
other adverse social, economic and political events in India could have an adverse impact on us. Such incidents
could also create a greater perception that investment in Indian companies involves a higher degree of risk and
could have an adverse impact on our business, financial condition, results of operations and the price of the
Equity Shares.

13. Trade deficits could materially and adversely affect our Bank’s business and the price of our Bank’s
    Equity Shares.

India’s trade relationships with other countries and its trade deficit, driven to a major extent by global crude oil
prices, may adversely affect Indian economic conditions. If trade deficits increase or are no longer manageable
because of the rise in global crude oil prices or otherwise, the Indian economy, and therefore our Bank’s
business, its financial performance, shareholders’ funds and the price of its Equity Shares could be materially
and adversely affected.

14. Financial difficulty and other problems in certain financial institutions in India could adversely affect
    our business and the price of our Equity Shares.

As an Indian bank, we are exposed to the risks of the Indian financial system which may be affected by the
financial difficulties faced by certain Indian financial institutions because the commercial soundness of many
financial institutions may be closely related as a result of credit, trading, clearing or other relationships. This
risk, which is sometimes referred to as “systemic risk”, may adversely affect financial intermediaries, such as
clearing agencies, banks, securities firms and exchanges with whom we interact on a daily basis and who may
default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. Any such
difficulties or instability of the Indian financial system in general could create an adverse market perception

                                                        24
about Indian financial institutions and banks and hence adversely affect our business. As the Indian financial
system operates within an emerging market, it faces risks of a nature and extent not typically faced in more
developed economies, including the risk of deposit runs notwithstanding the existence of a national deposit
insurance scheme.

15. A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian
    economy, which could adversely impact us.

The direct adverse impact of the global financial crisis on India has been the reversal of capital inflows and
decline in exports, leading to pressures on the balance of payments and a sharp depreciation of the Indian Rupee
vis-à-vis the US Dollar. Any increased intervention by the RBI in the foreign exchange market to control the
volatility of the exchange rate may result in a decline in India’s foreign exchange reserves and reduced liquidity
and higher interest rates in the Indian economy, which could adversely affect our business and our future
financial performance.

16. Any downgrading of India’s debt rating by an international rating agency could adversely affect our
    business and the price of our Equity Shares.

Any adverse revisions to India’s credit ratings for domestic and international debt by international rating
agencies may adversely impact our ability to raise additional financing, and the interest rates and other
commercial terms at which such additional financing is available. This could have a material adverse effect on
our business and future financial performance, our ability to obtain financing for capital expenditures, and the
price of our Equity Shares.

17. Investors may not be able to enforce a judgment of a foreign court against us.

It may not be possible for investors in our Equity Shares to effect service of process outside of India on us or our
directors and executive officers named in this Letter of Offer who are residents of India or to enforce judgments
obtained against us or these persons in foreign courts predicated upon the liability provisions of foreign
countries. Moreover, it is unlikely that a court in India would award damages on the same basis as a foreign
court if an action were brought in India or that an Indian court would enforce foreign judgments if it viewed the
amount of damages as excessive or inconsistent with Indian law and practice.

18. Provisions in Indian law may discourage a third party from acquiring control of our Bank, even if it
    would result in the purchase of our Equity Shares at a premium to the market price or would otherwise
    be beneficial to our Bank’s shareholders

There are provisions in Indian law that may discourage a third party from attempting to take control of our
Bank, even if it would result in the purchase of our Equity Shares at a premium to the market price or would
otherwise be beneficial to our Bank’s shareholders. Indian takeover regulations contain certain provisions that
may delay, deter or prevent a future takeover or change in control so as to ensure that the interests of
shareholders are protected. Any person acquiring either “control” or an interest (either on its own or together
with parties acting in concert with it) in 15% or more of our Bank’s voting Equity Shares must make an open
offer to acquire at least another 20% of our Bank’s outstanding voting Equity Shares. A takeover offer to
acquire at least another 20% of our Bank’s outstanding voting Equity Shares also must be made if a person
(either on its own or together with parties acting in concert with it) holding between 15% and 55% of our
Bank’s voting Equity Shares has entered into an agreement to acquire or decided to acquire additional voting
Equity Shares in any financial year that exceed 5% of our Bank’s voting Equity Shares. These and other
applicable provisions may discourage or prevent certain types of transactions involving an actual or threatened
change in control.

19. Your ability to sell your Equity Shares to a resident of India may be subject to delays if RBI approval is
    required.

Under current Indian regulations and practice, approval of the RBI is required for the sale of Equity Shares by a
non-resident to a resident of India, unless the sale is made on a stock exchange in India through a stock broker
or a merchant banker registered with SEBI, at the market price or in terms of the pricing guidelines specified by
RBI in the case of an off-market transfer. If the Equity Shares are thinly traded, then certain other pricing
guidelines specified by RBI must be followed. Prior to the repatriation of sale proceeds, certain filings must be
made with an authorised dealer remitting the proceeds along with certain documents, including an undertaking


                                                        25
from the resident buyer in the prescribed form stating that the pricing guidelines have been adhered to and a no
objection/tax clearance certificate from the income tax authority or an accountant has been obtained. If any
approvals are required from the RBI or any other government agency, they may not be obtained on terms
favourable to a non-resident investor or at all. We cannot guarantee that any approval, if required, will be
obtained in a timely manner or at all. Because of possible delays in obtaining requisite approvals, investors in
the Equity Shares may be prevented from realising gains during periods of price increases or limiting losses
during periods of price declines.

20. Foreign investment in our Bank as well as acquisitions or transfers of our Equity Shares resulting in an
    aggregate holding of five per cent or more is subject to limits specified by the Reserve Bank of India.
    These restrictions may adversely affect the liquidity of our Equity Shares and could result in the absence
    of FII buying support even in situations where there is a decline in the price of our Equity Shares.

Under Indian laws, the aggregate permissible foreign investment (including foreign direct investment (‘‘FDI’’)
and investment by registered foreign institutional investors (‘‘FIIs’’) and nonresident Indians (‘‘NRIs’’) in a
private sector bank, such as our Bank, is limited to an aggregate of 74% of the paid up capital. Further, the
foreign exchange regulations stipulate that the aggregate foreign institutional investor‘s/ FII’s holding cannot
exceed 24% of the total issued capital. However, with the approval of the Board of Directors and the
shareholders by way of a special resolution, the aggregate FII holding in a company can be increased up to
sectoral limits. Presently, the FII shareholding limit of our Bank is 49% of our paid up capital as approved by
the shareholders. As on December 31, 2010, our FII holding was 29.98 %. Accordingly, unless the current
foreign investment limit applicable to us is liberalised, the scope of us getting additional foreign investment will
be limited. Once the aggregate foreign investment of a bank reaches this cut-off point, the RBI cautions non-
resident investors and authorised dealers not to further transact in equity shares of such bank without prior
approval of the RBI. These restrictions may adversely affect the liquidity of our Equity Shares and could result
in the absence of FII buying support even in situations where there is a decline in the price of our Equity Shares.

Pursuant to the Guidelines for Acknowledgement of Shares in Private Banks contained in the Circular DBOD.
NO.PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004, or the Acknowledgement Guidelines, any
acquisition or transfer of shares in a private bank which will take the aggregate holding of an individual or a
group to five per cent or more of the paid-up capital of a bank, requires the prior “acknowledgement” of the
RBI. The term “holding” refers to both direct and indirect holdings, beneficial or otherwise, and is computed
with reference to the holding of the applicant, relatives (where the applicant is a natural person) and associated
enterprises. In considering whether it will grant its acknowledgement to any application for an acquisition or
transfer resulting in a holding of five per cent or more of the paid-up capital of a private bank, the RBI
considers, among other matters, whether the applicant or proposed acquirer (including all entities connected
with the acquirer) meets certain fitness and propriety tests. Further as advised by RBI vide its circular
DBOD.No.PSBS.BC.182/16.13.100/99-2000 May 31, 2000, our Bank had amended its Articles of Association
to the effect that acquisition of shares by a person/group which would take his/its holding to a level of 5% or
more of the total issued capital of the bank (or such other percentage as may be prescribed by the Reserve Bank
from time to time) should be with the prior approval of Reserve Bank of India. The RBI considers additional
criteria when granting its acknowledgement where the acquisition or transfer will take the aggregate
shareholding of the applicant or proposed acquirer to 10.00% or more and certain further criteria when granting
its acknowledgement where the acquisition or transfer will take the aggregate shareholding of the applicant or
proposed acquirer to 30.00% or more of the paid-up capital of a private bank. The RBI, in terms of the
guidelines on ownership and governance issued on February 28, 2005 may require the applicant or proposed
acquirer to seek further approval in relation to subsequent acquisitions at any higher threshold as it may specify.

The aforementioned regulatory framework could adversely affect the free transferability of the Equity Shares.

21. The price of our Equity Shares may be highly volatile

The prices of our Equity Shares on the Indian stock exchanges may fluctuate as a result of several factors,
including:

•     volatility in the Indian and global securities market or in the Rupee’s value relative to the U.S. dollar, the
      Euro and other foreign currencies;
•     our profitability and performance;
•     performance of our competitors in the Indian banking industry and the perception in the market
•     significant developments in India’s economic liberalisation and deregulation policies;

                                                        26
•        significant developments in India’s fiscal, environmental and other regulations;
•        an assessment of our management, our past and present operations, and the prospects for, and timing of,
         our future revenues and cost structures; and
•        the present state of our development

Further, there can be no assurance the prices at which our Equity Shares have historically traded will correspond
to the prices at which our Equity Shares will trade in the market subsequent to this Offering.

Prominent Notes:

    1.     This Issue is of 5,37,69,935 Rights Equity Shares for cash at a premium of Rs. 75/- per Rights Equity
           Share on rights basis to the existing Equity Shareholders of our Bank in the ratio of 2 Rights Equity
           Share for every 5 Equity Share held on the Record Date i.e. February 28, 2011 in terms of this Letter of
           Offer.

    2.     Net worth of our Bank as on March 31, 2010 is Rs. 1,832.75 Crores and September 30, 2010 is Rs.
           1,910.10 Crores. The Issue is of an amount aggregating Rs. 457.04 Crores.

    3.     The book value per Equity Share as of March 31, 2010 and September 30, 2010 was Rs. 136.80 and
           Rs. 142.33 per Equity Share.

    4.     Our Bank has entered into certain related party transactions as disclosed in the section titled “Financial
           Statements” on Page no 64 of this Letter of Offer.

    5.     None of our directors and their relatives have financed the purchase by any other person of securities of
           our Bank other than in the normal course of the business of the financing entity during the period of six
           months immediately preceding the date of filing this Letter of Offer with SEBI.

    6.     No loans and advances have been granted to our Directors

    7.     Trading in equity shares for all investors shall be in dematerialised form only.

    8.     Except as stated in this Letter of Offer under section titled “Our Management” on age 57 of this Letter
           of Offer, the Directors have no interest other than to the extent of Equity Shares of our Bank held or
           reimbursement of expenses incurred or normal remuneration or benefits.

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

    10. The Lead Manager and our Bank have updated this Letter of Offer to keep the shareholders/public
        informed of any material changes from the filing of the Draft Letter of Offer and will keep the
        shareholders/public informed of the same till the listing and trading commencement and our Bank shall
        continue to make all material disclosures as per the terms of the listing agreement.

    11. Investors may contact Lead Manager or Compliance Officer of our Bank for any queries/ complaints
        pertaining to the Issue.




                                                          27
                                          SUMMARY OF THE ISSUE

 Pursuant to the resolution passed by the Board of Directors of our Bank under Section 81(1) of the Companies
 Act, 1956 at the meeting held on July 30, 2010 and subsequently approved by the members of our Bank at the
 Extra-Ordinary General Meeting held on September 9, 2010, it has been decided to make the following offer to
 the eligible equity shareholders of our Bank, with a right to renounce.

 The following is a summary of the Issue. This summary should be read in conjunction with, and is qualified in
 its entirety by, more detailed information in the section titled “Terms and Procedure of the Issue” beginning on
 Page no 98 of this Letter of Offer.

  Rights Equity Shares proposed to be
                                                5,37,69,935 Rights Equity Shares
  issued
  Rights Entitlement for Equity Shares           2 Rights Equity Shares for every 5 Equity Shares held on the
                                                 Record Date
  Record Date                                    February 28, 2011
  Issue Price per Rights Equity Share            Rs. 85
  Face Value per Rights Equity Share             Rs. 10
  Equity Shares outstanding prior the 13,44,22,037 Equity Shares
  Issue
  Equity Shares outstanding prior the 13,44,24,837 Equity Shares
  Issue (Adjusted) (Includes 2,800 shares
  kept in abeyance on account of earlier
  issues which have not yet lapsed)
  Equity Shares outstanding after the 18,81,94,772 Equity Shares
  Issue*
  Use of Issue Proceeds                          For further information, please refer to the section titled “Objects
                                                 of the Issue” beginning on Page no 45 of this Letter of Offer.
 * Including the entitlements in respect of shares kept in abeyance which have not yet lapsed.

Payment terms

The payment terms available to the Investors are as follows:

                Due Date                                                   Amount
 On Rights Issue application                   Rs. 85 which constitutes 100% of the full amount of the Issue Price
                                               of Rs. 85.




                                                        28
                                   SUMMARY FINANCIAL INFORMATION

The following tables set forth the summary financial information derived from the financial statements of our
Bank as on and for Fiscal 2010 and six months period ended September 30, 2010, prepared in accordance with
Indian GAAP.

The summary financial information of our Bank presented below, is in crores and should be read in conjunction
with the financial statements and the notes (including the significant accounting principles) thereto included in
the section “Financial Statements” of the Letter of Offer.

BALANCE SHEET AS ON 31ST MARCH, 2010

                                                                                                  (Rs in Crore)
                                                                                  As on               As on
                                                                               31.03.2010          31.03.2009
CAPITAL AND LIABILITIES
Capital                                                                               133.99              121.58
Reserves and Surplus                                                                1,698.76            1,445.44
Deposits                                                                          23,730.65           20,333.29
Borrowings                                                                            341.64                3.97
Other Liabilities and Provisions                                                    1,130.11              953.52


TOTAL                                                                             27,035.15           22,857.80

ASSETS


Cash and balances with Reserve Bank of India                                        1,743.10            1,364.98
Balances with Banks and Money at Call & Short Notice                                   62.45               95.75
Investments                                                                         9,992.05            8,961.49
Advances                                                                          14,435.68           11,810.04
Fixed Assets                                                                          148.07              138.49
Other Assets                                                                          653.80              487.05


TOTAL                                                                             27,035.15           22,857.80


Contingent Liabilities                                                            10,119.24           10,042.74
Bills for Collection                                                                1,032.24              928.93




                                                       29
                                                                                 (Rs in crore)

             PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010
                                                                  Year ended      Year ended
                                                                   31.03.2010      31.03.2009
I. INCOME
Interest Earned                                                       2,043.42       1,948.76
Other Income                                                           311.26          321.79
Total                                                                2,354.68        2,270.55
II. EXPENDITURE
Interest Expended                                                    1,707.79        1,443.83
Operating Expenses                                                     386.05          346.51
Provisions and Contingencies                                            93.72          213.51
Total                                                                2,187.56        2,003.85

III.PROFIT
Net profit for the year                                                167.12          266.70

Profit brought forward                                                   0.03            0.10


Total                                                                  167.15          266.80

IV. APPROPRIATIONS
Transfer to Statutory Reserve                                           88.00          100.00
Transfer to Capital Reserve                                                 --          60.67
Transfer to Revenue Reserve                                              3.00            7.00
Transfer to Special Reserve u/s 36 (i) (viii) of IT Act                  6.68           12.31
Transfer to Investment Reserve Account                                   5.70               --
Transfer to Other Funds                                                  1.00            1.45
Transfer to Proposed dividend                                           53.63           72.94
Transfer to Tax on proposed dividend                                     9.11           12.40
Balance carried over to Balance Sheet                                    0.02            0.03
Total                                                                  167.14          266.80

Number of Shares outstanding during the year (weighted average)   12,37,79,973   12,14,44,753
Earning per share (Rs per share of Rs10/- each)
Basic           (Rs.)                                                   13.50           21.96
Diluted (Rs.)                                                           13.45           21.96




                                                          30
                                                                (Rs in crores)
            CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010
                                               March 31, 2010   March 31, 2009
A   CASH FLOW FROM OPERATING ACTIVITIES

    Net profit before tax and extra ordinary items                        193.05               406.15
    Adjustments for :
    Depreciation on Fixed Assets including
    Lease Adjustment charges                                    22.15                19.82
    Provisions and Contingencies                                71.08                80.50
    Amortisation of premium on Held to Maturity Investments     28.86                11.95
                                                                          122.09               112.27

    Operating profit before working capital changes                       315.14               518.42
    Adjustment for :
     i) Advances & Other Assets                               -2662.89              -919.27
     ii) Investments                                          -1041.20             -2650.43
     iii) Deposits, Borrowings & Other Liabilities             3793.27              3166.36
                                                                           89.18              -403.34
    Cash generated from operations                                        404.32               115.08
    Direct taxes paid                                                     102.58               168.10
    Net cash flow from operating activities (A)                           301.74               -53.02
B   CASH FLOW FROM INVESTING ACTIVITIES
    Purchase of fixed assets                                              -32.35               -39.04
    Sale of fixed assets                                                    0.88                 0.51
    Net cash used in investing activities (B)                             -31.47               -38.53

C   CASH FLOW FROM FINANCING ACTIVITIES
    Proceeds from issue of share capital (net of expenses)                158.84                 1.06
    Proceeds from long term borrowings                                      0.00                 0.00
    Dividend paid (Including Tax on Dividend)                             -84.30               -70.21
    Net Cash generated from Financing Activities ( C )                     74.54               -69.15
    Net increase in Cash & Cash equivalents (A+B+C)                       344.81              -160.70
    Cash & cash equivalents as at (opening)                              1460.74              1621.43
    Cash & cash equivalents as at (closing)                              1805.55              1460.74




                                                      31
                                                                            (Rs in Crore)

                           BALANCE SHEET AS ON 30TH SEPTEMBER 2010
                                                              As on           As on
                                                           30.09.2010      31.03.2010
CAPITAL AND LIABILITIES
Capital                                                           134.21          133.99
Reserves and Surplus                                            1,775.90        1,698.76
Deposits                                                       25,045.31       23,730.65
Borrowings                                                        917.25          691.64
Other Liabilities and Provisions                                  727.22          780.11


TOTAL                                                          28,599.89       27,035.15


ASSETS


Cash and balances with Reserve Bank of India                    1,774.83        1,743.10
Balances with Banks and Money at Call & Short Notice               40.75           62.45
Investments                                                    10,435.04        9,992.05
Advances                                                       15,683.07       14,435.68
Fixed Assets                                                      146.08          148.07
Other Assets                                                      520.12          653.80


TOTAL                                                          28,599.89       27,035.15


Contingent Liabilities                                          9,286.60       10,119.24
Bills for collection                                            1,244.50        1,032.24




                                                   32
                                                                                              (Rs in Crore)

         PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30TH SEPTEMBER 2010

                                                               Half year
                                                                            Half year ended   Year ended
                                                                 ended
                                                                              30.09.2009      31.03.2010
                                                               30.09.2010
I. INCOME
Interest Earned                                                 1,116.47          971.65          2,043.42
Other Income                                                      132.27          185.94            311.26
Total                                                           1,248.74        1,157.59          2,354.68
II. EXPENDITURE
Interest Expended                                                 857.92          869.69          1,707.79
Operating Expenses                                                239.71          189.59            386.05
Provisions and Contingencies                                       75.91           41.89             93.72
Total                                                           1,173.54        1,101.17          2,187.56
III.PROFIT
Net profit for the year                                            75.20           56.42            167.12
Profit brought forward                                              0.02            0.10              0.03
Total                                                              75.22           56.52            167.15
IV. APPROPRIATIONS
Transfer to Statutory Reserve                                       0.00            0.00             88.00
Transfer to Capital Reserve                                         0.00            0.00              0.00
Transfer to Revenue Reserve                                         0.00            0.00              3.00
Transfer to Special Reserve u/s 36 (i) (viii) of IT Act             0.00            0.00              6.68
Transfer to Investment Reserve Account                              0.00            0.00              5.70
Transfer to Other Funds                                             0.00            0.00              1.00
Transfer to Proposed dividend                                       0.00            0.00             53.63
Transfer to Tax on proposed dividend                                0.00            0.00              9.11
Balance carried over to Balance Sheet                              75.22           56.52              0.02
Total                                                              75.22           56.52            167.14




                                                          33
                                         GENERAL INFORMATION

Dear Equity Shareholder(s),

Pursuant to the resolution passed by the Board of Directors of our Bank under Section 81(1) of the Companies
Act, 1956 at the meeting held on July 30, 2010 and subsequently approved by the members of our Bank at the
Extra-Ordinary General Meeting held on September 9, 2010, our Bank has been authorized to make the
following Rights Issue to its Equity Shareholders:

Issue of 5,37,69,935 Equity Shares of Rs.10 each for cash at a premium of Rs. 75/- per Equity Share aggregating
to Rs. 457.04 Crores on rights basis to the existing Equity Shareholders of our Bank, in the ratio of two Equity
Shares for every five Equity Shares (i.e. 2:5) held as on the Record Date i.e. February 28, 2011.

REGISTERED OFFICE

The Karnataka Bank Limited
P.B. No. 599
Mahaveera Circle, Kankanady
Mangalore - 575 002, India
Telephone: +91 (0824) 2228222
Fascimile: +91 (0824) 2225588
Website: www.karnatakabank.com
Email: info@ktkbank.com

Company Identification Number: L85110KA1924PLC001128

ADDRESS OF THE REGISTRAR OF COMPANIES

The Registrar of Companies, Karnataka
'E' Wing, 2nd Floor
Kendriya Sadana
Koramangala, Bangalore-560034
Telephone: 080-25633105, 080-25537449/25633104
Fascimile: 080-25538531
Email: roc.bangalore@mca.gov.in

The Equity Shares are listed on the BSE and the NSE.

Company Secretary and Compliance Officer

Mr. Y V Balachandra
Company Secretary and Compliance Officer
P.B. No. 599, Mahaveera Circle,
Kankanady, Mangalore - 575 002
India
Telephone: +91 (0824) 2228222
Fascimile: +91 (0824) 2225588
Website: www.karnatakabank.com
E-mail: comsec@ktkbank.com

Investors may contact the Compliance Officer for any pre-issue /post-issue related matters such as non-receipt
of letters of allotment/ share certificates/ refund orders, etc. All grievances relating to the ASBA process may be
addressed to the Registrar to the Issue, with a copy to the SCSB, giving full details such as name, address of the
applicant, number of Equity Shares applied for, Amount blocked, ASBA Account number and the Designated
Branch of the SCSB where the CAF was submitted by the ASBA Investors.




                                                        34
Auditors of our Bank

The auditors of our Bank are:

M/s Vishnu Daya & Co                                M/s R K Kumar & Co
Chartered Accountant                                Chartered Accountants
GF No 7, Karuna Complex, No 337                     II Floor, Congress Building
Sampige Road, Malleshwaram,                         573, Mount Road
Bangalore-560 003                                   Chennai-600006
Tel: 080-23312779,Fax: 23313725                     Tel: 044-24349866, Fax:-24349857
Email:Vishnu@vishnudaya.com                         Email: rkkco@dataone.in

Registrar to the Issue

Integrated Enterprises India Limited
No 30 Ramana Residency 4th Cross,
Sampige Road, Malleswaram,
Bangalore 560 003
Telephone: 080-23460815-818
Facsimile: 080-23460819
E-mail: alfint@vsnl.com
Investor Grievance E-mail: ktkbankrights@vsnl.net
Website:www.iepindia.com
Contact Person: Mr. S. Vijayagopal
SEBI Reg. No: INR 000000544

Lead Manager to the Issue

Edelweiss Capital Limited
14th Floor, Express Towers,
Nariman Point,
Mumbai 400 021, India
Board: +91 (22) 4086 3535
Fax: +91 (22) 4086 3610
E-mail: ktk.rights@edelcap.com
Investor Grievance I.D.: customerservice.mb@edelcap.com
Website: www.edelcap.com
Contact Person: Mr. Sumeet Lath/Mr. Jibi Jacob
SEBI Registration No. INM0000010650

Legal Advisor to the Issue

Khaitan & Co
One Indiabulls Centre
13th Floor, 841 Senapati Bapat Marg
Mumbai 400 013, India
Tel: + 91 22 6636 5000
Fax: + 91 22 6636 5050

Bankers to the Issue

The Karnataka Bank Limited
HO Complex Branch
Mahaveera Circle,
Kankanady, Mangalore - 575 002
India
Telephone: +91 (0824) 2228222
Fascimile: +91 (0824) 2225588
Website: www.karnatakabank.com
Email: mangalore.hocomplex@ktkbank.com

                                                    35
Self Certified Syndicate Banks

The list of banks that have been notified by SEBI to act as SCSB for the ASBA process is provided on
http://www.sebi.gov.in/pmd/scsb.html.

Statement of responsibility of the Lead Manager

Edelweiss Capital Limited is the sole Lead Manager to the Issue. However, the details of responsibility for
Edelweiss Capital Limited are follows:

S.No                                                      Activities

1       Capital structuring with relative components and formalities such as type of instruments, etc.
2       Drafting and design of the Letter of Offer and of advertisement /publicity material including newspaper
        advertisements and brochure /memorandum containing salient features of the Letter of Offer.
        Compliance with the SEBI Regulations and other stipulated requirements and completion of prescribed
        formalities with Stock Exchange and SEBI.
3       Marketing of the Issue which will cover, inter alia, formulating marketing strategies, preparation of
        publicity budget, arrangements for selection of (i) ad-media and (ii) bankers to the issue.
4       Selection of various agencies connected with the Issue, namely Registrars to the Issue, printers, bankers
        and advertisement agencies.
5       The post-issue activities will involve essential follow-up steps, which must include finalization of basis
        of allotment / weeding out of multiple applications, listing of instruments and dispatch of certificates
        and refunds, with the various agencies connected with the work such as registrars to the issue, bankers
        to the issue, and bank handling refund business. Even if many of these post-issue activities would be
        handled by other intermediaries, the Lead Manager shall be responsible for ensuring that these agencies
        fulfill their functions and enable him to discharge this responsibility through suitable agreements with
        the Issuer.
6       Ensuring compliance with the SEBI (ICDR) Regulations 2009 and other requirements and formalities
        specified by SEBI and the recognized stock exchanges where specified securities being offered are
        proposed to be listed.

Issue Schedule

Issue Opening Date:                                                              Tuesday, March 8, 2011
Last date for receiving requests for split forms:                                Monday, March 14, 2011
Issue Closing Date:                                                              Tuesday, March 22, 2011

Trustees

As this is an issue of equity shares, the appointment of trustees is not required.

Monitoring Agency

Our Bank is not required to appoint a monitoring agency pursuant to Regulation 16 of the SEBI ICDR
Regulations. Our Board will monitor the use of the proceeds of this Issue as per clause 49 of the listing
agreement.

Underwriting

This Issue is not underwritten and our Bank has not entered into any underwriting arrangement.

If our Bank does not receive the minimum subscription of 90% of the Issue, or the subscription level falls below
90%, after the Issue Closing Date on account of cheques being returned unpaid or withdrawal of applications,
our Bank shall refund the entire subscription amount received within 15 days from the Issue Closing Date. If
there is delay in the refund of the subscription amount by more than eight days after our Bank becomes liable to
pay the subscription amount (i.e. 15 days after the Issue Closing Date), our Bank will pay interest for the
delayed period at 15% per annum as prescribed under sub-sections (2) and (2A) of Section 73 of the Companies
Act.


                                                         36
Principal Terms of Loans and Assets charged as security

For details of the principal terms of loans and assets charged as security, please see the section titled “Financial
Statements” on Page no 64 of this Letter of Offer.




                                                        37
                                          CAPITAL STRUCTURE

The share capital of our Bank as on February 16, 2011 is as under:
                                                                        (Rs. in Crores, except share data)
                                                                         Aggregate value         Aggregate
                                                                          at Face Value         Value at Issue
                                                                                                    Price
 Authorized share capital
 20,00,00,000 Equity Shares of Rs. 10 each                                           200.00

 Issued capital
 13,44,45,665 Equity Shares of Rs. 10 each                                           134.45

 Subscribed Capital
 13,44,38,587 Equity Shares of Rs. 10 each                                           134.44

 Paid up Capital
 13,44,22,037 Equity Shares of Rs. 10 each                                           134.42

 Present Issue being offered to the Equity Shareholders through the Letter of Offer
 5,37,69,935 Equity Shares of Rs. 10 each at a premium of Rs. 75, i.e.         53.77                   457.04
 at a price of Rs. 85 per share (Note 1)

 Paid up capital after the Issue
 18,81,94,772 Equity Shares of Rs. 10 each (Note 2)                                  188.20

 Share premium Account
 Before the Issue                                                                    319.43
 After the Issue                                                                     722.70

Issued Capital
1.   The issued capital of 13,44,45,665 equity shares includes 23,628 equity shares comprising of:
         i. 350 shares kept in abeyance in the bonus issue of shares during the year 2002-03
         ii. 350 shares kept in abeyance in the rights issue of shares during the year 2002-03
         iii. 4,128 shares in the rights issue kept in abeyance during 1995-96 which have since been lapsed
         iv. 150 shares in the rights issue kept in abeyance during 2002-03 rights issue which have since been
              lapsed.
         v. 2,100 shares kept in abeyance during 2004-05 rights issue.
         vi. 16,550 shares forfeited on October 10, 1998.
Subscribed Capital

The subscribed capital includes 16,550 shares, which were allotted in 1995-96 pursuant to the public issue but
forfeited on October 10, 1998 for non-payment of allotment money.
Paid-up Capital

The paid-up capital excludes 16,550 shares, which were allotted in 1995-96 pursuant to the public issue but
forfeited on October 10, 1998 for non-payment of allotment money.
Present Issue (Note 1)
    a. The present issue of rights shares is in the ratio of two shares of Rs. 10 each for every five shares held
         on the Record Date i.e. February 28, 2011.
    b. In addition to the present paid up capital of 13,44,22,037 equity shares, 2,800 Equity Shares, which
         have not yet lapsed, kept in abeyance on account of earlier issues are considered to arrive at the
         adjusted paid up capital of 13,44,24,837 equity shares which is considered for determining the number
         of shares in the Rights Issue. The above 2,800 equity shares comprises of:


                                                       38
          i. 350 shares kept in abeyance in the bonus issue of shares during the year 2002-03
          ii. 350 shares kept in abeyance in the rights issue of shares during the year 2002-03
          iii. 2,100 shares kept in abeyance in the rights issue of shares during the year 2004-05.

Post Issue (Note 2)

The post Rights Issue share capital also includes 2800 shares kept in abeyance, which have not yet lapsed, in
earlier isues and rights entitlement on those shares in the Rights Issue.

Outstanding Instruments

Employee Stock Option Scheme, 2006

The shareholders of our Bank had approved the employee stock option scheme at the annual general meeting
held on July 6, 2006 for grant to eligible employees upto 15,00,000 stock options in aggregate. Accordingly,
stock options have been granted to eligible employees at an exercise price of Rs. 50 per share. These stock
options would vest within a period not exceeding three years in a graded manner i.e. 40%, 30% and 30%. The
options vested, subject to other conditions, are exercisable within a period of 5 years from the respective dates
of vesting. During the year ended March 31, 2010 our Bank has provided a sum of Rs. 3,82,61,525 as employee
compensation cost being the proportionate accounting value in respect of stock options.

Summary of the Stock options as on February 16, 2011 is as under:

                                                                        Series 1          Series 2       Series 3
Stock Options Granted (Gross)                                                978,800        11,400          517,600
Less: Cancellations of Granted Options                                              -              -          2,700
Stock Options Granted (Net) (A)                                              978,800        11,400          514,900
Options vested                                                               910,900         8,650          348,425
Options exercised (B)                                                        683,570         6,470          243,685
Shares issued on exercise of options                                         683,570         6,470          243,685
Options lapsed (C)                                                            63,040         2,770           20,220
Variation of terms of options                                                     nil            nil             nil
Money realized by exercise of options                                    34,178,500        323,500       12,184,250
Total number of options in force (D) = (A)-(B)-(C)                           232,190         2,160          250,995

Total Options Outstanding (Total of all the series of D)                     485,345


Person-wise details of options granted to Directors and key managerial persons

None of our Directors have been granted stock options.

Except as stated below, none of our key managerial persons in our Bank have been granted stock options as on
the date of the filing of the Letter of Offer:

 Sr. No        Name of the Key Managerial Personnel                                        No. of options granted


 1             Shri K H Shivaswamy Aithal K H                                                          8,000
 2             P Jairama Hande                                                                         8,000
 3             N Upendra Prabhu                                                                        8,000
 4             Ashok Hegde                                                                             8,000
 5             M V C S Karanth                                                                         8,000

Promoters and Promoter Group related information



                                                        39
      Our Bank has no identifiable promoters. Hence, no disclosure of details in relation to their holding, pledge of
      shares held, acquisition of shares by the promoter and promoter group in the last one year immediately prior to
      the date of filing of the Letter of Offer, participation in the issue and lock-in has been made.

      Further, there is no shareholders agreement in place whereby any special right to appoint a director of our Bank
      has been given to any shareholder of our Bank.

      Shareholding Pattern

      Shareholding Pattern in compliance with Clause 35 of the listing agreement as on December 31, 2010 filed with
      the Stock Exchanges

Cate       Category of       Total       Total            Number of        Total shareholding      Shares pledged or
gory       shareholder       Numbe       number of        shares held      as a percentage of      otherwise encumbered
Code                         r of        shares           in               total number of
                             shareho                      dematerializ     shares
                             lders                        ed form          As a      As a          Numbe        As a
                                                                           percen percentag        r of         percentage
                                                                           tage of e of            shares
                                                                           (A+B) (A+B+C)
(I)        (II)              (III)       (IV)             (V)              (VI)      (VII)         (VIII)       (IX=(VIII)(
                                                                                                                IV)*100
(A)        Shareholding              0                0                0         0            0
           of Promoter
           and Promoter
           Group
(1)        Indian                    0                0                0         0            0
(a)        Individuals/              0                0                0                                    0             0
           Hindu                                                                 -             -
           Undivided
           Family
(b)        Central                   0                0                0         0            0             0             0
           Government/
           State
           Government(s)
(c)        Bodies                    0                0                0                                    0             0
           Corporate                                                             -            -
(d)        Financial                 0                0                0         0            0             0             0
           Institutions/
           Banks
(e)        Any Other                 0                0                0         0            0             0             0
           (specify)
           Sub-Total                 0                0                0      0.00         0.00             0             0
           (A)(1)
(2)        Foreign                   0                0                0         0            0
(a)        Individuals               0                0                0         0            0             0             0
           (Non-Resident
           Individuals/
           Foreign
           Individuals)
(b)        Bodies                    0                0                0         0            0             0             0
           Corporate
(c)        Institutions              0                0                0         0            0             0             0
(d)        Any Other                 0                0                0         0            0             0             0
           (specify)
           Sub-Total                 0                0                0      0.00         0.00             0             0
           (A)(2)
           Total                     0                0                0      0.00         0.00             0             0
           Shareholding


                                                            40
Cate   Category of       Total         Total              Number of         Total shareholding   Shares pledged or
gory   shareholder       Numbe         number of          shares held       as a percentage of   otherwise encumbered
Code                     r of          shares             in                total number of
                         shareho                          dematerializ      shares
                         lders                            ed form           As a      As a       Numbe    As a
                                                                            percen percentag     r of     percentage
                                                                            tage of e of         shares
                                                                            (A+B) (A+B+C)
(I)    (II)              (III)         (IV)               (V)               (VI)      (VII)      (VIII)   (IX=(VIII)(
                                                                                                          IV)*100
       of Promoter
       and Promoter
       Group
       (A)=
       (A)(1)+(A)(2)
(B)    Public
       shareholding
(1)    Institutions
(a)    Mutual Funds/               9          47,02,314         47,02,314     3.50        3.50
       UTI
(b)    Financial                   7           2,22,540          2,22,540     0.17        0.17
       Institutions/
       Banks
(c)    Central
       Government/
       State
       Government(s)
(d)    Venture
       Capital Funds
(e)    Insurance                   6          46,84,102         46,84,102     3.49        3.49
       Companies
(f)    Foreign                   88      4,02,88,593       4,02,88,593       29.98       29.98
       Institutional
       Investors
(g)    Foreign
       Venture
       Capital
       Investors
(h)    Any Other
       (specify)
       Sub-Total                 110     4,98,97,549       4,98,97,549       37.12       37.12
       (B)(1)
(2)    Non-
       institutions
(a)    Bodies               1,087        2,17,75,483       2,15,50,041       16.20       16.20
       Corporate
(b)    Individuals -
       i. Individual       87,883        4,26,96,604       2,79,30,948       31.77       31.77
       shareholders
       holding
       nominal share
       capital up to
       Rs. 1 lakh.
       ii. Individual            568     1,88,93,614       1,69,64,743       14.06       14.06
       shareholders
       holding
       nominal share
       capital in
       excess of Rs. 1


                                                           41
Cate       Category of       Total         Total             Number of        Total shareholding   Shares pledged or
gory       shareholder       Numbe         number of         shares held      as a percentage of   otherwise encumbered
Code                         r of          shares            in               total number of
                             shareho                         dematerializ     shares
                             lders                           ed form          As a      As a       Numbe     As a
                                                                              percen percentag     r of      percentage
                                                                              tage of e of         shares
                                                                              (A+B) (A+B+C)
(I)        (II)              (III)         (IV)              (V)              (VI)      (VII)      (VIII)    (IX=(VIII)(
                                                                                                             IV)*100
           lakh.


(c)        Any Other
           (specify)
           Trust                       7            39,864           39,864     0.03        0.03
           Clearing                  328          5,45,008         5,45,008     0.41        0.41
           Members
           NRI                    549           5,58,645         5,58,645       0.42        0.42
           OCB                      -                  0                0          -           -
           Sub-Total           90,422        8,45,09,218      6,75,89,249      62.88       62.88
           (B)(2)
           Total Public        90,532       13,44,06,767     11,74,86,798     100.00      100.00
           Shareholding
           (B)=
           (B)(1)+(B)(2)
           TOTAL               90,532       13,44,06,767     11,74,86,798     100.00      100.00
           (A)+(B)
(C)        Shares held                0                 0                0         0          0
           by
           Custodians
           and against
           which
           Depository
           Receipts have
           been issued
1          Held by                    0                 0                0         0          0
           promoter/
           promoter
           group
2          Held by                    0                 0                0         0          0
           Public
           GRAND               90,532      13,44,06,767#     11,74,86,798     100.00      100.00
           TOTAL
           (A)+(B)+(C)

      # Post December 31, 2010, our Bank has allotted 15,270 Equity Shares pursuant to the Employee Stock Option
      Scheme, 2006 (“ESOP Scheme”).

      Details of our Shareholders holding more than one per cent of the share capital of our Bank as on December 31,
      2010 is as follows:
      Sr. No. Name of the shareholder                                                    Number of Shares as a
                                                                                         shares       percentage of
                                                                                                      total number
                                                                                                      of shares
      1         HSBC Financial Services (Middle East) Ltd                                  59,99,999             4.46
      2         Life Insurance Corporation of India                                        36,03,918             2.68
      3         Birla Sun Life Insurance Company Limited                                   3,18,8101             2.37
      4         Wellington Management Company, LLP A/C BAY POND MB                         30,91,692            2.30*

                                                              42
Sr. No.    Name of the shareholder                                                      Number of       Shares as a
                                                                                        shares          percentage of
                                                                                                        total number
                                                                                                        of shares
5          Franklin Templeton Investment Funds                                            29,11,714                2.17
6          Macquarie Bank Limited                                                         26,48,362                1.97
7          Kuroto Fund Lp                                                                 24,37,914                1.81
8          Kotak Mahindra Investments Ltd.                                                21,27,456                1.58
9          Reliance Capital Trustee Company Limited                                       18,26,114                1.36
10         Fern Health Care Pvt Ltd                                                       17,58,829                1.31
11         SBI MUTUAL FUND A/C MMPS 93                                                    16,00,000                1.19
12         Equinox Partners LP                                                            15,00,000                1.12
13         Wellington Management Company, LLP A/C BAY POND BMD MB                         14,55,428               1.08*
14         VIC Enterprises Private Limited                                                13,95,000                1.04
15         Swiss Finance Corportion (Mauritius) Ltd                                       13,70,915                1.02

           TOTAL                                                                        3,69,15,442               27.47
* Wellington Management Company, LLP, as on the date of the Letter of Offer, holds more than 5% of the paid up capital of
our Bank. We have informed the RBI of the same vide our letters(s) dated December 30, 2010, January 05, 2011 and January
18, 2011

RELEVANT RBI PROVISIONS

Rights issues by private sector banks – Acknowledgement of transfer / allotment of shares

1) In terms of RBI Circular DBOD.No.PSBS.BC.79/16.13.100 /2001-2002 dated March 20, 2002, listed as
   well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue.

2) While reviewing, the following issues have emerged with reference to percentage of holding at the time of
   rights issue:-
   a) When some shareholders (individuals/ entities / groups) pick up unsubscribed shares which would
        result in his / its holding going up as a percentage of total paid up capital of the bank.
   b) When Some shareholders not picking up their entitlements, holdings of the other shareholders would
        go up in percentage even if they pick up their own entitlements.

The above matter has been examined from the point of view of applicability of RBI Circular DBOD. NO.PSBS.
BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004 on acknowledgement of transfer/ allotment of shares in
private sector banks and DBOD. NO. BP.BC.71/ 21.01.01/ 2004-05 dated February 28, 2005 on ownership and
governance and also the regulatory limits such as the cap for the aggregate FDI/FII/NRI holdings and the 5%
limit for a bank’s investment in equity of another bank.

RBI has advised banks going for rights issue to make complete disclosure of the regulatory requirements in the
offer documents, including the following that:

i.        Subscription to rights other than own entitlement will not be permitted if such subscription would result
          in breach of any statutory / regulatory ceilings.

ii.       any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or more
          of the paid up capital of the bank would require acknowledgement of RBI in terms of the criteria laid
          down in the RBI guidelines contained in the Circular DBOD. NO.PSBS. BC. 64/ 16.13.100/ 2003-04
          dated February 3, 2004. In terms of the guidelines on ownership and governance issued on February
          28, 2005 any acquisition that will take the shareholding of any entity/ group, directly or indirectly, to
          10% or more of the paid-up capital of the bank will require the prior approval of RBI. Further as
          advised by RBI vide its circular DBOD.No.PSBS.BC.182/16.13.100/99-2000 May 31, 2000, our bank
          had amended its Articles of Association to the effect that acquisition of shares by a person/group which
          would take his/its holding to a level of 5% or more of the total issued capital of our bank (or such other
          percentage as may be prescribed by the Reserve Bank from time to time) should be with the prior
          approval of Reserve Bank of India.


                                                           43
iii.        If the holding of any shareholder breaches any statutory / regulatory ceilings as a result of non-
           subscription of rights by other shareholders, the shareholder concerned will not be able to acquire any
           further shares till his/ its shareholding is brought within the stipulated ceilings.

Notes:

1.     No further issue of capital by way of issue of bonus shares, preferential allotment, rights issue or public
       issue or in any other manner which will affect the equity capital of our Bank, have been made during the
       period commencing from the filing of the Draft Letter of Offer with the SEBI till the the date of filing of
       this Letter of Offer with the Stock Exchange and no such issue will be made till the date on which the
       Equity Shares issued under the Letter of Offer are listed or application moneys are refunded on account of
       the failure of the Issue, except the allotment of equity shares pursuant to exercise of stock options vested in
       the employees.

2.     Further, except for (i) the allotment of Equity Shares pursuant to exercise of stock options vested pursuant
       to our Bank’s Employee Stock Option Scheme, at present our Bank has no intention to alter the equity
       capital structure by way of split/consolidation of the denomination of the shares, or issue of shares on a
       preferential basis or issue of bonus or rights or pubic issue of shares or any other securities for a period of
       six months from the date of opening of the Issue.

3.     The attention of the investors is drawn to section 12 (2) of the Banking Regulation Act, 1949, as amended
       which states that: “No person holding shares in the banking company shall in respect of any shares held by
       him, exercise voting rights on poll in excess of 10% of the total voting rights of all the shareholders of the
       banking company.”

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

5.     At any given time, there shall be only one denomination of the Equity Shares of our Bank.




                                                          44
                                          OBJECTS OF THE ISSUE

We are a banking company regulated by RBI. The RBI guidelines require us to maintain a minimum Capital
Adequacy Ratio of 9% subject to a minimum Tier I capital adequacy ratio of 6%. As per our six month financial
statements for period ended September 30, 2010, our total capital adequacy ratio under Basel I was 11.41% and
Based II was 11.71%. However, considering the future growth plans and increase in risk weighted assets, our
Bank would require additional capital to meet the Basel II norms.
The objects of the Issue are to augment our capital base to meet the capital requirements and growth in our
assets, primarily our loan and investment portfolio, compliance with regulatory requirements including meeting
the expenses of the Issue.
The main objects clause and the objects incidental or ancillary to the main objects clause of our Memorandum
of Association enable us to undertake our existing activities. Further, the main objects of our Bank enable us to
carry on the activities for which the funds are being raised by us in the Issue.

Requirement and Sources of Funds
                                         Particulars                                        Amount
                                                                                         (Rs. in Crores)
Augment our capital base to meet our capital adequacy requirements arising out of growth     453.46
in our business
Estimated Issue expenses                                                                       3.58
Net Proceeds                                                                                 457.04


The stated Objects of the Issue are proposed to be financed entirely from the Proceeds of the Issue. Therefore,
excluding the amount to be raised through proposed Rights issue, there is no requirement of firm arrangements
of finance.

(a)    Augment our capital base to meet our capital adequacy requirements arising out of growth in our
       businesses
As we are engaged in the business of banking, we are seeking to strengthen our capital base to support the future
growth in our assets and comply with the capital adequacy requirements applicable to us.

(b)    Estimated Issue Expenses
The total expenses of the Issue are estimated to be approximately Rs. 3.58 Crores. The Issue related expenses
include, among others, Issue management fees, Registrar fees, printing and distribution expenses, fees of the
legal counsels, advertisement, listing fees to the Stock exchanges etc. The break-up of total issue expenses is as
under:

                   Category                        Estimated expenses        % of the Issue        % of total
                                                     (Rs. In Crores)          Expenses             Issue Size
 Fees to the Lead Manager                                  0.66                  18.44                0.14
 Fees to the Registrar to the Issue                        0.26                   7.26                0.06
 Fees to the Legal advisors                                0.20                  5.59                 0.04
 Fees to the Auditors                                      0.06                  1.68                 0.01
 Advertising and Publicity Expenses                        0.50                  13.97                0.11
 Printing, Postage, Stationery Expenses                    1.08                  30.16                0.24
 Contingency, Stamp duty, Listing Fees, etc                0.82                  22.90                0.18
 Total                                                     3.58                 100.00                0.78

Monitoring of Utilisation of Funds

Pursuant to Regulation 16 of the SEBI ICDR Regulations, our Bank is not required to appoint a monitoring
agency. Our Board will monitor the use of the proceeds of this Issue as per clause 49 of the listing agreement.




                                                       45
                                     STATEMENT OF TAX BENEFITS



To,
The Board of Directors,
The Karnataka Bank Limited
P.B. No. 599, Mahaveera Circle,
Kankanady,
Mangalore - 575 002
Karnataka

Dear Sir,

We hereby confirm that the information provided below states the possible direct tax benefits available to
Karnataka Bank Limited (“The Bank”) and its shareholders under the current direct tax laws presently in force
in India. Several of these benefits are dependent on the Bank or its shareholders fulfilling the conditions
prescribed under the relevant provisions of the tax law. Hence, the ability of the Bank or its shareholders to
derive tax benefits is dependent upon fulfilling such conditions, which based on business imperatives, the Bank
or its shareholders may or may not choose to fulfill.

The benefits discussed below are not exhaustive. We are informed that this statement is only intended to provide
general information to the investors and hence is neither designed nor intended to be a substitute for professional
tax advice. In view of the individual nature of tax consequences and the changing tax provisions, each investor
is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of
their participation in the issue.

Unless otherwise specified, sections referred to below are sections of the Income-tax Act, 1961 (“The Act”).
The Income-tax rates referred here are the existing tax rates based on the rates prescribed in the Finance Act,
2010 for the Financial Year 2010-11. All the provisions set out below are subject to conditions specified in the
respective sections.

The below mentioned contents are based on information, explanations and representations obtained from the
Bank and on the basis of our understanding of the business activities and operations of the Bank and the
interpretation of tax laws presently in force in India.

We do not express any opinion or provide any assurance as to whether:

    The Bank or its shareholders will continue to obtain these benefits in future; or

    The conditions prescribed for availing the benefits, where applicable have been/ would be met.




                                                        46
I.     INCOME-TAX ACT, 1961

A.     TO THE BANK

(i)    Special Tax Benefits:

       1.      As per the provisions of section 36(1)(iiia) the Act, the Bank is entitled to deduction in respect
               of prorata amount of discount on a zero coupon bond, having regard to the period of life of
               such bond, calculated in the manner as may be prescribed by rules in this behalf. Zero coupon
               bond is defined under section 2(48) of the Act to mean a bond issued by any infrastructure
               capital company or infrastructure capital fund or public sector company or scheduled bank on
               or after 1.6.2005 in respect of which no payment and benefit is received or receivable before
               maturity or redemption from infrastructure capital company/fund or public sector company or
               scheduled bank and which is notified by the Central Government in this behalf.

       2.      Under section 36(1)(vii), any bad debt or part thereof written off as irrecoverable in the
               accounts of the Bank is allowable as a deduction from the Bank’s total income. However
               deduction is limited to the amount by which such bad debts or part thereof, exceeds the credit
               balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of
               the Act, and further subject to compliance with section 36(2)(v) of the Act which requires that
               such debt or part thereof should have been debited to the provision for bad and doubtful debts
               account.

       3.      Under section 36(1)(viia) of the Act, a deduction is allowable in respect of any provision
               made for bad and doubtful debts, by an amount not exceeding 7.5% of total income (computed
               before making any deduction under this section and Chapter VIA) and an amount not
               exceeding 10% of the aggregate average advances made by rural branches of the Bank.

               As per the third proviso to the section and subject to the conditions specified therein, the Bank
               at its option is allowed a further deduction for an amount not exceeding the income derived
               from redemption of securities in accordance with a scheme framed by the Central
               Government.

       4.      In terms of section 36(1) (viii) of the Act, the bank is allowed deduction at 20% of the profits
               derived from the business of long term finance for industrial or agricultural development or
               development of infrastructure facility in India or development of housing in India computed in
               the manner specified under the section and carried to the Special Reserve account from time to
               time not exceeding twice the paid-up capital and general reserves. The amount withdrawn
               from such a Special Reserve Account would be chargeable to income tax in the year of
               withdrawal, in accordance with the provisions of section 41(4A) of the Act.

       5.      In terms of section 43D of the Act, interest on certain categories of bad and doubtful debts as
               specified in Rule 6EA of the Income-tax Rules, 1962, shall be chargeable to tax only in the
               year of receipt or credit to Profit and Loss Account, whichever is earlier.

(ii)   General Tax Benefits

       6.      As per provisions of Section 10(15)(i) of the Act, income by way of interest, premium on
               redemption or other payment on securities, bonds, annuity certificates, savings certificates,
               other certificates issued by the Central Government and deposits as notified by the Central
               Government in the Official Gazette is exempt from tax, subject to such conditions and limits
               as may be specified by Central Government in this behalf.

       7.      Under section 10(15)(vii) of the Act, interest on bonds issued by a local authority or by a State
               Pooled Finance Entity and specified by the Central Government by notification in the Official
               Gazette is exempt from tax. For the purpose of this section, “State Pooled Finance Entity”
               means such entity which is set up in accordance with the guidelines for the Pooled Finance
               Development Scheme notified by the Central Government in the Ministry of Urban
               Development.


                                                     47
       8.       Dividends earned by the Bank are exempt from tax in accordance with and subject to the
                provisions of section 10(34) read with section 115-O of the Act. However, as per section 94(7)
                of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within
                three months prior to the record date and sold within three months from the record date, will
                be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.

       9.       Income earned by the Bank from investment in units of a specified Mutual Fund is exempt
                from tax under section 10(35) of the Act. However, as per section 94(7) of the Act, losses
                arising from the sale/ redemption of units purchased within three months prior to the record
                date (for entitlement to receive income) and sold within nine months from the record date, will
                be disallowed to the extent such loss does not exceed the amount of income claimed exempt.

                Further, as per section 94(8) of the Act, if an investor purchases units within three months
                prior to the record date for entitlement of bonus and is allotted bonus units without any
                payment on the basis of holding original units on the record date and such person sells/
                redeems the original units within nine months of the record date, then the loss arising from
                sale/ redemption of the original units will be ignored for the purpose of computing income
                chargeable to tax and the amount of loss ignored shall be regarded as the cost of acquisition of
                the bonus units.

       10.      Section 14A of the Act restricts claim for deduction of expenses incurred in relation to
                incomes which do not form part of the total income under the Act. Thus, any expenditure
                incurred to earn tax exempt income is not tax deductible expenditure.

       11.      Under the provisions of section 43(5) (d) of the Act, an eligible transaction in respect of
                trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts
                (Regulation) Act, 1956, carried out in a recognized stock exchange is not deemed to be a
                speculative transaction. An eligible transaction is defined to mean any transaction carried out
                electronically on screen-based systems through a stock broker or sub-broker or such other
                intermediary and which is supported by a time stamped contract note issued by such stock
                broker or sub-broker or such other intermediary to every client indicating in the contract note
                the unique client identity number and permanent account number.

       12.      In case of loss under the head “Profit and Gains from Business or Profession (Non
                Speculative)”, it can be set-off against other income and the excess loss after set-off can be
                carried forward for set-off against Business Income of the next eight Assessment Years in
                terms of provisions of section 70, 71 & 72 of the Act.

       13.      The unabsorbed depreciation, if any, can be adjusted against any other income and can be
                carried forward for set-off against the income of future years as per the provisions of section
                32 of the Act.

       14.      From assessment year beginning 1st April, 2010, the amount of tax paid under Section 115JB
                of the Act by the Bank for any assessment year beginning on or after 1st April 2006 will be
                available as credit for ten years succeeding the Assessment Year in which MAT credit
                becomes allowable in accordance with the provisions of section 115JAA of the Act.

B.     TO THE SHAREHOLDERS OF THE BANK

(i)    Special Tax Benefits

       There are no special tax benefits available to the shareholders of the Bank.

(ii)   General Tax Benefits

a)     RESIDENTS:

       1.       Dividends earned on shares of the Bank are exempt from tax in accordance with and subject to
                the provisions of section 10(34) read with section 115-O of the Act. However, as per section


                                                      48
            94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased
            within three months prior to the record date and sold within three months from the record date,
            will be disallowed to the extent such loss does not exceed the amount of dividend claimed
            exempt.

      2.    Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of Banks
            share is fully exempt from tax in accordance with the provision of section 10(38) of the Act
            where the sale is made on or after October 1, 2004 on a recognized stock exchange and
            transaction is chargeable to securities transaction tax.

      3.    Section 14A of the Act restricts claim for deduction of expenses incurred in relation to
            incomes which do not form part of the total income under the Act. Thus, any expenditure
            incurred to earn tax exempt income is not tax deductible expenditure.

      4.    Under section 36(1)(xv) of the Act, securities transaction tax paid by a shareholder in respect
            of taxable securities transactions entered into in the course of its business, would be allowed
            as a deduction if the income arising from such taxable securities transactions is included in the
            income computed under the head “profit and gains of business or profession”.

      5.    Under section 54EC of the Act, long term capital gain arising on sale of Bank`s share {other
            than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is
            invested in certain notified bonds within a period of six months from the date of such transfer
            (up to a maximum limit of Rs 50 lakhs) and held for a minimum period of three years.

      6.    Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale
            of Bank’s share {other than sale referred to in section 10(38) of the Act is exempt from tax if
            the net consideration is invested to purchase a residential house property within a period of
            one year before or two years after the date of sale/ transfer or invested in the construction of a
            residential house property within a period of three years after the date of sale/transfer. If only
            a part of the net consideration is invested in the new asset then the exemption will be available
            proportionately.
000
      7.    Taxable long term capital gains would arise [if not exempt under section 10(38) or any other
            section of the Act] to a resident shareholder where the equity shares are held for a period of
            more than 12 months prior to the date of transfer of the shares. In accordance with and subject
            to the provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the
            following amounts would be deductible from the full value of consideration:

            (a)      Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index
                     notified by the Central Government; and

            (b)      Expenditure incurred wholly and exclusively in connection with the transfer of shares

      8.    Under section 111A of the Act, Short term capital gains on the transfer of equity shares, where
            the shares are held for a period of not more than 12 months would be taxed at 15% (plus
            applicable surcharge and education cess), where the sale is made on or after October 1, 2004
            on a recognized stock exchange and the transaction is chargeable to securities transaction tax.
            In all other cases, the short term capital gains would be taxed at the normal rates of tax (plus
            applicable surcharge and education cess). Cost indexation benefits would not be available in
            computing tax on short term capital gain.

      9.    Under section 112 of the Act, long-term capital gains are subject to tax at a rate of 20% (plus
            applicable surcharge and cess) after indexation, as provided in the second proviso to section
            48 of the Act. However, in case of listed securities or units, the amount of such tax could be
            limited to 10% (plus applicable surcharge and cess), without indexation, at the option of the
            shareholder in cases where securities transaction tax is not levied.

      10.   From assessment year beginning 1st April, 2010, the amount of tax paid under section 115JB
            of the Act by the Corporate Assessee for any assessment year beginning on or after 1st April



                                                  49
           2006 will be available as credit for ten years succeeding the Assessment Year in which MAT
           credit becomes allowable in accordance with the provisions of section 115JAA of the Act.

     11.   In accordance with the provisions of section 56(1)(vii) of the Act, If an individual or HUF
           receives any shares, without consideration, the aggregate fair market value of which exceeds
           Rs.50,000, the whole of the fair market value of such shares will be considered as income in
           the hands of the recipient. Similarly, if an individual or HUF receives any shares for
           consideration which is less than the fair market value of the shares by an amount exceeding
           Rs.50000, the fair market value of such shares as exceeds the consideration will be considered
           as income in the hands of the recipient. However, the above ceilings of Rs.50,000 shall not
           apply to any shares received from any relative (as given in Explanation to clause (vi) of sub-
           section (2) of Section 56 of the Act) or on the occasion of the marriage of the individual or
           under a will or by way of inheritance or in contemplation of death of the payer or donor, as the
           case may be or from any local authority as defined in the explanation to section 10(20) of the
           Act or from any fund or foundation or university or other educational institution or hospital or
           other medical institution or any trust or institution referred to in clause (23C) of section 10 of
           the Act or from any trust or institution registered under section 12AA of the Act.

b)   NON-RESIDENT SHAREHOLDERS INCLUDING NON RESIDENT INDIANS (NRIs) AND
     FOREIGN INSTITUTIONAL INVESTORS (FIIs):

     1.    Dividends earned on shares of the Bank are exempt in accordance with and subject to the
           provisions of section 10(34) read with Section115-O of the Act. However, as per section 94(7)
           of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within
           three months prior to the record date and sold within three months from the record date, will
           be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.

     2.    Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of Bank’s
           share is fully exempt from tax in accordance with the provisions of section 10(38) of the Act,
           where the sale is made on or after October, 1 2004 on a recognized stock exchange and the
           transaction is chargeable to securities transaction tax.

     3.    Section 14A of the Act restricts claim for deduction of expenses incurred in relation to
           incomes which do not form part of the total income under the Act. Thus, any expenditure
           incurred to earn tax exempt income is not tax deductible expenditure.

     4.    Under section 36(1)(xv) of the Act, securities transaction tax paid by a shareholder in respect
           of taxable securities transactions entered into in the course of its business, would be allowed
           as a deduction if the income arising from such taxable securities transactions is included in the
           income computed under the head “Profit and gains of business or profession.

     5.    Under section 54EC of the Act, long term capital gain arising on sale of Bank`s share {other
           than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is
           invested in certain notified bonds within a period of six months from the date of such transfer
           (upto a maximum limit of Rs 50 lakhs) and held for a minimum period of three years.

     6.    Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale
           of the Bank’s shares [other than the sale referred to in section 10(38) of the Act], is exempt
           from tax if the net consideration is invested to purchase a residential house property within a
           period of one year before or two years after the date of sale/ transfer or invested in the
           construction of a residential house property within a period of three years after the date of
           sale/transfer. If only a part of the net consideration is invested in the new asset then the
           exemption will be available proportionately.

     7.    Long term capital gains would arise [if not exempt under section 10(38) or any other section
           of the Act] to a non-resident shareholder where the equity shares are held for a period of more
           than 12 months prior to the date of transfer of the shares. In accordance with and subject to the
           provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the
           following amounts would be deductible from the full value of consideration:



                                                 50
           (a)      Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index
                    notified by the Central Government; and
00
           (b)      Expenditure incurred wholly and exclusively in connection with the transfer of the
                    shares

           Section 48 of the Act further provides that capital gains arising from the transfer of equity
           shares acquired by the non-resident in foreign currency, are to be computed by converting the
           cost of acquisition/ improvement, expenditure incurred wholly and exclusively in connection
           with such transfer and the full value of the consideration received or accruing as a result of
           transfer of the capital asset into the same foreign currency as was initially utilized in the
           purchase of the shares and the capital gains so computed in such foreign currency shall be
           reconverted into Indian currency. Indexation will not be available in this case.

     8.    Under Section 111A of the Act, Short term capital gains on the transfer of equity shares,
           where the shares are held for a period of not more than 12 months would be taxed at 15%
           (plus applicable surcharge and education cess), where the sale is made on or after October 1,
           2004 on a recognized stock exchange and the transaction is chargeable to securities
           transaction tax. In all other cases, the short term capital gains would be taxed at the normal
           rates of tax (plus applicable surcharge and education cess). Cost indexation benefits would not
           be available in computing tax on short term capital gain.

     9.    Under section 112 of the Act, long-term capital gains are subject to tax at a rate of 20% (plus
           applicable surcharge and cess) after indexation, as provided in the second proviso to section
           48 of the Act. However, in case of listed securities or units, the amount of such tax could be
           limited to 10% (plus applicable surcharge and cess), without indexation, at the option of the
           shareholder in cases where securities transaction tax is not levied.

     10.   Option available to Non-resident Indian[s] (NRI) as per Chapter XII-A of the Act:

           (i)      Under section 115E of the Act, long term capital gains arising to a NRI on transfer of
                    specified capital assets (including on the Bank`s equity share) are taxable at the rate
                    of 10% (plus education cess) without indexation. Short-term capital gains are
                    however, taxable at the normal rates of tax.

           (ii)     Under section 115F of the Act, long-term capital gains arising to a NRI from the
                    transfer of shares of the Bank subscribed to in convertible foreign exchange shall be
                    exempt from tax, if the net consideration is reinvested in specified asset or in any
                    savings certificate as defined by section 10(4B) of the Act, within six months of the
                    date of transfer. If only part of the net consideration is so reinvested, the exemption
                    shall be proportionately reduced. The amount so exempted shall be chargeable to tax
                    subsequently, if the specified assets are transferred or converted into money within
                    three years from the date of their acquisition.

           (iii)    Under section 115G of the Act, a NRI is not required to file a return of income under
                    section 139(1) of the Act, if his only income is from foreign exchange asset
                    investments or long-term capital gains in respect of those assets or both, provided
                    that tax has been deducted at source from such income as per the provisions of
                    Chapter XVII-B of the Act.

           (iv)     As per the provisions of section 115-I of the Act, a NRI may elect not to be governed
                    by the provisions of Chapter XII-A for any assessment year by furnishing his return
                    of income for that assessment year under section 139 of the Act to the effect that the
                    provisions of Chapter XII-A shall not apply to him for that assessment year and
                    accordingly his total income for that assessment year will be computed and tax on
                    such total income shall be charged in accordance with the other provisions of the Act.

     11.   As per section 115AD of the Act, long term capital gains arising on transfer of shares
           purchased by FIIs, are taxable at the rate of 10% (plus applicable surcharge and education
           cess) if such long term capital gains are not exempt under section 10(38) of the Act.


                                                51
                  Short term capital gains earned by FIIs are taxable at the rate of 15% (plus applicable
                  surcharge and education cess) if the transaction is chargeable to securities transaction tax
                  [proviso to section 115AD(1)(ii)]. In all other cases the short term capital gains shall be taxed
                  at 30% (plus applicable surcharge and education cess). Indexation benefits are not available.
                  Further, the provisions of the first proviso of section 48 of the Act will not apply.

         12.      Under section 195 of the Act, dividends paid by the Bank in accordance with the provisions of
                  Section 115-O of the act, are not subject to deduction of tax at source.
000
         13.      Under Section 196D of the Act, no deduction of tax at source shall be made in respect of
                  capital gains arising on sale proceeds to FIIs on transfer of shares.

         14.      Under section 90(2) of the Act, the provisions of the Act would prevail over the provisions of
                  the Double tax avoidance agreement (tax treaty) entered into between India and the country of
                  physical domicile of the non-resident, if any, to the extent they are more beneficial to the non-
                  resident. Thus, a non-resident (including NRIs) can opt to be governed by the provisions of
                  the Act or the applicable tax treaty, whichever is more beneficial.

3.       MUTUAL FUNDS

         Under section 10(23D) of the Act, exemption is available in respect of income (including capital gains
         arising on transfer of shares of the Bank) of a Mutual Fund registered under the Securities and
         Exchange Board of India Act, 1992 or such other Mutual fund set up by a public sector bank or a
         public financial institution or authorized by the Reserve Bank of India and subject to the conditions as
         the Central Government may specify by notification.

II.      WEALTH TAX ACT, 1957

         Shares are not treated as assets within the meaning of Section 2(ea) of the Wealth-tax Act, 1957.
         Accordingly, shares purchased in the issue are not liable to Wealth-tax in the hands of the shareholders.

Notes:

1.       The above statement of possible tax benefits sets out the provisions of the direct tax law in a summary
         manner only and is not a complete analysis or list of all potential tax consequences of the purchase,
         ownership and disposal of shares.

2.       The stated benefits will be available only to the sole/ first named holder in case the shares are held by
         joint holders.

3.       In respect of non-residents, the tax rates and the consequent taxation mentioned above shall be further
         subject to any benefits available under the tax treaty, if any, between India and the country in which the
         non-resident has fiscal domicile.

4.       No assurance is given that the Revenue authorities / Courts will concur with the view expressed herein.
         Our view is based on the existing provisions of law and its interpretation which is subject to change
         from time to time. We do not assume responsibility to update our view consequent to such changes.


for Vishnu Daya & Co.,                                          for R.K. Kumar & Co.,
Chartered Accountants                                           Chartered Accountants
F.R.No.-008456S                                                 F.R.No.-001595S

(Venkatesh Kamath S V.)                                         (B.R.Ashok)
Partner                                                         M.No.023313

Date: January 24, 2011
Place: Bangalore



                                                        52
                                    REGULATIONS AND POLICIES

The main legislation governing commercial banks in India is the Banking Regulation Act, 1949. Other
important laws include RBI Act, 1932, the Negotiable Instruments Act, 1881 and the Banker’s Books Evidence
Act, 1891. Additionally, RBI, from time to time, issues guidelines to be followed by the banks. Compliance
with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. Banking
companies are also subject to the purview of the Companies Act and if such companies are listed on a stock
exchange in India then various regulations of SEBI would additionally apply to such companies.

No new regulations are applicable for the proposed objects of the issue since the objects are to augment our
capital base to meet our capital adequacy requirements arising out of growth in our business.




                                                     53
                  HISTORY OF OUR BANK AND OTHER CORPORATE MATTERS

Our Bank was incorporated on February 18, 1924 as The Karnataka Bank Limited at Mangalore in Karnataka
state to cater to the banking needs of the South Kanara Region. The certificate to commence business was
obtained on May 23, 1924. Towards achievement of this, our Bank is committed to the best practices in
corporate governance to protect the interest of shareholders, depositors and customers.

Our Bank was promoted by Late Shri B.R. Vysarayachar and other leading members of the South Kanara
Region. Under the able guidance of Shri K.S.N. Adiga, the second Chairman of our Bank who held the post for
a period of 21 years, our Bank made significant progress thereby providing a strong foundation and as a result
grew in stature in terms of number of branches, deposits, advances etc. Over the years, our Bank grew with the
merger of Sringeri Sharada Bank Limited, Chitladurg Bank Limited and Bank of Karnataka. At present our
Bank provides a wide gamut of financial services to cater to the needs of trade, industry, commerce and
agriculture. Our Bank has set its vision statement to be ‘A technology savvy, customer centric progressive Bank
with a national presence, driven by highest standards of corporate governance and guided by sound ethical
values’.

Key Milestones of our Bank

    Year                                            Milestone/Achievements
 1995            Public cum Rights Issue aggregating Rs. 81 Crores
 1998-99         Platinum Jubilee Year
 2000            Signed Memorandum of Understanding with Infosys Technologies for implementation of
                 FINACLE - Core Banking Solution
 2000            First FINACLE branch operationalized
 2002            Maiden Bonus Issue of shares in the ratio 1:1
 2002            Pact with Corporation Bank for sharing ATM’s
 2002            Bank took up Corporate Agency for distribution of products of MetLife Insurance Co.
 2003            Rights Issue in the ratio 1:2 aggregating Rs. 33.72 Crores
 2003            Registered and Head Office of our Bank shifted to the present premises.
 2003            Bank took up Corporate Agency for distribution of products of Bajaj Allianz General Insurance
                 Co Limited
 2003            Banks ATM Moneyplant launched
 2004            Completion of FINACLE at 200 branches
 2005            Launching Bank`s internet. Bank was the 19th Best bank as per KPMG Survey
 2005            Rights issue of equity shares aggregating Rs. 161.83 Crores in March 2005
 2006            Tie up with Franklin Templeton (I) Private Limited for distribution of their mutual funds.
 2007            Bank signed Memorandum of undertaking with Allahabad Bank, Indian Overseas Bank,
                 Sompo Japan Insurance Inc. and Dabur Investment Corporation to form a Joint Venture for
                 undertaking General Insurance business
 2008            100% net working of branches under core banking platform.
 2009            Our Bank won the prestigious Sun and NDTV Green IT award instituted by Sun Microsystems
                 and NDTV for use of eco efficient green technologies to run business.
 2010            Bank issued shares under Qualified Institutions Placement (QIP)
                 Bank bagged "Special Award for use of IT for Internal effectiveness” for the year 2009,
                 instituted by Institute for Development and Research in Banking Technology (IDRBT).

Our Main Objects

The main objects of our Bank as per our Memorandum of Association are as under:

a)      To establish and carry on the business of our Bank, where of the Head office or place of business shall
        be in Mangalore with such branches or agencies as may from time to time be determined upon.


                                                      54
b)   To carry on the business of banking in all its branches and departments including the borrowing or
     raising or taking up of money, the discounting, buying and selling of and dealing in Government
     securities, bills of exchange, hundies, promissory notes and other negotiable and transferable
     instruments and securities, the granting and issuing of letters of credit and circular notes, buying and
     selling of the and dealings in bullion and specie, such as gold, silver etc , the negotiating of loans and
     advances, the receiving of money and valuables on deposit, or for safe custody or otherwise the lending
     or advancing of money on promotes, on the security of jewels, Government Securities, Port Trust
     Bonds, Municipal debentures, shares or debentures of any other companies, insurance policies , or
     other valuable securities, or merchandise or any other movable property and also on the security of
     immovable property, by deposit of title deeds or otherwise the collecting and transmitting of money
     and securities and the transacting of all kinds of agency business, commonly transacted by Bankers.

c)   To take or acquire the whole or any part of any business similar to that this Bank or any business which
     this Bank is authorized to carry on and such other business which is capable of being conducted to the
     benefit directly or indirectly of this Bank.

d)   To purchase or otherwise acquire any sites with or without building thereon, erect or construct
     buildings and repair and improve them for the purpose of investment or otherwise as may be
     determined upon.

e)   Generally to purchase, take on lease or in Exchange, hire or otherwise acquire any immovable or
     movable property and any rights or privileges which our Bank may think necessary or convenient with
     reference to any of the objects, for which is established or acquisition of which may seem calculated to
     facilitate to the realization of any securities held by our Bank or to prevent or diminish any
     apprehended loss or liability.

f)   To take shares or otherwise acquire shares in Banking Companies or in other joint stock business
     companies or guaranteed corporations at the discretion of the Directors.

g)   To encourage, assist and finance any and every description of financial, commercial, mercantile,
     industrial, manufacturing and agency business undertakings, and operations at the discretion of the
     Directors.

h)   To take or concur in the taking up of all such steps and proceedings as may seem best calculated to
     uphold and support the credit of our Bank.

i)   To establish and support or aid in the establishment and support of associations, institutions, funds,
     trusts, and conveniences calculated to benefit employees or ex employees of our Bank, or the
     dependents or connections of such persons, to grant pensions and allowances and to make payments
     towards insurance and to set apart and appropriate from the annual net profits, towards the general,
     mental, moral and physical advancement of the members of the Dravida Brahmin Community, such
     sums as may be deemed fit.

j)   To sell and dispose of the entire undertaking of our Bank but not part of it only for such consideration
     as our Bank may think fit either for cash or shares, debentures, or securities of any other company
     having objects all together or in part similar to those of this Bank.

k)   To sell, manage, develop, exchange, lease, mortgage, dispose of, turn to account, or otherwise deal
     with all or any part of the property and rights of the bank.

l)   To do all or any of the above things as principals, agents, contractors, trustees or otherwise and by or
     through trustees, agents or otherwise.

m)   To do all such other things as are incidental or conducive to the attainments of the above objects.

n)   To engage in all or any one or more of the forms of business enumerated in Section 6 (1) of the
     Banking Regulation Act, 1949.

o)   To open, establish, maintain and operate currency chests and small coins depots on such terms and
     conditions as may be required by the Reserve Bank of India established under the Reserve Bank of


                                                    55
        India Act, 1934, and enter into all administrative or other arrangements for undertaking such functions
        with the Reserve Bank of India.

The main object clause of the Memorandum of Association of our Bank enables it to undertake the activities for
which the funds are being raised and the activities which it has been carrying on till date. There have been no
changes in object clause since the previous rights issue of bank in the year 2005.

Corporate Structure




                   - (2)




                                                      56
                                             OUR MANAGEMENT


As per the Articles of Association of our Bank, our Bank must have a minimum of 3 and a maximum of 15
Directors. At present, our Bank has 11 Directors. The constitution of our Board conforms to sections 10A and
10B of Banking Regulation Act, 1949 and the Corporate Governance requirements under clause 49 of the listing
agreement/s entered into with the Stock Exchanges. As on date, we have 1 Executive and 10 Non Executive
Directors. Out of 10 Non Executive Directors, 9 are Independent. The following table sets forth our Board of
Directors.

The following table sets forth details regarding the Board of Directors as on the date of this Letter of Offer:


   Name, Father’s Name,              Nationality      Age          Other              Date of            Date of
  Address, Designation and                                      Directorships       Appointment       Completion
            DIN                                                                                        of Term#*
Mr. Ananthakrishna                      Indian         63     • Universal           July 13, 2009    July 12, 2012
                                                                Sompo                                (Term as Non
S/o Mr. Narayana Rao                                            General                              Executive
                                                                Insurance Co.                        Chairman for
G-6, Swarna Deepa Apartments,                                   Limited                              three years)
Church Road, Bejai, Mangalore -                               • Indian
575 004                                                         Institute  of
                                                                Banking and
Part time - Non Executive                                       Finance
Chairman and Non Independent

DIN: 00018423
Mr. P. Jayarama Bhat                    Indian         58             Nil           July 13, 2009    July 12, 2012
                                                                                                     (Term        as
S/o Mr. Vasudeva Bhat                                                                                Managing
                                                                                                     Director for
Chaitanya, Manjushree Layout,                                                                        three years)
Kadri Temple Road, Mangalore -
575 002

Managing Director and Chief
Executive   Officer,   Non
Independent

DIN: 00041500
Mr. S.R. Hegde                          Indian         68             Nil           March      26,   March        25,
                                                                                    2005             2013
S/o Mr. Ramakrishna Hegde

D1-707, White House, 6th Main,
15th Cross,
R T Nagar, Bangalore 560 032

Non Executive and Independent
Director

DIN: 00018648
Mr. R.V. Shastri                        Indian         65     • National            January    28,   January      27,
                                                                Housing Bank        2006             2014
S/o Mr. Venkatarama Shastri                                   • Nagarjuna
                                                                Construction
Flat No B- 2-4, Oakyard, 8th                                    Company

                                                         57
   Name, Father’s Name,             Nationality   Age           Other             Date of          Date of
  Address, Designation and                                   Directorships      Appointment      Completion
            DIN                                                                                  of Term#*
Cross, East End                                               Limited
Main, 9th Block,      Jayanagar,                            • Religare
Bangalore 560 069                                             Trustee
                                                              Company
Non Executive and Independent                                 Limited
Director

DIN: 00026892
Mr. U.R. Bhat                         Indian       59       • Dalton Capital    January    28,   January    27,
                                                              Advisors          2006             2014
S/o Dr. U V Krishna                                           (India) Private
                                                              Limited
3A-203, Green Acres (W),                                    • Repro     India
Lokhandwala                                                   Limited
Complex, Andheri (W), Mumbai                                • Edelweiss
- 400 053                                                     Asset
                                                              Management
Non Executive and Independent                                 Limted
Director                                                    • Subhkam
                                                              Capital
DIN: 00008425                                                 Ventures
                                                              Private
                                                              Limited
                                                            • Axis     Asset
                                                              Management
                                                              Company
                                                              Limited
                                                            • IRIS Business
                                                              Services
                                                              Limited
Mr. T.S. Vishwanath                  Indian       63        • LIC     Mutual    January     5.   January     4,
                                                              Fund     Asset    2007             2015
S/o Late Mr. T J Sitaram                                      Management
                                                              Company
C-131, Sarvodaya Enclave, New                                 Limited
Delhi – 110017                                              • Mangalam
                                                              Cement
Non Executive and Independent                                 Limited
Director                                                    • Areva T&D
                                                              India Limited
DIN: 00023065
Mr. Sitarama Murty M.                 Indian      66        • Aurobindo         November         November
                                                              Pharma            30, 2007         29, 2015
S/o Mr.      Hanumantha      Rao                              Limited
Mandavilli                                                  • G.K.C.
                                                              Projects
Flat No. 401, Siva Sai Apts, Road                             Limited
No.    9,   West     Marredpally,
Secunderabad - 500 026

Non Executive and Independent
Director

DIN: 01694236
Mr. S.V. Manjunath                    Indian      59               Nil          October    25,   October    24,


                                                       58
   Name, Father’s Name,             Nationality    Age          Other             Date of           Date of
  Address, Designation and                                   Directorships      Appointment       Completion
            DIN                                                                                   of Term#*
                                                                                2008             2016
S/o   Mr.      Sargod     Gowda
Venkatappa

Kaskekhan Esate, Jenagadde
Post,
Chikmagalore - 577 136

Non Executive and Independent
Director

DIN: 02354102
Mr. D. Harshendra Kumar               Indian      57              Nil           October    25,   October   24,
                                                                                2008             2016
S/o Mr. D Ratnavarma Heggade

Dharmasthala,        Dakshina
Kannada Dist,
Dharmasthala - 574 216

Non Executive and Independent
Director

DIN:02336746
Dr. H. Rama Mohan                     Indian      58              Nil           October    25,   October   24,
                                                                                2008             2016
S/o       Mr.            Halsnad
Venkatrmanayya

Prema Clinic, Ramamandira
Road, Kundapura - 576 201

Non Executive and Independent
Director

DIN: 02331431
Mr. Tirupathur Ramaswamy              Indian      64              Nil           October    15,   October   14,
Chandrasekaran                                                                  2010             2018

S/o Mr. Ramaswamy T R

A/3    SICAL   Race   View
Apartments No.2, Racecourse
Inner Road Guindy, Chennai
600032

Non Executive and Independent
Director

DIN: 00399104
# As per the Banking Regulation Act, 1949, no director of a banking company, other than its chairman or
whole-time director, by whatever name called, shall hold office continuously for a period exceeding eight years
* Term - Liable to retire by rotation and reappointment

There is no shareholders agreement in place whereby any special right to appoint a director of our Bank has
been given to any shareholder of our Bank.

                                                       59
Relationship between Directors

None of the Directors of our Bank are related to each other.

Brief biography of our Directors

Mr. Ananthakrishna, aged 63 years, is the part time Non executive Chairman of our Bank with effect from
July 13, 2009. He is a post-graduate in Mathematics from Mysore University. He began his career as a teacher
and later served as a Lecturer at Manipal Institute of Technology. He moved over to Hindustan Aeronautics
Limited as a Junior Programmer before joining our Bank as an Officer in 1971. At our Bank he has worked in
different capacities both at the operational level and in key management positions in various functional areas
like treasury and accounts, corporate taxation, information technology and credit administration. Excellent
performance in different capacities resulted in his promotion as General Manager of our Bank in 1994 and later
as Chief General Manager in 1998. He was appointed as Chairman & CEO of our Bank in July 2000 and has
successfully completed 9 years in office on July 12, 2009. Presently, he is a part time Non-Executive Chairman
of our Bank w.e.f July 13, 2009. He is currently the President of the Bankers' Club, Mangalore He is the
recipient of PR Person of the year - 2002 awarded by Public Relations Society of India, Mangalore, Manipal
Chapter; Outstanding Manager Award for the Districts of Dakshina Kannada and Udupi for the year 2004 by
Mangalore Management Association, and "Purushothama" by Shri Shri Raghaveshwara Swamiji of Shri
Ramachandrapura Mutt, Hosanagara in recognition of his contribution to the society.

Mr. P. Jayarama Bhat, aged 58 years, is the Managing Director and Chief Executive Officer of our Bank w.e.f
July 13, 2009. He is a post graduate in Science from University of Mysore and a Certified Associate of Indian
Institute of Bankers. He has banking experience of over 36 years. He joined our Bank as an Officer in the year
1973 and over the period of time promoted to various positions. In the year 2005, he was promoted as Chief
General Manager of our Bank and was entrusted with the responsibilities of overall supervision of operational
areas. He has rich experience in all the facets of Banking operations. Before the present appointment, he was on
the Board of Universal Sompo General Insurance Company Limited, a joint venture of our Bank since 2007. He
has also served on various sub committees of Indian Banks` Association (“IBA”). He was also nominated as a
member of IBA working group to prepare broad outlines of a policy on KYC norms and Anti-money laundering
standards. He was a member of IBA working group on to study the recommendations of Raghuram Rajan
Committee report on Financial Sector Reforms. He is also a member of the IBA`s Management Committee.

Mr. S.R. Hegde, aged 68 years, has been on the Board of our Bank since March 26, 2005. He holds B.A. LL.B
degrees from Karnataka University. He joined the Reserve Bank of India in the year 1974 as a Legal Officer and
he retired from Reserve Bank of India as Legal Adviser-in-Charge, Legal Division, Department of Non-Banking
Supervision in the year 2002. At present he is practicing as an Advocate in Bangalore besides being a Panel
Advocate and Retainer for several Banks and National level institutions. He is also an independent trustee for
Sahara Mutual Fund.

Mr. R.V. Shastri, aged 65 years, has been on the Board of our Bank since January 28, 2006. He holds M.A in
Economics from the University of Mysore. He has over 36 years experience in banking sector. He is a former
Chairman and Managing Director of Canara Bank and Indian Overseas Bank. He was holding a number of
representative positions, prominent among them being Deputy Chairman- Indian Banks` Association, President
- IBA Local Chapter, Bangalore, Advisor - Bankers` Training College (RBI). He was the Chairman of the
Canara Bank`s subsidiaries and its sponsored entities.. He is also an Advisor - Specified Undertaking of UTI.

Mr. U.R. Bhat, aged 59 years, has been on the Board of our Bank since January 28, 2006. He holds M.Sc. from
Indian Institute of Technology, Kanpur and has attended advanced courses on Finance at the Harvard Business
School, Boston. He is a fellow of the Chartered Institute of Bankers, London. He is presently Managing Director
of Dalton Capital Advisors (India) Private Limited, an investment advisory company of the Dalton group,
London He was earlier the Chief Investment Officer of Jardine Fleming in India that later became J.P. Morgan,
India where he was for 7 years advising the India dedicated funds of the Flemings group. He has been closely
involved in formulating policies for benchmark indices for the BSE as a member of its Index Committee.

Mr. T.S. Vishwanath, aged 63 years, has been on the Board of our Bank since January 05, 2007. He is a
Bachelor of Commerce (Hons) from the Delhi University and a fellow member of the Institute of Chartered
Accountants of India. His association with professional/public appointments include - Chair, India Side, Indo-
UK Accountancy Taskforce – Current; Member on the Board of International Accounting Standards Committee
from 1998 till October 2000; President, South Asian Federation of Accountants – 1999; President, The Institute


                                                       60
of Chartered Accountants of India - 1996-97; Chairman, Northern India Regional Council of The Institute of
Chartered Accountants of India - 1980-81; Government of India - Member, Working Group on Depreciation
Rates constituted by the Department of Company Affairs, Government of India- 1994; Member, The Expert
Group constituted to rationalize and simplify the Income Tax Act by the Government of India - 1996-97;
Member, Ad-hoc Task Force on Financial Parameters constituted by Bureau of Public Enterprises (Government
of India) –1996; Insurance Regulatory and Development Authority – Chair, Committee on Accounting issues -
Current; Member, Insurance Advisory Committee - 2000 to June 2005; Member, Committee constituted to
study certain aspects and make recommendation on some specific and other areas of Insurance Act - 2005;
Chair, Committee on Accounting and Auditing Standards and Regulations for Insurance Companies in India -
1999-2000, Reserve Bank of India – Member, Technical Group on Bank`s Capital Adequacy Norms – 1996;
Member, Working Group on Modification of Formats of Final Accounts of Banks – 1996; Securities and
Exchange Board of India – Member, Committee on Substantial Acquisition of Shares & Takeover Regulations
(Bhagawati Committee) – 1996; Member, Advisory Committee on Primary Markets - 1996; he has been a
Member on various Committees, Accounting Standards Board of the Council of The Institute of Chartered
Accountants of India from time to time. He has also been on the Committee on Corporate and Fiscal Laws of
various Chambers of Commerce in India, from time to time.

Mr. Sitarama Murty M., aged 66 years, has been on the Board of our Bank since November 30, 2007. He is
B.Sc. (Hons), M.Sc.(Electronics) and a Certified Associate of Indian Institute of Bankers. He has over 37 years
banking experience in five banks of the State Bank Group including 9 years at the Management level and as
Managing Director of State Bank of Mysore. He has rich experience in international banking, foreign exchange,
money markets and funds management. He participated in several international seminars and meets, including
the G-15 meet in Jakarta in 2001. He is the co-author of the Book Computerisation of Banking Operations in
India (1990). He also wrote a book 'Stones and Flowers- A Banker Looks Back (2006)'.

Mr. S.V. Manjunath, aged 59 years, has been on the Board of our Bank since October 25, 2008. He is a B.Sc.
graduate. He had earlier worked as Director of Co-operative Union and as president PCARD Bank and has rich
experience of functioning of these Institutions.

Mr. D. Harshendra Kumar, aged 57 years, has been on the Board of our Bank since October 25, 2008. He is a
graduate in Arts. He is well versed with all aspects of Agriculture and Rural Economy, cooperation and Self
Help Group. He is the Secretary, Rural Development , Self Employment Training Institute, having branches all
over India, Trustee Sri Dharmasthala Munjunatheshwara Trust, Dharmasthala and Secretary, SDM Educational
Institutions, member, Council for Advancement of People’s and Rural Technology.

Dr. H. Rama Mohan, aged 58 years, has been on the Board of our Bank since October 25, 2008. He holds
MBBS, FCGP, FIAMS, DMag. He is in private practice as family Physician in Kundapura, Udupi District. He is
a member of 'Govt. of Karnataka Sustainable Forest maintenance and bio-diversity preservation' committee for
Mangalore circle, a programme of Japan Bank of International Cooperation. He is also the Chairman - IMA
Academy of Medical Specialties, Kundapur Chapter, President - Amateur Artists` Association, Trustee - Seva
Sangam Trust, Managing 20 Kindergarten schools, Treasurer - Seva Sangam Vidya Kendra, Thekkatte - A
primary and High school, Treasurer - Coondapur Education Society-managing English medium school and PU
college, Advisory Committee member - KMC Hospital, Manipal, Member of the Supreme governing body of
the Academy of General Education, Manipal, Member - Quality Assessment and advisory committee,
Bhandarkars` College, Kundapura, Vice President - Flora and Fauna Club (a nature club).

Mr. T.R. Chandrasekaran, aged 64 years, has been on the Board of our Bank since October 15, 2010. He
holds a degree of Bachelor of Commerce (FCA), Diploma in Labour Law and Adminstration Law. He is
presently the Partner of M/s M.C Ranganathan & Co. Chartered Accountants, Chennai. He was earlier the
Deputy General Manager (Accounts and Audit) in Indian Bank Mutual Fund. He has a rich experience in the
field of Banking and Finance. He was a part of the Bank Audit faculty at Indian Bank Management Academy
for Excellence and Growth (IMAGE), IOB Staff Training College, Chennai and Institute of Chartered
Accountants of India. He has presented several papers on Bank Audit, LFAR, Tax audit relating to a bank,
assessment of NPA’s and RBI Norms, Accounting Standards applicable to banks and disclosure requirements in
bank accounts. He has also been a member of various committees of ICAI, New Delhi viz Corporate
Governance, Guidance note on audit of banks, Long Form Audit Report etc.

Compensation and benefits in kind granted to the Directors

The Bank does not pay any remuneration to its Non-Executive Directors except sitting fees.


                                                      61
Shri Ananthakrishna has been appointed as part time non-executive Chairman of the Board for a period of 3 years
who has assumed office on July 13, 2009. The terms of his appointment and remuneration has been approved by
RBI under section 10B (1A) of the Banking Regulation Act, 1949 vide RBI letter bearing reference No.
DBOD.No.20957/08.40.001/2008-09 dated June 08, 2009 and has been approved by the Government of India.

Shri P Jayarama Bhat has been appointed as Managing Director of our Bank for a period of 3 years by the Board
of Directors at the meeting held on June 26, 2009, who assumed charge on July 14, 2009. The terms of his
appointment and the remuneration has been approved by the RBI under section 35B of the Banking Regulation
Act, 1949 vide RBI letter bearing reference No. DBOD.No.20953/08.40.001/2008-09 dated June 08, 2009.

The payment of remuneration to both the above Directors has been approved by the members of our Bank at the
Annual General Meeting held on August 8, 2009. Details of remuneration to the above Directors are as under:

Mr. Ananthakrishna, part time Non executive Chairman

Salary: Mr. Ananthakrishna is entitled to a consolidated salary of Rs 1,00,000 per month. However, Mr
Ananthakrishna has foregone the payment of Rs 1,00,000 per month w.e.f July 13, 2009 and the same has been
accepted by the Board.

Sitting fees: As paid to other non executive directors of our Bank for attending meetings of the Board &
Committees of the Board.

Others: (a) Free use of Bank’s car for official purpose. For personal use Rs. 250/- per month to be recovered; (b)
Traveling and Halting allowance: Governed by the rules as applicable to other directors of our Bank.

Mr. P. Jayarama Bhat, Managing Director

Salary and other allowances: Mr. P. Jayarama Bhat is entitled to a salary of Rs. 2,00,000 per month and dearness
allowance of 20% of basic salary. He is also provided house rent allowance @ 15% of the basic pay and
entertainment allowance of Rs. 25,000 p.a.

Perquisites: (a) Free use of Bank’s car for official purpose. For personal use Rs. 250/- per month to be recovered;
(b) Provident Fund @ 10% of the basic pay; (c) Traveling and Halting allowance: As may be decided by the
Board from time to time; (d) Medical benefits: Reimbursement upto Rs. 15,000/- per annum for self and family.
Hospitalisation charges to be reimbursed to the extent of 100% in the case of self and 75% for dependant family
members; (e) Other benefits: (i) Personal accident insurance cover upto Rs. 20,00,000/- p.a. & (ii) Telephone
facility at his residence at Bank’s cost.

Sitting fees

All Directors except Mr. P. Jayarama Bhat (remuneration details of whom are provided above) do not receive any
remuneration except the sitting fees for attending Board and Committee meetings @ Rs. 15,000 and Rs. 10,000
for each meeting respectively.

Further our bank has not entered into any service contracts with any of our directors providing for benefits upon
termination of employment.

Director’s Interest

Except as stated otherwise in this Letter of Offer, our Bank has not entered into any contracts, agreements or
arrangements during the preceding two years from the date of this Letter of Offer in which the directors are
interested directly or indirectly and no payments have been made to them in respect of these contracts,
agreements or arrangements which are proposed to be made to them.

All the Directors, including independent Directors, may be deemed to be interested to the extent of fees, if any,
payable to them for attending meetings of the Board or a committee thereof and reimbursement of expenses
payable to them under the Articles of Association. The Managing Director will be interested to the extent of
remuneration paid to him for services rendered as officer or employee of our Bank. All the Directors, including



                                                       62
independent Directors, may also be deemed to be interested to the extent Equity Shares held by them and any
dividend payable to them and other distributions in respect of Equity Shares, if any, already held by them.

No stock options under ESOS have been granted to any of the Directors.




                                                     63
                                    FINANCIAL STATEMENTS

Sr. No   Contents                                                                     Page Number
  1      Audited Financial Statements for the year ended March 31, 2010 of our Bank    F-1 to F-41

  2      Reviewed Financial Statements for the six months ended September 30, 2010    F-42 to F-58
         of our Bank




                                                 64
                                               AUDITORS REPORT



To,

The Board of Directors

The Karnataka Bank Ltd

Regd. & Head Office

Kankanady - Mangalore-575002

Mangalore-575002

Dear Sirs,

1. We are engaged to report on the financial statements (‘Financial Statements’) of The Karnataka Bank Limited
(‘the ‘Bank’), for the year ended 31 March 2010 annexed to this report in Annexure I to IV for the purpose of
inclusion in the Draft Letter of Offer and Letter of Offer (the ‘Offering Documents’) prepared by the Bank in
connection with the Rights Issue (‘Rights Issue’) of its equity shares, in accordance with the provisions of the
Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (‘the
Regulations’) as amended to date. Our responsibility is to report on such statements based on our procedures.

2. We have examined such statements taking into consideration:

(i) the terms of reference dated 9th September 2010 received from the Bank, requesting us to carry out the
assignment, in connection with the Offering Documents being issued by the Bank for its proposed Rights Issue of
equity shares having a face value of Rs. 10 each in the ratio of 2 (TWO) equity shares for every 5 (FIVE) equity
shares, under the SEBI (ICDR) Regulations 2009 (‘Issue’); and

(ii) The Guidance Note on Reports in Company Prospectuses (Revised) issued by the Institute of Chartered
Accountants of India.

3. We report that the figures disclosed in the ‘Financial Statements’ have been extracted by the management from
the audited financial statements for the year ended 31 March 2010. The financial statements for the year ended 31
March 2010 have been audited by M/s Kamath & Rau, Chartered Accountants and M/s Vishnu Daya & Co,
Chartered Accountants and in respect of which an unqualified audit opinion dated 17 May 2010, have been issued.

4. For the purpose of this report we have not performed any additional audit procedures on the above referred
audited financial statements of the Bank for the year ended 31st March 2010 including evaluating the possible
impact, if any, of subsequent events on the earlier audited financial statements of the Bank.

5. The ‘Financial Statements’ annexed to this report are extracted from the audited financial statements for the year
ended 31 March 2010. These ‘Financial Statements’ have been prepared using the same set of accounting policies
used for preparing the audited financial statements as at 31st March 2009 except in respect of appropriation of
recoveries made in non-performing advances. In respect of financial year 2010, in respect of non-performing
advances, recoveries made are appropriated towards the principal, interest and charges in their order of demand as
against the earlier policy of first appropriating the recoveries made towards the principal and the balance towards the
interest.. The impact of this change in accounting policy resulted in the Net Profit of the year ended 31st March 2010
being higher by Rs.4.97 crores. The accounting policies and notes to accounts have been reproduced as they were
disclosed audited accounts for the year ended March 31, 2010 year.




                                                        F -1
6. Except as stated above, we have not audited any financial statement of the Bank as of any date or for any period
subsequent to 31 March 2010. Accordingly, we express no opinion on the financial position, results of operations or
cash flows of the Bank as of any date or for any period subsequent to 31 March 2010. However, for the purpose of
proposed Rights issue, we have conducted a limited review of the Balance Sheet of the Bank as at September 30,
2010 and the Profit and Loss Account for the period ended on that date.

7. At the Bank’s request, we have also examined the following information proposed to be included in the Offering
Documents prepared by the management and annexed to this report:

(i) Accounting Ratios enclosed as Annexure V and

(ii) Capitalization Statement enclosed as Annexure VI

8. In our opinion, the financial information contained in Annexure I to IV of this report read together with the Notes
to Accounts & Significant Accounting Policies have been prepared in accordance with the provisions of Section 29
of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act 1956 and requirements of the
Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2009 as
amended till date.

9. This report should not be in any way construed as a re-issuance or re-dating of any of the previous audit report
issued by above mentioned auditors nor should this report be construed as a new opinion on any of the financial
statement referred to herein.

10. This report is intended solely for your information and for inclusion in the Offering Documents in connection
with the proposed Issue by the Bank and is not to be used, referred to or distributed for any other purpose without
our prior written consent.



for Vishnu Daya & Co.,                                                 for R. K. Kumar & Co.,

Chartered Accountants                                                  Chartered Accountants

F.R.No.: 008456S                                                        F.R.No.: 001595S




(Venkatesh Kamath S V)                                                     (B.R.ASHOK)

Partner – M. No. 202626                                                    Partner – M. No. 023313



Place: Bangalore

Dated: 15/10/2010




                                                        F -2
          BALANCE SHEET AS ON 31ST MARCH , 2010
                                                                                   Annexure I

                                                                                      (Rs in Crore)
                                                        Schedule      As on             As on
                                                        No.        31.03.2010        31.03.2009

CAPITAL AND LIABILITIES
Capital                                                        1          133.99            121.58
Reserves and Surplus                                           2        1,698.76           1,445.44
Deposits                                                       3       23,730.65          20,333.29
Borrowings                                                     4          341.64                 3.97
Other Liabilities and Provisions                               5        1,130.11            953.52


TOTAL                                                                  27,035.15          22,857.80

ASSETS


Cash and balances with Reserve Bank of India                  6         1,743.10           1,364.98
Balances with Banks and Money at Call & Short Notice          7            62.45                95.75
Investments                                                   8         9,992.05           8,961.49
Advances                                                      9        14,435.68          11,810.04
Fixed Assets                                                  10          148.07            138.49
Other Assets                                                  11          653.80            487.05


TOTAL                                                                  27,035.15          22,857.80


Contingent Liabilities                                        12       10,119.24          10,042.74
Bills for Collection                                                    1,032.24            928.93


Significant Accounting Policies                               17
Notes on Account                                              18




                                                 F -3
                                                                                   Annexure II

                  PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010
                                                                                   (Rs in crore)


                                                                     Year ended     Year ended
                                                      Schedule No.    31.03.2010     31.03.2009

I. INCOME
Interest Earned                                              13         2,043.42       1,948.76
Other Income                                                 14          311.26          321.79

Total                                                                   2,354.68       2,270.55

II. EXPENDITURE
Interest Expended                                            15         1,707.79       1,443.83
Operating Expenses                                           16          386.05          346.51
Provisions and Contingencies                                              93.72          213.51

Total                                                                   2,187.56       2,003.85

III.PROFIT
Net profit for the year                                                  167.12          266.70

Profit brought forward                                                      0.03           0.10


Total                                                                    167.15          266.80

IV. APPROPRIATIONS
Transfer to Statutory Reserve                                             88.00          100.00
Transfer to Capital Reserve                                                   --          60.67
Transfer to Revenue Reserve                                                 3.00           7.00
Transfer to Special Reserve u/s 36 (i) (viii) of IT
Act                                                                         6.68          12.31
Transfer to Investment Reserve Account                                      5.70              --
Transfer to Other Funds                                                     1.00           1.45
Transfer to Proposed dividend                                             53.63           72.94
Transfer to Tax on proposed dividend                                        9.11          12.40
Balance carried over to Balance Sheet                                       0.02           0.03


Total                                                                    167.14          266.80




                                                      F -4
Number of Shares outstanding during the year (weighted average)       12.37.79.973   12.14.44.753
Earning per share (Rs per share of Rs10/- each -
see note No: 7 of schedule 18 )
Basic                                                       Rs.             13.50          21.96
Diluted                                                     Rs              13.45          21.96
Significant Accounting Policies                                  17
Notes on Account                                                 18




                                                   F -5
                                                                                  ANNEXURE III

    CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST
    MARCH 2010                                                                        Rs in crores

                                                              March 31, 2010        March 31, 2009



                                                                Rs       Rs         Rs          Rs

A   CASH FLOW FROM OPERATING ACTIVITIES



    Net profit before tax and extra ordinary items                       193.05                406.15

    Adjustments for :

    Depreciation on Fixed Assets including

    Lease Adjustment charges                                    22.15                19.82

    Provisions and Contingencies                                71.08                80.50

    Amortisation of premium on Held to Maturity Investments     28.86                11.95

                                                                         122.09                112.27



    Operating profit before working capital changes                      315.14                518.42

    Adjustment for :

     i) Advances & Other Assets                               -2662.89             -919.27

     ii) Investments                                          -1041.20            -2650.43

     iii) Deposits, Borrowings & Other Liabilities            3793.27              3166.36

                                                                          89.18               -403.34

    Cash generated from operations                                       404.32                115.08

    Direct taxes paid                                                    102.58                168.10

    Net cash flow from operating activities (A)                          301.74                 -53.02

B   CASH FLOW FROM INVESTING ACTIVITIES

    Purchase of fixed assets                                             -32.35                 -39.04



                                                      F -6
    CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST
    MARCH 2010                                                                     Rs in crores

                                                             March 31, 2010      March 31, 2009

    Sale of fixed assets                                                  0.88                    0.51

    Net cash used in investing activities (B)                           -31.47               -38.53



C   CASH FLOW FROM FINANCING ACTIVITIES

    Proceeds from issue of share capital (net of expenses)              158.84                    1.06

    Proceeds from long term borrowings                                    0.00                    0.00

    Dividend paid (Including Tax on Dividend)                           -84.30               -70.21

    Net Cash generated from Financing Activities ( C )                   74.54               -69.15

    Net increase in Cash & Cash equivalents (A+B+C)                     344.81             -160.70

    Cash & cash equivalents as at (opening)                           1460.74              1621.43

    Cash & cash equivalents as at (closing)                           1805.55              1460.74




                                                     F -7
                                                                                      Annexure IV

SCHEDULES FORMING PART OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT


                                           SCHEDULE - 1 - CAPITAL

                                                                                           Rs in Crore
                                                                       As on                As on
                                                                    31.03.2010           31.03.2009

Authorised Capital
20,00,00,000 Equity shares of Rs. 10/- each                                200.00               200.00
(Previous Year 20,00,00,000 Equity shares of Rs. 10/- each)


Issued Capital
13,39,99,950 equity shares of Rs 10 each                                   134.00               121.60
(Previous year 12,15,98,506 Equity shares of Rs. 10/- each)


Subscribed Capital
13,39,92,872 Equity shares of Rs. 10/- each                                133.99               121.60
(Previous year 12,15,91,428 Equity shares of Rs. 10/- each)


Called up/Paid-up Capital                                                  133.98               121.57
13,39,76,322 Equity shares of Rs.10/- each
(Previous year12,15,74,878 Equity shares of Rs.10/- each)
Add : Forfeited Shares                                                         0.01                 0.01


 Total                                                                     133.99               121.58

                 SCHEDULE -2- RESERVES & SURPLUS

I. Statutory Reserve
 Opening balance                                                           918.00               818.00
 Additions during the year                                                  88.00               100.00
                                                                         1.006.00               918.00
 Deductions during the year                                                      --                   --
 Total                                                                   1.006.00               918.00
II. Capital Reserve
 Opening balance                                                            63.69                   3.02


                                                     F -8
 Additions during the year ( pursuant to sale of securities       --    60.67
  held under HTM category)

                                                               63.69    63.69
 Deductions during the year                                       --       --

 Total                                                         63.69    63.69

III. Share Premium
  Opening balance                                             162.94   159.61
  Additions during the year                                   149.73     3.33
                                                              312.67   162.94
  Deductions during the year                                      --       --
 Total                                                        312.67   162.94

IV. Revenue and other Reserves
  a) Revenue Reserve
     Opening balance                                          267.00   260.00
      Deductions at the beginning of the year                     --       --
                                                              267.00   260.00
      Additions during the year                                 3.00     7.00

 Total                                                        270.00   267.00

b) Special Reserve u/s 36(1)(viii) of IT Act
     Opening balance                                           23.56    11.25
     Additions during the year                                  6.68    12.31
                                                               30.24    23.56
     Withdrawn during the year                                    --       --
 Total                                                         30.24    23.56
 c) Employee Stock Option Outstanding

     Opening balance                                            8.72     4.77
     Additions during the year                                  3.83     6.45
                                                               12.55    11.22
     Deductions during the year                                 3.61     2.50
 Total                                                          8.94     8.72

  d) Investment Reserve Account
     Opening balance                                            1.50     1.50
     Additions during the year                                  5.70       --
                                                                7.20     1.50

                                                       F -9
     Deductions during the year                                 --                --
 Total                                                        7.20              1.50

V. Balance in Profit and Loss Account                         0.02              0.03
  TOTAL ( I. II. III.IV and V )                         1,698.76          1,445.44



                       SCHEDULE -3 DEPOSITS

A.I. Demand Deposits
     1. From Banks                                            2.44              2.21
     2. From others                                     1,704.04           1,154.81


                                                        1,706.48          1,157.02

 II. Savings Bank Deposits                              3,813.68          2,899.43

 III. Term Deposits
     1. From Banks                                           32.05           55.04
     2. From others                                   18,178.44          16,221.80


                                                      18,210.49          16,276.84

 Total : (I. II and III)                              23,730.65          20,333.29



B.1. Deposits of branches in India                    23,730.65          20,333.29
 2. Deposits of branches outside India                          --                --

 Total (1+2)                                          23,730.65          20,333.29



                                                                       Rs in Crore
                      SCHEDULE -4 BORROWINGS
                                                     As on              As on
                                                  31.03.2010         31.03.2009

I. Borrowings in India
 1. Reserve Bank of India                                       --                --
 2. Other Banks                                                 --              0.06


                                          F -10
  3. Other Institutions and Agencies                                           250.16                       3.91
    Total                                                                      250.16                       3.97
II. Borrowings outside India                                                    91.48                         --
  Total : (I and II)                                                           341.64                       3.97

Secured borrowings included in I & II above Rs.                                    --                         --


SCHEDULE - 5 OTHER LIABILITIES & PROVISIONS

                                                                                    Rs in Crore

                                                                    As on                     As on
                                                                31.03.2010                31.03.2009
 I. Bills Payable                                                        198.66                      145.30
 II. Inter Office adjustments(Net)                                         3.51                        1.21
III. Interest accrued                                                     72.12                       65.05
IV. Subordinated Debt for Tier II Capital                                350.00                      350.00
V. Deferred Tax Liability (Net)                                          102.93                       60.78
VI. Others (including Provisions)*                                       402.90                      331.18
   Total                                                               1,130.12                      953.52




                           SCHEDULE - 6 CASH & BALANCES WITH THE RBI
                                                                                         (Rs in crore)
                                                               As on                       As on
                                                            31.03.2010                  31.03.2009

 I. Cash in hand                                                   146.62                      127.67
   (including foreign currency notes)
 II. Balances with Reserve Bank of India
   1. In Current Account                                         1,596.48                    1,237.31
   2. In Other Accounts                                                   --                           --
   Total : (I and II)                                            1,743.10                    1,364.98



       SCHEDULE – 7 BALANCES WITH BANKS AND MONEY AT CALL & SHORT NOTICE
                                                               As on                       As on
                                                            31.03.2010                  31.03.2009

 I. IN INDIA


                                                  F -11
  i. Balances with Banks
  a) In Current Accounts                                  39.53                44.74
  b) In other deposit accounts                            19.10                20.00


                                                          58.63                64.74
 ii. Money at Call & Short Notice
  a) With Banks                                                --                 --
  b) With other institutions                                   --                 --

          Total                                           58.63                64.74

II. OUTSIDE INDIA
  i. In Current Accounts                                     3.82              31.01
 ii. In Other Deposit Accounts                                 --                 --
 iii. Money at Call & Short Notice                             --                 --

    Total : (i. ii and iii)                                  3.82              31.01

    Grand Total (I & II)                                  62.45                95.75


SCHEDULE - 8 INVESTMENTS                                             (Rs in crore)
                                                     As on             As on
                                                  31.03.2010        31.03.2009
I. Investments in India (Gross at cost)               10,021.65          9,009.32
 Less: Provision for depreciation                         29.60             47.83

  Total                                                9,992.05        8,961.49
 Break-up :
 1. Government Securities                              6,400.98          5,926.53
 2. Other Approved Securities                                4.98              9.67
 3. Shares                                               139.77             85.07
 4. Debentures and Bonds                                 809.39          1,442.26
 5. Subsidiaries and/or Joint Ventures                    22.50             22.50
 6. Others                                             2,614.43          1,475.46
  Total                                                9,992.05          8,961.49
II. Investments outside India                                  --                 --

  Total (I+II)                                         9,992.05          8,961.49


                                          F -12
                  SCHEDULE - 9 ADVANCES
                                                                         (Rs in crore)
                                                         As on             As on
                                                      31.03.2010        31.03.2009

A) 1. Bills Purchased & discounted                           691.19            650.48
   2. Cash Credits. Overdrafts and
      Loans repayable on demand                            7,728.29          6,322.20
   3. Term Loans                                           6,016.20          4,837.36

   Total                                                  14,435.68         11,810.04

B) 1. Secured by Tangible Assets *                        11,553.70          8,999.94
   2. Secured by Bank/Government Guarantees                1,841.79          1,733.09
   3. Unsecured                                            1,040.19          1,077.01

   Total                                                  14,435.68         11,810.04
* Includes Advances against Book Debts
C) I. Advances in India
   1. Priority Sectors                                     5,252.96          4,372.16
   2. Public Sectors                                       1,228.68            557.19
   3. Banks                                                      0.15              0.52
   4. Others                                               7,953.89          6,880.17

     Total                                                14,435.68         11,810.04

 C) II. Advances outside India
   1. Due from Banks                                               --                --
   2. Due from others                                              --                --
     a) Bills Purchased & Discounted                               --                --
     b) Syndicated Loans                                           --                --
     c) Others                                                     --                --

       Total                                                       --                --

   GRAND TOTAL (C. I and C. II)                           14,435.68         11,810.04




                                              F -13
               SCHEDULE - 10 FIXED ASSETS                                     Rs in crore)
                                                              As on                  As on
                                                           31.03.2010             31.03.2009
 I. Premises
   At cost as on 31st March of preceding year                     100.38                     82.50
   Additions during the year                                          5.79                   17.88
                                                                  106.17                 100.38
   Deductions during the year                                         0.14                      --
                                                                  106.03                 100.38
   Depreciation to-date                                            23.10                     20.24
       Total                                                       82.93                     80.14

II. Other Fixed Assets
  (including Furniture & Fixtures)
  At cost as on 31st March of the preceding year                  171.86                 158.98
  Additions during the year                                        26.57                     21.16


                                                                  198.43                 180.14
  Deductions during the year                                          5.94                    8.28
                                                                  192.49                 171.86
  Depreciation to date                                            128.34                 114.51
       Total                                                       64.15                     57.35

III. Leased Fixed Assets


  Cost as on 31st March of the preceding year                      20.16                     20.16
  Additions during the year                                              --                     --
                                                                   20.16                     20.16
  Deductions during the year                                          4.84                      --
                                                                   15.32                     20.16
  Depreciation to-date                                                6.05                    7.77
                                                                      9.27                   12.39
 Less Accumulated Lease Adjustment                                    8.15                   11.22
                                                                      1.12                    1.17
 Less Other Adjustments                                                 .13                   0.17

       Total                                                          1.00                    1.00
  Total (I. II & III)                                             148.08                 138.49




                                                   F -14
                 SCHEDULE -11 OTHER ASSETS                                              Rs in crore)
                                                                   As on                    As on
                                                                31.03.2010              31.03.2009
 I. Interest accrued                                                   182.33                   146.32
 II. Tax paid in advance/tax deducted at source *                      179.00                   158.47
III. Stationery and Stamps                                                 2.94                     2.33
 IV. Non-Banking Assets acquired in satisfaction of claims                 1.47                     0.21
 V. Others                                                             288.06                   179.72
    Total                                                              653.80                   487.05
* Includes Rs 4280.00 lakhs being MAT Credit Entitlement.


SCHEDULE - 12 CONTINGENT LIABILITIES                                                    Rs in crore)
                                                                   As on                    As on
                                                                31.03.2010              31.03.2009
 I. Claims against the Bank not acknowledged as debts                   28.33                    16.87
II. Liability on account of outstanding Forward Exchange
   Contracts *                                                        7,163.96                8,146.95
 III. Guarantees given on behalf of constituents
   a) In India                                                        1,030.37                  909.85
   b) Outside India                                                           --                        --
 IV. Acceptances. Endorsements & other Obligations                     673.61                   444.39
 V. Other items for which the bank is contigently liable              1,222.97                  524.68
       Total                                                        10,119.24                10,042.74
* Includes derivatives


SCHEDULES TO PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2010

                                      SCHEDULE – 13 INTEREST EARNED
                                                                                               (Rs in crore)
                                                                        Year ended            Year ended
                                                                           31.03.2010          31.03.2009
 I. Interest/discount on advances/bills                                        1,388.98                1,390.93
 II. Income on Investments                                                         633.46               545.19
III. Interest on balances with R.B.I / other Inter-Bank funds                        0.58                    5.52
 IV. Others                                                                         20.40                    7.12
      Total                                                                    2,043.42                1,948.76




                                                       F -15
                                          SCHEDULE - 14 OTHER INCOME

                                                                                         ( Rs in crore)
                                                                       Year ended        Year ended
                                                                       31.03.2010        31.03.2009
 I. Commission. Exchange & Brokerage                                         126.28             103.21
II. Profit on sale of Investments (net)                                      114.76             159.31
III. Profit on Revaluation of Investments (net)                                     --                --
IV. Profit on sale of Land. Buildings & Other Assets (net)                     0.21               0.01
V. Profit on Exchange Transactions(net)                                       24.53              28.89
VI. Income earned by way of dividends etc.. from Subsidiaries/
   Companies and /or Joint Ventures abroad/ in India                                --                --
VII. Lease Income                                                                   --                --
VIII. Miscellaneous income                                                    45.48              30.37
        Total                                                                311.26             321.79


                                     SCHEDULE - 15 INTEREST EXPENDED

                                                                                          (Rs in crore)
                                                                       Year ended        Year ended
                                                                       31.03.2010        31.03.2009
1. Interest on deposits                                                    1,661.95           1,406.89
2. Interest on Reserve Bank of India/Inter-Bank Borrowings                     4.39              10.32
3. Others                                                                     41.45              26.62
   Total                                                                   1,707.79           1,443.83
                                    SCHEDULE - 16 OPERATING EXPENSES

                                                                                          (Rs in crore)
                                                                       Year ended        Year ended
                                                                       31.03.2010        31.03.2009
 I. Payments to and provisions for employees                                 206.80             190.41
 II. Rent. Taxes and Lighting                                                 49.45              43.69
III. Printing and Stationery                                                   3.99               3.56
 IV. Advertisement and Publicity                                               3.18               2.95
 V. Depreciation on Bank's property                                           22.23              19.83
 VI. Directors' fees. allowances and expenses                                  0.57               0.44
VII. Auditors' fees and expenses (including branch auditors)                   1.17               0.99
VIII. Law charges                                                              1.36               1.31
 IX. Postage. telegrams. telephones etc.                                       7.79               6.30
 X. Repairs and Maintenance                                                   12.27              11.94
 XI. Insurance                                                                24.07              20.98
XII. Other expenditure                                                        53.17              44.11
       Total                                                                 386.05             346.51


                                                       F -16
SCHEDULE - 17

SIGNIFICANT ACCOUNTING POLICIES
  1. BASIS OF PREPARATION:

  The accompanying financial statements have been prepared on historical cost convention on the accrual
  basis of accounting, unless otherwise stated, and comply with generally accepted accounting principles,
  statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued
  by the Reserve Bank of India (RBI) from time to time and notified accounting standards by Companies
  (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in banking
  industry in India.

  2. USE OF ESTIMATES:

   The preparation of the financial statements, in conformity with generally accepted accounting principles,
   requires management to make estimates and assumptions that affect the reported amounts of assets and
   liabilities, revenue and expenses along with disclosure of contingent liabilities at the date of the financial
   statements. Actual results could differ from those estimates. The Management believes that the estimates
   used in the preparation of the financial statements are prudent and reasonable. The differences if any
   between estimate and actual will be dealt appropriately in future periods.

 3. REVENUE RECOGNITION:

   Income and expenditure are accounted for on accrual basis except receipt of commission, exchange, rent
   on safe deposit lockers all of which are accounted on cash basis. In respect of Non Performing Assets, the
   bank has not recognised interest. Recoveries are appropriated towards the principal, interest and charges in
   the order of demand. In the case of matured Term Deposits, interest is provided at the rate of interest
   applicable to savings bank deposit pending renewal / discharge and the balance overdue interest is
   accounted for at the time of renewal.

4. INVESTMENTS:

  Investments have been presently classified under the heads “Held to Maturity”, “Available for Sale” and
  “Held for Trading” categories and have been valued in accordance with the RBI guidelines. The value net
  of depreciation has been shown in the Balance Sheet. The excess of acquisition cost over the face value of
  securities under “Held to Maturity” is amortised over the remaining period to Maturity. Provision for non-
  performing investments has been made as per RBI guidelines.

5. ADVANCES:

  All outstanding advances are reviewed and classified under 4 categories namely

  a)   Standard Assets
  b)   Sub-Standard Assets
  c)   Doubtful Assets and
  d)   Loss Assets


  Provision for Non-performing and Standard Advances has been made on the basis of asset classification and
  provisioning requirement over and above the prudential norms laid down by the Reserve Bank of India.
  Advances shown in the Balance Sheet are net of provisions (including Floating Provision) for Non
  Performing Advances and unrealised interest.

                                                      F -17
6. FIXED ASSETS

 Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date.
 Software is capitalised along with computer and included under Other Fixed Assets.

  7. DEPRECIATION: - Depreciation on fixed assets has been provided on written down value method as
  per the rates and in the manner specified under Schedule –XIV of the Companies Act 1956, except in
  respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per
  RBI guidelines which is more than the amount required under schedule –XIV of the Companies Act
  1956.Depreciation on assets purchased during the year has been computed upto the end of the year
  including for the entire month in which the asset was capitalised, and on assets sold/scrapped, upto the end
  of the month in which it is sold/scrapped. Depreciation of leased assets has been calculated so as to spread
  the depreciable amount over the primary lease period as per RBI guidelines. Carrying amount of assets is
  reviewed at each balance sheet date for indication of impairment if any. An impairment loss is recognized
  wherever the carrying amount of an asset exceeds its recoverable value.

8. FOREIGN CURRENCY TRANSACTIONS:

 a) Foreign currency transactions of FCNR/EEFC/RFC accounts are re-valued at the year end closing spot
    rates as published by Foreign Exchange Dealers Association of India (FEDAI).

 b) Transactions other than FCNR/EEFC/RFC accounts: -

  Foreign currency balances both under Assets and Liabilities and outstanding Forward Exchange Contracts
  and Swaps are evaluated at the year-end rates published by FEDAI. The resultant profit/loss is shown as
  Income/Loss.

  The Gain or Loss on a trading forward exchange contract is computed by multiplying the forward rate
  available on the reporting date for the remaining maturity period of the contract, and the difference between
  that amount and the contracted forward amount is recognised as profit or loss for the period.

  Revenue items are translated at the exchange rates ruling on the dates of transactions.

   Contingent liabilities on account of acceptances, endorsements and other obligations including guarantees
  and letters of credit issued in foreign currencies are valued at the year end closing spot rates published by
  FEDAI.

 9. STAFF BENEFITS:

 Provision for payment of Gratuity and Pension are made on actuarial basis and paid to the concerned funds, Leave
 encashment benefit and leave fare concession payable at a future date to the employees has been accounted on
 accrual basis as per actuarial valuation. On the rest of the employee benefits, adhoc provisions have been made.

10. INCOME TAX :


The provision for tax for the year comprises of current tax liability and deferred tax assets and liabilities which
 recognise, subject to the consideration of prudence, timing differences, being the difference between taxable
 income and accounting income that originate in one period and are capable of reversal in one or more subsequent
 periods.




                                                      F -18
 11. SHARE ISSUE EXPENSES:

  Share issue expenses are adjusted from share premium account.

12. EMPLOYEE STOCK OPTION:

  The Bank has elected to use intrinsic value method to account for compensation cost of stock options granted
   to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying
   shares exceeds the exercise price of the options.

13. SEGMENT REPORTING:

    (i) The Bank has recognised the Business Segment as the Primary Reporting Segment and Geographical
         Segment as Secondary Segment in accordance with the RBI guidelines in compliance with the Accounting
         Standard 17.


    (II)The Business Segment has been divided into (a) Treasury (b) Corporate and Wholesale Banking, (c) Retail
    Banking and (d) Other Banking Operations.

    (iii) The Geographical Segment consists only of the Domestic Segment, as the Bank does not have any foreign
         branches.

14. NET PROFIT

   The net profit disclosed in the Profit & Loss Account is after making necessary provisions for taxes, NPA,
    Standard Advances, and Investments without recognising unrealised interest on Non-Performing Assets as per
    RBI guidelines.



SCHEDULE – 18

NOTES ON ACCOUNTS FORMING PART OF THE BALANCE SHEET AS ON, THE PROFIT AND
LOSS ACCOUNT AND THE CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2010.

1. Reconciliation of Branch Adjustments and Balancing of Subsidiary Ledgers.

    a) Reconciliation of branch adjustments/Inter Bank accounts has been completed upto 31-03-2010 and steps are
      being taken to give effect to consequential adjustments of pending items.

   b) Balancing of Subsidiary Ledgers are completed in all branches/offices.

2. Net profit or Loss for the period, Prior period items and changes in Accounting policies (Accounting
         Standard 5): -
   There are no significant prior period items which are required to be disclosed as per RBI guidelines. However
   during the year, the Bank has made some changes in Accounting Policies as detailed below:

  Recoveries made in Non-Performing advances are appropriated towards the principal, interest and charges in their
   order of demand instead of first appropriating the same towards the principal and the balance towards interest as
   followed in previous years. Due to this change, the profit (net) for the year is higher by Rs 4.97 crore.


                                                      F -19
 3 Share Issue Expenses

   During the year, the Bank issued equity shares under Qualified Institutional Placement. The entire expenses
    including amount paid to Lead Merchant Bankers have been deducted from the share premium collected on the
    issue as per the provisions of section 78(2) (c) of The Company’s Act 1956..

   4. Employee Benefits –Accounting Standard 15

Various Benefits made available to the Employees are:-

a) Pension: The Bank has defined benefit plan under Pension Trust to employees who have opted for Pension
  Scheme under the Pension & Group Schemes unit of LIC of India, by purchasing annuity for optants separated after
  completion of 20 years of service. The Benefits under this plan are based on last drawn salary and the tenure of
  employment. The Liability for the pension is determined and provided on the basis of actuarial valuation.

 b) Gratuity: In accordance with the applicable Indian Laws, the Bank provides for defined gratuity benefit
 retirement plan (‘the gratuity Plan’) covering eligible employees. This plan provides for a lumpsum payment to the
 eligible employees on retirement, death, incapacitation or termination of employment of amounts that are based on
 the last drawn salary and tenure of employment. Liabilities with regard to the gratuity plan are determined by
 actuarial valuation and contributed to the gratuity fund trust. Trustees administer the contribution made to the trust
 and invest in specific designated securities as mandated by law, which generally comprise of Central and State
 government bonds and debt instruments of government owned corporations.

c) Leave Encashment (PL): The bank permits encashment of leave accumulated by employees on retirement,
resignation and during the course of service. The liability of encashment of such leave is determined and provided on
the basis of actuarial valuation performed by an independent actuary at the balance sheet date

 d) Provident Fund: The Bank pays fixed contribution to Provident Fund at predetermined rates to a separate trust,
 which invests the funds in permitted securities. The contribution to the fund is recognised as expense and is charged
 to the profit and Loss account. The obligation of the Bank is limited to such contributions. As on 31st March 2010,
 there was no liability due and outstanding to the fund by the Bank.

 e) Other Long term Employee Benefits

 Other than the employees benefits listed above, the Bank also gives certain long term benefits to the employees
  which include Medical aid, reimbursement of hospitalization expenses to the employees / their family members,
  compensated absence such as sick leave and casual leave etc. The bank has made provision for such liabilities on
  an adhoc basis.

  The summarized position of Post-employment benefits and long term employee benefits recognized in the Profit &
  Loss Account and the Balance Sheet as required in accordance with Accounting Standard – 15 (Revised) are as
  under :

 a) Changes in the present value of the obligations                        (Rs.in Crore)

                                                                  Pension         Gratuity      Leave Encashment
                                                                 (Funded)         (Funded)        (Un Funded)

 Present Value of obligation as at the beginning of the year      125.24            57.00              29.63

 Interest Cost                                                      9.71             4.42               2.30


                                                        F -20
                                                                   Pension   Gratuity     Leave Encashment
                                                                  (Funded)   (Funded)       (Un Funded)

Current Service Cost                                                5.65       1.45                1.35
Benefits Paid                                                        --       (5.56)                --
Actuarial Loss/(Gain) on Obligations                                6.79       1.39               (0.63)
Present Value of obligation at year end                            147.39     58.70               32.65



b) Change in Fair Value of Plan Asset                                             (Rs.in Crore)

                                                                                                Leave
                                                                  Pension    Gratuity         Encashment
                                                                 (Funded)    (Funded)
                                                                                              (Un Funded)

Fair Value of Plan Assets at the beginning of the year            125.75       57.40               29.63

Expected return on Plan Assets                                      9.75        4.45                 --
Employer's contribution                                            19.76        5.00               2.63
Benefits Paid                                                        --        (5.56)                --
Actuarial (Loss)/Gain on Obligations                              (7.48)       (1.90)              0.39
Fair Value of Plan Asset at the end of the year                   147.78       59.39               32.65



c) Net Actuarial Gain / Loss                                                                 (Rs in crore)

                                                                                                Leave
                                                                  Pension    Gratuity         Encashment
                                                                 (Funded)    (Funded)
                                                                                              (Un Funded)

Actuarial (Gain) / Loss on obligations (i)                         6.79         1.39               (0.63)
Actuarial Gain /(Loss )on assets (ii)                             (7.48)       (1.90)               0.39
Net Actuarial Gain / (Loss) {(ii) – (i)}                          (14.27)      (3.29)               1.02
Actuarial Gain / (Loss) recognised in the period                  (14.27)      (3.29)               1.02
Actuarial Gain/ (Loss) unrecognised at the end of the               --           --                  --
year




                                                         F -21
d) Amount recognized in Balance Sheet                                                (Rs. In Crore)

                                                                                                          Leave
                                                                 Pension           Gratuity
                                                                                                       Encashment
                                                                (Funded)           (Funded)
                                                                                                       (Un Funded)

Estimated Present value of deferred payment obligations            147.39             58.70               32.65
as at the end of the year
Less Fair Value of Plan Assets as at the end of the Year           147.39             58.70               32.65

Funded in advance                                                    --                --                  --
Unfunded Transitional Liability                                      --                --                  --

Unfunded Net Liability / (Assets) recognised in Balance            (0.39)            (0.69)                --
Sheet


e) Expenses recognized in Profit & Loss Account                                       (Rs. In Crore)

                                                                                                      Leave
                                                                 Pension           Gratuity
                                                                                                  Encashment (Un
                                                                (Funded)           (Funded)
                                                                                                     Funded)

Current Service Cost                                                5.65              1.45                1.35
Interest Cost                                                       9.71              4.42                2.30
Transitional Liability recognised during the year                    --                --                  --
Less : Expected return on Plan Asset                                9.75              4.45                 --
Net Actuarial Gain/ (Loss) recognized in the year                  (14.27)           (3.29)               1.02

Net Benefit Expense                                                19.88              4.71                2.63



f) Movement in Liability Recognised in the Balance Sheet                      ( Rs in Crore)

                                                                                                 Leave Encashment
                                                    Pension (Funded)         Gratuity (Funded)
                                                                                                   (Un Funded)

Opening Net Liability                                        --                     --                     --
Net benefit expensed                                       19.88                   4.71                   2.63
Contribution Paid                                          19.88                   4.71                   2.63
Closing net liability                                       (--)                   (--)                   (--)




                                                        F -22
g .Investment percentage maintained by Pension & Gratuity Trust

                                                                    Pension Trust              Gratuity Trust

Central Government Securities                                                          -                      18.17
State Government Securities                                                           --                      12.05
PSU Bond                                                                              --                      20.87
Others                                                                             0.06                       48.91
Insure Managed fund                                                               99.94                           --
Total                                                                            100.00                      100.00


h) Principal actuarial assumption at the Balance Sheet Date (expressed as weighted average)

                                                                                            Leave Encashment (Un
                                         Pension (Funded)           Gratuity (Funded)
                                                                                                   Funded)

Method of Valuation                     Projected unit Credit      Projected unit Credit      Projected unit Credit

Rate of Interest                              8.00%                       8.00%                     8.00%
Rate of Inflation                             4.25%                       4.25%                     4.25%
                                       LIC (94-96) –Table of        LIC (94-96) –Table       LIC (94-96) –Table of
Mortality
                                          Mortality Rates           of Mortality Rates          Mortality Rates

Contribution                             10% of basic Pay                    -                          -


Rate of Withdrawal                                -                          -                          5%

Note:

1. The estimates of future salary increases considered in actuarial valuation, take account of inflation, seniority,
promotion and other relevant factors, such as supply and demand in employee market.
2. The financial assumptions considered for the calculations are as under:

Discount Rate: The discount rate has been chosen by reference to market yield on government bonds as on the date
of valuation. (Balance sheet dated 31.03.2010)

Expected Rate of Return: The expected rate of return is taken on the basis of yield on government bonds.

Salary Increase : On the basis of past data provided by the bank.

i) Other long term employee’s benefits (Un-Funded)                                  (Rs.in Crore)

                                                                                     Other Benefits #

Liability as on 01.04.2009                                                                 3.07
Liability as on 31.03.2010                                                                 3.08
Transitional Liability                                                                      --
Amount debited /(credited )to Profit & Loss Account                                        0.01


                                                       F -23
     # Includes LFC Encashment, Medical Aid, Hospitalisation Reimbursement, Sick Leave etc.
     * LFC encashment has been taken at actuarial valuation and others on adhoc basis
5. Segment reporting (Accounting Standard 17).

For the purpose of segment reporting in terms of AS 17 of ICAI and as prescribed in RBI guidelines, the business of
the Bank has been classified into 4 segments i.e.(a) Treasury operations (b) Corporate / Wholesale Banking (c)
Retail Banking and (d) Other Banking Operations. Since the Bank does not have any overseas branch, reporting
under geographic segment does not arise. Segment assets have been identified and segment liabilities have been
allocated on the basis of segment assets.
Segmentwise Results for the year ended 31.03.2010

Part A – Business Segments

                                                                                               (Rs. in Crore)

  Business Segments                                                                   (AUDITED)

                                                                           31.03.2010               31.03.2009

  Revenue
  Treasury                                                                           808.29                 753.51
  Corporate/Wholesale Banking                                                        661.29                 629.08
  Retail Banking                                                                     839.41                 850.46
  Other Banking Operations                                                            45.69                     37.50
  Total                                                                            2,354.68                2,270.55
  Result
  Treasury                                                                           -77.68                     34.15
  Corporate/Wholesale Banking                                                        -51.35                     21.72
  Retail Banking                                                                     303.14                 331.72
  Other Banking Operations                                                            37.88                     31.96
  Total                                                                              211.99                 419.55
  Unallocated expenses                                                                22.23                     19.84
  Profit before Tax                                                                  189.76                 399.71
  Other information
  Capital Employed (Segment Assets-Segment Liabilities)
  (a)Treasury Operations                                                             858.26                 765.62
  (b)Corporate Banking                                                               594.64                 472.77
  (c)Retail Banking                                                                  379.34                 327.83
  (d) Other Banking Operations                                                          0.51                     0.81
  Total                                                                            1,832.75                1,567.03




                                                      F -24
Part B - Geographic Segments: There is only one segment i.e. Domestic segment

6. Related Party Disclosure (Accounting Standard 18):

 There is no related party transaction other than remuneration paid to Sri Ananthakrishna as Chairman and Chief
 Executive Officer upto 12.07.2009, a sum of Rs 9,14,516/- (Previous year Rs 32,40,000) and Sri P Jayarama Bhat
 as Managing Director and Chief Executive Officer from 13.07.2009, a sum of Rs. 23,16,774/- ( previous year Rs
 nil) as remuneration and contribution to Provident Fund etc. Sri Ananthakrishna, non executive chairman has
 forgone the payment of Rs 1 lakh per month effective from July 13, 2009 and the same has been accepted by the
 Board.

7. a) Earnings per Share (Accounting Standard 20):

                                                                                     31.03.2010         31.03.2009

 i) Earnings per share Basic Rs.                                                         13.50                21.96
 ii) Earnings per share Diluted Rs                                                       13.45                21.96
 iii) Net Profit as per Profit and Loss Account (Rs. In crore)                          167.12               266.70
 iv) No of Equity Shares (weighted Avg.)-Basic                                    12,37,79,973         1,21,444,753
 v) No of Equity Shares for Diluted earnings                                      12,42,36,031         1,21,444,753


 The Net profit for the year has been used as the numerator and the weighted average number of equity shares as
  denominator in calculating the earning per share.

 (b) 2800 equity shares (previous year 2800 equity shares) allotment of which is in abeyance, being sub judice.

 8. Accounting for Taxes on Income - Accounting Standard 22:

  The Bank has accounted for taxes on income in compliance with Accounting Standard 22 issued by the ICAI.
  Accordingly, deferred tax assets and liabilities are recognised. The major components of deferred tax are as
  under: -

 Timing Differences:

                                                                                                   ( Rs. in crore)

                       Particulars
                                                                 As on 31.03.2010          As on 31.03.2009
  A. Deferred Tax Liabilities
     1. Depreciation on fixed assets                                          5.12                        5.54
     2. Depreciation on investments                                          88.93                       30.78
    3. Accrued Interest on Investments                                       55.51                       49.48
                                  Total                                     149.56                       85.80
  B. Deferred Tax Assets
     1. PL/LFC Encashment                                                    11.46                       10.43
     2. Arrears of Salary                                                    15.52                        7.82
     3. Others                                                               19.65                        6.77
                                       Total                                 46.63                       25.02
   Net deferred tax liabilities (A) – ((B)                                  102.93                       60.78


                                                      F -25
9. Impairment of Assets – Accounting Standard –28

       Fixed Assets possessed by the bank are treated as “Corporate Assets” and are not “Cash Generating
       Units” as defined by AS – 28 issued by the Institute of Chartered Accountants of India (ICAI). In the
       opinion of the management, there is no impairment of the fixed assets of the Bank.

10. Provisions, Contingent Liabilities and Contingent Assets- Accounting Standard 29

    a) Movement of provisions for liabilities*

                                                                               ( Rs. in Crore)

 Particulars                                                                      Legal cases /contingencies **
 Balance as at 1st April 2009                                                                 15.41
 Provided during the year                                                                      7.75
 Amounts used during the year                                                                 11.25
 Reversed during the year                                                                       --
 Balance as at 31st March 2010                                                                11.91
 Timing of outflow/uncertainties                                              Outflow on settlement / crystallization
     * excluding provisions for others.

     ** Including towards customary practices

   b) Contingent Liabilities of schedule 12

   Liabilities at Sl. No. (I) to (V) are dependent upon, the outcome of Court / arbitration / out of court settlement,
   disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of
   demand by concerned parties, respectively. Reimbursement is expected except in item no (I).

  c) Contingent Assets:- Nil

11. ADDITIONAL DISCLOSURE:

    In terms of RBI guidelines, the following additional disclosures have been made:

   11.1 Capital Adequacy:

                                                                                       31.03.2010        31.03.2009
  i) Capital Adequacy Ratio (%)
     - Basel –I                                                                              11.85%            13.54%
     - Basel II                                                                              12.37%            13.48%
   ii)Capital Adequacy Ratio    -- Tier – I Capital (%)
     - Basel –I                                                                                  9.56%         10.65%
     - Basel II                                                                                  9.98%         10.60%
   ii)Capital Adequacy Ratio    -- Tier – II Capital (%)
     - Basel -I                                                                               2.29%             2.89%
     - Basel II                                                                               2.39%             2.88%
  iii) Amount of subordinated debt raised as Tier II capital (Rs in crore)                    350.00            350.00




                                                        F -26
 11.2 Investments                                                                  (Rs in crore)

                                         Items                                                  31.03.2010          31.03.2009

 (1) Value of Investments
   (i) Gross Value of Investments
         (a) In India                                                                             10,021.66            9,009.32
         (b) Outside India                                                                              Nil                 Nil
   (ii) Provisions for Depreciation
         (a) India                                                                                    29.61               47.83
         (b) Outside India                                                                              Nil                 Nil

   (iii) Net Value of Investments
         (a) In India                                                                              9,992.05            8,961.49
         (b) Outside India                                                                              Nil                 Nil
 (2) Movement of provisions held towards depreciation on investments
      (i)       Opening balance
      (ii)      Add: Provisions made during the year                                                  47.83               44.31
      (iii)     Less : Write-off/write-back of excess provisions during the year                       0.00               33.35
      (iv)      Closing balance                                                                       18.22               29.83

                                                                                                      29.61               47.83
 11.3 Repo transactions :

     The particulars of Repo transactions are as under:                              (Rs in crore)

                                                           Outstanding during the Year                      As on 31.03.2010

Particulars                                                 Min           Max              Daily
                                                                                           Average


Securities sold under repos                                       50.00          50.00              0.41                     --
Securities purchased under reverse repos                          85.00         900.00            186.76                     --


  11.4 Issuer composition of Non-SLR Investments                                    (Rs. In crore)

Sl.No. Issuer                              Amount         Extent of       Extent of ‘below Extent of                 Extent of
                                                          Private         investment grade’ ‘un-rated’               ‘un-listed’
                                                          placements      securities        securities               securities

01      PSUs                                   257.20            34.68                 0.17                    --             --
02      Financial Institutions               2,569.71         2,402.88                    --                   --             --
03      Banks                                  147.91            36.03                    --                   --             --
04      Private Corporates                     277.71           162.69                    --               24.54           0.77
05      Subsidiaries / joint ventures           22.50            22.50                    --               22.50          22.50
06      Others                                 319.81             8.26                    --                   --             --
07      Less Provision held towards             -8.74            XXX                  XXX                  XXX            XXX
        deprecation/NPA
        TOTAL                                3,586.10         2,667.04                   0.17              47.04          23.27



                                                          F -27
      11.5 Non Performing Non-SLR investments                                        (Rs.in crore)

Particulars                                                                                   2009-10           2008-09
Opening Balance                                                                                         --           1.89
Additions during the year                                                                               --              --
Deductions during the above period                                                                      --          1.89
Closing Balance                                                                                         --              --
Total Provision Held                                                                                    --              --



 11.6 Forward Rate Agreement/ Interest Rate Swaps/Exchange Traded Interest Rate Derivatives:

Forward Rate Agreements / Interest Rate Swap                                                (Rs in Crore)

                              Items                                          31.03.2010                      31.03.2009

i) The Notional principal of swap agreements                                              116.62                      131.74
ii)Losses which would be incurred if counter parties failed to                                 --                          --
fulfill their obligations under the agreements

iii) Collateral required by the bank upon entering into swaps                                  --                             --

iv) Concentration of credit risk arising from swaps                                       Client                          Client
v) The fair values of the swap book                                                           --                              --


Note:    (i) Interest rate swap (fix v/s. fix) was undertaken for the purpose of client’s hedging requirements, the
underlying for the transaction being FCCB and ECB exposures of the client.

(ii) The entire interest rate swap covered on back-to-back basis with counter party bank and there is no open position.
However the contingent liability is recognised.

Exchange Traded Interest Rate Derivatives                                           Rs in crore

Sl      Particulars                                                                                      Amount
No
I       Notional principal amount of exchange traded interest rate derivatives                                      Nil
Ii      Notional principal amount of exchange traded interest rate derivatives                                      Nil
        outstanding as on 31st March 2010 (instrument wise)
Iii     Notional principal amount of exchange traded interest rate derivatives                                      Nil
        outstanding and not “highly effective” (instrument wise)
iv      Mark- to-market value of exchange traded interest rate derivatives                                          Nil
        outstanding and not “highly effective” (instrument wise)




                                                         F -28
 11.7 Disclosure on Risk Exposures in Derivatives

 (i) Qualitative Disclosure:

Operations in the Treasury are segregated into three functional areas, namely. Front office, Mid office and Back
office, equipped with necessary infrastructure and trained officers, whose responsibilities are well defined.

The Integrated Treasury policy of the Bank clearly lays down the types of financial derivative instruments, scope of
usages, approval process as also the limits like the open position limits, deal size limits and stop loss limits for
trading in approved instruments.

The Mid Office is handled by Risk Management Department. Daily report is submitted to Risk Management
department, which, in turn appraises the risks profile to the senior management on the assets and liability
management.

The Bank ensures that the transactions with the corporate clients are undertaken only after the inherent credit
exposures are quantified and approved in terms of the approval process laid down in the Derivative Policy for
customer appropriateness and suitability and necessary documents like ISDA agreements etc. are duly executed.
The Bank has adopted Current Exposure Method for monitoring the credit exposures.

The Bank also uses financial derivative transactions for hedging its on or off Balance Sheet exposures. The
Integrated Treasury Policy of the Bank spells out the approval process for hedging the exposures. The hedge
transactions are monitored on a regular basis and the notional profits or losses are calculated on MTM basis. PV01
and VaR on these deals are reported to the ALCO every month.

The hedged/non hedged transactions are recorded separately. The hedged transactions are accounted for on accrual
basis.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium and
discount are being followed.

While sanctioning the limits, the competent authority may stipulate condition of obtaining collaterals/margin as
deemed appropriate. The derivative limits are reviewed periodically along with other credit limits.

The customer related derivative transactions for notional value (at market rate) of Rs 187.01 crore are covered with
counter party banks, on back- to- back basis for identical amount and tenure and the Bank does not have any market
risk.

(ii) Quantitative Disclosure:                                                   (Rs in crore)

Sl.No                                Particulars                                 Currency       Interest
                                                                                 Derivatives    Derivatives

1       Derivatives (Notional Principal Amount)
        a) Hedging                                                                   2,439.58                 226.49
        b) Trading                                                                   4,716.72                      --
2.      Marked to Market Positions
        Assets(+)                                                                      178.40                  88.87
        Liabilities(-)                                                                -162.01                 -88.87
3.      Credit Exposure                                                                327.93                  91.24



                                                      F -29
Sl.No                               Particulars                           Currency         Interest
                                                                          Derivatives      Derivatives

4.      Likely impact of 1% change in interest Rates (100*PV01)

        a) on hedging derivatives                                                   --                       --
        b) on trading derivatives                                                   --                       --
5.      Maximum and Minimum of 100*PV01 observed during the year

        a) on hedging- Maximum                                                      --                       --
        b) On hedging –minimum                                                      --                       --
        c) on trading- Maximum                                                      --                       --
        d) on trading – Minimum                                                     --                       --


11.8 Non-Performing Asset                                          (Rs. in Crore)

                                                                                2009-10           2008-09

i) Net NPAs to Net Advances (%)                                                          1.31              0.98
ii) Movement of NPAs (Gross)
a) Opening Balance                                                                  443.20               379.57
b) Additions during the year                                                        300.28               162.44
Sub total i                                                                         743.48               542.01
Less :
a) Upgradations                                                                      49.80                19.23
b) Recoveries (excluding recoveries made in upgraded accounts)                       67.91                71.18
c) Write off                                                                         76.13                 8.40
Sub total ii                                                                        193.84                98.81
Closing Balance                                                                     549.64               443.20
iii) Movement Of Net NPAs
a) Opening Balance                                                                  116.10               106.48
b) Additions during the year                                                        202.03                93.39
                                                                                    318.13               199.87
c) Reductions during the year                                                       129.52                83.77
d) Closing Balance                                                                  188.61               116.10
iv) Movement of provisions for NPAs
a)Opening balance                                                                   301.23               247.04
b)Provisions made during the year                                                     81.00               47.00
c)Write off/write back of excess provisions                                         (76.62)                7.19
d) Closing balance                                                                  305.61               301.23
v) Movement of Floating Provisions
a) Opening Balance                                                                      11.69             13.00
b) the quantum of floating provisions made during the year                                  --                --
c) Amount of draw down made during the year                                              1.31              1.31
d) Closing balance                                                                      10.38             11.69



                                                      F -30
Note: Floating provision of Rs 1.31 crore was withdrawn during the year to meet the interest loss in respect of
eligible accounts under Agricultural debt waiver / debt relief scheme as permitted by RBI.



11.9 Loans and advances subjected to restructuring etc., during the year:

    Details of Loan assets subjected to Restructuring                      ( Rs in Crore)

                                       CDR                SME Debt             Others              Total
                                       Mechanism          Restructuring

Standard          No of Borrowers                    1                105                   227              333
Advances
Restructured      Amount                        45.28               52.74               766.78             864.80
                  Outstanding

                  Sacrifice                        2.91              0.16                   1.51             4.58
                  (diminution in the
                  fair value)

Sub-Standard      No of Borrowers                    --                   5                   4                9
Advances
Restructured      Amount                             --              1.04                   0.79             1.83
                  Outstanding

                  Sacrifice                          --                   --                0.01             0.01
                  (diminution in the
                  fair value)

Doubtful          No of Borrowers                    --                   --                  2                2
Advances
Restructured      Amount                             --                   --             39.25              39.25
                  Outstanding

                  Sacrifice                          --                   --                  --               --
                  (diminution in the
                  fair value)

Total             No of Borrowers                    1                110                   233              344

                  Amount                        45.28               53.78               806.82             905.88
                  Outstanding

                  Sacrifice                        2.91              0.16                   1.51             4.58
                  (diminution in
                  the fair value)




                                                    F -31
    11.10 Details of Assets sold to Securitisation Company / Re-construction Company

                                                                                      (Rs. in Crore)

Sl.No      Particulars                                                                        2009-10             2008-09
01         No of Accounts                                                                               Nil          Nil
02         Aggregate Value (net of Provisions) of accounts sold to SC/RC                                 --                   --
03         Aggregate consideration                                                                       --                   --
04         Additional consideration realised in respect of accounts transferred in                       --                   --
           earlier years
05         Aggregate Gain / Loss over net book value                                                       --                 --


11.11 Details of non-performing financial assets purchased                                           (Rs in crore)

Sl      Particulars                                                                   31.03.2010             31.03.2009
no
1       a) no. of accounts purchased during the year                                                  --                     --
        b) aggregate outstanding                                                                      --                     --
2       a) Of these, number of accounts restructured during the year                                  --                     --

        b) aggregate outstanding                                                                      --                     --


11.12 Details of non-performing financial assets sold:                        (Rs in crore)

Sl      Particulars                                                                    31.03.2010               31.03.2009
1       No of accounts sold                                                                       1                          --
2       Aggregate outstanding                                                                    --                          --
3       Aggregate consideration received                                                      1.50                           --


11.13 Provisions on Standard Asset                                                   (Rs in crore)

                                         Item                                               31.03.2010            31.03.2009

Provisions towards Standard Assets                                                                   57.66              54.91

11.14 Significant performance indicators

                                                                                            31.03.2010           31.03.2009

I ) Interest Income to working funds                                                                 8.18%             8.99%
ii) Non-interest income to working funds                                                             1.25%             1.66%
iii) Operating profits to working funds                                                              1.04%             2.25%

iv) Return on Assets                                                                                 0.67%             1.25%
v) Business (Deposits Plus Advances) per employee (Rs. In crore)                                       7.27              6.49
vi) Profit per employee                           (Rs. In crore )                                      0.03              0.05


                                                         F -32
11.15 Asset Liability Management

Maturity Pattern of certain item of asset and liabilities                              (Rs. in crore)

             1 day      2 to 7        8 to 14    15-28         29          Over 3    Over 6     Over 1      Over 3        Over 5        Total
                        days          days       Days          Days to     Month     Month      Year        Years         Years
                                                               3           s to 6    s to 12    to 3        to 5
                                                               Months      Month     Month      years       Years
                                                                           s         s

Loans &
Advances      209.67     309.91        347.98     319.78 1,624.24 1,493.93 2,073.35 3,542.73 3,126.18                     1,387.92      14,435.69

Investme
nts           306.20     138.94             --           --      188.54    104.06     46.89     910.05       902.13 7,395.23             9,992.04

Deposits      460.82     491.29        541.59     506.35 2,032.83 2,916.60 4,272.45 5,434.44 6,842.93                       231.35      23,730.65

Borrowin
gs            149.85             --         --           --       27.81     63.68     50.15      50.15           --                --      341.64

Foreign
Currency
Assets          40.49     370.85        127.46 89.12            1,838.25    602.16    659.73      27.50              --            --    3,755.56

Foreign
Currency
Liabilitie
s               39.70     377.72         79.58     42.72 1,808.41           628.93    717.85      46.45       12.20           0.10       3,753.66



11.16 Exposure to Sensitive Sectors:

     i) Exposure to Real Estate                                                       (Rs. In Crore)

                                                                                               31.03.2010        31.03.2009

a) Direct exposure

(i) Residential Mortgages -

  Lendings fully secured by mortgages on residential property that is or will be
occupied by the borrower or that is rented.
                                                                                                        872.87             781.51


(ii) Commercial Real Estates –                                                                          682.53             879.06

Lendings secured by mortgages on commercial real estates including Non-Fund
Based Limits



                                                              F -33
(iii) Investments in Mortgage Backed Securities (MBS) and other securitised
exposures –
                                                                                                       2.34            3.70
    a) Residential ,                                                                                      --              --
    b) Commercial Real Estate
b) Indirect Exposure

Fund based and non fund based exposures on National Housing Bank (NHB) and                        338.63            566.32
Housing Finance Companies (HFCs)

Total Exposure to Real Estate Sector                                                            1,896.37           2,230.59



 ii) Exposure to Capital Market                                                        (Rs in crore)

Category                                                                                  31.03.2010           31.03.2009

(i) Investments made in equity shares                                                           160.27              138.10
(ii) Investments in convertible bonds / convertible debentures                                       --                  --
(iii)Investments in units of equity oriented mutual funds the corpus of which is not             11.52               24.20
exclusively invested in corporate debt
iv) Application Money towards Rights issue                                                              --               --
v) Advances against shares/bonds./debentures or other securities or on clean basis                      --               --
to individuals for investment in shares (including IPOs/RSOPS), convertible bonds
and convertible debentures and units of equity oriented mutual funds.

vi) advances for any other purposes where shares or convertible bonds or                          0.02                   --
convertible debentures or units of equity oriented mutual funds are taken as primary
security;

vii) advances for any other purposes to the extent secured by the collateral security                   --               --
of shares or convertible bonds or convertible debentures or units of equity oriented
mutual funds i.e. where the primary security other than shares /convertible bonds
/convertible debentures /units of equity oriented mutual funds ‘does not fully cover
the advances’.

viii) Secured and unsecured advances to stockbrokers and guarantees issued on                    66.01               51.58
behalf of stockbrokers and market makers:

ix) loans sanctioned to corporate against the security of shares /bonds/debentures or                   --               --
others securities or on clean basis for meeting promoters contribution to the equity
of new companies in anticipation of raising resources:

x) bridge loans to companies against expected equity flows/issues                                       --               --
xi)underwriting commitments taken up by the banks in respect of primary issue of                        --               --
shares or convertible bonds or convertible debentures or units of equity oriented
mutual funds

xii) Financing to Stockbrokers for margin trading                                                       --               --



                                                        F -34
xiii)all exposures to Venture capital funds (both registered and unregistered) will be                 --                  --
deemed to be on par with equity and hence will be reckoned for compliance with
the capital market exposure ceilings (both direct and indirect)

Total capital market exposure                                                                     237.82               213.88

 * Excluding loans for personal purpose to individuals against collateral of shares.

 11.17 Exposure to Country Risk                                                    (Rs in crore)

    Risk Category          Exposure (net) as at       Provision held as at    Exposure (net) as at           Provision held
                               31.03.2010                 31.03.2010              31.03.2009                as at 31.03.2009

Insignificant                              82.40                 -                            86.60                -
Low                                       174.42                 -                           153.39                -
Moderately Low                              5.81                 -                             4.30                -
Moderate                                    1.09                 -                             0.07                -
Moderately High                             0.90                 -                             0.75                -
High                                           --                -                                --               -
Very High                                      --                -                                --               -
Restricted                                     --                -                                --               -
Off-Credit                                     --                -                                --               -
Total                                     264.62                 -                           245.11                -


The net funded exposure of the bank in respect of foreign exchange transactions with each country is within
1% of the total assets of the Bank and hence no country risk provision is required as per extant RBI
guidelines.

11.18 During the year, the bank has not raised any unsecured subordinated debts (Tier II Bond ). (Previous year Rs
200.00 crore)

11.19 Details of Single/Group Borrower limit exceeded by the Bank

 During the year ended 31-03-2010 the Bank has not exceeded the exposure ceiling fixed by RBI to Individual
/Group borrowers of 15% /40% of capital funds except in the following cases of single borrower which has
been approved by the Board

                                                                                 ( Rs in Crore)

Sl No         Name of the Borrower      Maximum Limit        Exposure %        Maximum Limit /               Exposure %
                                        during the year                        Liability as on
                                                                               31.03.2010

1             Jindal Saw Ltd                 314.37                  15.79               192.85                  9.69




                                                         F -35
11.20 Unsecured Advances (Schedule 9)

The Bank has not granted any advance against intangible securities such as charge over the rights, licences, authority
etc.

11.21 Amount of provision made during the year                         Rs in crore

Particulars                                        Current Year                            Previous year

Provision for Income Tax                                                48.50                                  194.00



11.22 Penalties imposed by RBI: During the year the RBI levied the penalty of Rs 4400/- on account of
discrepancies detected while processing soiled note remittances received from currency chests in their CVPS /
during inspection of the currency chests for non compliance with operational guidelines.

11.23 Provisions and contingencies comprise of:                                 (Rs. in crore)

                                                                                         31.03.2010        31.03.2009

i) Provision made towards NPAs / Sacrifice for restructured Standard                             88.56          47.00
Advance/Provision for Standard assets as per RBI guidelines
ii) Provision towards Income tax (net)                                                            23.18        153.93
iii) Provision towards deferred tax                                                               42.15        -24.55
iv) Provision for Wealth tax                                                                       0.11          0.10
v) Provision for Fringe Benefit Tax                                                                   --         3.53
vi) Provision for depreciation on investments                                                    -18.23         33.35
vii) Provision for Others                                                                          0.75          0.15
vii) MAT Credit entitlement                                                                      -42.80             --
                                          Total                                                   93.72        213.51



11.24 Customer Complaints:

(a)       No. of Complaints pending at the beginning of the year (31.03.09)                                        42
(b)       No. of complaints received during the year                                                             4600
(c)       No. of complaints redressed during the year                                                            4616
(d)       No. of complaints pending at the end of year (31.03.10)                                                  26



11.25 Awards passed by the Banking Ombudsman

(a)       No. of unimplemented awards at the beginning of the year(31.3.09)                                       Nil
(b)       No. of awards passed by the Banking Ombudsman during the year                                           Nil
(c)       No. of awards implemented during the year                                                               Nil
(d)       No. of unimplemented awards at the end of the year (31.03.10)                                           Nil




                                                       F -36
11.26 Employee Stock Options (ESOP)

The shareholders of the Bank have approved the Employees Stock Options Scheme (ESOS) at the Annual General
Meeting held on 15.7.2006 for grant to eligible employee’s upto 1500000 stock options in aggregate. Accordingly
stock options have been granted to the eligible employees at an exercise price of Rs 50 per share. As per the Scheme
the stock options granted would vest in a graded manner i.e 40% after the first year, 30% in the second year and the
remaining 30% before the end of the third year from the date of grant. The vested options, subject to other
conditions, are exercisable within a period of 5 years from the respective dates of vesting. During the year ended
March 31, 2010 the Bank has provided a sum of Rs 38261525 as employee compensation cost being the
proportionate accounting value in respect of stock options.

11.27 Disclosure of Letter of comforts (LOCs) issued by Banks:

The Bank issues Letter of comforts on behalf of its various constituents against the credit limits sanctioned to them.
In the opinion of the management, no significant financial impact and cumulative financial obligations have been
assessed under LOCs issued by the Bank in the past, during the current year and still outstanding. Brief details of
LOCs issued by the Bank are as follows:

                                                                                                   (Rs in crore)

 1       Letter of comforts issued during the year                                                             266.45
 2       Letter of comforts matured/cancelled during the year                                                  277.39
 3       Letter of comforts outstanding at the end of the year                                                  82.56


11.28 Government of India has notified “Agricultural Debt Waiver and Debt Relief Scheme 2008” for giving debt
waiver to marginal and small farmers and relief to other farmers who have availed direct agricultural loans. The
claim for agricultural debt waiver amounting to Rs 23.13 crore lodged by the Bank subject to certification by
statutory auditors of the Bank, Rs 14.98 crore being 65 % of the amount claimed has been reimbursed by the RBI
during the year ending 31st March 2010.

11.29 Concentration of Deposits, advances, exposures and NPA’s

i) Concentration of Deposits

 Sl No       Particulars
 1           Total deposits of 20 largest depositors ( Rs in Crore)                                           1,986.45
 2           % age of deposits of 20 largest depositors to total deposits                                       8.37%


ii) Concentration of Advances

 Sl No       Particulars
 1           Total advances of 20 largest borrowers ( Rs in Crore)                                           3,144.22
 2           % age of advances of 20 largest borrowers to total advances (credit exposures                    14.89%


iii) Concentration of exposures

 Sl No       Particulars


                                                       F -37
 1               Total exposures of 20 largest borrowers/Customers ( Rs in Crore)                             3,145.53

 2               Percentage of Exposures to twenty largest borrowers / customers to Total                     14.03%
                 Exposure of the bank on borrowers / customers

iv) Concentration of NPAs                                                              Rs in crore

 Sl No           Particulars

 1               Total fund based Exposure to Top Four NPA accounts                                            155.34



v) Sectorwise NPAs                                                                    Rs in Crore

 Sl No            Sector                                                  Percentage of NPAs to Total Advances in
                                                                                         that sector
 1               Agriculture & allied activities                                                                 3.10

 2               Industry (Micro & small, Medium and Large)                                                      1.87


3            Services                                                                                            6.70
4            Personal Loans                                                                                      2.94
vi) Overseas Assets, NPA and Revenue                                 (Rs in crores)

Particulars                                                                                          Amount
Total Assets                                                                                                      Nil
Total NPAs                                                                                                        Nil
Total Revenue                                                                                                     Nil


Vii) Off- balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms)

                                                Name of the SPV Sponsored

                             Domestic                                                 Overseas
                               Nil                                                      Nil



11.30 Income from Bancassurance business                                        (Rs in crore)

         Sl No                               Nature of Income                                   March 2010

 1                         For selling Life Insurance Policies                                                  18.35
 2                         For selling Non-Life Insurance Policies                                               3.08
 3                         For Mutual Fund Products                                                              0.47
 4                         Others (Specify)                                                                      0.12
 5                         Total                                                                                22.02



                                                            F -38
Note: Disclosures under 11.29 and 11.30 does not contain corresponding previous year figures as this is the first
year of disclosure requirement mandated by RBI.

11.31 In respect of investment under ‘Held to Maturity ‘category as stated in the significant accounting policy no 4
the excess of acquisition cost over the face value of the security amortised during the year amounting to Rs 28.86
crore (previous year Rs 11.95 crore) has been netted off from interest on investments and shown under ‘Income
from Investments’ in Profit and Loss account in terms of RBI direction. During the year with the intention to
strengthen the trading portfolio, the Bank has shifted securities amounting to Rs 1639.91 crore from ‘Held to
Maturity’ to Available for Sale’ category at book value or market value whichever is lower and a sum of Rs nil has
been charged to provision for depreciation on investments. (previous year securities amounting to Rs 420.76 crore
has been shifted from ‘Held to Maturity’ to Available for Sale’ category and securities amounting to Rs 634.44
crore have been shifted from ‘Available for Sale’ to ‘Held to maturity’ category by charging a sum of Rs 28.95
crore to provision for depreciation on investments).

12 (a) Tax demands under appeal: -

 A sum of Rs 47.34 crore (Previous year Rs 101.76 crore) is outstanding on account of demands raised by the
 Income Tax Department in earlier years which have been paid under protest. No provision is considered necessary
 in respect of these demands, as the Bank has been advised that there are good chances of success in appeals/
 considering favourable appellate orders on identical issues for earlier assessment years.

 (b) Provision for income tax for the year has been made after due consideration of decisions of appellate
       authorities and advice of counsels.

13. Premises include buildings in possession and occupation of the Bank pending execution of title deeds and/or Co-
    operative Societies yet to be formed amounting to Rs.0.22 crore (Previous year Rs.0.22 crore)

14. Draw down from Reserves

The Bank has not made any draw down during the year from the Reserves.

15. Previous year’s figures have been regrouped/rearranged/given in brackets wherever necessary and feasible to
conform to the current year classifications.




                                                      F -39
                                                                                     Annexure V

Financial Ratios




Period ended                                                                             31.3.2010

Earning Per Share (Rs.) - Basic                                                                       13.50

Earning Per Share (Rs.) – Diluted                                                                     13.45

Net Asset Value per Share (Rs.)                                                                      136.80

Return on Net Worth after tax (%)                                                                      9.83


Definition of Key Terms:
    1. Earnings per share: Net Profit Divided by weighted average number of equity shares outstanding at the
         end of the year

    2.   Net Asset Value: Net Worth ( excluding revaluation reserves and deferred tax asset ) divided by number
         of equity shares outstanding at the end of the year.

    3.   Return on Net worth: Net Profit / Average Net worth




                                                    F -40
                                                                                               ANNEXURE VI


Capitalisation Statement                                                             (Rs. in Crore)

                                                                        Pre-issue as at          Post issue*
                                                                     31.03.2010 (Audited)

  Borrowings
  Short Term Debt@@                                                                  262.93             262.93
  Long Term Debt@                                                                    428.71             428.71
  Total Debt                                                                         691.64             691.64

  Shareholders funds
  Share capital
  - Equity                                                                           133.99             188.20
    Less Calls in arrears                                                                 --                 --
  - Preference                                                                            --                 --
  Share premium                                                                      312.67             722.70
  Reserves & Surplus                                                               1,386.09           1,386.09
    Less: Miscellaneous expenditure not written off                                       --                 --


  Total Shareholders Funds                                                         1,832.75           2,296.99

  Long term Debt/Equity ratio                                                         0.23:1             0.19:1

The figures for the year ended as on March 31, 2010 are from audited balance sheet.
Post issue figures have been arrived at on the assumption that entire number of shares offered in the rights issue will be
subscribed and includes amount relating shares allotted under ESOP from 1.4.2010 to 31.1.2011 and has also been certified by
the Auditors vide their certificate dated January 31, 2010.
@ Long term debt includes subordinate debt amounting to Rs 350 crore
@@ Short term debts are debts maturing within next one year from the date of above statement and interest accrued thereon.




                                                          F -41
                                             AUDITORS REPORT

To,

The Board of Directors

The Karnataka Bank Ltd

Regd. & Head Office

Kankanady - Mangalore-575002

1.      We have reviewed the accompanying Balance Sheet (Annexure 1) of The Karnataka Bank Limited
        (“the Bank”) as at 30 September, 2010 and the Profit and Loss (Annexure II) for the period ended on that
        date and the accompanying Schedules (Annexure III) (together comprising “Reviewed Financial
        Statements”). These statements are the responsibility of the Bank’s Management and have been approved
        by the Board of Directors. Our responsibility is to issue a report on these financial statements based on our
        review.

2.      We conducted our review in accordance with the Revised Standard on Review Engagements (SRE) 2400
        “Engagements to Review Financial Statements”, issued by the Institute of Chartered Accountants of India.
        This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the
        financial statements are free of material misstatements. A review is limited primarily to inquiries of
        Company personnel and analytical procedures applied to financial data and thus provide less assurance than
        an audit. We have not performed an audit and accordingly we do not express an audit opinion.

3.      In the conduct of our review, we have relied on the review reports in respect of non-performing assets
        received from concurrent auditors of 92 branches. These review reports cover 76.67 percent of the advance
        portfolio of the Bank. Apart from these review reports, in the conduct of our review, we have also relied
        upon various returns received from the branches of the bank, various information and explanation made to
        us.

4.      Attention is drawn to Schedule No. 18 - Notes on Accounts, Note no. (1), regarding accounting for
        certain employee benefits and Note no. (2), regarding treatment of eligible advances under Coffee
        Debt Relief Package 2010. Based on our review nothing has come to our attention that causes us to believe
        that the accompanying statement of unaudited financial results prepared in accordance with applicable
        accounting policies stated therein and other recognized accounting practices contain any material
        misstatement.

for Vishnu Daya & Co.,                                                for R. K. Kumar & Co.,

Chartered Accountants                                                 Chartered Accountants

F.R.No.: 008456S                                                       F.R.No.: 001595S

(Venkatesh Kamath S V)                                                 (B.R.ASHOK)

Partner – M. No. 202626                                                 Partner – M. No. 023313

Place: Bangalore

Dated: 15/10/2010


                                                      F -42
                                                                                Annexure I

                       BALANCE SHEET AS ON 30TH SEPTEMBER 2010
                                                         Schedule       As on                As on
                                                         No.         30.09.2010         31.03.2010
                                                                    (Rs in Crore)        (Rs in Crore)
CAPITAL AND LIABILITIES
Capital                                                         1           134.21               133.99
Reserves and Surplus                                            2         1,775.90             1,698.76
Deposits                                                        3        25,045.31            23,730.65
Borrowings                                                      4           917.25               691.64
Other Liabilities and Provisions                                5           727.22               780.11


TOTAL                                                                    28,599.89            27,035.15


ASSETS


Cash and balances with Reserve Bank of India                   6          1,774.83             1,743.10
Balances with Banks and Money at Call & Short Notice           7             40.75                   62.45
Investments                                                    8         10,435.04             9,992.05
Advances                                                       9         15,683.07            14,435.68
Fixed Assets                                                   10           146.08               148.07
Other Assets                                                   11           520.12               653.80


TOTAL                                                                    28,599.89            27,035.15


Contingent Liabilities                                         12         9,286.60            10,119.24
Bills for collection                                                      1,244.50             1,032.24
Significant Accounting Policies                                17
Notes on Account                                               18




                                                 F -43
                                                                                              Annexure II

 PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30TH SEPTEMBER 2010
                                                                             Half year     Half year
                                                                                                            Year ended
                                                              Schedule No.     ended         ended
                                                                                                            31.03.2010
                                                                             30.09.2010    30.09.2009
                                                                             Rs in Crore   Rs in Crore   Rs in Crore
I. INCOME
Interest Earned                                                    13         1,116.47        971.65           2,043.42
Other Income                                                       14          132.27         185.94             311.26
Total                                                                         1,248.74      1,157.59           2,354.68
II. EXPENDITURE
Interest Expended                                                 15            857.92        869.69           1,707.79
Operating Expenses                                                16           239.71         189.59             386.05
Provisions and Contingencies                                                     75.91         41.89              93.72
Total                                                                         1,173.54      1,101.17           2,187.56
III.PROFIT
Net profit for the year                                                          75.20         56.42             167.12
Profit brought forward                                                            0.02          0.10               0.03
Total                                                                            75.22         56.52             167.15
IV. APPROPRIATIONS
Transfer to Statutory Reserve                                                     0.00          0.00              88.00
Transfer to Capital Reserve                                                       0.00          0.00               0.00
Transfer to Revenue Reserve                                                       0.00          0.00               3.00
Transfer to Special Reserve u/s 36 (i) (viii) of IT Act                           0.00          0.00               6.68
Transfer to Investment Reserve Account                                            0.00          0.00               5.70
Transfer to Other Funds                                                           0.00          0.00               1.00
Transfer to Proposed dividend                                                     0.00          0.00              53.63
Transfer to Tax on proposed dividend                                              0.00          0.00               9.11
Balance carried over to Balance Sheet                                            75.22         56.52               0.02
Total                                                                            75.22         56.52             167.14




                                                          F -44
                                                                                         Annexure III

                                             SCHEDULE - 1 – CAPITAL
                                                                        (Rs. in Crore)         (Rs. in Crore)
                                                                             As on                  As on
                                                                         30.09.2010              31.03.2010

Authorised Capital
20,00,00,000 Equity shares of (Rs. in Crore). 10/- each                         200.00                   200.00


Issued Capital
13,42,22,840 equity shares of (Rs. in Crore) 10 each                            134.22                   134.00


Subscribed Capital
13,42,15,762 Equity shares of (Rs. in Crore). 10/- each                         134.22                   133.99


Called up/Paid-up Capital                                                       134.20                   133.98
13,41,99,212 Equity shares of (Rs. in Crore).10/- each
Add : Forfeited Shares                                                            0.01                      0.01


 Total                                                                          134.21                   133.99


                                      SCHEDULE -2- RESERVES & SURPLUS

I. Statutory Reserve
 Opening balance                                                              1,006.00                   918.00
 Additions during the year                                                        0.00                    88.00
                                                                              1,006.00                  1,006.00
 Deductions during the year                                                       0.00                      0.00

 Total                                                                        1,006.00                  1,006.00
II. Capital Reserve


 Opening balance                                                                 63.69                    63.69
  Additions during the year ( pursuant to sale of securities                      0.00                      0.00
  held under HTM category)

                                                                                 63.69                    63.69
 Deductions during the year                                                       0.00                      0.00

 Total                                                                           63.69                    63.69


                                                       F -45
                                                         (Rs. in Crore)   (Rs. in Crore)
                                                               As on            As on
                                                          30.09.2010       31.03.2010
III. Share Premium
  Opening balance                                                312.67           162.94
  Additions during the year                                        3.46           149.73
                                                                 316.13           312.67
  Deductions during the year                                       0.00             0.00
 Total                                                           316.13           312.67

IV. Revenue and other Reserves
  a) Revenue Reserve
     Opening balance                                             270.00           267.00
     Deductions at the beginning of the year                       0.00             0.00
                                                                 270.00           267.00
     Additions during the year                                     0.00             3.00
 Total                                                           270.00           270.00

  b) Special Reserve u/s 36(1)(viii) of IT Act
     Opening balance                                              30.24            23.56
     Additions during the year                                     0.00             6.68
                                                                  30.24            30.24
     Withdrawn during the year                                     0.00             0.00
 Total                                                            30.24            30.24

 c) Employee Stock Option Outstanding

     Opening balance                                               8.94             8.72
     Additions during the year                                     1.04             3.83
                                                                   9.98            12.55
     Deductions during the year                                    2.56             3.61
 Total                                                             7.42             8.94

  d) Investment Reserve Account
     Opening balance                                               7.20             1.50
     Additions during the year                                     0.00             5.70
                                                                   7.20             7.20
     Deductions during the year                                    0.00             0.00
 Total                                                             7.20             7.20

V. Balance in Profit and Loss Account                             75.22             0.02
  TOTAL ( I, II, III,IV and V )                                1,775.90         1,698.76

                                                 F -46
                                           SCHEDULE -3 DEPOSITS
                                                                   (Rs. in Crore)   (Rs. in Crore)
                                                                        As on            As on
                                                                    30.09.2010       31.03.2010

A.I. Demand Deposits


     1. From Banks                                                           3.37             2.44
     2. From others                                                      2,000.19         1,704.04


                                                                         2,003.56         1,706.48

 II. Savings Bank Deposits                                               4,418.78         3,813.68

 III. Term Deposits


     1. From Banks                                                          24.83            32.05
     2. From others                                                     18,598.14        18,178.44


                                                                       18,622.97        18,210.49

 Total : (I, II and III)                                               25,045.31        23,730.65



B.1. Deposits of branches in India                                      25,045.31        23,730.65
  2. Deposits of branches outside India                                      0.00             0.00

 Total (1+2)                                                           25,045.31        23,730.65

                                          SCHEDULE -4 BORROWINGS


I. Borrowings in India


 1. Reserve Bank of India                                                  125.00             0.00

 2. Other Banks                                                             32.54            35.00

 3. Other Institutions and Agencies                                        705.02           565.16

    Total                                                                  862.56           600.16

                                                 F -47
                                                                          (Rs. in Crore)      (Rs. in Crore)
                                                                               As on               As on
                                                                           30.09.2010          31.03.2010

II. Borrowings outside India                                                       54.69               91.48

 Total : (I and II)                                                               917.25              691.64



Secured borrowings included in I & II above                                      Nil                 Nil

                            SCHEDULE - 5 OTHER LIABILITIES & PROVISIONS



 I. Bills Payable                                                                 175.64              198.65
II. Inter Office adjustments (Net)                                                     0.00                3.51
III. Interest accrued                                                              77.53               72.12
IV. Subordinated Debt for Tier II Capital                                              0.00                0.00
V. Deferred Tax Liability (Net)                                                   113.48              102.93
VI. Others (Rs. in Crore) (including Provisions)*                                 360.57              402.90

   Total                                                                          727.22              780.11

* Includes Contingent provision of Rs.61.26 crore for Standard Advances



                              SCHEDULE - 6 CASH & BALANCES WITH THE RBI
                                                                (Rs. in Crore)                (Rs. in Crore)
                                                                             As on                 As on
                                                                          30.09.2010           31.03.2010

 I. Cash in hand                                                                163.10                 146.62
   (including foreign currency notes)


II. Balances with Reserve Bank of India
   1. In Current Account                                                      1,611.73               1,596.48
   2. In Other Accounts                                                           0.00                     0.00

   Total : (I and II)                                                         1,774.83               1,743.10




                                                    F -48
             SCHEDULE - 7 BALANCES WITH BANKS AND MONEY AT CALL & SHORT NOTICE


I. IN INDIA


  i. Balances with Banks
  a) In Current Accounts                                                      24.95              39.53
  b) In other deposit accounts                                                 1.85              19.10


                                                                              26.80              58.63
 ii. Money at Call & Short Notice
  a) With Banks                                                                0.00                0.00
  b) With other institutions                                                   0.00                0.00

          Total                                                                0.00              58.63

II. OUTSIDE INDIA


  i. In Current Accounts                                                      13.95                3.82
 ii. In Other Deposit Accounts                                                 0.00                0.00
 iii. Money at Call & Short Notice                                             0.00                0.00

    Total : (i, ii and iii)                                                   13.95                3.82

    Grand Total (I & II)                                                      40.75              62.45

                                          SCHEDULE - 8 INVESTMENTS
                                                                     (Rs. in Crore)   (Rs. in Crore)
                                                                          As on            As on
                                                                      30.09.2010       31.03.2010

I. Investments in India (Gross at cost)                                  10,475.68          10,021.65
 Less: Provision for depreciation                                             40.64              29.60

  Total                                                                  10,435.04           9,992.05

 Break-up :
 1. Government Securities                                                 6,724.17           6,400.98
 2. Other Approved Securities                                                  4.68                4.98
 3. Shares                                                                  159.76             162.27


                                                 F -49
 4. Debentures and Bonds                                                873.11             809.39
 5. Subsidiaries and/or Joint Ventures                                     0.00               0.00
 6. Others                                                            2,673.32           2,614.43

  Total                                                              10,435.04           9,992.05

II. Investments outside India                                              0.00               0.00

  Total (I+II)                                                       10,435.04           9,992.05




                                         SCHEDULE - 9 ADVANCES
                                                                 (Rs. in Crore)   (Rs. in Crore)
                                                                      As on           As on
                                                                  30.09.2010      31.03.2010


A) 1. Bills Purchased & discounted                                      537.74             691.19
   2. Cash Credits, Overdrafts and                                    8,176.65           7,728.29
      Loans repayable on demand
   3. Term Loans                                                      6,968.68           6,016.20

   Total                                                             15,683.07         14,435.68



B) 1. Secured by Tangible Assets *                                   12,192.97         11,553.70
   2. Secured by Bank/Government Guarantees                           1,651.68           1,841.79
   3. Unsecured                                                       1,838.42           1,040.19

   Total                                                             15,683.07         14,435.68

* Includes Advances against Book Debts
C) I. Advances in India
   1. Priority Sectors                                                5,889.66           5,252.96
   2. Public Sectors                                                  1,273.38           1,228.68
   3. Banks                                                                0.16               0.15
   4. Others                                                          8,519.87           7,953.89

     Total                                                           15,683.07         14,435.68


                                              F -50
 C) II. Advances outside India
  1. Due from Banks                                                            0.00                0.00
  2. Due from others                                                           0.00                0.00
    a) Bills Purchased & Discounted                                            0.00                0.00
    b) Syndicated Loans                                                        0.00                0.00
    c) Others                                                                  0.00                0.00

      Total                                                                    0.00                0.00

  GRAND TOTAL (C. I and C. II)                                           15,683.07          14,435.68

                                        SCHEDULE - 10 FIXED ASSETS

                                                                          As on            As on
                                                                      30.09.2010       31.03.2010
                                                                     (Rs. in Crore)   (Rs. in Crore)
I. Premises
  At cost as on 31st March of preceding year                                106.03             100.38
  Additions during the year                                                    0.15                5.79


                                                                            106.18             106.17
  Deductions during the year                                                   0.08                0.14


                                                                            106.10             106.03
  Depreciation to-date                                                        24.57              23.10
      Total                                                                   81.53              82.93

II. Other Fixed Assets
 (including Furniture & Fixtures)


 At cost as on 31st March of the preceding year                             192.49             171.86
 Additions during the year                                                     9.18              26.57


                                                                            201.67             198.43
 Deductions during the year                                                    0.23                5.94


                                                                            201.44             192.49
 Depreciation to date                                                       137.88             128.34
      Total                                                                   63.56              64.15

                                                  F -51
III. Leased Fixed Assets


   Cost as on 31st March of the preceding year                           15.32     20.16
   Additions during the year                                              0.00      0.00


                                                                         15.32     20.16
   Deductions during the year                                             0.00      4.84


                                                                         15.32     15.32
   Depreciation to-date                                                   6.05      6.05


                                                                          9.27      9.27
 Less Accumulated Lease Adjustment                                        8.15      8.15
                                                                          1.12      1.12
 Less Other Adjustments                                                   0.13      0.13

       Total                                                              0.99      0.99

   Total (I, II & III)                                                  146.08    148.07

                                          SCHEDULE -11 OTHER ASSETS


 I. Interest accrued                                                    170.10    182.33
II. Tax paid in advance/tax deducted at source *                        150.27    179.00
III. Stationery and Stamps                                                3.34      2.94
IV. Non-Banking Assets acquired in satisfaction of claims                 1.47      1.47
V. Others                                                               194.94    288.06

   Total                                                                520.12    653.80

* Includes Rs 4280.00 lakhs being MAT Credit Entitlement.


                                 SCHEDULE - 12 CONTINGENT LIABILITIES


 I. Claims against the Bank not acknowledged as debts                    28.03     28.33

II. Liability on account of outstanding Forward Exchange Contracts*   6,163.67   7,163.96

III. Guarantees given on behalf of constituents

                                                    F -52
   a) In India                                                                         1,024.34            1,030.37
   b) Outside India                                                                        0.00                0.00

IV. Acceptances, Endorsements & other Obligations                                       724.95               673.61

V. Other items for which the bank is contingent liable                                 1,345.61            1,222.97

       Total                                                                           9,286.60           10,119.24
* Includes derivatives



SCHEDULE - 13 INTEREST EARNED


                                                                  Half year ended   Half year ended   Year ended
                                                                   30.09.2010        30.09.2009       31.03.2010
                                                                   Rs in Crore       Rs in Crore      Rs in Crore
 I. Interest/discount on advances/bills                                 780.29           655.06            1,388.98

II. Income on Investments                                               326.86           315.95             633.46

III. Interest on balances with R.B.I / other Inter-Bank
                                                                                                              0.58
funds                                                                      0.38             0.49

IV. Others                                                                 8.94             0.15             20.40

     Total                                                             1,116.47          971.65           2,043.42

SCHEDULE - 14 OTHER INCOME



 I. Commission, Exchange & Brokerage                                     75.37             49.92            126.28

II. Profit on sale of Investments (net)                                  17.35           105.11             114.76

III. Profit on Revaluation of Investments (net)                            0.00             0.00              0.00

IV. Profit on sale of Land, Buildings & Other Assets
                                                                                                              0.21
(net)                                                                      0.41             0.09

V. Profit on Exchange Transactions(net)                                    9.46            10.98             24.53

VI. Income earned by way of dividends etc., from
                                                                                                              0.00
Subsidiaries/ Companies and /or Joint Ventures abroad/                     0.00             0.00

                                                          F -53
in India


VII. Lease Income                                                 0.00              0.00              0.00

VIII. Miscellaneous income                                       29.68             19.84             45.48

           Total                                                132.27           185.94             311.26


SCHEDULE - 15 INTEREST EXPENDED


                                                          Half year ended   Half year ended   Year ended
                                                           30.09.2010        30.09.2009       31.03.2010
                                                           Rs in Crore       Rs in Crore      Rs in Crore

1. Interest on deposits                                         829.78           847.05           1,661.95

2. Interest on Reserve Bank of India/Inter-Bank
                                                                                                      4.39
Borrowings                                                        2.40              0.09

3. Others                                                        25.74             22.55             41.45

   Total                                                        857.92           869.69           1,707.79

SCHEDULE - 16 OPERATING EXPENSES


 I. Payments to and provisions for employees                    140.15           104.05             206.80

 II. Rent, Taxes and Lighting                                    30.27             23.14             49.45

III. Printing and Stationery                                      1.80              1.18              3.99

 IV. Advertisement and Publicity                                  1.11              1.76              3.18

 V. Depreciation on Bank's property                              11.01             10.65             22.23

 VI. Director fees, allowances and expenses                       0.24              0.25              0.57

 VII. Audit fees and expenses (including branch
                                                                                                      1.17
auditors)                                                         0.80              0.78

VIII. Law charges                                                 0.66              0.58              1.36


                                                  F -54
     IX. Postage, telegrams, telephones etc.                               4.96                   4.66                   7.79

     X. Repairs and Maintenance                                            6.15                   6.18                  12.27

     XI. Insurance                                                        13.51                  11.71                  24.07

 XII. Other expenditure                                                   29.05                  24.65                  53.17

           Total                                                        239.71                 189.59                  386.05


SCHEDULE – 17 - SIGNIFICANT ACCOUNTING POLICIES

1.         BASIS OF PREPARATION:

         The accompanying financial statements is prepared on historical cost convention on the accrual basis of
         accounting, unless otherwise stated, and comply with generally accepted accounting principles, statutory
         requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the
         Reserve Bank of India (RBI) from time to time, notified accounting standards by Companies
         (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in banking
         industry in India.

2.         USE OF ESTIMATES:

         The preparation of the financial statements, in conformity with generally accepted accounting
         principles, requires management to make estimates and assumptions that affect the reported amounts of
         assets and liabilities, revenue and expenses along with disclosure of contingent liabilities at the date of
         the financial statements. Actual results could differ from those estimates. The Management believes that
         the estimates used in the preparation of the financial statements are prudent and reasonable. The
         differences if any between estimate and actual will be dealt appropriately in future periods.

3.         REVENUE RECOGNITION:

         Income and expenditure are accounted for on accrual basis except receipt of commission, exchange, rent
         on safe deposit lockers all of which are accounted on cash basis. In respect of Non Performing Assets,
         the bank has not recognised interest. Recoveries are appropriated towards the principal, interest and
         charges in the order of demand. In the case of matured Term Deposits, interest is provided at the rate of
         interest applicable to savings bank deposit pending renewal / discharge and the balance overdue interest
         is accounted for at the time of renewal.

4.         INVESTMENTS:

         Investments are classified under the heads “Held to Maturity”, “Available for Sale” and “Held for
         Trading” categories and are valued in accordance with the RBI guidelines. The value of Investments
         stated in the Balance Sheet is net of depreciation. The excess of acquisition cost over the face value of
         securities under “Held to Maturity” category is amortised over the remaining period to Maturity.
         Provision for non-performing investments is made as per RBI guidelines.


                                                          F -55
5.    ADVANCES:

     All outstanding advances are reviewed and classified under 4 categories namely

     a)    Standard Assets
     b)    Sub-Standard Assets
     c)    Doubtful Assets and
     d)    Loss Assets

     Provision for Non-performing and Standard Advances is made on the basis of asset classification and
     provisioning requirement over and above the prudential norms laid down by the Reserve Bank of India.
     Advances shown in the Balance Sheet are net of provisions (including Floating Provision) for Non
     Performing Advances and unrealised interest.

6.    FIXED ASSETS

     Premises and other fixed assets are shown at cost as reduced by depreciation written off to date.
     Software is capitalised along with computer and included under Other Fixed Assets.

7.    DEPRECIATION:

     Depreciation on fixed assets is provided on written down value method as per the rates and in the
     manner specified under Schedule –XIV of the Companies Act 1956, except in respect of computers
     (including software) where depreciation is provided at a flat rate of 33.33 % as per RBI guidelines
     which is more than the amount required under Schedule–XIV of the Companies Act 1956. Depreciation
     on assets is purchased is computed for the entire month in which the asset is capitalised, and on assets
     sold/scrapped, up to the end of the month in which it is sold/scrapped. Depreciation of leased assets is
     calculated so as to spread the depreciable amount over the primary lease period as per RBI guidelines.
     Carrying amount of assets is reviewed at each balance sheet date for indication of impairment if any. An
     impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable value.

8.    FOREIGN CURRENCY TRANSACTIONS:

      a)     Foreign currency transactions of FCNR/EEFC/RFC accounts are re-valued at the closing spot
             rates on the Balance Sheet date as published by Foreign Exchange Dealers Association of India
             (FEDAI).

     b)      Transactions other than FCNR/EEFC/RFC accounts: -

     Foreign currency balances both under Assets and Liabilities and outstanding Forward Exchange
     Contracts and Swaps are evaluated at the published by FEDAI as on the Balance Sheet Date. The
     resultant profit/loss is shown as Income/Loss.

     The Gain or Loss on a trading forward exchange contract is computed by multiplying the forward rate
     available on the reporting date for the remaining maturity period of the contract, and the difference
     between that amount and the contracted forward amount is recognised as profit or loss for the period.

     Revenue items are translated at the exchange rates ruling on the dates of transactions.

     Contingent liabilities on account of acceptances, endorsements and other obligations including
     guarantees and letters of credit issued in foreign currencies are valued at the closing spot rates published
     by FEDAI as on the Balance Sheet Date.


                                                      F -56
9.        STAFF BENEFITS:

        Retirement benefits like Gratuity, Pension, Leave encashment, leave fair concession etc., are made on
        estimated basis.

10.       INCOME TAX :

        The Provision for tax comprises of current tax and deferred tax.

11.       SHARE ISSUE EXPENSES:

        Share issue expenses are adjusted from share premium account.

12.       EMPLOYEE STOCK OPTION:

        Employee Stock Option (ESOP) is valued by using the “Intrinsic Value Method” to account for
        compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by
        which the quoted market price of the underlying shares exceeds the exercise price of the options.

13.       SEGMENT REPORTING:

        (i)      The Business Segment is the Primary Reporting Segment and Geographical Segment is Secondary
                 Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard
                 17.

        (ii)     The Business Segment is classified into (a) Treasury (b) Corporate and Wholesale Banking, (c)
                 Retail Banking and (d) Other Banking Operations.


        (iii)    The Geographical Segment consists only of the Domestic Segment, as the Bank does not have any
                 foreign branches.


14.       NET PROFIT

        The net profit disclosed in the Profit & Loss Account is after making necessary provisions for taxes,
        NPA, Standard Advances, and Investments without recognising unrealised interest on Non-Performing
        Assets as per RBI guidelines.



SCHEDULE – 18 – NOTES ON ACCOUNTS:

1.    The Working results for the period ended September 30, 2010 have been arrived at after considering
      provision for loan losses, depreciation on investments and fixed assets on actual basis. The bank has
      made provisions for various employee benefits like pension, gratuity, etc on an estimated basis. The
      impact of additional liability on (i) pension benefits arising on account of the 9th Bipartite settlement
      and (ii) the amendment made to the Payment of Gratuity Act, 1972 has been estimated and amortized
      over a period of 5 years on pro-rata basis. Provision for Income-tax and other contingencies are on an
      estimated basis subject to adjustment if any.



                                                        F -57
2.   The Bank has implemented the decision taken at the meeting of State Level Bankers’ Committee
     (SLBC), Karnataka held on 29.09.2010 to restructure eligible advances under Coffee Debt Relief
     Package 2010 and treat them as Standard assets pending receipt of clarifications /directions from
     Reserve Bank of India in this regard.

3.   Corresponding previous period figures have been regrouped / rearranged wherever necessary.




                                                     F -58
                                       MATERIAL DEVELOPMENTS

Our Bank has filed its unaudited financial results for the nine months and quarter ended December 31, 2010
with the Stock Exchanges in accordance with the requirements under clause 41 of the listing agreement.


                                            Limited Review Report


The Board of Directors
The Karnataka Bank Ltd
Mangalore 575 002
We have reviewed the accompanying interim statement of unaudited financial results of ‘The Karnataka Bank
Limited’ (the “Bank”) for the quarter/nine months period ended 31-12-2010, except for disclosures regarding
‘Public Shareholding’ and ‘Promoter and Promoter Group Shareholding’, which have been traced from
disclosures made by the management and have not been audited by us. This statement is the responsibility of the
Bank’s Management and has been approved by the Board of Directors. Our responsibility is to express a
conclusion on these interim financial results based on our review.
We conducted our review in accordance with the Standard on Review Engagement (SRE) 2410, “Review of
Interim Financial Information Performed by the Independent Auditor of the Entity”, issued by the Institute of
Chartered Accountants of India (ICAI). A review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on
Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
In the conduct of our review, we have relied on the reports received from concurrent auditors of 92 branches.
These reports cover 74.93% percent of the advances portfolio of the bank. Apart from these reports, in the
conduct of our review, we have also relied upon various returns received from the branches of the bank and on
the various information/explanations provided to us.
Attention is drawn to Note No. 3 relating to accounting of liability for certain ‘Employee Retirement Benefits’,
pending receipt of clarifications/guidelines from the Reserve bank of India.
Based on our review as above, nothing has come to our attention that causes us to believe that the accompanying
interim statement of unaudited financial results prepared in accordance with applicable Accounting Standards
issued by the Institute of Chartered Accountants of India and other recognized accounting practices and policies:
(i)      has not disclosed the information required to be disclosed in terms of Clause 41 of the Listing
         Agreement including the manner in which it is to be disclosed; or
(ii)     that it contains any material misstatement; or
(iii)    that it has not been prepared in accordance with the relevant prudential norms issued by the Reserve
         Bank of India in respect of income recognition, asset classification, provisioning and other related
         matters.
for Vishnu Daya & Co.,                                                 for R. K. Kumar & Co.,
Chartered Accountants                                                  Chartered Accountants
Firm Regn. No: 008456S                                                 Firm Regn. No: 001595S


(Venkatesh Kamath S V)                                                 (B. R. Ashok)
Partner                                                                Partner
Membership No: 202626                                                  Membership No: 023313

Place: Bangalore
Date: January 24, 2011



                                                          65
                KARNATAKA BANK LTD, REGD & HEAD OFFICE: MANGALORE 575002

       UNAUDITED QUARTERLY FINANCIAL RESULTS FOR THE QUARTER ENDED 31.12.2010


                                                                                         (Rs in crores)

                                                            UNAUDITED                             AUDITED

                                               Quarter ended              Nine months ended       Year Ended

                                             31.12.2010    31.12.2009    31.12.2010 31.12.2009      31.03.2010
1     Interest Earned (a+b+c+d)                 603.14         527.62      1719.61     1499.27            2043.42

a)    Interest/Discount on advances/bills       432.14         366.26      1212.43     1021.32            1388.98

b)    Income on Investments                     164.65         161.10       491.51      477.05             633.46

c)    Interest on balances with Reserve            0.11           0.02        0.49        0.51               0.58
      Bank of India and other inter bank
      funds

d)    Others                                       6.24           0.24       15.18        0.39              20.40

2     Other Income                               65.31          62.19       197.58      248.12             311.26

3     TOTAL INCOME (1+2)                        668.45         589.81      1917.19     1747.39            2354.68

4     Interest expended                         441.72         424.46      1299.64     1294.15            1707.79

5     Operating expenses (i+ii)                 113.89          95.65       353.60      285.24             386.05

i)    Employees Cost                             67.79          55.33       207.94      159.38             206.80

ii)   Other operating expenses                    46.10         40.32       145.66      125.86             179.25
6     TOTAL EXPENDITURE             ((4+5)      555.61         520.11      1653.24     1579.39            2093.84
      excluding      provisions         &
      Contingencies)

7     Operating Profit before provisions &      112.84          69.70       263.95      168.00             260.84
      contingencies (3-6)

8     Provisions (other than tax) and            53.80          64.17       125.63       86.91              71.08
      Contingencies

9     Exceptional Items                                0            0            0            0                0

10    Profit (+)/Loss (-) from Ordinary          59.04            5.53      138.32       81.09             189.76
      Activities before tax (7-8-9)

11    Tax Expense                                20.45          -31.08       24.53      -11.93              22.64




                                                  66
                                                            UNAUDITED                            AUDITED

                                                Quarter ended            Nine months ended       Year Ended

12     Net Profit (+)/Loss (-) from               38.59          36.61    113.79      93.02           167.12
       Ordinary activities after Tax (10-11)

13     Extraordinary Items (net of tax                  0            0         0             0                0
       expense)

14     Net Profit (+)/Loss (-) for the period     38.59          36.61                93.02           167.12
                                                                          113.79
       (12-13)

15     Paid up equity share capital              134.42         121.85    134.42     121.85           133.99
       (Face Value Rs 10/-)

16     Reserves excluding revaluation                                                        -       1698.76
       reserves (as per balance sheet of
       previous accounting year)

17     Analytical Ratios

i)     Percentage of shares        held   by        Nil            Nil        Nil       Nil              Nil
       Government of India

ii)    Capital Adequacy Ratio (%)
       i) Basel –I                                10.71          12.33      10.71     12.33            11.85
       ii) Basel – II                             11.37          12.67      11.37     12.67            12.37

iii)   Earning per share (EPS) (Rs)
                                                  2.88*          3.01*      8.48*     7.65*            13.50
       a) Basic EPS
                                                  2.87*          2.99*      8.46*     7.61*            13.45
       b) Diluted EPS
       before Extraordinary items (net of
       Tax expense)
                                                  2.88*          3.01*      8.48*     7.65*            13.50
       b) ) Basic EPS                             2.87*          2.99*      8.46*     7.61*            13.45
            Diluted EPS
       after Extraordinary items (net of
       Tax expense)
       * Not Annualized

iv)    NPA Ratios as on date
       a) Gross NPA                              637.91         612.27     637.91     612.27          549.64
                                                 191.22         233.15     191.22     233.15          188.61
          Net NPA
                                                   3.83           4.50       3.83       4.50            3.73
       b) % of Gross NPA                           1.18           1.76       1.18       1.76            1.31
                                                   0.54           0.58       0.54       0.51            0.67
          % of Net NPA




                                                   67
                                                                      UNAUDITED                                 AUDITED

                                                        Quarter ended                Nine months ended         Year Ended

18        Public Shareholding
                                                     134406767       121835718 134406767 121835718               133976322
          -No of Shares                                  100%            100%      100%      100%                    100%
          -Percentage of Share holding


19        Promoters and Promoter group
          shareholding
          a) Pledged /encumbered
          -Number of shares                                   NA             NA           NA            NA                NA
          - Percentage of shares(as a % of the
          total shareholding of promoter and                  NA             NA           NA            NA                NA
          promoter group)
          -Percentage of shares (as a % of the
          total share capital of the company.                 NA             NA           NA            NA                NA


          b) Non-encumbered
          -Number of shares
          - Percentage of shares(as a % of the                NA             NA           NA            NA                NA
          total shareholding of promoter and
          promoter group)                                     NA             NA           NA            NA                NA
          -Percentage of shares (as a % of the                NA             NA           NA            NA                NA
          total share capital of the company.

     Notes forming part of the un-audited quarterly financial results for the quarter ended 31.12.2010
     1.       The above interim financial results have been reviewed by the Audit Committee of the Board and
              approved by the Board of Directors in their meeting held on January 24, 2011. The same has been
              subjected to limited review by the Statutory Central Auditors of the Bank.

     2.       To the extent applicable to the interim financial reporting, the bank has consistently followed the same
              accounting policies and generally accepted practices adopted for the preparation of audited financial
              statements for the year ended March 31, 2010.

     3.       The above interim financial results have been arrived at after considering the provision for loan losses,
              depreciation on investment and fixed asset on actual basis. Provision for various employees retirement
              benefits like pension, gratuity etc., have been made on an estimated basis. The impact of additional
              liability on (i) Pension benefits arising on account of the 9th Bipartite settlement, and (ii) the
              enhancement in the limits made vide amendment to the Payment of Gratuity Act 1972., has been
              estimated and amortized over a period of 5 years on pro-rata basis pending issuance of relevant
              guidelines by the Regulatory authorities. Provision for income tax and other contingencies are on an
              estimated basis and are subject to adjustments, if any.

     4.       The Bank’s operations have been categorized under identified four business segment viz, Treasury,
              Corporate and wholesale banking, Retail Banking, and Other Banking Operations. The Geographic
              Segment consists of the Domestic Segment only as the Bank does not have any foreign branch. The
              Segment results are annexed.




                                                            68
5.      Status of shareholder complaints is as under.

          Complaints pending at     Complaints received      Complaints redressed    Complaints pending at
           the beginning of the      during the quarter       during the quarter     the end of the quarter
                 quarter
                   Nil                       36                      36                       Nil


6.      Corresponding previous period figures have been regrouped/ rearranged wherever necessary.

                                                                                     By order of the Board

Place: Bangalore
Date: 24 January 2011                                                                P Jayarama Bhat
                                                                                Managing Director & C.E.O.




                                                        69
                         Segment wise Results for the quarter ended 31.12.2010
                                                                                            (Rs in crores)
                 Business Segments                3 months   3 months         9 months 9 months          Year
                                                    ended       ended           ended     ended         ended
                                                 31.12.2010 31.12.2009       31.12.2010 31.12.2009 31.03.2010

Segment Revenue

Treasury                                                  188.79    182.39       559.95     622.59     808.29

Corporate /Wholesale Banking                              257.32    149.10       686.44     487.09     661.29

Retail Banking                                            209.91    247.06       628.28     606.53     839.41

Other Banking Operations                                   12.43     11.26        42.52      31.18      45.69

Total                                                     668.45    589.81      1917.19    1747.39    2354.68

Segment Results

Treasury                                                  -48.35    -48.45       -118.14    -62.09     -77.68

Corporate /Wholesale Banking                               46.06    -42.90        64.17     -48.80     -51.35

Retail Banking                                             56.95     93.79       174.54     182.70     303.14

Other Banking Operations                                   10.42      8.79        34.80      25.63      37.88

Total                                                      65.08     11.23       155.37      97.44     211.99

Unallocable expenses                                        6.04      5.70        17.05      16.35      22.23

Profit before tax                                          59.04      5.53       138.32      81.09     189.76

Capital Employed

(a)Treasury Operations                                    869.25    787.29       869.25     787.29     858.26

(b)Corporate Banking                                      618.44    526.57       618.44     526.57     594.64

(c)Retail Banking                                         460.81    350.77       460.81     350.77     379.34

(d) Other Banking Operations                                1.30      0.12          1.30      0.12       0.51

Total

Part B - Geographic Segments (*)                      1949.80      1664.75      1949.80    1664.75    1832.75

(*)There is only one segment i.e. Domestic segment




                                                     70
                  STOCK MARKET DATA FOR EQUITY SHARES OF OUR BANK

Our Bank’s Equity Shares are listed on the BSE and the NSE. As our Bank’s Equity Shares are actively traded
on the BSE and NSE, stock market data has been given separately for BSE and NSE only.

The monthly high and low price of shares of our Bank traded at the BSE and NSE during the past six
months are stated below:

BSE


       Month             High (Rs.)           Date of High            Low (Rs.)           Date of Low
August, 2010                   178.60            August 19, 2010          168.10            August 30, 2010
September, 2010                182.45         September 29, 2010          170.75         September 21, 2010
October, 2010                  191.35           October 11, 2010          177.15           October 20, 2010
November, 2010                 205.50         November 10, 2010           158.85         November 26, 2010
December, 2010                 176.35         December 02, 2010           144.15         December 09, 2010
January, 2011                  164.50           January 03, 2011          133.35           January 31, 2011
(Source: www.bseindia.com)

NSE


       Month             High (Rs.)           Date of High            Low (Rs.)           Date of Low
August, 2010                   178.50            August 19, 2010          168.00            August 30, 2010
September, 2010                182.95         September 29, 2010          170.30         September 21, 2010
October, 2010                  191.10           October 11, 2010          176.55           October 20, 2010
November, 2010                 205.55         November 10, 2010           158.65         November 26, 2010
December, 2010                 176.70         December 02, 2010           144.20         December 09, 2010
January, 2011                  164.45           January 03, 2011          133.85           January 31, 2011
(Source: www.nseindia.com)

The high and low closing prices recorded on the BSE and NSE for the preceding three years are stated
below.

BSE

      Fiscal Year          High (Rs.)             Date of High             Low (Rs.)         Date of Low
          2010                  168.85             October 20, 2009              68.35         April 1, 2009
          2009                  212.25                  May 5, 2008              55.90        March 9, 2009
          2008                  276.00             February 5, 2008             163.15       April 23, 2007
(Source: www.bseindia.com)

NSE

      Fiscal Year          High (Rs.)             Date of High             Low (Rs.)         Date of Lows
          2010                  169.20             October 20, 2009              67.95         April 1, 2009
          2009                  213.00                  May 5, 2008              56.20        March 9, 2009
          2008                  276.25             February 5, 2008             163.60        April 23, 2007
(Source: www.nseindia.com)

The closing price of our Equity Shares as on August 2, 2010 (the trading day immediately following the day on
which the Board resolution was passed approving the Rights Issue) was Rs. 169.95 on the BSE and Rs. 170.00
on the NSE.




                                                     71
Week end prices of Equity Shares of our Bank for the last four weeks on BSE and NSE along with the highest
and lowest price are as below:

                       BSE                                             NSE
                         Closing         Highest           Lowest        Closing       Highest           Lowest
   Week ended on          Price           Price             Price         Price         Price             Price
 February 11, 2011          118.85          119.90            111.80        119.00        119.90            111.30
 February 04, 2011          122.40          128.15            121.55        122.00        128.20            121.30
 January 28, 2011           138.10          139.40            132.50        137.65        139.70            132.05
 January 21, 2011           149.95          153.85            149.50        149.75        153.45            149.20

Note: High/Low prices based on closing quotations of BSE & NSE (Source: www.bseindia.com and
www.nseindia.com)

The market capitalization of our Equity Shares as on December 31, 2010 was Rs. 2,212.34 crores on the BSE
based on a market price of Rs. 164.60 and the market capitalization of our Equity Shares on the NSE was Rs.
2,213.01 crores based on a market price of Rs. 164.65.

The Issue price of Rs. 85/- has been arrived at in consultation between our Bank and the Lead Manager.




                                                      72
                                   LEGAL AND OTHER INFORMATION

Except as described below, there are no outstanding litigations, suits, civil or criminal prosecutions, proceedings
before any judicial, quasi-judicial, arbitral or administrative tribunals, including pending proceedings for
violation of statutory regulations or, alleging criminal or economic offences or tax liabilities or any other
offences (including past cases where penalties may or may not have been awarded and irrespective of whether
they are specified under paragraph (i) of Part 1 of Schedule XIII of the Companies Act) against our Bank and
our Directors that would have a material adverse effect on our business. Further there are no defaults, non-
payments or overdue of statutory dues, institutional/bank dues and dues payable to holders of debentures, bonds
and arrears of cumulative preference shares that would have a material adverse effect on our business. Further,
none of our directors are on the RBI’s list of willful defaulters.

Summary of total Litigation against our Bank as of December 31, 2010:

  Sl.                         Brief Description                                  No. of Cases       Amount Involved
 No.                                                                                                 (Rs. in Crores)
 1.   Proceedings filed against our Bank on disputed tax claims                              35                 243.55
 2.   Suits involving our Bank which are not acknowledged as debts.                          81                  31.71
 3.   Criminal proceedings against our Bank                                                  12        Not quantifiable
 4.   Labour cases against our Bank                                                          28                    0.01
Summary of total Litigation by our Bank as of December 31, 2010:

  Sl.                             Brief Description                              No. of Cases      Amount Involved
 No.                                                                                                (Rs. in Crores)
 1.       Suits filed by our Bank against defaulting borrowers.                           5,517                261.94
 2.       Proceedings filed by our Bank on disputed tax claims.                              13                 17.78

In view of our Bank, all outstanding civil, labour, consumer and tax related litigations and disputes of value
more than Rs. 18.32 Crores are material to our Bank. As on December 31, 2010, our Bank had the following
litigation, suits, and cases pending before various courts and authorities. In terms of the Schedule VIII Part E
(XII) of the SEBI ICDR Regulations, the following legal proceedings have been disclosed:

I.        Litigation involving our Bank as on December 31, 2010

A.        Outstanding proceedings initiated against our Bank

(i)       Criminal Proceedings

Sr.        Forum              Filed by                  Brief Particulars             Quantum        Current Status
No.                                                                                    (Rs. in
                                                                                       Crores
                                                                                      approx.)
1.      Judicial          Mr. V.D. Souza      The Complainant had filed a               NA         The    matter    is
        Magistrate,       (“Complainant”)     complaint dated August 30, 2000                      pending before the
        First    Class,                       against the Bank under Sections                      Court of Judicial
        Belur                                 409, 418 and 420 of the IPC with                     Magistrate     for
        C.C        No.                        the Judicial Magistrate alleging that                evidence.
        441/2002                              proceeds of a cheque that he had
                                              deposited in his account with the
                                              Bikkodu branch of the Bank were
                                              not credited to his account.

                                              The Judicial Magistrate, by an order
                                              dated July 20, 2002, issued
                                              summons to the Bank.

                                              The Bank’s Bikkodu branch filed a
                                              Criminal Revision Petition No

                                                        73
Sr.      Forum              Filed by                Brief Particulars               Quantum     Current Status
No.                                                                                  (Rs. in
                                                                                     Crores
                                                                                    approx.)
                                           3612/2002 in the Karnataka High
                                           Court for quashing the proceedings
                                           initiated by the Complainant. The
                                           High Court, by an order dated
                                           January 22, 2008, remanded the
                                           matter back to the Judicial
                                           Magistrate,     asking     him     to
                                           reconsider the matter and pass a
                                           fresh order.
2.    Additional        Mr.      Tukaram   The Complainant deposited his              N.A.     The Supreme Court
      Judicial          Anantha Shet       property deeds as co-obligation                     has stayed further
      Magistrate,       (“Complainant”)    towards credit facilities obtained by               proceedings in the
      First    Class,                      a trading firm. Due to irregularities               matter
      Sagar                                in the account, the dues were paid
      C.C        No.                       by the Manager, the account closed,
      229/2000                             and the loan documents assigned to
                                           the Manager, following which the
                                           Complainant filed a complaint
                                           dated June 27, 1998 against Sri.
                                           Sridhar Jois K.S (the then Branch
                                           Manager of Sagar Branch) and two
                                           others under Sections 406 and 420,
                                           read with Section 34 of the IPC
                                           alleging that the assignment of the
                                           loan was fraudulent.

                                           Sri. Sridhar Jois K.S filed a revision
                                           petition before the Karnataka High
                                           Court to quash the order of the
                                           Judicial      Magistrate        taking
                                           cognizance of the matter in this
                                           matter which was dismissed.

                                           Against this order, a Special Leave
                                           petition was filed before the
                                           Supreme Court on August 20, 2009
                                           (SLP(Crl) No 9204/2009).
3.    Railway           Mr.       Vishnu   In the year 1995, a portion of the         N.A.     The case is pending
      Mobile Court,     Mordani            office premises in Andheri,                         before the Railway
      Andheri,          (“Complainant”)    Mumbai measuring 288 sq. ft. used                   Mobile Court
      Mumbai                               as a record room by the Bank and
      C.C.      No.                        forming a portion of Gala No.101
      2064/S/2000                          was sold to the Complainant under
                                           a      sale   agreement       (“Sale
                                           Agreement”).      In    the     Sale
                                           Agreement, the portion of premises
                                           sold was referred to as ‘Record
                                           Room’ and the Gala Number of
                                           which it formed a part was not
                                           mentioned.

                                           The Manish Nagar Shopping Centre
                                           Premises    Cooperative     Society
                                           Limited which was approached by
                                           the Complainant for membership of
                                           the Society has denied the same on

                                                    74
Sr.      Forum              Filed by                Brief Particulars              Quantum      Current Status
No.                                                                                 (Rs. in
                                                                                    Crores
                                                                                   approx.)
                                           the ground that the premises does
                                           not have an independent Gala
                                           Number.

                                           The Complainant filed a criminal
                                           complaint dated October 11, 2000
                                           against the Bank and its officials
                                           (the     “Respondents”)     under
                                           Sections 405, 406, 409 and 420 of
                                           the IPC before the Railway Mobile
                                           Court.

                                           The Respondents filed discharge
                                           application/s before the Railway
                                           Mobile Court.
4.    Judicial          Chitrakala         The Bank’s Udupi branch had               N.A.     The       Karnataka
      Magistrate,       Investment Trade   granted     credit     facilities  to              High Court has
      First Class,      & Business &       Commercial Corporation of India                    stayed           the
      Udupi             Finance Ltd.       Ltd. on various securities, including              proceedings     and
      C.C. 34/2004      (“Complainant”)    a corporate guarantee of the                       the    matter      is
                                           Complainant. Upon breach of the                    currently pending.
                                           repayment terms, the Bank realized
                                           the security and liquidated the
                                           shares of the Complainant pursuant
                                           to which the Complainant filed a
                                           complaint dated July 31, 2003
                                           against the Bank and two of its
                                           officials    (the   “Respondents”)
                                           under Sections 406, 409, 306, 420
                                           and 34 of the IPC alleging breach
                                           of trust and cheating.

                                           The Bank officials filed a Writ
                                           Petition No. 2024/2005 before the
                                           Karnataka High Court to quash the
                                           complaint which was dismissed by
                                           the High Court.

                                           The Bank has filed a Writ Appeal
                                           No 1590/2007 before the High
                                           Court and the High Court has
                                           stayed proceedings in the matter.
5.    Judicial          Mr.     Jaichand   The Complainant mortgaged his             N.A.     Matter pending for
      Magistrate        Keswani            property as co-obligant to credit                  hearing before the
      First    Class,   (“Complainant”)    facilities granted by the Bank to                  Judicial Magistrate
      Kalyan                               Mr.       K.    Sethuraman.     Mr.                for hearing of
      C.C         No                       Sethuraman defaulted in repayment                  discharge
      60/2006                              of his overdraft facilities and had                application.
                                           absconded, which was brought to
                                           the notice of the Bank by the
                                           Complainant, who requested the
                                           Bank to thus cancel his guarantee.
                                           Upon refusal of the Bank to do so,
                                           the complainant filed a complaint
                                           dated March 14, 2005 against the
                                           Bank the then Branch Head and

                                                    75
Sr.      Forum             Filed by                 Brief Particulars             Quantum      Current Status
No.                                                                                (Rs. in
                                                                                   Crores
                                                                                  approx.)
                                           three others (the “Respondents”)
                                           under Sections 193, 420, 421, 426,
                                           468 and 477A of the IPC.

                                           The then Branch Head, Sri. Suhas
                                           Ganpat Rao Talageri, has filed a
                                           discharge application before the
                                           Court of Judicial Magistrate.
6.    Additional       Jagdish             The Bank had advanced credit             N.A.     The     proceedings
      Chief Judicial   (“Complainant”)     facilities to the Complainant’s firm              have been stayed
      Magistrate,                          against properties as security. Upon              by the High Court
      Dharwad                              default by the Complainant’s                      of Karnataka and
      P.C.R.     No.                       company, the Bank initiated                       the    matter     is
      334/2006                             recovery proceedings under the                    currently pending.
                                           SARFAESI Act upon which the
                                           Complainant filed a complaint
                                           dated October 27, 2006 against Sri.
                                           V.N.Manohar then Regional Head
                                           of Hubli, M.R.Girish then Branch
                                           Manager and seven other Bank
                                           officials of the Branch under
                                           Sections 120A, 191, 192, 420, 425,
                                           463 and 468 of the IPC alleging
                                           cheating and fraud in the recovery
                                           proceedings initiated by the Bank.

                                           The Bank has filed a Writ Petition
                                           before the Karnataka High Court to
                                           quash the complaint filed.
7.    Additional       P.D. Devendranath   The Complainant filed a complaint        N.A.     The Bank has taken
      Chief            (“Complainant”)     dated June 5, 2007 against Sri.                   a stand that there is
      Metropolitan                         Vikram      Rajwade      (dismissed               no fraud and the
      Magistrate,                          employee), Mr. Krishna Bhat then                  deposits        were
      Bangalore                            Branch Manager and another under                  adjusted to the
      C.C.       No.                       Sections 420 and 34 of the IPC                    deposit loans of the
      7474/2009                            alleging that an employee and the                 Complainant. The
                                           Manager of the Bank had                           matter is pending
                                           perpetrated       fraud         and               before           the
                                           misappropriated his deposits in the               Magistrate’s Court,
                                           Bangalore (Malleshawaram) branch                  awaiting the order
                                           of the Bank.                                      of the Karnataka
                                                                                             High Court.
                                           The Magistrate issued process
                                           against two of the accused, viz. Mr.
                                           Vikram Rajwade (dismissed since
                                           then) and Mr. Krishna Bhat
                                           (Manager,                 Bangalore-
                                           Malleshawaram               Branch)
                                           (“Order”). Mr. Krishna Bhat filed
                                           a petition to set aside the Order in
                                           the Karnataka High Court. The
                                           High Court has stayed the
                                           proceedings in the matter.




                                                    76
Sr.      Forum              Filed by                 Brief Particulars             Quantum      Current Status
No.                                                                                 (Rs. in
                                                                                    Crores
                                                                                   approx.)
8.    IInd              Mrs. Gracy Emilda   The Complainant filed a complaint        N.A.     The case is pending
      Additional        Mascarenhas         dated October 30, 2003 against Mr.                before the court.
      Chief Judicial    (“Complainant”)     Ravindra Bagalody, the then
      Magistrate,                           Branch Head of Balmatta Road-
      Mangalore                             Mangalore and six others under
      C.C.        No                        Sections 406, 386, 506(ii) 418, 420,
      No. 215/2005                          120B R/w Sec 34 of IPC alleging
                                            that Sri. Ravindra S. Baglodi, (then
                                            Branch Manager) has conspired,
                                            connived and abetted in creating
                                            fake document and fabricated
                                            records with sole intention of
                                            causing wrongful loss to the
                                            Complainant.
9.    Judicial          Mr. Om Prakash      The Complainant filed a complaint        N.A      The     matter    is
      Magistrate        Sarjuprasad         dated August 25, 2004 against the                 currently pending.
      First    Class,   Mishra              Bank and Sri Suhas Ganapat Rao
      Kalyan.           (“Complainant”)     Talageri the then Branch Manager
      C.C         No                        under Sections 196, 198, 211, 406,
      413/2004                              500 read with Section 34 of the IPC
                                            before the Court of Judicial
                                            Magistrate, Kalyan alleging that the
                                            Bank filed a false criminal
                                            complaint       being      Criminal
                                            Complaint No 271/2004 against
                                            him to defame him.

                                            It was further alleged that the Bank
                                            flouted all RBI rules and
                                            regulations before giving credit
                                            facility to him and alleged that he
                                            did not give consent/NOC to
                                            mortgage his property.
10.   Judicial          Dr. Nirmal          The Complainant has filed a              N.A      The      case      is
      Magistrate,       Prakash narain      criminal complaint dated July 17,                 currently pending
      Patna             (“Complainant”)     2010 against the Bank, non-                       before the court of
                                            executive Chairman of the Bank,                   judicial magistrate.
      C.C NO                                Managing Director of the Bank
                                            and four Independent Directors of
      1660/2010                             the Bank, the then Regional Head
                                            of Bangalore Region Bank                          Further,     The
                                            officials then Branch Head of                     quashing
                                            Bangalore-Bellhandur         Branch.              application filed
                                            Patel group of institutions and Sri.              before the High
                                            S.N.Ramdas (the “Respondents”)                    Court is yet to
                                            under Sections 420, 406, 467, 468,                come up for the
                                            471 and 120 B of IPC against the                  hearing.
                                            Bank before the Court of Judicial
                                            Magistrate, Patna.

                                            The Complainant has alleged that
                                            an account payee demand draft
                                            dated May 29, 2009 purchased by
                                            him for Rs. 6,53,785 at Union
                                            Bank of India, Patna in favour of
                                            Registrar,    RGUHS, (Rajeev

                                                     77
Sr.      Forum             Filed by               Brief Particulars             Quantum     Current Status
No.                                                                              (Rs. in
                                                                                 Crores
                                                                                approx.)
                                         Gandhi University of Health
                                         Science)       Bangalore,      was
                                         fraudulently credited in the
                                         account         of        Director,
                                         Administration, Patel Group of
                                         Institution on July 9, 2009 at the
                                         Bank’s Bangalore - Bellandur
                                         branch and its proceeds were
                                         withdrawn.

                                          The Complainant further alleged
                                         that   the    Bank    authorities,
                                         connivance with Shri. S.N.
                                         Ramdas, an employee of Patel
                                         group        of       Institutions
                                         misappropriated this amount by
                                         playing fraud upon him and they
                                         did the same for their wrongful
                                         gain and causing huge loss to the
                                         Complainant.

                                         The Bank filed a petition under
                                         Section 205 of Cr.P.C on August
                                         7, 2010 for dispensing of the
                                         requirement      of    a    personal
                                         appearance. The same was allowed
                                         on September 17, 2010.          The
                                         Bank, executives of the Bank and
                                         Directors of the Bank fhave filed
                                         Criminal              miscellaneous
                                         application under Sec-482 of CrPC
                                         to quash the proceedings of the
                                         trial court. The same is pending.
11.   Chief Judicial   S.K.Basavaraj     The Complainant filed a complaint      N.A        The     matter    is
      Magistrate       (“Complainant”)   dated July 11, 2006 against the                   currently pending.
      Court,                             Bank and other parties before the
      Davangere.                         First Additional Senior Civil Judge
                                         and J.M.F.C-1, Davangere on for
      CC No -                            offence under Sections 420, 422
      1174/2010                          read with Section 34 of the IPC. It
                                         was alleged by the Complainant
                                         that he deposited two cheques of
                                         Rs.12,800 and Rs.20,000 dated
                                         November 3, 2005 and November
                                         8, 2005 respectively (“Cheques”),
                                         drawn on Krishna Grahmina Bank,
                                         Bidar (“KGB Bank”) with UTI
                                         Bank which sent the same to the
                                         Bank for collection of the said
                                         amounts from KGB Bank.

                                         UTI Bank returned the Cheques to
                                         the Complainant along with the
                                         endorsement issued by the Bank
                                         stating that the Cheques were
                                         outdated. It was alleged by the

                                                  78
Sr.      Forum              Filed by                 Brief Particulars             Quantum       Current Status
No.                                                                                 (Rs. in
                                                                                    Crores
                                                                                   approx.)
                                            Complainant that he presented the
                                            Cheques within six months from
                                            the date of issue and the same were
                                            not outdated.
12.   Additional     Block Education        The Complainant had filed a            N.A         The     matter    is
      Chief          Officer, North         complaint against the Bank, its                    currently pending.
      Metropolitan   Range I,               officials and Others (“Other
      Magistrate     Malleswaram,           Accused”) on October 21, 2010.
      Court - IV,    Bangalore.             under Sections 465, 468, 471, 409,
      Nrupathunga    (“Complainant”)        420, 201 read with Sections 34 and
      Road,                                 37 of the IPC for misappropriation
      Bangalore.                            of funds.
      CC No -
      47966/2010                            It was alleged by the Complainant
                                            that during the year 1999 to 2001,
                                            some people prepared bogus salary
                                            bills of certain schools and forged
                                            signature of the Block Educational
                                            Officer,     North     Range      I,
                                            Malleswaram, Bangalore, received
                                            treasury cheques and withdrew the
                                            amount from the Bank. Further,
                                            the Complainant alleged that the
                                            Bank’s staff did not credit the
                                            amount in the related school’s
                                            bank account but credited the
                                            amount claimed through the bogus
                                            cheques to the accounts of other
                                            accused and helped the accused
                                            misuse the funds of the
                                            Government.

B.      Outstanding proceedings initiated by our Bank

(i)     Civil Proceedings

Sr.    Forum             Filed Against      Brief Particulars                  Quantum      Current Status
No.                                                                            (Rs. in
                                                                               Crores
                                                                               approx.)

1.     DRT,              LSP        Agro    LSP Agro Ltd (“Agro”), a                21.73   The matter is currently
       Coimbatore        Limited       v.   public     Limited    Company                   pending before the
       O.A. 38/2002      Karnataka          engaged in manufacture of                       DRT, Madurai
       dated May 2,      Bank Limited       vanaspathi, bakery shortening,
       2002              and Lakshmi        refining and trading of edible
       transferred to    Vilas      bank    oil applied for a loan from our
       DRT, Madurai      (“LVB”) (now       Bank.
       due to change     substituted by
       of jurisdiction   Kotak              Consortium consisting of our
                         Mahindra           Bank and LVB, wherein LVB
                         bank)              was the lead bank, sanctioned
                                            working capital loans under
                                            consortium arrangement on
                                            parripassu charge over the
                                            securities.

                                                     79
Sr.   Forum          Filed Against     Brief Particulars                    Quantum     Current Status
No.                                                                         (Rs. in
                                                                            Crores
                                                                            approx.)


                                       IDBI bank had also sanctioned
                                       term loans to Agro for purchase
                                       of        machineries.      The
                                       Consortium had second charge
                                       over the securities of Agro.
                                       Initially, Agro faced problem
                                       from labour and the Pollution
                                       Control Board. Thereafter,
                                       Agro expanded its unit by
                                       installing technically advanced
                                       machineries.

                                       Agro incurred heavy losses in
                                       business and became a NPA on
                                       June 4, 2001.

                                       On default of payment by Agro,
                                       our Bank and LVB filed joint
                                       application       before     DRT,
                                       Coimbatore for recovery of
                                       dues which got transferred to
                                       DRT, Coimbatore due change
                                       of territorial jurisdiction.
2.    DRT-II,        Roofit            Roofit      Industries     Limited       44.83   The DRT, Mumbai
      Mumbai         Industries Ltd.   (“RIL”), a Public Limited                        has stayed further
      O.A 35/2004    v.   Karnataka    Company           engaged       in               proceedings        on
                     Bank Limited      manufacture of AC sheets,                        account     of    the
                                       pipes and other building                         application of RIL
                                       materials, availed credit from                   pending before the
                                       consortium of Banks. The                         Board of Industrial
                                       Consortium consisted of our                      and          Financial
                                       Bank with eleven other banks.                    Reconstruction
                                                                                        (“BIFR”).

                                       On account of losses incurred
                                       by RIL, it closed down the unit
                                       for which the working capital
                                       loan was availed.

                                       On default of payment by RIL,
                                       the Consortium filed an
                                       application before the DRT,
                                       Mumbai on February 6, 2004
                                       for recovery of dues.
3.    DRT-III,       Brown Paper       Brown Paper Technologies                 38.10   The application is
      Mumbai         Technologies      Limited (“BPTL”), a Public                       currently   pending
      O.A 163/2008   Limited      v.   Limited Company, engaged in                      before the DRT-III.
                     Karnataka         manufacturing of specialty                       Mumbai.
                     Bank Limited      paper, availed working capital
                                       loan from the Consortium of                      State Industrial and
                                       Banks led by our Bank.                           Investment
                                                                                        Corporation       of
                                       On account of hike in the cost                   Maharashtra
                                       of raw materials, BPTL                           (“SICOM”), on behalf

                                                80
Sr.   Forum             Filed Against     Brief Particulars                   Quantum     Current Status
No.                                                                           (Rs. in
                                                                              Crores
                                                                              approx.)

                                          suffered losses and applied to                  of all the consortium
                                          BIFR for declaring it a sick                    members, has issued
                                          company. The BIFR, vide its                     demand notice dated
                                          order dated July 17, 2006,                      February 13, 2008 to
                                          declared BPTL a sick company.                   BPTL      under    the
                                                                                          SARFAESI Act.
                                          The rehabilitation proposal
                                          submitted by BPTL was
                                          rejected by the Consortium.

                                          Our Bank filed an application
                                          before the DRT-III, Mumbai for
                                          recovery of dues on August 14,
                                          2008.
4.    DRT-I,            Ventron           Ventron              Chemicals          36.24   The DRT, Mumbai
      Mumbai            Chemicals v.      (“Ventron”), a Public Limited                   allowed            the
      O.A 36/2008       Karnataka         Company,        engaged       in                application and issued
                        Bank Limited      manufacturing of specialty                      a recovery certificate
                                          chemicals used mainly in textile                on December 16,
                                          industry availed working capital                2009.
                                          loan from our Bank.
                                          On account of recession in the                  Recovery proceeding
                                          textile industry, the company                   is currently pending.
                                          was not able to recover its
                                          receivables in time and
                                          defaulted in payment of the
                                          loan.

                                          Our Bank has filed an
                                          application before the DRT-I on
                                          June 6, 2008 for recovery of
                                          dues.

5.    DRT-II,           Kalsaria          Bank of India, on behalf of the         60.97   The matter is pending
      Mumbai            Diamonds          Consortium Banks, filed a joint                 before the DRT-II,
      Allotment No:     Private Limited   application before the DRT-II,                  Mumbai.
      401/2010) filed   v.    Karnataka   Mumbai      against    Kalsaria                 The recovery action
      on August 16,     Bank Limited      Diamonds Private Limited                        initiated under the
      2010                                (“KDPL”).                                       SARFAESI Act is
                                                                                          under process.
                                          KDPL, a private limited
                                          company,       availed     credit
                                          facilities in the Mumbai
                                          overseas branch of our Bank
                                          and defaulted in payment,
                                          following which our Bank
                                          along with the Consortium
                                          members, filed an application
                                          for recovery of such dues.

                                          Proceedings        under   the
                                          SARFAESI Act 2002 have
                                          been     initiated    by   the
                                          Consortium lead bank on behalf
                                          of the consortium members

                                                   81
Sr.   Forum             Filed Against       Brief Particulars                  Quantum        Current Status
No.                                                                            (Rs. in
                                                                               Crores
                                                                               approx.)

                                           vide demand notice dated
                                           March 12, 2010 which is
                                           currently pending for obtaining
                                           orders/permission        under
                                           Section 14 of the SARFAESI
                                           Act by the DC/CMM Court.

                                           KDPL has filed a counterclaim
                                           in the matter.

C.    Other Litigations

1.    As on December 31, 2010, there are 188 civil cases (no claim against the bank) and 81 consumer
      complaints aggregating to Rs. 31.71 Crores and 3 counter claims aggregating to Rs. 23.04 Crores
      pending against our Bank.

2.    As on December 31, 2010, the Bank has filed 5,517 cases for recovery of Book Balance amounting to
      Rs. 261.94 Crores

3.    As on December 31, 2010, there are 28 cases involving labour, employment and industrial disputes that
      are currently pending in various forums. The total quantifiable amount is Rs. 0.01 Crores.

4.    There are 2 cases involving transfer of shares where the bank has been made a party and has been
      asked not to transfer shares involved in such disputes.

5.    Writ Petition filed by Smt Jayashree S. Chakkera against Karnataka Bank Employee Association and
      our Bank

      Smt Jayashree S. Chakkera (“Petitioner”) filed a Writ Petition bearing No. 13199/2006 in the High
      Court of Karnataka at Bangalore on September 17, 2006 under Article 226 of the Constitution of India
      against Karnataka Bank Employee Association (“KBEA”) and others alleging that the KBEA was
      collecting donations from the customers which was contrary to the circulars issued by the RBI. The
      petition was rejected by the Hon’ble High Court for want of demand preceding the prayer for writ of
      Mandamus. However, liberty was reserved to the Petitioner to approach the Hon’ble court again, if
      need arises.

      The Petitioner made representations to the RBI to direct the Bank to take appropriate actions against
      the KBEA and its office bearers. RBI issued a letter to the Bank and advised to issue administrative
      instructions and to investigate the allegations made by the Petitioner. The Petitioner also issued a letter
      to the Bank to initiate prosecution against the delinquent employees and office bearers. The Petitioner
      then filed a Writ Petition bearing No. 5654/2009 questioning the correctness of the communication
      issued by RBI to the Bank. A retired District and Sessions Judge was appointed to investigate into the
      allegation and to submit a report. The Writ Petition was disposed off directing RBI to consider the
      investigation report and act upon it. Being aggrieved by the order passed in Writ Petition bearing No.
      5654/2009, the Petitioner filed W.A. No. 326/2010 before the Division Bench of the Hon’ble High
      Court stating that the order was ineffective. During the hearing Petitioner sought leave of the Court to
      permit to withdraw the Writ Appeal with liberty to persue the remedy by way of public interest
      litigation. In view of the submission the Appeal is rejected with liberty as sought for.

      The Petitioner filed a Writ Petition as PIL bearing No 39510/2010 praying that: (1) a Writ of
      Mandamus be allowed directing RBI and the Bank to take steps to prosecute the KBEA and its office
      bearers; and (2) direction to confiscate the assets of the KBEA. The matter is currently pending.




                                                     82
D.          Securities Related Cases

            Our Bank was granted registration as a Banker to an Issue on January 23, 1995, for a period of three
            years. On expiry of the said registration, our Bank applied for renewal of the same. However, from the
            particulars submitted for the purpose, the Securities and Exchange Board of India (the “SEBI”) noticed
            that the Appellant had failed to comply with the requirements of regulation 14 of the SEBI (Banker to
            an Issue) Regulations, 1994 and referred the matter to the Adjudicating Officer for inquiry and
            adjudication vide its order dated March 31, 1998. The Adjudicating Officer vide his letter dated May
            21, 1998 asked our Bank to show cause as to why action should not be taken against it by way of
            imposing penalty in accordance with section 15B and section 15I of the Act, for contravention of the
            said regulation 14. Our Bank filed a written reply thereto and also made oral submissions before the
            Adjudicating Officer denying the charges. However, the Adjudication Officer after enquiry, came to
            the conclusion that our Bank was guilty of the charge and imposed a monetary penalty of Rs. 25,000/-
            vide his order dated November 9, 1998. In terms of Rule 9, our Bank was required to deposit the
            amount of penalty, as a precondition for entertaining the appeal. Our Bank challenged Adjudication
            Officer’s order before SAT which vide its order dated April 26, 1999 held that our Bank had complied
            with the requirements of regulation 14(1) and 14(2) while acting as Banker to the public issues and
            hence set aside the Adjudication Officer’s order imposing penalty.

E.          Show-cause notice issued by the RBI

            The RBI issued a show-cause notice to the Bank on November 9, 2010 which was received by the
            Bank on November 15, 2010 (“Notice-2”), wherein the Bank was called upon to show-cause why a
            penalty of Rs. 0.05 Crores for each contravention of the comprehensive guidelines on derivatives
            issued by the RBI (“Directions”) should not be imposed on it for irregularities in the manner in which
            certain derivative transaction(s) were entered into and monitored by it. During the annual financial
            inspection and scrutiny of derivative transactions, by the RBI, it was observed that:

       i.      The Bank failed to carry out due diligence regarding user appropriateness and suitability of products
               before offering derivative products to users which was in violation of the Directions;

      ii.      The Bank failed in documenting the process of determining the pricing and periodical evaluations
               and merely relied on Calyon Bank for pricing and valuation of products and did not have any
               system to measure, monitor, control and manage the risks in derivative transactions which was in
               violation of the Directions; and

     iii.      The Bank appears to have failed to comply with the requirements regarding restructuring of
               derivative products in as much as restructuring deals were not cash settled.

      The Bank responded to the Notice-2 on November 26, 2010 (“Reply-2”) praying that the proposal to
      impose penalty may be dropped and requested for a personal hearing in the matter. The Bank stated in the
      Reply-2 that it offered the derivative transactions to its customers of high repute only on their specific
      request and with back to back cover from counterparty bank (i.e. Caylon Bank). Further, the Bank stated
      that it has put in place various systems and procedures for managing and monitoring the derivative
      portfolio and conducts stress testing of both the default risk and the Mark-to-Market (“MTM”) at
      periodic intervals. Further, it was stated in the Reply-2 that the Bank has the expertise to predict the likely
      future market scenarios, which was sufficient to measure the risk in underlying transactions. Further, it
      was also clarified that the Bank has not restructured deals after the issue of circular by RBI on
      restructuring of derivative contracts in October 2008. Cancellation of deals was made by paying the
      termination price quoted by the counter party Bank.

      The Bank was granted a personal hearing for the subject matter of Notice-2 on December 15, 2010
      wherein the Bank has clarified their above stand to the RBI. The outcome of the Bank’s personal hearing
      with RBI is currently pending.

F.          Contingent Liabilities

The contingent liabilities not provided for as on September 30, 2010 (as disclosed in our Bank’s restated
standalone financial statements) are as set out below:


                                                          83
Contingent Liabilities                                                                 As on September 30, 2010
                                                                                            (Rs. in Crores)
Claims against the Bank not acknowledged as debts                                                            28.03
Liability on account of outstanding Forward Exchange Contacts*                                            6,163.67
Guarantees given on behalf of constituents
     a) In India                                                                                          1,024.34
     b) Outside India                                                                                             0
Acceptances, Endorsements & other Obligations                                                               724.95
Other items for which the bank is contingently liable                                                     1,345.61
Total                                                                                                     9,286.60
* Includes derivatives

G.         Working results

For Information relating to our Bank on sales, gross profit etc as required by the Ministry of Finance Circular
No F2/5/SE/76 dated February 5, 1977 read with amendments of even number dated March 8, 1977, please refer
to “Unaudited Financial Results for nine months ended December 31, 2010 prepared in accordance with the
requirements of the listing agreement” under the section titled “Material Developments” starting on Page no 65
of this Letter of Offer.

H.         In the opinion of the Directors of our Bank, there has not arisen any circumstances since the date of the
last financial statements as disclosed in this Letter of Offer which will materially and adversely affect or is
likely to affect the trading or profitability of our Bank, or the value of its assets, or our ability to pay our
liabilities within the next twelve months. However, we wish to draw attention to our Bank’s accounting
treatment with respect to the liability for certain ‘Employee Retirement Benefits’. The additional liability
relating to employee benefits viz (i) 2nd pension option arising on account of 9th Bipartite settlement and (ii) the
enhancement in ceiling limit for Gratuity payment to Rs 10 lakh w.e.f. 24.5.2010 has been estimated at Rs 255
crore and is being amortised over a period of 5 years pending issuance of clarifications/guidelines from the
Reserve bank of India.




                                                        84
                                         LICENSES AND APPROVALS

On the basis of the existing approvals, our Bank may undertake this Issue and our Bank's current business
activities and no further major approvals from any government authority/RBI are required to continue these
activities. Further, there is no new line of activity/project. It must be distinctly understood that, in granting these
licences, the Government and/or the RBI does not take any responsibility for our Bank's financial soundness or
for the correctness of any of the statements made or opinions expressed in this behalf.

Licenses applied and pending approval for existing business and expansion plans of our Bank

Our Bank has submitted an application bearing No HO:DEV:BEP:OR No. 1210/2010-11 dated August 11, 2010
to the Chief General Manager, Department of Banking Operations and Development, RBI, to obtain a license
for opening of 35 new branches in terms of Section 23 of the Banking Regulation Act, 1949 (“Application”).
The RBI vide its letter bearing no DBOD NO.BL. 11029/22.03.036/2010-11 dated January 14, 2011 has given
permission to our Bank for opening of 13 branches out of 35 branches within a period of 1 year from the date of
approval.




                                                          85
                               STATUTORY AND OTHER INFORMATION
Authority for the Issue
Pursuant to the resolution passed by the Board of Directors of our Bank under Section 81(1) of the Companies
Act at the meeting held on July 30, 2010 and the members of our Bank at the Extra-ordianry General Meeting
held on September 9, 2010, it has been decided to make the following offer to the Eligible Equity Shareholders
of our Bank, with a right to renounce.

Prohibition by SEBI
Neither our Bank, nor its Directors or companies with which our Bank’s Directors are associated with as
directors or promoters, have been prohibited from accessing or operating in the capital markets or restrained
from buying, selling or dealing in securities under any order or direction passed by SEBI.
Further neither our Bank, nor its Directors have been declared as willful defaulters by RBI or any other
governmental authority and there have been no violations of securities laws committed by them in the past or no
such proceedings are pending against them for violation of securities laws.

Securities Related Business
Given below are the details regarding our Directors/ Group/ Associate company/ entity of our Bank, and/ or
any company/ entity with which any of the above is associated as promoter/ director/ partner/ proprietor that is/
was associated with securities related business and registered with SEBI:
  1.      Name of our Director                                             Mr. R.V. Shastri
  2.      Name of the Entity                                               Religare Trustee Company Limited
  3.      a. Previously associated as                                      Independent director
          b. Currently Associated as                                       Independent director
  4.      Registration No. of companies which are / were registered        Religare     Mutual     Fund     –
          with SEBI                                                        MF/052/06/01 dated July 24, 2006
                                                                           under the SEBI (Mutual Funds)
                                                                           Regulations, 1996
  5.      If registration has expired, reasons for non renewal             Not applicable
  6.      Details of any enquiry/ investigation conducted by SEBI at       Not applicable
          any time
  7.      Penalty imposed by SEBI (Penalty includes deficiency /           In case of tv commercial of Religare
          warning letter, adjudication proceedings, suspension /           PSU Equity Fund, an open ended
          cancellation / prohibition orders)                               equity scheme, SEBI issued a show
                                                                           cause notice dated November 13,
                                                                           2009 to Religare Mutual Fund,
                                                                           Religare       Asset      Management
                                                                           Company Ld. (Religare AMC) and
                                                                           CEO of Religare AMC stating that
                                                                           the display and voice over for
                                                                           standard warning was less than 5
                                                                           seconds and was unintelligible.
                                                                           Religare AMC filed its responses
                                                                           with relevant supporting documents
                                                                           stating that display and voice over for
                                                                           standard warning in the TVC was 5
                                                                           seconds and intelligible. SEBI
                                                                           granted personal hearing before the
                                                                           Whole Time Member, SEBI. After
                                                                           considering the submission made by
                                                                           Religare     AMC, Whole Time
                                                                           Member, SEBI vide its order dated
                                                                           February 9, 2010 disposed of the
                                                                           proceeding initiated vide the show
                                                                           cause notice dated November 13,

                                                       86
                                                                         2009 with a direction to Religare
                                                                         Mutual Fund, Religare AMC and
                                                                         CEO of Religare AMC to abide
                                                                         strictly by the stipulations on
                                                                         advertisement by mutual funds,
                                                                         issued by SEBI from time to time,
                                                                         both in letter and spirit.
8.        Outstanding fees payable by SEBI by these persons/ entities,   Not applicable
          if any

     1.     Name of our Director                                       Mr. U. R. Bhat
     2.     Name of the Entity                                       Axis Asset Management Company
                                                                     Limited (Axis AMC)
     3.    a. Previously associated as                                 Not Applicable
           b. Currently Associated as                                  Independent Director
     4.    Registration No. of companies which are / were registered   SEBI       vide      letter    no.
           with SEBI                                                   IMD/NS/175723/2009          dated
                                                                       September 4, 2009 has granted
                                                                       approval to Axis AMC to act as the
                                                                       Asset Management Company for
                                                                       Axis Mutual Fund.

                                                                          Axis Mutual Fund is a registered
                                                                          intermediary with registration no.
                                                                          MF/061/09/02 dated September 4.

                                                                          Further, SEBI vide letter no.
                                                                          IMD/DOF 1/JN/189481/2010 dated
                                                                          January 4, 2010 has granted
                                                                          certificate of registration to Axis
                                                                          AMC to act as Portfolio Manager
                                                                          under SEBI (Portfolio Managers)
                                                                          Regulations        1993.       PMS
                                                                          Registration no. INP000003534
                                                                          dated January 4, 2010.

     5.    If registration has expired, reasons for non renewal           Not Applicable
     6.    Details of any enquiry/ investigation conducted by SEBI at     No enquiry/investigation conducted
           any time                                                       by SEBI at any time
     7.    Penalty imposed by SEBI (Penalty includes deficiency /         No penalty imposed by SEBI
           warning letter, adjudication proceedings, suspension /
           cancellation / prohibition orders)
     8.    Outstanding fees payable by SEBI by these persons/              Nil
           entities, if any

     1.   Name of our Director                                           Mr. U. R. Bhat
     2.   Name of the Entity                                             Edelweiss     Asset     Management
                                                                         Limited
     3.   a. Previously associated as                                    --
          b. Currently Associated as                                     Independent Director
     4.   Registration No. of companies which are / were registered      Registration no. of Edelweiss Mutual
          with SEBI                                                      Fund: MF/057/08/02
                                                                         (Edelweiss     Asset    Management
                                                                         Limited is the asset management
                                                                         company for Edelweiss Mutual
                                                                         Fund)
     5.   If registration has expired, reasons for non renewal           N.A.
     6.   Details of any enquiry/ investigation conducted by SEBI at     Nil
          any time


                                                     87
    7.    Penalty imposed by SEBI (Penalty includes deficiency /          Nil
          warning letter, adjudication proceedings, suspension /
          cancellation / prohibition orders)
    8.    Outstanding fees payable by SEBI by these persons/ entities,    Nil
          if any

    1.    Name of our Director                                            Mr. T.S. Vishwanath
    2.    Name of the Entity                                              LIC Mutual Fund Asset Management
                                                                          Company Limited
    3.    a. Previously associated as                                     NA
          b. Currently Associated as                                      Director
    4.    Registration No. of companies which are / were registered       MF/012/94/5 dated 09/05/1994
          with SEBI

    5.    If registration has expired, reasons for non renewal            NA
    6.    Details of any enquiry/ investigation conducted by SEBI at      NIL
          any time
    7.    Penalty imposed by SEBI (Penalty includes deficiency /          Penalty of Rs.0.01 Crores each was
          warning letter, adjudication proceedings, suspension /          imposed on LIC Mutual Fund and
          cancellation / prohibition orders)                              LIC MF AMC Limited (earlier
                                                                          known as Jeevan Bima Sahayog
                                                                          AMC Ltd) for violation of investment
                                                                          norms as per SEBI (Mutual Funds)
                                                                          Regulations, 1996 vide adjudication
                                                                          order dated 31/12/2002 and the same
                                                                          stands paid by both LIC Mutual Fund
                                                                          and Jeevan Beema Sahayog AMC
                                                                          Limited.
    8.    Outstanding fees payable by SEBI by these persons/ entities,    NIL
          if any
Except as indicated above, there are no other entities related to Directors or Associate company/ entity of our
Bank, and/ or any company/ entity with which any of the above is associated as promoter/ director/ partner/
proprietor that is/ was associated with securities related business and registered with SEBI.

Eligibility for the Issue

Our Bank is an existing listed company registered under the Companies Act whose Equity Shares are listed on
BSE and NSE. It is eligible to offer this issue in terms of Chapter IV of the SEBI ICDR Regulations.

Our Bank is eligible to make disclosures in the Letter of Offer as per Part E of Schedule VIII of the SEBI ICDR
Regulations as it is in compliance with the following:

(a) our Bank has been filing periodic reports, statements and information in compliance with the listing
    agreement for the last three years immediately preceding the date of filing this Letter of Offer with the
    Board;
(b) the reports, statements and information referred to in sub-clause (a) above are available on the website of
    any recognised stock exchange with nationwide trading terminals or on a common e-filing platform
    specified by the Board;
(c) our Bank has investor grievance-handling mechanism which includes meeting of the Shareholders’ or
    Investors’ Grievance Committee at frequent intervals, appropriate delegation of power by the Board of
    Directors as regards share transfer and clearly laid down systems and procedures for timely and satisfactory
    redressal of investor grievances.

DISCLAIMER CLAUSE OF SEBI

AS REQUIRED, A COPY OF THE DRAFT LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI.
IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THE DRAFT LETTER OF
OFFER TO SEBI SHOULD NOT, IN ANY WAY BE DEEMED / CONSTRUED THAT THE SAME

                                                      88
HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY
EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH
THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS
MADE OR OPINIONS EXPRESSED IN THE DRAFT LETTER OF OFFER. THE LEAD MANAGER,
EDELWEISS CAPITAL LIMITED HAVE CERTIFIED THAT THE DISCLOSURES MADE IN THE
DRAFT LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH
SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 IN
FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO
TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT
SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS
PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL
RELEVANT INFORMATION IN THE DRAFT LETTER OF OFFER, THE LEAD MANAGER IS
EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE BANK DISCHARGES ITS
RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD
MANAGER, EDELWEISS CAPITAL LIMITED HAD FURNISHED TO SEBI A DUE DILIGENCE
CERTIFICATE DATED OCTOBER 15, 2010 WHICH READS AS FOLLOWS:

1.   WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO
     LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH
     COLLABORATORS, ETC. AND OTHER MATERIAL IN CONNECTION WITH THE
     FINALISATION OF THE DRAFT LETTER OF OFFER PERTAINING TO THE RIGHTS
     ISSUE;
2.   ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE BANK,
     THE DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, AND INDEPENDENT
     VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE,
     PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS AND OTHER
     PAPERS FURNISHED BY THE BANK, WE CONFIRM THAT:
     (a)   THE DRAFT LETTER OF OFFER FILED WITH THE BOARD IS IN CONFORMITY
           WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE
           RIGHTS ISSUE;
     (b)   ALL THE LEGAL REQUIREMENTS RELATING TO THE RIGHTS ISSUE AS
           ALSO   THE   REGULATIONS    GUIDELINES,  INSTRUCTIONS, ETC.
           FRAMED/ISSUED BY THE BOARD, THE CENTRAL GOVERNMENT AND ANY
           OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY
           COMPLIED WITH; AND
     (c)   THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE TRUE,
           FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL
           INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED RIGHTS
           ISSUE AND SUCH DISCLOSURES ARE IN ACCORDANCE WITH THE
           REQUIREMENTS OF THE COMPANIES ACT, 1956, THE SECURITIES AND
           EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE
           REQUIREMENTS) REGULATIONS, 2009 AND OTHER APPLICABLE LEGAL
           REQUIREMENTS.
3.   WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN
     THE DRAFT LETTER OF OFFER ARE REGISTERED WITH THE BOARD AND THAT
     TILL DATE SUCH REGISTRATION IS VALID.
4.   WE HAVE SATISFIED OURSELVES ABOUT THE CAPABILITY OF THE
     UNDERWRITERS TO FULFIL THEIR UNDERWRITING COMMITMENTS – NOT
     APPLICABLE
5.   WE CERTIFY THAT WRITTEN CONSENT FROM SHAREHOLDERS HAS BEEN
     OBTAINED FOR INCLUSION OF THEIR SPECIFIED SECURITIES AS PART OF
     PROMOTERS’ CONTRIBUTION SUBJECT TO LOCK-IN AND THE SPECIFIED
     SECURITIES PROPOSED TO FORM PART OF PROMOTERS’ CONTRIBUTION SUBJECT
     TO LOCK-IN SHALL NOT BE DISPOSED / SOLD / TRANSFERRED BY THE PROMOTERS
     DURING THE PERIOD STARTING FROM THE DATE OF FILING THE DRAFT LETTER



                                    89
      OF OFFER WITH THE BOARD TILL THE DATE OF COMMENCEMENT OF LOCK-IN
      PERIOD AS STATED IN THE LETTER OF OFFER – NOT APPLICABLE
6.    WE CERTIFY THAT REGULATION 33 OF THE SECURITIES AND EXCHANGE BOARD
      OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS,
      2009, WHICH RELATES TO SPECIFIED SECURITIES INELIGIBLE FOR COMPUTATION
      OF PROMOTERS CONTRIBUTION, HAS BEEN DULY COMPLIED WITH AND
      APPROPRIATE DISCLOSURES AS TO COMPLIANCE WITH THE SAID REGULATION
      HAVE BEEN MADE IN THE DRAFT LETTER OF OFFER/LETTER OF OFFER – NOT
      APPLICABLE
7.    WE UNDERTAKE THAT SUB-REGULATION (4) OF REGULATION 32 AND CLAUSE (C)
      AND (D) OF SUB-REGULATION (2) OF REGULATION 8 OF THE SECURITIES AND
      EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE
      REQUIREMENTS) REGULATIONS, 2009 SHALL BE COMPLIED WITH. WE CONFIRM
      THAT ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS’
      CONTRIBUTION SHALL BE RECEIVED AT LEAST ONE DAY BEFORE THE OPENING
      OF THE ISSUE. WE UNDERTAKE THAT AUDITORS’ CERTIFICATE TO THIS EFFECT
      SHALL BE DULY SUBMITTED TO THE BOARD. WE FURTHER CONFIRM THAT
      ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS’
      CONTRIBUTION SHALL BE KEPT IN AN ESCROW ACCOUNT WITH A SCHEDULED
      COMMERCIAL BANK AND SHALL BE RELEASED TO THE ISSUER ALONG WITH THE
      PROCEEDS Of THE PUBLIC ISSUE – NOT APPLICABLE
8.    WE CERTIFY THAT THE PROPOSED ACTIVITIES OF THE ISSUER FOR WHICH THE
      FUNDS ARE BEING RAISED IN THE PRESENT RIGHTS ISSUE FALL WITHIN THE
      ‘MAIN OBJECTS’ LISTED IN THE OBJECT CLAUSE OF THE MEMORANDUM OF
      ASSOCIATION OR OTHER CHARTER OF THE ISSUER AND THAT THE ACTIVITIES
      WHICH HAVE BEEN CARRIED OUT UNTIL NOW ARE VALID IN TERMS OF THE
      OBJECT CLAUSE OF ITS MEMORANDUM OF ASSOCIATION.
9.    WE CONFIRM THAT NECESSARY ARRANGEMENTS HAVE BEEN MADE TO ENSURE
      THAT THE MONEYS RECEIVED PURSUANT TO THE ISSUE ARE KEPT IN A SEPARATE
      BANK ACCOUNT AS PER THE PROVISIONS OF SUB-SECTION (3) OF SECTION 73 OF
      THE COMPANIES ACT, 1956 AND THAT SUCH MONEYS SHALL BE RELEASED BY THE
      SAID BANK ONLY AFTER PERMISSION IS OBTAINED FROM ALL THE STOCK
      EXCHANGES MENTIONED IN THE LETTER OF OFFER. WE FURTHER CONFIRM
      THAT THE AGREEMENT ENTERED INTO BETWEEN THE BANKERS TO THE ISSUE
      AND THE ISSUER SPECIFICALLY CONTAINS THIS CONDITION. – NOT APPLICABLE
10.   WE CERTIFY THAT A DISCLOSURE HAS BEEN MADE IN THE DRAFT LETTER OF
      OFFER THAT THE INVESTORS SHALL BE GIVEN AN OPTION TO GET THE SHARES
      IN DEMAT OR PHYSICAL MODE.
11.   WE CERTIFY THAT ALL THE APPLICABLE DISCLOSURES MANDATED IN THE
      SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND
      DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 HAVE BEEN MADE IN
      ADDITION TO DISCLOSURES WHICH, IN OUR VIEW, ARE FAIR AND ADEQUATE TO
      ENABLE THE INVESTOR TO MAKE A WELL INFORMED DECISION.
12.   WE CERTIFY THAT THE FOLLOWING DISCLOSURES HAVE BEEN MADE IN THE
      DRAFT LETTER OF OFFER:
      (a)   AN UNDERTAKING FROM THE ISSUER THAT AT ANY GIVEN TIME, THERE
            SHALL BE ONLY ONE DENOMINATION FOR THE EQUITY SHARES OF THE
            ISSUER AND
      (b)   AN UNDERTAKING FROM THE ISSUER THAT IT SHALL COMPLY WITH SUCH
            DISCLOSURE AND ACCOUNTING NORMS SPECIFIED BY THE BOARD FROM
            TIME TO TIME.
13.   WE UNDERTAKE TO COMPLY WITH THE REGULATIONS PERTAINING TO
      ADVERTISEMENT IN TERMS OF THE SECURITIES AND EXCHANGE BOARD OF INDIA
      (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 WHILE
      MAKING THE RIGHTS ISSUE.

                                     90
14.        WE ENCLOSE A NOTE EXPLAINING HOW THE PROCESS OF DUE DILIGENCE HAS
           BEEN EXERCISED BY US IN VIEW OF THE NATURE OF CURRENT BUSINESS
           BACKGROUND OR THE ISSUER, SITUATION AT WHICH THE PROPOSED BUSINESS
           STANDS, THE RISK FACTORS, PROMOTERS EXPERIENCE ,ETC.
15.        WE ENCLOSE A CHECKLIST CONFIRMING REGULATION-WISE COMPLIANCE WITH
           THE APPLICABLE PROVISIONS OF THE SECURITIES AND EXCHANGE BOARD OF
           INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009,
           CONTAINING DETAILS SUCH AS THE REGULATION NUMBER, ITS TEXT, THE
           STATUS OF COMPLIANCE, PAGE NUMBER OF THE DRAFT LETTER OF OFFER
           WHERE THE REGULATION HAS BEEN COMPLIED WITH AND OUR COMMENTS, IF
           ANY.

The filing of this Letter of Offer does not, however, absolve our Bank from any liabilities under Section 63 or
Section 68 of the Companies Act or from the requirement of obtaining such statutory or other clearance as may
be required for the purpose of the proposed issue. SEBI further reserves the right to take up, at any point of time,
with the lead manager any irregularities or lapses in this Letter of Offer.

Disclaimer from our Bank and Lead Manager
Our Bank and the Lead Manager accept no responsibility for statements made otherwise than in this Letter of
Offer or in any advertisement or other material issued by our Bank or by any other persons at the instance of our
Bank and anyone placing reliance on any other source of information would be doing so at his own risk.
The Lead Manager and our Bank shall make all information available to the Eligible Equity Shareholders and no
selective or additional information would be available for a section of the Eligible Equity Shareholders in any
manner whatsoever including at presentations, in research or sales reports etc. after filing of the Letter of Offer
with SEBI.
Investors who invest in the issue will be deemed to have been represented by our Bank and Lead Manager and
our respective directors, officers, agents, affiliates and representatives that they are eligible under all applicable
laws, rules, regulations, guidelines and approvals to acquire equity shares of our Bank, and are relying on
independent advice / evaluation as to their ability and quantum of investment in this issue.

Disclaimer with respect to jurisdiction
This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and
regulations there under. Any disputes arising out of this Issue will be subject to the jurisdiction of the
appropriate court(s) in Mangalore, India only.

Designated Stock Exchange
The Designated Stock Exchange for the purpose of the Issue will be the BSE.

Disclaimer Clause of the BSE
Bombay Stock Exchange Limited (the “Exchange”) has given vide its letter dated November 10, 2010
permission to this Bank to use the Exchange’s name in this Letter of Offer as one of the stock exchanges on
which this Bank’s securities are proposed to be listed. The exchange has scrutinized this letter of offer for its
limited internal purpose of deciding on the matter of granting the aforesaid permission to this Bank. The
Exchange does not in any manner:

  i.    warrant, certify or endorse the correctness or completeness of any of the contents of this letter of offer; or
 ii.    warrant that this Bank’s securities will be listed or will continue to be listed on the Exchange; or
iii.    take any responsibility for the financial or other soundness of this Bank, its promoters, its management, or
       any scheme or project of this Bank;

and it should not for any reason be deemed or construed that this letter of offer has been cleared or approved by
the Exchange. Every person who desires to apply for or otherwise acquires any securities of this Bank may do
so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the
Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in
connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated

                                                          91
herein or for any reason whatsoever.

Disclaimer Clause of the NSE

As required a copy of this letter of offer has been submitted to National Exchange Stock of India Limited
(hereinafter referred to as NSE). NSE has given vide its letter Ref. No. NSE/LIST/151147-5 dated November
11, 2010 permission to the Issuer to use the exchange’s name in this letter of offer as one of the stock exchanges
on which this Bank’s securities are proposed to be listed. The exchange has scrutinized this letter of offer for its
limited internal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be
distinctly understood that the aforesaid permission given by NSE should not be deemed or construed that this
letter of offer has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the
correctness or completeness of any of the contents of this letter of offer; nor does it warrant that this Issuer’s
securities will be listed or will continue to be listed on the Exchange; nor does it take any responsibility for the
financial or other soundness of the Bank, its promoters, its management, or any scheme or project of this Issuer.

Every person who desires to apply for or otherwise acquires any securities of this Issuer may do so pursuant to
an independent inquiry, investigation and analysis and shall not have any claim against the Exchange
whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with
such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other
reason whatsoever.

Disclaimer Clause of the RBI

A license authorising our Bank to carry on banking business has been obtained from the Reserve Bank of India
in terms of Section 22 of our Banking Regulation Act, 1949. It must be distinctly understood, however, that in
issuing the license the Reserve Bank of India does not undertake any responsibility for the financial soundness
of our Bank or for the correctness of any of the statements made or opinion expressed in this connection

Delisting of Equity Shares from Bangalore Stock Exchange Limited

Pursuant to the application made under SEBI (Delisting of Securities) Guidelines, 2003, the Equity Shares of
our Bank stands delisted from Bangalore Stock Exchange Limited with effect from November 24, 2004 vide
their letter 03/2004/ 971 dated November 24, 2004.

Delisting of Equity Shares from Mangalore Stock Exchange Limited

Pursuant to the application made under SEBI (Delisting of Securities) Guidelines, 2003, the Equity Shares of
our Bank stands delisted from Mangalore Stock Exchange Limited with effect from June 25, 2005 vide their
letter Mg.SE/LCF12/2005-06/118 dated June 24, 2005.

Filing

The Draft Letter of Offer has been filed with SEBI, Plot No. C4 A, ‘G’ Block, Bandra Kurla Complex Bandra
(East), Mumbai and also with BSE and NSE. This Letter of Offer will be filed with the Designated Stock
Exchange as per the provisions of the Companies Act. All the legal requirements applicable till the date of filing
this Letter of Offer with the Stock Exchanges shall be complied with.

Selling restrictions

The distribution of this Letter of Offer and the Issue of Rights Equity Shares to persons in certain jurisdictions
outside India may be restricted by the legal requirements prevailing in those jurisdictions. Persons into whose
possession the Letter of Offer may come are required to inform themselves about and observe such restrictions.
Our Bank is making this Issue of Rights Equity Shares to the Eligible Equity Shareholders of our Bank and will
dispatch the Abridged Letter of Offer and CAFs to the Eligible Equity Shareholders who have provided an
Indian address.

No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for
that purpose, except that the Draft Letter of Offer was filed with SEBI for observations. Accordingly, the Rights
Equity Shares represented thereby may not be offered or sold, directly or indirectly, and the Letter of Offer may
not be distributed in any jurisdiction, except in accordance with the legal requirements applicable in such


                                                        92
jurisdiction.

Receipt of the Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to
make such an offer and, under those circumstances, the Letter of Offer must be treated as sent for information
only and should not be copied or redistributed. Accordingly, persons receiving a copy of the Letter of Offer
should not, in connection with the Issue of the Rights Equity Shares or the Rights Entitlements, distribute or
send the same in or into the United States or any other jurisdiction where to do so would or might contravene
local securities laws or regulations. If the Letter of Offer is received by any person in any such territory, or by
their agent or nominee, they must not seek to subscribe to the Rights Equity Shares or the Rights Entitlements
referred to in the Letter of Offer.

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

United States Restrictions

NEITHER THE RIGHTS ENTITLEMENTS NOR THE EQUITY SHARES THAT MAY BE PURCHASED
PURSUANT THERETO HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY U.S. STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD, RESOLD OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OF
AMERICA OR THE TERRITORIES OR POSSESSIONS THEREOF (THE “UNITED STATES” OR THE
“U.S.”) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, “US PERSONS” (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”)), EXCEPT IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE RIGHTS
REFERRED TO IN THIS LETTER OF OFFER ARE BEING OFFERED IN INDIA, BUT NOT IN THE
UNITED STATES. THE OFFERING TO WHICH THIS LETTER OF OFFER RELATES IS NOT, AND
UNDER NO CIRCUMSTANCES IS TO BE CONSTRUED AS, AN OFFERING OF ANY SHARES OR
RIGHTS FOR SALE IN THE UNITED STATES OR AS A SOLICITATION THEREIN OF AN OFFER TO
BUY ANY OF THE SAID SHARES OR RIGHTS. ACCORDINGLY, THIS LETTER OF OFFER SHOULD
NOT BE FORWARDED TO OR TRANSMITTED IN OR INTO THE UNITED STATES AT ANY TIME,
EXCEPT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. NEITHER OUR BANK NOR ANY PERSON ACTING ON BEHALF OF OUR BANK
WILL ACCEPT SUBSCRIPTIONS FROM ANY PERSON, OR THE AGENT OF ANY PERSON, WHO
APPEARS TO BE, OR WHO OUR BANK OR ANY PERSON ACTING ON BEHALF OF OUR BANK HAS
REASON TO BELIEVE IS, A RESIDENT OF THE UNITED STATES AND TO WHOM AN OFFER, IF
MADE, WOULD RESULT IN REQUIRING REGISTRATION OF THIS LETTER OF OFFER WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION.

Impersonation

Attention of the Investors is specifically drawn to the provisions of subsection (1) of Section 68A of the
Companies Act which is reproduced below:

“Any person who makes in a fictitious name an application to a Bank for acquiring, or subscribing for, any
shares therein, or otherwise induces a Bank to allot, or register any transfer of shares therein to him, or any
other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five
years”

Listing

The Equity Shares of our Bank are listed on the BSE and NSE. Our Bank has made applications to the Stock
Exchanges for permission to deal in and for an official quotation in respect of the Rights Equity Shares being
offered in terms of the Letter of Offer. Our Bank has received in-principle approvals from the BSE by its letter
dated November 10, 2010 and the NSE by its letter dated November 11, 2010. Our Bank will apply to the BSE
and the NSE for listing of the Rights Equity Shares to be issued pursuant to this Issue.

If the permission to deal in and for an official quotation of the Rights Equity Shares is not granted by any of the
Stock Exchanges mentioned above, our Bank shall forthwith repay, without interest, all monies received from
Investors in pursuance of the Letter of Offer. If such money is not paid within 8 days after our Bank becomes


                                                        93
liable to repay it, then our Bank and every Director of our Bank who is an officer in default shall, on and from
expiry of 8 (eight) days, be jointly and severally liable to repay the money with interest as prescribed under the
Section 73 of the Companies Act.

Compliances

Our Bank has complied during the financial year immediately preceding the date of the Draft Letter of Offer
with respect to the following:

•      provisions of the listing agreement with respect to reporting and compliance under clause 35, 41 and 49.
•      provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with respect to
       reporting in terms of Regulation 8(3) pertaining to disclosure of changes in shareholding.
•      provisions of SEBI(Prohibition of Insider Trading)Regulations, 1992 with respect to reporting in terms of
       Regulation 13

Further, clause 40A of the listing agreement and Regulation 8(A) of the SEBI (SAST) Regulations are not
applicable to our Bank as there are no identifiable promoters of our Bank. Further, there is no shareholders
agreement in place whereby any special right to appoint a director of our Bank has been given to any
shareholder of our Bank.

Consents

Consents in writing of the Auditors, Lead Manager, Legal Advisor, Registrar to the Issue and Bankers to the
Issue to act in their respective capacities have been obtained and filed with Stock Exchanges, along with a copy
of the Letter of Offer and such consents have not been withdrawn up to the time of delivery of the Letter of
Offer for registration with the Stock Exchanges.

The Auditors of our Bank have given their written consent for the inclusion of their Report in the form and
content as appearing in this Letter of Offer and such consents and reports have not been withdrawn up to the
time of delivery of this Letter of Offer for registration with the Stock Exchanges.

To the best of our knowledge there are no other consents required for making this Issue. However, should the
need arise, the necessary consents shall be obtained by us.

Estimated Issue Expenses
The total expenses of the Issue are estimated to be approximately Rs. 3.58 Crores. The Issue related expenses
include, among others, Issue management fees, Registrar fees, printing and distribution expenses, fees of the
legal counsels, advertisement, listing fees to the Stock exchanges etc. The break-up of total issue expenses is as
under –

                     Category                      Estimated expenses        % of the Issue        % of total
                                                     (Rs. in Crores)          Expenses             Issue Size
    Fees to the Lead Manager                               0.66                  18.44                0.14
    Fees to the Registrar to the Issue                     0.26                   7.26                0.06
    Fees to the Legal advisors                             0.20                  5.59                 0.04
    Fees to the Auditors                                   0.06                  1.68                 0.01
    Advertising and Publicity Expenses                     0.50                  13.97                0.11
    Printing, Postage, Stationery Expenses                 1.08                  30.16                0.24
    Contingency, Stamp duty, Listing Fees, etc             0.82                  22.90                0.18
    Total                                                  3.58                 100.00                0.78

Expert Opinion, if any

Except for the Auditors’ Report for March 31, 2010 and reviewed financial statements for six months ended
September 30, 2010 under the section titled “Financial Information” on Page no 64 of this Letter of Offer and
the Statement of Tax Benefits on Page no 46 of this Letter of Offer, no expert opinion has been obtained by our
Bank in relation to this Letter of Offer.




                                                        94
Fees Payable to the Lead Manager to the Issue

The fee payable to the Lead Manager to the Issue is set out in the Engagement Letter entered into by our Bank
with Edelweiss Capital Limited, copy of which is available for inspection at the Registered Office of our Bank.

Fees Payable to the Registrars to the Issue

The fee payable to the Registrars to the Issue is as set out in the relevant documents, copies of which are kept
open for inspection at the Registered Office of our Bank.

Minimum Subscription

If our Bank does not receive the minimum subscription of 90% of the Issue, the entire subscription amount shall
be refunded to the Investors within fifteen days from the date of closure of the Issue. If there is delay in the
refund of subscription by more than 8 days after our Bank becomes liable to pay the subscription amount (i.e.
fifteen days after closure of the issue), our Bank will pay interest for the delayed period, at rates prescribed
under sub-sections (2) and (2A) of Section 73 of the Companies Act.

Issue Schedule

  Issue Opening Date:                                                              Tuesday, March 8, 2011
  Last date for receiving requests for split forms:                                Monday, March 14,
                                                                                   2011
  Issue Closing Date:                                                              Tuesday, March 22,
                                                                                   2011

The Board may however decide to extend the Issue period as it may determine from time to time but not
exceeding 30 days from the Issue Opening Date.

Allotment Advices / Refund Orders

Our Bank will issue and dispatch allotment advice / share certificates/ demat credit and/or letters of regret along
with refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of
15 days from the date of closure of the Issue. If such money is not repaid within eight days from the day our
Bank becomes liable to pay it, our Bank shall pay that money with interest as stipulated under section 73 of the
Companies Act.

Investors residing in the 68 cities specified by SEBI pursuant to its circular dated February 1, 2008, will get
refunds through ECS only except where Investors are otherwise disclosed as applicable / eligible to get refunds
through direct credit and RTGS provided the MICR details are recorded with the Depositories or the Bank.

In case of those Investors who have opted to receive their Rights Equity Share in dematerialized form using
electronic credit under the depository system, and advice regarding their credit of the Rights Equity Shares shall
be given separately. Investors to whom refunds are made through electronic transfer of funds will be sent a letter
through certificate of posting intimating them about the mode of credit of refund within 15 working days of
closure of the Issue.

In case of those Investors who have opted to receive their Rights Equity Share in physical form, our Bank will
issue the corresponding share certificates under Section 113 of the Companies Act or other applicable
provisions.

Refund orders of value of Rs. 1,500 and above would be sent by registered post/speed post to the sole/first
Investors' registered address. Refund orders less than the value of Rs.1,500 would be sent under certificate of
posting. Such refund orders would be payable at par at all places where the applications were originally
accepted. The same would be marked ‘Account Payee only’ and would be drawn in favour of the sole / first
Investor. Adequate funds would be made available to the Registrar to the Issue for this purpose.

Disputed Shares



                                                         95
Equity Shares which are the subject matter of a dispute or sub-judice will not be allotted to the claimant’s
account pending resolution of the dispute in accordance with our Bank's policy or receipt of an order from the
relevant court or authority removing the restriction thereon. Entitlement for such shares will be held in abeyance
and retained separately by our Bank

Investor Grievances and Redressal System

Our Bank has adequate arrangements for redressal of Investor complaints as well as a well-arranged
correspondence system developed for letters of routine nature. The share transfer and dematerialization for our
Bank is being handled by our Registrar, Integrated Enterprises India Limited. Letters are filed category wise
after being attended to. The Redressal norm for response time for all correspondence including shareholders
complaints is 7-10 days.

The Shareholders/Investors Grievances Committee consists of three directors comprising of Mr. R.V. Shastri,
Mr. U.R. Bhat and Mr. T.S. Vishwanath. All investor grievances received by our Bank has been handled by the
Registrar which is monitored by the Company Secretary

The contact details of our Registrar are as follows

Integrated Enterprises India Limited
No 30 Ramana Residency 4th Cross,
Sampige Road, Malleswaram,
Bangalore 560 003
Telephone: 080-23460815-818
Facsimile: 080-23460819
E-mail: alfint@vsnl.com
Investor Grievance E-mail: ktkbankrights@vsnl.net
Website:www.iepindia.com
Contact Person: Mr. S. Vijayagopal
SEBI Reg. No: INR 000000544

Status of Complaints
(a)      No. of shareholders complaints outstanding as of March 31, 2010: Nil
(b)      Total number of complaints received during Fiscal 2009: 92
(c)      Total number of complaints received during Fiscal 2010: 132
(d)      Status of the complaints: Out of the 132 complaints received our Bank in Fiscal 2010, we have
         resolved all 132 complaints.
(e)      Time normally taken for disposal of various types of investor grievances: 5-10 days

Investor Complaints for the period 01 April 2010 to February 16, 2011:
Complaints pending at       Complaints      received     Complaints      redressed    Complaints pending at
the beginning of the        during the period            during the period            the end of the period
period
NIL                         89                           89                           NIL
Investor Grievances arising out of this Issue
The investor grievances arising out of the Issue will be handled by Mr. Y V Balachandra, Compliance Officer
and Company Secretary, and Integrated Enterprises India Limited, Registrars to the Issue. The Registrar to the
Issue will have a separate team of personnel handling only our post-Issue correspondence.

The agreement between us and the Registrar to the Issue provides for retention of records with the Registrars for
a period of at least one year from the last date of dispatch of letter of allotment/ share certificates / warrant/
refund order to enable the Registrars to redress grievances of Investors.

All grievances relating to the Issue may be addressed to the Registrar to the Issue giving full details such as folio
no., name and address, contact telephone / cell numbers, email id of the first Investors, number and type of
shares applied for, application form serial number, amount paid on application and the name of the bank and the
branch where the application was deposited, along with a photocopy of the acknowledgement slip. In case of
renunciation, the details of the Renouncees should be furnished.


                                                         96
The average time taken by the Registrar to the Issue for redressal of to routine grievances will be 7 days from
the date of receipt. In case of non-routine grievances where verification at other agencies is involved, it would
be the endeavour of the Registrar to the Issue to attend to them as expeditiously as possible. We undertake to
resolve the Investor grievances in a time bound manner.
Investors may contact the Compliance Officer / Company Secretary in case of any pre-Issue/ post -Issue
related problems such as non-receipt of letters of allotment/share certificates/demat credit/refund orders
etc. His address is as follows:
Mr. Y V Balachandra
Company Secretary and Compliance Officer
P.B. No. 599, Mahaveera Circle,
Kankanady, Mangalore - 575 002
India
Telephone: +91 (0824) 2228222
Fascimile: +91 (0824) 2225588
Website: www.karnatakabank.com
E-mail: comsec@ktkbank.com

The contact particulars of the Registrar to the Issue are as under:

Integrated Enterprises India Limited
No 30 Ramana Residency 4th Cross,
Sampige Road, Malleswaram,
Bangalore 560 003
Telephone: 080-23460815-818
Facsimile: 080-23460819
E-mail: alfint@vsnl.com
Investor Grievance E-mail: ktkbankrights@vsnl.net
Website:www.iepindia.com
Contact Person: Mr. S. Vijayagopal
SEBI Reg. No: INR 000000544




                                                       97
                                TERMS AND PROCEDURE OF THE ISSUE
The Equity Shares proposed to be issued on rights basis, are subject to the terms and conditions contained in
the Draft Letter of Offer, this Letter of Offer, the Abridged Letter of Offer, the Composite Application Form
(“CAF”), the Memorandum of Association and Articles of Association of our Bank, the provisions of the
Companies Act, the terms and conditions as may be incorporated in the Foreign Exchange Management Act,
1999, as amended ("FEMA"), guidelines and regulations issued by SEBI, guidelines, notifications and
regulations for issue of capital and for listing of securities issued by Government of India and/or other statutory
authorities and bodies from time to time, the listing agreements entered into by our Bank with the stock
exchanges, terms and conditions as stipulated in the allotment advice or letter of allotment or security certificate
and rules as may be applicable and introduced from time to time.

Authority for the Issue

Pursuant to the resolution passed by the Board of Directors of our Bank under Section 81(1) of the Companies
Act, 1956 at the meeting held on July 30, 2010 and subsequently approved by the members of our Bank at the
Extra-Ordinary General Meeting held on September 9, 2010, it has been decided to make the offer to the
Eligible Equity Shareholders of our Bank on rights basis, with a right to renounce.

Basis for the Issue

The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders whose
names appear as beneficial owners as per the list to be furnished by the Depositories in respect of the Equity
Shares held in the Electronic Form and on the Register of Members of our Bank in respect of the Equity
Shares held in physical form at the close of business hours on the Record Date i.e. February 28, 2011 fixed
in consultation with the Designated Stock Exchange.

Rights Entitlement Ratio

As your name appears as beneficial owner in respect of the shares held in the electronic form or appears in the
register of members as an Equity Shareholder of our Bank as on the Record Date i.e. February 28, 2011, you are
entitled to the number of shares in Block I of Part A of the enclosed CAF.

The Eligible Equity Shareholders are entitled to 2 (two) Equity Share for every 5 (five) fully paid up Equity
Share held on the Record Date i.e. February 28, 2011.

For Eligible Equity Shareholders wishing to apply through the ASBA process for the Rights Issue, kindly
refer to the section titled “Procedure for Application through the Applications Supported by Blocked
Amount (“ASBA”) Process” on Page no 119 of this section.

I        General Terms of the Issue

1.       Market lot

The Equity Shares of our Bank are tradable only in dematerialized form, and the market lot is one Equity Share.
In case of holding of Equity Shares in physical form, our Bank would issue to the allottees separate certificate
for the Equity Shares allotted on rights basis with a split performance.

Our Bank would issue one certificate for the entire allotment. However, our Bank would issue split certificates
on written requests from the shareholders. Our Bank shall not charge a fee for splitting any of the share
certificates.
Investors may please note that the Equity Shares of our Bank can be traded on the Stock Exchange in
dematerialized form only.

2.       Nomination facility

In terms of Section 109A of the Act, nomination facility is available in case of Equity Shares. The applicant can
nominate any person by filling the relevant details in the CAF in the space provided for this purpose.


                                                        98
A sole Equity Shareholder or first Equity Shareholder, along with other joint Equity Shareholders being
individual(s) may nominate any person(s) who, in the event of the death of the sole holder or all the joint-
holders, as the case may be, shall become entitled to the Equity Shares. A person, being a nominee, becoming
entitled to the Equity Shares by reason of the death of the original Equity Shareholder(s), shall be entitled to the
same advantages to which he would be entitled if he were the registered holder of the Equity Shares. Where the
nominee is a minor, the Equity Shareholder(s) may also make a nomination to appoint, in the prescribed
manner, any person to become entitled to the Equity Share(s), in the event of death of the said holder, during the
minority of the nominee. A nomination shall stand rescinded upon the sale of the Equity Share by the person
nominating the said share. A transferee will be entitled to make a fresh nomination in the manner prescribed.
When the Equity Share is held by two or more persons, the nominee shall become entitled to receive the amount
only on the demise of all the Equity Shareholders. Fresh nominations can be made only in the prescribed form
available on request at the Registered Office of our Bank or such other person at such addresses as may be
notified by our Bank.

Only one nomination would be applicable for one folio. Hence, in case the Equity Shareholder(s) has/have
already registered the nomination with our Bank, no further nomination needs to be made for Equity Shares to
be allotted in this Issue under the same folio.

In case the allotment of Equity Shares is in dematerialised form, there is no need to make a separate
nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective
Depository Participant of the applicant would prevail. If the applicant wishes to change the nomination,
they are requested to inform their respective DP.

3.       Joint-Holders

Where two or more persons are registered as the holders of any Equity Share, they shall be deemed to hold the
same as joint-holders with benefits of survivorship subject to provisions contained in the Articles of Association
of our Bank.

4.       Minimum Subscription

If our Bank does not receive the minimum subscription of 90% of the Issue, or the subscription level falls below
90%, after the Issue Closing Date on account of cheques being returned unpaid or withdrawal of applications,
our Bank shall refund the entire subscription amount received within 15 days from the Issue Closing Date. If
there is delay in the refund of the subscription amount by more than eight days after our Bank becomes liable to
pay the subscription amount (i.e. 15 days after the Issue Closing Date), our Bank will pay interest for the
delayed period at 15% per annum as prescribed under sub-sections (2) and (2A) of Section 73 of the Companies
Act.

Other than meeting the requirements indicated in the section titled “Objects of the Issue” on Page no 45 of this
Letter of Offer, there is no other intention or purpose for the Issue.

Presently, our Bank is complying with clause 40A of the listing agreement and the minimum public
shareholding required to be maintained for continuous listing is 25% of the total paid up Equity Capital of our
Bank.

For further details of under subscription and allotment, please refer to “Basis of Allotment” below under this
section titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of Offer.

5.       Notices

All notices to the Equity Shareholder(s) required to be given by our Bank shall be published in one English
national daily with wide circulation, one Hindi national daily with wide circulation and one regional daily
newspaper in Mangalore with wide circulation and/or will be sent by registered post or speed post to the
registered holders of the Equity Share at the address registered with the registrar/ depository from time to time.

6.       Listing and trading of the Equity Shares proposed to be issued

Our Bank's existing Equity Shares are currently traded on the Stock Exchanges under the ISIN INE614B01018
and with Scrip Code No 532652 on BSE and script name of KTKBANK on NSE. The fully paid up Equity

                                                        99
Shares proposed to be issued on a rights basis shall be listed and admitted for trading on the Stock Exchanges
under the existing ISIN INE614B01018. All steps for the completion of the necessary formalities for listing and
commencement of trading of the Equity Shares pursuant to the Issue shall be taken within seven working days
of the finalization of the Basis of Allotment. Our Bank made an application for "in-principle" approval for
listing of the Equity Shares respectively to the BSE and the NSE through letters dated October 19, 2010 and has
received such approval from the BSE pursuant to the letter no. DCS/PREF/HS/IP-RT/756/10-11, dated
November 10, 2010 and from the NSE pursuant to letter no. NSE/LIST/151147-5, dated November 11, 2010.
Our Bank will apply to the Stock Exchanges for final approval for the listing and trading of the Equity Shares.

No assurance can be given regarding the active or sustained trading in the Equity Shares or the price at which
the Equity Shares offered under the Issue will trade post listing.

7.       Offer to Non-Resident Equity Shareholders/Applicants/ Foreign Institutional Investors

As per Regulation 6 of Notification No. FEMA 20/200-RB dated May 3, 2000, the RBI has given general
permission to Indian companies to issue rights shares to non-resident shareholders including additional shares.
Applications received from NRIs and non-residents for allotment of Equity Shares shall be inter alia, subject to
the conditions imposed from time to time by the RBI under the FEMA Act in the matter of refund of application
moneys, allotment of Equity Shares and issue of letter of allotment. The Abridged Letter of Offer and CAF
shall be dispatched to non-resident Eligible Equity Shareholders at their Indian address only. The Board
of Directors may at its absolute discretion, agree to such terms and conditions as may be stipulated by RBI while
approving the allotment of Equity Shares, payment of dividend etc. to the non-resident shareholders. The Rights
Equity Shares purchased by non-residents shall be subject to the same conditions including restrictions in regard
to the repatriation as are applicable to the original shares against which Equity Shares are issued on rights basis.

CAFs will be made available for eligible NRIs at our Registered Office and with the Registrar to the Issue.

No single FII can hold more that 10% of the Bank’s post-Issue paid-up share capital (subject to RBI approval
for holding beyond 5%). In respect of an FII investing in the Equity Shares on behalf of its subaccounts, the
investment on behalf of each sub-account shall not exceed 5% of the total paid-up share capital of the Bank, in
case such sub-account is a foreign corporate or an individual.

In case of change of status of holders i.e. from Resident to Non-Resident, a new demat account shall be opened
for the purpose.

DETAILS OF SEPARATE COLLECTING CENTRES FOR NON-RESIDENT APPLICATIONS
SHALL BE PRINTED ON THE CAF.

8.       No Offer in the United States

Neither the Rights Entitlements nor entitlements to apply for the issue of Equity Shares that may be purchased
pursuant thereto have been, and will be, registered under the United States Securities Act of 1933, as amended
(the “Securities Act”), or any U.S. state securities laws, and may not be offered, sold, resold or otherwise
transferred within the United States of America or the territories or possessions thereof or to, or for the account
or benefit of, “U.S. Persons” (as defined in Regulation S under the Securities Act), except in a transaction
exempt from, or in a transaction not subject to, the registration requirements of the Securities Act. The Equity
Shares referred to in this Letter of Offer are being offered in India but not in the United States of America. The
offering to which this Letter of Offer relates is not, and under no circumstances is to be construed as, an offering
of any shares or rights for sale in the United States of America, the territories or possessions thereof, or as a
solicitation therein of an offer to buy any of the said shares or rights. Accordingly, the Letter of Offer, Abridged
Letter of Offer and the CAF should not be forwarded to or transmitted in or to, and the Letter of Offer, Abridged
Letter of Offer and the CAF shall not be dispatched to, the United States of America at any time, except in a
transaction exempt from, or in a transaction not subject to, the registration requirements of the Securities Act.
None of our Bank, the Registrar, the Lead Manager or any other person acting on behalf of our Bank will accept
subscriptions from any person, or the agent of any person, who appears to be, or who our Bank, the Registrar,
the Lead Manager or any other person acting on behalf of our Bank has reason to believe is, a resident of the
United States of America and to whom an offer, if made, would result in requiring registration of this Letter of
Offer with the United States Securities and Exchange Commission. Rights Entitlements or entitlements to apply
for the issue of Equity Shares may not be transferred or sold to any U.S. Persons.



                                                        100
9.       Utilisation of Issue Proceeds

         The Board of Directors declare that:

(i)      The funds received against this Issue will be transferred to a separate bank account other than our Bank
         account referred to sub-section (3) of Section 73 of the Companies Act, 1956 and our Bank will not
         have any access to such funds unless only after the basis of allotment is finalized.

10.      Undertakings by our Bank

1.       The complaints received in respect of the Issue shall be attended to by our Bank expeditiously and
         satisfactorily.

2.       All steps for completion of the necessary formalities for listing and commencement of trading at the
         Stock Exchange where the equity shares are to be listed are taken within seven working days of
         finalization of basis of allotment.

3.       The funds required for dispatch of refunds to unsuccessful applicants as per the modes disclosed shall
         be made available to the Registrar to the Issue by our Bank.

4.       Where refunds are made through electronic transfer of funds, a suitable communication shall be sent to
         the investors within 15 days of closure of the Issue giving details of the Bank where refunds shall be
         credited along with the amount and expected date of electronic credit of refund.

5.       Adequate arrangements shall be made to collect all ASBA applications and to treat all ASBA
         applications similar to non – ASBA applications while finalizing the basis of allotment.

6.       Our Bank accepts full responsibility for the accuracy of information given in this Letter of Offer and
         confirms to the best of his knowledge and belief, there are no other facts or the omission of which
         makes any statement made in this Letter of Offer misleading and further confirms that it has made all
         reasonable inquiries to ascertain such facts.

11.      Arrangements for disposal of odd lots

         Since the market lot for our Bank’s Equity Shares is one (1), there is no question of disposal of odd
         lots.

II       Principal Terms and Conditions of the Issue of Equity Shares

1.       Face value

Each Equity Share shall have the Face Value of Rs. 10.

2.       Fractional entitlements

For Rights Equity Shares being offered under this Issue, if the shareholding of any of the Eligible Equity
Shareholders is less than 5 Equity Shares or not in the multiple of 5 as on the Record Date, the fractional
entitlement of such Eligible Equity Shareholders shall be ignored. Eligible Equity Shareholders whose fractional
entitlements are being ignored would be given preference in allotment of one additional share each if they apply
for additional shares.

An illustration stating the Rights Entitlement for number of Equity Shares is set out below:

              Number of Equity Shares                                 Rights Entitlement
                           1                                                   0
                           3                                                   1
                           6                                                   2


                                                       101
              Number of Equity Shares                                 Rights Entitlement
                            8                                                   3
                           11                                                   4
                           13                                                   5


Those Eligible Equity Shareholders holding less than 3 Equity Shares and therefore entitled to zero Rights
Equity Shares under this Issue shall be dispatched a CAF with zero entitlement. Such Eligible Equity
Shareholders are entitled to apply for additional Rights Equity Shares and they would be given preference in
allotment for one additional Rights Equity Share if they apply for the same. However, they cannot renounce the
same in favour of third parties. A CAF with zero entitlement will be non-negotiable / non-renounceable.

3.       Issue Price

Each Equity Share shall be offered at an Issue Price of Rs. 85 for cash at a premium of Rs. 75 per Equity Share.
The Issue Price has been arrived at after consultation with the Lead Manager.

4.       Terms of payment

The entire amount of Rs. 85 per Equity Share shall be payable on application.

The payment on Application would be applied as under:

                                        Towards Share Capital                Towards share premium account
On Application                          Rs. 10 per Equity Share              Rs. 75 per Equity Share

A separate cheque/ demand draft/ pay order must accompany each application form.

All payments should be made by cheque/bank demand draft/ pay order drawn on any bank (including a co-
operative bank) which is situated at and is a member or a sub-member of the bankers clearing house located at
the center where the CAF is accepted. Outstation cheques /money orders/postal orders will not be accepted and
CAFs accompanied by such cheque/money orders/postal orders are liable to be rejected. The Registrar to the
Issue will not accept any payments against applications, if such payments are made in cash.

Pursuant to the RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the
Stockinvest scheme has been withdrawn and accordingly, payment through Stockinvest will not be accepted in
the Issue.

Where an applicant has applied for additional shares and is allotted lesser number of shares than applied for, the
excess application money shall be refunded. The excess application monies would be refunded within 15 days
from the closure of the Issue, and if there is a delay beyond 8 days from the stipulated period, our Bank and
every Director of our Bank who is an officer in default shall be jointly and severally liable to repay the money
with interest for the delayed period at 15% per annum as stipulated under sub-sections (2) and (2A) of section
73 of the Companies Act, 1956.

5.       Ranking of Equity Shares

The Rights Equity Shares allotted pursuant to this Issue shall rank pari passu with the existing Equity Shares in
all respects including dividend.

6.       Rights of Equity Shareholders

Subject to applicable laws, Equity Shareholders shall have the following rights:

1.   Right to receive dividend, if declared
2.   Right to attend general meetings and exercise voting power, unless prohibited by law;
3.   Right to vote on poll, either in person or proxy;


                                                         102
4.    Right to receive offer for right shares and be allotted bonus shares if announced;
5.    Right to receive surplus on liquidation;
6.    Right of free transferability of share; and
7.    Such other rights as may be available to a shareholder of a Banking Company incorporated under the
      Companies Act and Memorandum and Articles of Association of our Bank and the terms of the listing
      agreements entered into with the Stock Exchange.

Subject to such restrictions as may be imposed by RBI from time to time or as contained in the Banking
Regulation Act, 1949.

7.        Issue of Duplicate Share Certificates

If any Share Certificate is mutilated or defaced or the pages for recording transfers of the Equity Shares are fully
utilized, our Bank against the surrender of such Share Certificate may replace the Share Certificate, provided
that it shall be replaced as aforesaid only if the Share Certificate number and the distinctive numbers are legible.

If any Share Certificate is destroyed, stolen, lost or misplaced, then upon production of proof thereof to the
satisfaction of our Bank and upon furnishing such indemnity/surety and/or such other documents as our Bank
may deem adequate, a duplicate Share Certificate shall be issued.

8.        Quoting of Permanent Account Number (PAN) Mandatory

As per the circular no. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007, quoting of PAN has been
made mandatory for all primary market transactions. Further, in accordance with the circular no.
SEBI/CFD/DIL/MB/IS/1/2008/11/03 dated March 11, 2008, SEBI has stated that the applicants are not required
to submit the photocopies of PAN.

III       How to Apply?

1.        Procedure for Application

The CAF will be printed in black ink for all Equity Shareholders. In case the original CAFs are not received by
the Investor or is misplaced by the Investor, the Investor may request the Registrars to the Issue, for issue of
a duplicate CAF, by furnishing the registered folio number, DP ID Number, Client ID Number and their full
name and address. In case the signature of the Equity Shareholder(s) does not agree with the specimen
registered with our Bank, the application is liable to be rejected.

The CAF consists of four parts:

Part A: Form for accepting the Rights Equity Shares offered and applying for additional Equity Shares;

Part B: Form for renunciation of Equity Shares;

Part C: Form for application for Equity Shares by renouncees; and

Part D: Form for request for split application forms.

2.         Options available to the Equity Shareholders

The CAF clearly indicates the number of Equity Shares that an Equity Shareholder is entitled to.

An Equity Shareholder will have the following five options:

A. Apply for his Rights Entitlement in full;
B. Apply for his Rights Entitlement in part (without renouncing the other part);
C. Apply for his Rights Entitlement in full and apply for additional Equity Shares;
D. Renounce his entire Rights Entitlement; or
E. Apply for his Rights Entitlement in part and renounce the other part.


                                                         103
Options A and B: Acceptance of the Rights Entitlement

The Equity Shareholders may accept their Rights Entitlement and apply for the Equity Shares offered, either (i)
in full or (ii) in part, without renouncing the other part, by completing Part A of the CAF. For details in relation
to submission of the CAF and mode of payment please refer to the sub-section titled “Submission of
Application and Modes of Payment for the Issue” under this section titled “Terms and Procedure of the Issue”
on Page no 98 of this Letter of Offer.

Option C: Acceptance of the Rights Entitlement and Application for Additional Equity Shares

The Equity Shareholders are eligible to apply for additional Equity Shares, over and above their Rights
Entitlements, provided that such Equity Shareholders have applied for all the Equity Shares without renouncing
some or all of them in favor of any other person(s).

The application for the additional Equity Shares shall be considered and allotment shall be made at the sole
discretion of the Board of Directors, in consultation, if necessary, with the Designated Stock Exchange. Where
the number of Equity Shares applied for exceeds the number of Equity Shares available for allotment, the
allotment of additional Equity Shares shall be made on a fair and equitable basis with reference to the number of
Equity Shares held by the applicant on the Record Date. For details of the manner in which applications for
additional Equity Shares with shall be considered and allotment completed, please refer to the sub-section titled
“Basis of Allotment” under this section titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of
Offer.

If you desire to apply for additional Equity Shares, please indicate your requirement in the place provided for
additional Equity Shares in Part A of the CAF.

Options D and E: Renunciation of the Rights Entitlement

As an Equity Shareholder, you have the right to renounce your entitlement to the Equity Shares, in full or in
part, in favor of one or more persons. Your attention is drawn to the fact that our Bank shall not allot and/or
register any Equity Shares, in favor of:

  •      More than three persons, including joint holders;
  •      Partnership firms or their nominees;
  •      Minors;
  •      Hindu Undivided Families (HUFs); or
  •       Trusts or societies (unless registered under the Societies Registration Act, 1860 or the Indian Trusts
         Act, 1882 or any other law applicable to trusts and societies and is authorised under its constitution or
         bye-laws to hold equity shares of a company).

The person(s) in whose favor any Equity Shares are renounced should complete and sign Part C of the CAF and
submit the CAF to the Bankers to the Issue on or prior to the Issue Closing Date along with the Application
Money. Renouncees need not be existing Equity Shareholders of our Bank. Renouncees who have subscribed
for all the Equity Shares renounced in their favor may also apply for additional Equity Shares. A Renouncee
cannot further renounce.

However, the right of renunciation is subject to the express condition that the Board of Directors shall be
entitled, in its absolute discretion, to reject the request from the renouncees for the allotment of Equity
Shares without assigning any reason therefore.

Renunciation by and/or in favor of Non Residents

Any renunciation (i) from a resident Indian Equity Shareholder to a Non Resident, or (ii) from a Non Resident
Equity Shareholder to a resident Indian, or (iii) from a Non Resident Equity Shareholder to a Non Resident, in
light of RBI Master circular on Foreign Investment in India dated July 01, 2010;RBI Notification No. FEMA
20/2000-RB dates May 03, 2000 and RBI circular No. 38 dated December 03, 2003 would not require approval
from RBI.

Procedure for Renunciation



                                                        104
(a) To renounce the entire Rights Entitlement in favor of one renouncee

If you wish to renounce the Rights Entitlement indicated in Part A, in whole, please complete Part B of the CAF
and send it to the renouncee. In case of joint holding, all joint holders must sign Part B of the CAF. The
renouncee should complete and sign Part C of the CAF. In case of joint renouncees, all joint renouncees must
sign Part C of the CAF.

Renouncees shall not be entitled to further renounce their entitlement in favor of any other person.
(b) To renounce a part of the Rights Entitlement or the entire Rights Entitlement to more than one person

If you wish to either (i) accept the Rights Entitlement in part and renounce the balance or (ii) renounce the entire
Rights Entitlement in favor of two or more renouncees, the CAF must be first split into the requisite number of
forms. For this purpose, you shall have to apply to the Registrar to the Issue. Please indicate your requirement of
split application forms in the space provided for this purpose in Part D of the CAF and return the CAF to the
Registrar to the Issue so as to reach them at the latest by the close of business hours on the last date for receiving
requests for split application forms.

On receipt of the required number of split application forms from the Registrar to the Issue, the procedure as set
out in paragraph (a) above will have to be followed.

In case the signature of the Equity Shareholder, who has renounced the Equity Shares, does not tally with the
specimen registered with our Bank, the application is liable to be rejected.

A summary of the options available to the Equity Shareholders is set out below. You may exercise any of the
following options with regard to the Equity Shares, using the CAF:

Option               Option Available                                       Action Required


            Accept your Rights Entitlement in
A.                                                  Complete and sign Part A. (All joint holders must Sign)
            full


            Accept your Rights Entitlement in
B.                                                  Complete and sign Part A. (All joint holders must sign)
            part without renouncing the balance



            Accept your Rights Entitlement in       Complete and sign Part A including Block III relating to the
C.          full and apply for additional Equity    acceptance of the Rights Entitlement and Block IV relating to
            Shares                                  additional Equity Shares (All joint holders must sign)




            Renounce your Rights Entitlement        1) Complete and sign Part B (all joint holders must sign)
            in full to:                             indicating the number of Equity Shares renounced and hand it
D.          1. One person (Joint renounces          over to the renounce. The renounce must complete and sign
                 are considered as one)             Part C. (All joint renounces must sign)




                                                         105
Option              Option Available                                    Action Required

                                                  2) Complete and sign Part D (all joint holders must sign)
                                                  requesting for split application forms. Send the CAF to the
                                                  Registrar to the issue, so as to reach the Registrar on or prior
                                                  to the last date for receiving requests for split application
                                                  forms. Splitting will be permitted only once

            2.       More than one person         Upon receipt of the split application form, take action as
                                                  indicated below:
                                                  1. Complete and sign Part B indicating the number of Equity
                                                     Shares renounced and hand it over to the renounces.

                                                  2. Each of the renounces should complete and sign Part C for
                                                     the Equity Shares with accepted by them

                                                  Complete and sign Part D (all joint holders must sign)
                                                  requesting for split application forms. Send the CAF to the
                                                  Registrar to the Issue, so as to reach the Registrar on or prior
                                                  to the last date for receiving requests for split application
                                                  forms, Splitting will be permitted only once.
                                                  Upon receipt of the split application form, take action as
                                                  indicated below
            Accept a part of your Rights
E.          Entitlement and renounce the
                                                  1.   For the Equity Shares you wish to accept, complete and
            balance to one or more person(s)
                                                       sign Part A ( All joint holders must sign)
                                                  2.   For the Equity Shares you wish to renounce, complete
                                                       and sign Part B indicating the number of Equity Shares
                                                       with renounced and hand it over to the renounces
                                                  3.   Each of the renounces should complete and sign Part C
                                                       for the Equity Shares being accepted by them

            Introduce a joint holder or change    This will be treated as a renunciation. Fill in and sign Part B
F
            the sequence of joint holders         and the Renouncee must fill in and sign Part C.


3.       Change and/ or introduction of additional holders

If you wish to apply for the Equity Shares jointly with any other person(s), not more than three, who is/are not
already a joint holder(s) with you, it shall amount to a renunciation and the procedure for renunciation, as
applicable, set out above will have to be followed. Even a change in the sequence of the names of joint holders
shall amount to a renunciation and the procedure for renunciation, as applicable, set out above will have to be
followed.

Please note that:

1.   Part A of the CAF must not be used by any person(s) other than the Equity Shareholder to whom this LOF
     has been addressed. If used, this will render the application invalid.

2.   While applying for or renouncing their Rights Entitlement, joint holders must sign in the same order and as
     per the specimen signatures registered with our Bank.

3.   Request for split application form should be made for a minimum of one (1) Equity Share or in multiples of
     one (1) Equity Share;

4.   Request by the applicant for the Split Application Form should reach our Bank on or before Monday,
     March 14, 2011.




                                                       106
5.   Only the person to whom the Abridged Letter of Offer has been addressed to and not the renouncee(s) shall
     be entitled to renounce and to apply for Split Application Forms. Forms once split cannot be split again.

6.   Split form(s) will be sent to the applicant(s) by post at the applicant’s risk.

7.   In the case of a renunciation, the submission of the CAF to the Bankers to the Issue at the collecting
     branches specified on the reverse of the CAF together with Part B of the CAF duly completed shall be
     conclusive evidence of the right of the person applying for the Equity Shares to receive allotment of such
     Equity Shares.

For details on completing the CAF and other general instructions, please follow the instructions indicated on the
reverse of the CAF. In addition, please refer to the sub-section titled “General Instructions for Applicants” under
this section titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of Offer.

Availability of duplicate CAF

In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will issue a
duplicate CAF on the request of the applicant who should furnish the registered folio number/ DP and Client ID
number and his/ her full name and address to the Registrar to the Issue. Please note that the request for duplicate
CAF should reach the Registrar within 8 days from the Issue opening date. Please note that those who are
making the application in the duplicate form should not utilize the original CAF for any purpose including
renunciation, even if it is received/ found subsequently. Thus in case the original and duplicate CAFs are lodged
for subscription, allotment will be made on the basis of the duplicate CAF and the original CAF will be ignored.
If any Investor’s request is in contravention of the above stipulation, he/ she shall face the risk of rejection of
both the applications.

Our Bank or the Registrar to the Issue will not be responsible for postal delays or loss of duplicate CAF in
transit, if any.

Application on Plain Paper

An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate
CAF may make an application to subscribe to the Issue on plain paper, along with Demand Draft (after
deducting banking and postal charges) payable at Mangalore which should be drawn in favour of “Karnataka
Bank-Rights Issue-R” in case of resident shareholders and non-resident shareholders applying on non-
repatriable basis; and in favour of “Karnataka Bank-Rights Issue-NR” in case of non-resident shareholders
applying on repatriable basis and send the same by registered post directly to the Registrar to the Issue so as to
reach them on or before the closure of the Issue. The envelope should be superscribed "THE KARNATAKA
BANK LIMITED -Rights Issue" in case of resident shareholders and non-resident shareholders applying on
non-repatriable basis, and in favour of "THE KARNATAKA BANK LIMITED -Rights Issue - NR" in case of
non-resident shareholders applying on repatriable basis. Application on plain paper will not be accepted from
any U.S. address.

The application on plain paper, duly signed by the applicant(s) including joint holders, in the same order as per
specimen recorded with our Bank, must reach the office of the Registrar to the Issue before the Issue Closing
Date and should contain the following particulars:

1.     Name of Issuer, The Karnataka Bank Limited

2.     Name and address of the Equity Shareholder including joint holders

3.     Registered Folio Number/ DP ID No. and Client ID No.

4.     Number of shares held as on Record Date

5.     Certificate numbers and distinctive numbers, if held in physical form.

6.     Number of Rights Equity Shares entitled

7.     Number of Rights Equity Shares applied for


                                                          107
8.    Number of additional Equity Shares applied for, if any

9.    Total number of Equity Shares applied for

10.   Total amount paid on application at the rate of Rs. 85 per Equity Share

11.   Particulars of demand draft

12.   In case of Equity Shares allotted in physical form, Savings/Current Account Number and name and
      address of the bank where the Equity Shareholder will be depositing the refund order. In case of equity
      shares allotted in demat code, the bank account details will be obtained from the information available
      with the depositories

13.   The permanent account number (PAN) of the Equity Shareholder and where relevant, for each joint
      holder, except in respect of central and state government officials, residents of Sikkim and officials
      appointed by the court (e.g. official liquidators and court receivers) who, in terms of a SEBI circular
      dated June 30, 2008, may be exempt from specifying their PAN for transaction in the securities market,
      subject to submitting sufficient documentary evidence in support of their claim for exemption, provided
      that such transactions are undertaken on behalf of the central and State Government and not in their
      personal capacity

14.   Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records
      of our Bank.

15.   In case of Non Resident Shareholders, NRE/ FCNR/ NRO A/c No. Name and Address of our Bank and
      Branch;

16.   If payment is made by a draft purchased from NRE/ FCNR/ NRO A/c No., as the case may be, an
      Account debit certificate from the bank issuing the draft, confirming that the draft has been issued by
      debiting NRE/ FCNR/ NRO Account.

17.   A representation that the Equity Shareholder is not a “U.S. Person” (as defined in Regulation S under the
      Securities Act);

18.     Additionally, Non Resident applicants shall include the representation in writing that:

        “I/We understand that the Rights Entitlement have not been, and will not be, registered under the
        United States Securities Act of 1933, as amended (the “US Securities Act”) or any United States state
        securities laws, and may not be offered, sold, resold or otherwise transferred within the United States or
        to the territories or possessions thereof or to, or for the account or benefit of, “U.S. Persons” (as
        defined in Regulation S under the US Securities Act), except in a transaction exempt from, or in a
        transaction not subject to, the registration requirements of the US Securities Act. The Equity Shares
        referred to in this application are being offered in India but not in the United States of America. None
        of our Bank, the Registrar, the Lead Manager or any other person acting on behalf of our Bank will
        accept subscriptions from any person, or the agent of any person, who appears to be, or who our Bank,
        the Registrar, the Lead Manager or any other person acting on behalf of our Bank has reason to believe
        is, a resident of the United States and to whom an offer, if made, would result in requiring registration
        of this application with the United States Securities and Exchange Commission.

        I/We am/are both an institutional investor and an “accredited investor” within the meaning of Rule
        501(a)(1), (2), (3) or (7) of Regulation D under the US Securities Act and we have such knowledge and
        experience in financial and business matters as to be capable of evaluating the merits and risks of our
        investment in the Equity Shares, and we are, and any accounts for which we are acting are each, able to
        bear the economic risk of our or its investment.

        I/We will not offer, sell or otherwise transfer any of the Equity Shares which may be acquired by us in
        any jurisdiction or under any circumstances in which such offer or sale is not authorised or to any
        person to whom it is unlawful to make such offer, sale or invitation except under circumstances that
        will result in compliance with any applicable laws or regulations. We satisfy, and each account for


                                                      108
        which we are acting satisfies, all suitability standards for investors in investments of the type
        subscribed for herein imposed by the jurisdiction of our residence.

        I/We understand and agree that the Equity Shares may not be reoffered, resold, pledged or otherwise
        transferred except in an offshore transaction in compliance with Regulation S, or otherwise pursuant to
        an exemption from, or in a transaction not subject to, the registration requirements of the US Securities
        Act.”

        Please note that Equity Shareholders who are making an application otherwise than on a CAF (i.e., on
        plain paper as stated above) shall not be entitled to renounce their rights and should not utilize the CAF
        for any purpose, including renunciation, even if it is received subsequently. If the Equity Shareholder
        does not comply with any of these requirements, he/she shall face the risk of rejection of both the
        applications and the Application Money received shall be refunded. However, our Bank and/or any
        Director of our Bank will not be liable to pay any interest whatsoever on the Application Money so
        refunded.

        The Equity Shareholders are requested to strictly adhere to these instructions. Failure to do so could
        result in the application being rejected, with our Bank, the Lead Manager and the Registrar not having
        any liability to such Equity Shareholders.

IV.     Submission of Application and Modes of Payment for the Issue (other than ASBA Applicants)

1.      Resident Equity Shareholders/ Applicants

1.      Applicants who are applying through CAF and residing at places where the bank collection centres
        have been opened by our Bank for collecting applications, are requested to submit their applications at
        the corresponding collection centre together with cheque / bank demand draft drawn on any bank
        (including a co-operative bank), for the full application amount favouring “Karnataka Bank-Rights
        Issue-R” and marked ‘A/c Payee only’.

2.      Applicants who are applying through CAF and residing at places other than places where the bank
        collection centres have been opened for collecting applications, are requested to send their applications
        together with a demand draft of amount after deducting bank and postal charges, for the full application
        amount favouring “Karnataka Bank-Rights Issue-R” and marked ‘A/c Payee only’ payable at
        Mangalore directly to the Registrar to the Issue by registered post so as to reach them on or before the
        Issue Closing Date. Our Bank or the Registrar to the Issue will not be responsible for postal delays or
        loss of applications in transit, if any.

3.      Applicants who are applying on plain paper, are requested to send their applications on plain paper
        together with a demand draft of amount after deducting bank and postal charges, for the Equity Shares
        favouring “Karnataka Bank-Rights Issue-R” and marked ‘A/c Payee only’ payable at Mangalore
        directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue
        Closing Date. Our Bank or the Registrar to the Issue will not be responsible for postal delays or loss of
        applications in transit, if any.

2.      Non-Resident Equity Shareholders / Applicants

Application with repatriation benefits

Non-Resident Equity Shareholders / Applicants, applying on a repatriation basis, are required to submit the
completed CAF / application on plain paper, as the case may be, alongwith the payment made through any of
the following ways:

1.      By Indian Rupee drafts purchased from abroad and payable at Mangalore or funds remitted from
        abroad (submitted along with Foreign Inward Remittance Certificate); or

2.      By Local cheque / bank drafts remitted through normal banking channels or out of funds held in Non-
        Resident External Account (NRE) or FCNR Account maintained with banks authorized to deal in
        foreign currency in India, along with documentary evidence in support of remittance; or



                                                      109
3.       FIIs registered with SEBI must remit funds from special non-resident rupee deposit account.

4.       For Equity Shareholders / Applicants, applying through CAF, the CAF is to be sent at the bank
         collection centre specified in the CAF along with cheques/drafts in favour of “Karnataka Bank-Rights
         Issue-NR” and crossed ‘A/c Payee only’ for the amount payable.

5.       For Equity Shareholders / Applicants, applying on a plain paper, the applications are to be directly sent
         to the Registrar to the Issue by registered post along with drafts (after deducting bank and postal
         charges) in favour of “Karnataka Bank-Rights Issue-NR” payable at Mangalore and crossed ‘A/c
         Payee only’ for the amount payable so as to reach them on or before the Issue Closing Date.

6.       For Equity Shareholders/ Applicants applying through CAF but not residing at places where the
         collection centre is located, shall send the CAF to the Registrar to the Issue by registered post along
         with drafts of an amount after deducting bank and postal charges in favour of “Karnataka Bank-Rights
         Issue-NR” payable at Mangalore and crossed ‘A/c Payee only’ for the amount payable so as to reach
         them on or before the Issue Closing Date.

A separate cheque or bank draft must accompany each application form. Applicants may note that where
payment is made by drafts purchased from NRE/FCNR accounts as the case may be, an Account Debit
Certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/FCNR
account should be enclosed with the CAF. In the absence of the above the application shall be considered
incomplete and is liable to be rejected.

In the case of NRIs who remit their application money from funds held in FCNR/NRE Accounts, refunds and
other disbursements, if any shall be credited to such account details of which should be furnished in the
appropriate columns in the CAF. In the case of NRIs who remit their application money through Indian Rupee
Drafts from abroad, refunds and other disbursements, if any will be made in U.S Dollars at the rate of exchange
prevailing at such time subject to the permission of RBI. Our Bank will not be liable for any loss on account of
exchange rate fluctuation for converting the Rupee amount into U.S. Dollar or for collection charges charged by
the applicant’s Bankers.

Our Bank or the Registrar to the Issue will not be responsible for postal delays or loss of application in transit, if
any

Payments through Non Resident Ordinary Account (NRO account) will not be permitted.

Application without repatriation benefits

For non-residents Equity Shareholders / Applicants applying on a non-repatriation basis, in addition to the
modes specified above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary)
Account maintained at Mangalore or Rupee Draft purchased out of NRO Account maintained elsewhere in India
but payable at Mangalore. In such cases, the allotment of Equity Shares will be on non-repatriation basis.

For Non Resident Equity Shareholders/Applicants, applying through CAF, the CAF is to be sent at the bank
collection centre specified in the CAF along with cheques/demand drafts drawn after deducting bank and postal
charges in favor of “Karnataka Bank-Rights Issue-R” and crossed ‘A/c Payee only’ for the amount payable.

For Equity Shareholders/Applicants, applying on a plain paper, the applications are to be directly sent to the
Registrar to the Issue by registered post along with demand drafts after deducting bank and postal charges drawn
in favor of “Karnataka Bank-Rights Issue-R” payable at Mangalore so as to reach them on or before the Issue
Closing Date.

For Equity Shareholders/ Applicants applying through CAF but not residing at places where the collection
centre is located, shall send the CAF to the Registrar to the Issue by registered post along with drafts of an
amount after deducting bank and postal charges in favour of “Karnataka Bank-Rights Issue-R” payable at
Mangalore for the amount payable so as to reach them on or before the Issue Closing Date.

If the payment is made by a draft purchased from an NRO account, an Account Debit Certificate from the bank
issuing the draft, confirming that the draft has been issued by debiting the NRO account, should be enclosed


                                                         110
with the CAF. In the absence of the above, the application shall be considered incomplete and is liable to be
rejected.

New dematerialised accounts shall be opened for Equity Shareholders who have had that change in status from
resident Indian to NRI.

Our Bank or the Registrar to the Issue will not be responsible for postal delays or loss of application in transit, if
any, on this account and applications received through mail after closure of the Issue are liable to be rejected.
Applications through mails should not be sent in any other manner except as mentioned above. The CAF along
with the application money must not be sent to our Bank or the Lead Manager or the Registrar except stated
otherwise. The Investors are requested to strictly adhere to these instructions.

Renouncees who are NRIs/FIIs/Non-Resident should submit their respective applications either by hand
delivery or by registered post with acknowledgement due to the Registrar to the Issue only along with the
cheque/demand draft payable at Mangalore so that the same are received on or before the closure of the Issue.

Note:

      1.    In case where repatriation benefit is available, interest, dividend, sales proceeds derived from the
            investment in Equity Shares can be remitted outside India, subject to tax, as applicable according to
            Income Tax Act, 1961.

      2.    In case Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the
            Equity Shares cannot be remitted outside India.

      3.    The CAFs duly completed together with the amount payable on application must be deposited with the
            collecting bank indicated on the reverse of the CAFs before the close of business hours on or before the
            Issue Closing Date. Separate cheque or bank draft must accompany each CAF.

      4.    In case of a CAF received from non-residents, allotment, refunds and other distribution, if any, will be
            made in accordance with the guidelines/ rules prescribed by RBI as applicable at the time of making
            such allotment, remittance and subject to necessary approvals.

Last date of Application

The last date for submission of the duly filled in CAF is Tuesday, March 22, 2011, i.e. the Issue Closing Date.
The Issue will be kept open for a minimum of 15 (Fifteen) days and the Board or any committee thereof will
have the right to extend the said date for such period as it may determine from time to time but not exceeding 30
(Thirty) days from the Issue Opening Date.

If the CAF together with the amount payable is not received by the Bankers to the Issue/ Registrar to the Issue
on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Board,
the offer contained in this Letter of Offer shall be deemed to have been declined and the Board shall be at liberty
to dispose of the Equity Shares hereby offered, as provided under the paragraph titled “Basis of Allotment”
beginning on Page no 111 of this Letter of Offer.

V.          Basis of Allotment

Subject to the provisions contained in this Letter of Offer, the Articles of Association of our Bank and the
approval of the Designated Stock Exchange, the Board will proceed to allot our Equity Shares in the following
order of priority:

(a)         Full allotment to those Equity Shareholders who have applied for their Rights Entitlement either in full or
           in part and also to the Renouncee(s) who has/have applied for Equity Shares renounced in their favour,
           in full or in part.

(b)        For Rights Equity Shares being offered under this Issue, if the shareholding of any of the Eligible
           Equity Shareholders is less than 5 Equity Shares or not in the multiple of 5 as on the Record Date, the
           fractional entitlement of such Eligible Equity Shareholders shall be ignored. Eligible Equity
           Shareholders whose fractional entitlements are being ignored would be given preference in allotment of


                                                          111
        one additional share each if they apply for additional Rights Equity Shares.



(c)     Allotment under this head shall be considered if there are any unsubscribed Rights Equity Shares after
        allotment under (a) above. If the number of Rights Equity Shares required for allotment under this head
        are more than the number of Rights Equity Shares available after allotment under (a) above, the
        allotment would be made on a fair and equitable basis in consultation with the Designated Stock
        Exchange.

(d)     Allotment to the Equity Shareholders who having applied for all the Equity Shares offered to them as
        part of the Issue and have also applied for additional Equity Shares. The allotment of such additional
        Equity Shares will be made as far as possible on an equitable basis having due regard to the number of
        Equity Shares held by them on the Record Date, provided there is an under-subscribed portion after
        making full allotment in (a). The allotment of such Equity Shares will be at the sole discretion of the
        Board / Committee of Directors in consultation with the Designated Stock Exchange, as a part of the
        Issue and will not be a preferential allotment.

(e)     Allotment to Renouncees who having applied for all the Equity Shares renounced in their favour, have
        applied for additional Equity Shares provided there is surplus available after making full allotment under
        (a) and (b) above. The allotment of such Equity Shares will be at the sole discretion of the
        Board/Committee of Directors in consultation with the Designated Stock Exchange, as a part of the
        Issue and not preferential allotment.

(f)      Allotment to any other person as the Board may in its absolute discretion deem fit provided
        there is surplus available after making full allotment under (a), (b) (c) and (d) above.

After taking into account allotment to be made under (a) and (b) above, if there is any unsubscribed portion, the
same shall be deemed to be ‘unsubscribed’ for the purpose of regulation 3(1)(b) of the Takeover Code which
would be available for allocation under (b), (c) (d) and (e) above.

After such allotments as above, including the application for rights/renunciation and additional Equity Shares,
any additional Equity Shares shall be disposed off by the Board of our Bank, in such manner as they think most
beneficial to our Bank and the decision of the Board of our Bank in this regard shall be final and binding.

In the event of oversubscription, allotment will be made within the overall size of the Issue

Our Bank expects to complete the allotment of Equity Shares within a period of 15 days from the date of closure
of the Issue in accordance with the listing agreement with NSE and BSE. In case of delay in allotment our Bank
shall, as stipulated under Section 73(2A) of the Act, be required to pay interest on the same at a rate of 15 per
cent p.a.

Our Bank shall retain no oversubscription.

Underwriting

Our Bank has not currently entered into any underwriting arrangement.

VI.      Allotment and Refund

Our Bank will issue and dispatch allotment advice/letters of allotment/Share Certificates/demat credit and/or
letters of regret along with refund orders or credit the allotted securities to the respective beneficiary accounts, if
any, within a period of 15 days from the Issue Closing Date. If the amount to be refunded is not paid within
eight days from the day our Bank becomes liable to pay it, our Bank and every Director of our Bank who is an
officer in default shall be jointly and severally liable to repay the money with interest for the delayed period at
15% per annum as stipulated under sub-sections (2) and (2A) of Section 73 of the Companies Act.

Investors residing at centers where clearing houses are managed by the Reserve Bank of India ("RBI") will get
refunds through National Electronic Clearing Service ("NECS") except where Investors are otherwise disclosed
as applicable/eligible to get refunds through direct credit and real time gross settlement ("RTGS").


                                                         112
In case of those Equity Shareholders or applicants who have opted to receive the Equity Shares in
dematerialized form using electronic credit under the depository system, advice regarding their credit of the
Equity Shares shall be given separately. Applicants to whom refunds are made through electronic transfer of
funds will be sent a letter through ordinary post intimating them about the mode of credit of refund within 15
working days of closure of Issue.

In case of those Equity Shareholders or applicants who have opted to receive the Equity Shares in physical form
and in respect of which our Bank issues letters of allotment, the corresponding Share Certificates will be
delivered within three months from the date of allotment thereof or such extended time as may be approved by
the Company Law Board under Section 113 of the Companies Act or other applicable provisions, if any.
Allottees are requested to preserve such letters of allotment, which will subsequently be exchanged for the Share
Certificates.

The allotment advice/letters of allotment and refund orders of value Rs. 1,500 and above will be sent by
registered post/speed post to the sole/first applicant’s registered address in India. Refund orders less than the
value of Rs.1, 500/- will be sent under certificate of posting. Such refund orders will be payable at par at all
places where the applications were originally accepted. The same will be marked “account payee only” and will
be drawn in favor of the sole/first applicant. Adequate funds will be made available to the Registrar to the Issue
for this purpose.

Our Bank shall ensure at par facility is provided for encashment of refund orders or pay orders at the places
where applications are accepted.

As regards allotment/refund to Non-Residents, the following further conditions shall apply:

In the case of Non Resident Equity Shareholders or applicants who remit their application money from funds
held in NRE/FCNR Accounts, refunds and/or payment of interest or dividend and other disbursements, if any,
shall be credited to such accounts, the details of which should be furnished in the CAF. Subject to the approval
of the RBI, in case of Non Resident Equity Shareholders or applicants who remit their application money
through Indian Rupee demand drafts purchased from abroad, refund and/or payment of dividend or interest and
any other disbursement, shall be credited to such accounts and will be made after deducting bank charges or
commission in US Dollars, at the rate of exchange prevailing at such time. The Bank will not be responsible for
any loss on account of exchange rate fluctuations for conversion of the Indian Rupee amount into US Dollars.
The Share Certificate(s) will be sent by registered post to the address in India of the Non Resident Equity
Shareholders or applicants.

Mode of making Refund

Applicants should note that on the basis of name of the applicants, Depository Participant’s name, Depository
Participant-Identification number and Beneficiary Account Number provided by them in the Composite
Application Form, the Registrar to the Issue will obtain from the Depositories, the applicant’s bank account
details including nine digit MICR code. Hence, applicants are advised to immediately update their bank
account details as appearing on the records of the depository participant. Please note that failure to do so
could result in delays in credit of refunds to applicants at the applicant’s sole risk and neither the Lead Manager
nor our Bank shall have any responsibility and undertake any liability for the same.

The payment of refund, if any, would be done through various modes in the following order of preference:

I.       NECS

         Payment of refund would be done through NECS for applicants having an account at one of the centres
         specified by the RBI, where such facility has been made available.

         This would be subject to availability of complete Bank Account Details including MICR code
         wherever applicable from the depository. The payment of refund through ECS is mandatory for
         applicants having a bank account at any of the centres where ECS facility has been made available by
         the RBI (subject to availability of all information for crediting the refund through ECS), except where
         applicant is otherwise disclosed as eligible to get refunds through NEFT or Direct Credit or RTGS.



                                                       113
II.      NEFT

         Payment of refund shall be undertaken through NEFT wherever the applicants’ bank has been assigned
         the Indian Financial System Code (IFSC), which can be linked to a Magnetic Ink Character
         Recognition (MICR) , if any, available to that particular bank branch. IFSC Code will be obtained
         from the website of RBI as on a date immediately prior to the date of payment of refund, duly mapped
         with MICR numbers. Wherever the applicants have registered their nine digit MICR number and
         their bank account number while opening and operating the demat account, the same will be
         duly mapped with the IFSC Code of that particular bank branch and the payment of refund will
         be made to the applicants through this method.

III.     Direct Credit

         Applicants that have bank accounts with the Bankers to the Issue shall be eligible to receive refunds
         through direct credit. Charges, if any, levied by the Bankers to the Issue for the same will be borne by
         our Bank.

IV.      RTGS

         Applicants having a bank account at any of the centres specified by RBI where such facility has been
         made available and whose refund amount exceeds Rs. 0.01 Crores, have the option to receive refund
         through RTGS. Such eligible applicants who indicate their preference to receive refund through RTGS
         are required to provide the IFSC code in the CAF. In the event the same is not provided, refund shall be
         made through ECS. Charges, if any, levied by the Refund Bank(s) for the same would be borne by our
         Bank opting for RTGS as a mode of refund. Charges, if any, levied by the applicant’s bank receiving
         the credit would be borne by the applicant.

Only or all the other applicants except for whom payment of refund is possible through I, II, III and IV, the
refund orders would be dispatched “Under Certificate of Posting” for refund orders less than Rs.1,500/- and
through Speed Post/Registered Post for refund orders of value of Rs 1,500 and above. Such refunds will be
made by cheques, pay orders or demand drafts drawn in favour of the sole/first applicant and payable at par.

For shareholders opting for allotment in physical mode, bank account details as mentioned in the CAF
shall be considered for electronic credit or printing of refund orders, as the case may be. Refund orders
will be made by cheques, pay orders or demand drafts drawn on the Refund Bank(s) and payable at par
at places where the applications were received and will be marked account payee and will be drawn in the
name of Sole/First Applicant. The bank charges, if any, for encashing such cheques, pay orders or
demand drafts at other centres will be payable by the Applicants.

Refund payment to Non-Resident

Where applications are accompanied by Indian rupee drafts purchased abroad and payable at Mangalore (as
otherwise specified in this section titled “Terms and Procedure of the Issue”), refunds will be made in
convertible U.S. dollars equivalent to Indian rupees to be refunded. Indian rupees will be converted into U.S.
dollars at the rate of exchange, which is prevailing on the date of refund. The exchange rate risk on such refunds
shall be borne by the concerned applicant and our Bank shall not bear any part of the risk.

Where the applications made are accompanied by NRE/FCNR/NRO cheques, refunds will be credited to
NRE/FCNR/NRO accounts respectively, on which such cheques were drawn and details of which were provided
in the CAF. Export of letters of allotment (if any)/ share certificates/ demat credit to non-resident allottees will
be subject to the approval of RBI.

Interest in Case of Delay in Dispatch of Allotment Letters/ Refund Orders

Our Bank will issue and dispatch letters of allotment/ share certificates and/ or letters of regret along with refund
order or credit the allotted securities to the respective beneficiary accounts, if any within a period of fifteen days
from the date of closure of the Issue. The dispatch of share certificates/ refund orders and demat credit will be
completed and the allotment and listing documents will be submitted to the stock exchanges within 15 days
from the closure of the Issue.


                                                        114
If such money is not repaid within 8 days from the day our Bank becomes liable to pay it, our Bank shall pay
that money with interest at the rate of 15% per annum as stipulated under sub-sections (2) and (2A) of Section
73 of the Companies Act. .

Option to receive Equity Shares in Dematerialized Form

Applicants to the Equity Shares of our Bank issued through this Issue shall be allotted the securities in
dematerialised (electronic) form at the option of the applicant. Our Bank has signed agreements dated October
16, 2000 and October 14, 2000 with NSDL and CDSL respectively, which enables the Investors to hold and
trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates.

In this Issue, the allottees who have opted for Equity Shares in dematerialised form will receive their Equity
Shares in the form of an electronic credit to their beneficiary account with a depository participant. The CAF
shall contain space for indicating number of shares applied for in demat and physical form or both. Investor will
have to give the relevant particulars for this purpose in the appropriate place in the CAF. Applications, which do
not accurately contain this information, will be given the securities in physical form. No separate applications
for securities in physical and/or dematerialized form should be made. If separate applications are made, the
application for physical securities will be treated as multiple applications and is liable to be rejected. In case of
partial allotment, allotment will be done in demat option for the shares sought in demat and balance, if any, will
be allotted in physical shares.

INVESTORS MAY PLEASE NOTE THAT THE EQUITY SHARES OF OUR BANK CAN BE TRADED
ON THE STOCK EXCHANGES ONLY IN DEMATERIALIZED FORM.

Procedure for availing the facility for allotment of Equity Shares in this Issue in the electronic form is as under:

1.   Open a beneficiary account with any depository participant (care should be taken that the beneficiary
     account should carry the name of the holder in the same manner as is exhibited in the records of our Bank.
     In the case of joint holding, the beneficiary account should be opened carrying the names of the holders in
     the same order as with our Bank). In case of Investors having various folios in our Bank with different
     joint holders, the Investors will have to open separate accounts for such holdings. Those Equity
     Shareholders who have already opened such Beneficiary Account (s) need not adhere to this step.

2.   For Equity Shareholders already holding Equity Shares of our Bank in dematerialized form as on the
     Record Date, the beneficial account number shall be printed on the CAF. It may be noted that the
     allotment of Equity Shares arising out of this Issue may be made in dematerialized form even if the
     original Equity Shares of our Bank are not dematerialized. Nonetheless, it should be ensured that the
     Depository Account is in the name(s) of the Equity Shareholders and the names are in the same order as in
     the records of our Bank.

3.   Responsibility for correctness of information (including applicant’s age and other details) filled in the CAF
     vis-à-vis such information with the applicant’s depository participant, would rest with the applicant.
     Applicants should ensure that the names of the applicants and the order in which they appear in CAF
     should be the same as registered with the applicant’s depository participant.

4.   If incomplete / incorrect beneficiary account details are given in the CAF or where the investor does not
     opt to receive the Rights Equity shares in dematerialized form, the applicant will get Equity Shares in
     physical form.

5.   Applicants must necessarily fill in the details (including the beneficiary account number or client ID
     number) appearing in the CAF under the heading ‘Request for shares in Electronic Form’.

6.   Applicants should ensure that the names of the Applicants and the order in which they appear in the CAF
     should be the same as registered with the Applicant’s depository participant.

7.   The Rights Equity Shares pursuant to this Issue allotted to investors opting for dematerialized form, would
     be directly credited to the beneficiary account as given in the CAF after verification. Allotment advice,
     refund order (if any) would be sent directly to the applicant by the Registrar to the Issue but the applicant’s



                                                        115
       depository participant will provide to him the confirmation of the credit of such Equity Shares to the
       applicant’s depository account.

8.     Renouncees will also have to provide the necessary details about their beneficiary account for allotment of
       securities in this Issue. In case these details are incomplete or incorrect, the application is liable to be
       rejected.

9.     Renouncees can also exercise the option to receive Equity Shares in the demat form by indicating in the
       relevant column in the CAF and providing the necessary details about their beneficiary account. It may be
       noted that Equity Share arising out of this Issue can be received in demat form even if the existing Equity
       Shares are held in physical form. Nonetheless, it should be ensured that the depository participant account
       is in the name of the Applicant(s) in the same order as per specimen signatures appearing in the records of
       the depository participant/Bank. It may be noted that shares in electronic form can be traded only on the
       Stock Exchange having electronic connectivity with NSDL or CDSL.

10. Dividend or other benefits with respect to the Equity Shares held in dematerialised form would be paid to
    those Equity Shareholders whose names appear in the list of beneficial owners given by the depository
    participant to our Bank as on the Record Date.

VII.      General instructions for applicants

(a)       Please read the instructions printed on the enclosed CAF carefully.

(b)       Application should be made on the printed CAF, provided by our Bank except as mentioned under the
          head “Application on Plain Paper” and should be completed in all respects. The CAF found
          incomplete with regard to any of the particulars required to be given therein, and/ or which are not
          completed in conformity with the terms of this Letter of Offer are liable to be rejected and the money
          paid, if any, in respect thereof will be refunded without interest and after deduction of bank
          commission and other charges, if any. The CAF must be filled in English and the names of all the
          applicants, details of occupation, address, father’s / husband’s name must be filled in block letters.

(c)       The applicant may accept the issue and apply for the Equity Shares offered, either in full or in part by
          filling Block III of Part A of the enclosed CAF and submit the same along with the application money
          payable to the Bankers to the Issue or any of the branches as mentioned on the reverse of the CAF
          before the close of the banking hours on or before the Issue Closing Date or such extended time as be
          specified by the Board of Directors thereof in this regard.

(d)       Payments should be made in cheque/demand draft drawn on any bank which is situated at and is a
          member of sub-member of the banker’s clearing house located at the centre where application is
          accepted. Outstation cheques/ demand drafts will not be accepted and application(s) accompanied by
          such cheques/demand drafts will be rejected. The Registrar will not accept cash along with CAF.

(e)       The CAF together with cheque / demand draft should be sent to the Bankers to the Issue / Collecting
          Bank or to the Registrar to the Issue and not to our Bank or Lead Manager to the Issue. Applicants
          residing at places other than cities where the branches of the Bankers to the Issue have been authorised
          by our Bank for collecting applications, will have to make payment by Demand Draft payable at
          Mangalore of amount after deducting bank and postal charges, and send their application forms to the
          Registrar to the Issue by REGISTERED POST. If any portion of the CAF is / are detached or separated
          or if the application is sent to anyone other than the Bankers to the Issue / Collecting Bank or to the
          Registrar to the Issue such application is liable to be rejected.

(f)       PAN Number: Whenever the application(s) is/are made, the applicant or in the case of an application in
          joint names, each of the applicants, should mention his/her Permanent Account Number (PAN) allotted
          under the IT Act. The copy of the PAN card or PAN allotment letter is not required to be submitted
          with the CAF. Applications without this information and documents will be considered incomplete and
          are liable to be rejected. It is to be specifically noted that Applicant should not submit the GIR number
          instead of the PAN as the application will get rejected on this ground. In terms of SEBI Circular
          bearing no. MRD/DoP/Cir-20/2008 dated June 30, 2008, certain categories of investors (namely the
          Central Government, State Government, residents of Sikkim and the officials appointed by the courts
          e.g. Official liquidator, Court receiver etc. (under the category of Government)) shall be exempted


                                                        116
      from submitting their PAN, only if such organisations submit sufficient documentary evidence to
      support the veracity of their claim for such exemption.

(g)   Bank Account Details: It is mandatory for applicants to provide information as to their savings/current
      account number and the name of the bank with whom such account is held in the CAF to enable the
      Registrar to the Issue to print the said details in the refund orders, if any, after the names of the payees.
      Application not containing such details is liable to be rejected. SHAREHOLDERS MAY PLEASE
      NOTE THAT FOR SHARES HELD IN DEMAT MODE, THE BANK ACCOUNT DETAILS
      SHALL BE OBTAINED FROM THE DEPOSITORIES. SHAREHOLDERS MAY ENSURE
      THAT THE BANK ACCOUNT DETAILS ARE UPDATED WITH THE DEPOSITORIES.

(h)   Payment by cash: The Registrar will not accept any payments against any applications, if made in cash.
      In case payment is effected in contravention of this, the application may be deemed invalid and the
      application money will be refunded and no interest will be paid thereon.

(i)   Signatures should be either in English or Hindi or in any other language specified in the Eight Schedule
      to the Constitution of India. Signatures other than in English or Hindi and thumb impression must be
      attested by a Notary Public or a Special Executive Magistrate under his/ her official seal. The Equity
      Shareholders must sign the CAF as per the specimen signature recorded with our Bank or depositories.

(j)   In case of an application under power of attorney or by a body corporate or by a society, a certified true
      copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the
      relevant investment under this Issue and to sign the application and a copy of the Memorandum and
      Articles of Association and / or bye laws of such body corporate or society must be lodged with the
      Registrar to the Issue giving reference of the serial number of the CAF. In case the above referred
      documents are already registered with our Bank, the same need not be a furnished again. In case these
      papers are sent to any other entity besides the Registrar to the Issue or are sent after the Issue Closing
      Date, then the application is liable to be rejected. In no case should these papers be attached to the
      application submitted to the Bankers to the Issue.

(k)   In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as
      per the specimen signature(s) recorded with our Bank. Further, in case of joint applicants who are
      renouncees, the number of applicants should not exceed three. In case of joint applicants, reference, if
      any, will be made in the first applicant’s name and all communication will be addressed to the first
      applicant.

(l)   Application(s) received from Non-Resident / NRIs, or persons of Indian origin residing abroad for
      allotment of Equity Shares shall, inter alia, be subject to conditions, as may be imposed from time to
      time by the RBI under FEMA in the matter of refund of application money, allotment of Equity Shares,
      subsequent issue and allotment of Equity Shares, interest, export of share certificates, etc. In case a
      Non-Resident or PIO/NRI Equity Shareholder has specific approval from the RBI, in connection with
      his shareholding, he should enclose a copy of such approval with the CAF. The Abridged Letter of
      Offer and CAF shall be dispatched to non-resident Eligible Equity Shareholders at their Indian
      address only.

(m)   All communication in connection with application for the Equity Shares, including any change in
      address of the Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of
      allotment in this Issue quoting the name of the first / sole applicant Equity Shareholder, folio numbers
      and CAF number. Please note that any intimation for change of address of Equity Shareholders, after
      the date of allotment, should be sent to Registrar to our Bank; Integrated Enterprises India Limited,
      No 30 Ramana Residency 4th Cross, Sampige Road, Malleswaram, Bangalore 560 003 in the case of
      Equity Shares held in physical form and to the respective depository participant, in case of Equity
      Shares held in dematerialized form.

(n)   Split Application Forms cannot be re-split.

(o)   Only the person or persons to whom Equity Shares have been offered and not renouncee(s) shall be
      entitled to obtain split forms.

(p)   Applicants must write their CAF number at the back of the cheque / demand draft.


                                                     117
(q)     Only one mode of payment per application should be used. The payment must be by cheque / demand
        draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member or
        a sub member of the Bankers Clearing House located at the centre indicated on the reverse of the CAF
        where the application is to be submitted.

(r)     A separate cheque / draft must accompany each CAF.

(s)     No receipt will be issued for application money received. The Bankers to the Issue / Collecting Bank/
        Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at
        the bottom of the CAF.

(t)     An applicant which is a mutual fund can make a separate application in respect of each scheme of the
        mutual fund registered with SEBI and such applications in respect of more than one scheme of the
        mutual fund shall not be treated as multiple applications provided that the application clearly indicate
        the scheme concerned for which the application has been made. The application made by the asset
        management company or custodian of a mutual fund shall clearly indicate the name of the concerned
        scheme for which the application is made.

        Procedure for Applications by Mutual Funds

        A separate application can be made in respect of each scheme of an Indian mutual fund registered with
        the SEBI and such applications shall not be treated as multiple applications. The applications made by
        asset management companies or custodians of a mutual fund should clearly indicate the name of the
        concerned scheme for which the application is being made.

Grounds for Technical Rejections

Applicants are advised to note that applications are liable to be rejected on technical grounds, including the
following:

1.      Applications which are not completed or are not accompanied with the application money payable, are
        liable to be rejected;

2.      Amount paid does not tally with the amount payable for;

3.      In case of physical shareholders, bank account details (for refund) are not given;

4.      Age of first applicant not given while completing Part C of CAFs;

5.      PAN allotted under the IT Act has not been mentioned by the applicant, except for CAFs on behalf of
        central or state government officials appointed by the Courts or residents of Sikkim;

6.      In case of Application under power of attorney or by limited companies, corporate, trust, etc., relevant
        documents are not submitted;

7.      If the signature of the existing shareholder does not match with the one given on the Application Form
        and for renouncees if the signature does not match with the records available with their depositories;

8.      If the Applicant desires to receive Equity Shares in electronic form, but the CAF does not have the
        Applicant’s depository account details;

9.      CAF are not submitted by the Applicants within the time prescribed as per the CAF and the Letter of
        Offer and the Abridged Letter of Offer;

10.     Applications not duly signed by the sole/joint Applicants;

11.     Applications by OCBs unless approved by RBI;

12.     Applications accompanied by Stockinvest;


                                                      118
13.      In case no corresponding record is available with the Depositories that matches three parameters,
         namely, names of the Applicants (including the order of names of joint holders), the Depositary
         Participant’s identity (DP ID) and the beneficiary’s identity;

14.      Applications by ineligible Non-residents on account of restriction or prohibition under applicable local
         laws.

15.      Applications that do not include the certification set out in the CAF to the effect that the subscriber is
         not a U.S. Person and is purchasing the Equity Shares in an “offshore transaction” (as defined in
         Regulation S), and is authorised to acquire the Equity Shares in compliance with all applicable laws
         and regulations; and where a registered address in India has not been provided

16.      Applications which have evidence of being executed in/dispatched from the US

17.      Applications where our Bank believes that the CAF is incomplete or acceptance of such CAF may
         infringe applicable legal or regulatory requirements; or

18.      Multiple applications, including where an applicant submits a CAF and a plain paper application.

19.      Duplicate Applications, including cases where an investor submits CAFs along with plain paper
         applications.

20.      Applications by Renouncees who are persons not competent to contract under the Indian Contract Act,
         1872, including minors;

21.      Please read the Abridged Letter of Offer and the instructions contained therein and in the CAF
         carefully before filling in the CAF. The instructions contained in the CAF are an integral part of the
         Letter of Offer and Abridged Letter of Offer and must be carefully followed. An application is liable to
         be rejected for any non-compliance of the provisions contained in this Letter of Offer or the CAF.

As a matter of abundant caution, attention of the Investors is specifically drawn to the provisions of sub-
section (1) of section 68A of the Companies Act which is reproduced below:

"Any person who makes in a fictitious name an application to a Company for acquiring, or subscribing for,
any shares therein, or otherwise induces a Company to allot, or register any transfer of shares therein to
him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may
extend to five years".

Procedure for Application through the Applications Supported by Blocked Amount (“ASBA”) Process

SEBI, by its circular dated August 20, 2009, introduced in rights issue -application supported by blocked
amount wherein the application money remains in the ASBA Account until allotment. Mode of payment
through ASBA in Rights Issue became effective on August 20, 2009. Since this is a new mode of payment in
Rights Issues, set forth below is the procedure for applying under the ASBA procedure, for the benefit of the
shareholders.

This section is only to facilitate better understanding of aspects of the procedure which is specific to
ASBA investors. ASBA investors should nonetheless read this document in entirety.

The Bank and the Lead Manager are not liable for any amendments or modifications or changes in applicable
laws or regulations, which may occur after the date of this Letter of Offer. Equity shareholders who are eligible
to apply under the ASBA process are advised to make their independent investigations and ensure that the
number of Equity Shares applied for by such equity shareholders do not exceed the applicable limits under laws
or regulations.

ASBA Process

An ASBA Investor can submit his application through CAF/plain paper, either in physical or electronic mode, to
the SCSB with whom the bank account of the ASBA Investor or bank account utilised by the ASBA Investor is


                                                       119
maintained. The SCSB shall block an amount equal to the application amount in the ASBA Account specified in
the CAF, physical or electronic, on the basis of an authorisation to this effect given by the account holder at the
time of submitting the CAF. The application data shall thereafter be uploaded by the SCSB in the web enabled
interface of the Stock Exchanges as prescribed under circular issued by SEBI -
SEBI/CFD/DIL/DIP/38/2009/08/20 dated August 20, 2009 or in such manner as may be decided in consultation
with the Stock Exchanges. The amount payable on application shall remain blocked in the ASBA Account until
finalisation of the Basis of Allotment and consequent transfer of the amount against the allocated Equity Shares
to the separate account opened by the Bank for Rights Issue or until failure of the Issue or until rejection of the
ASBA application, as the case may be. Once the basis of Allotment is finalized, the Registrar to the Issue shall
send an appropriate request to the Controlling Branch for unblocking the relevant ASBA Accounts and for
transferring the amount allocable to the successful ASBA Investors to the separate account opened by the Bank
for Rights Issue. In case of withdrawal/failure of the Issue, the blocked amount shall be unblocked on receipt of
such information from the Registrar to the Issue

The Lead Manager, our Bank, its directors, and officers and the Registrar to the Issue shall not take any
responsibility for acts, mistakes, errors, omissions and commissions etc. in relation to applications
accepted by SCSBs, Applications uploaded by SCSBs, applications accepted but not uploaded by SCSBs
or applications accepted and uploaded without blocking funds in the ASBA Accounts. It shall be
presumed that for applications uploaded by SCSBs, the amount payable on application has been blocked
in the relevant ASBA Account.

Equity Shareholders who are eligible to apply under the ASBA Process

The option of applying for Equity Shares in the Issue through the ASBA Process is only available to a
shareholder of our Bank on the Record Date and who:

    •    Is holding Equity Shares in dematerialised form and has applied for entitlements or additional Equity
         Shares in the Issue in dematerialised form;
    •    Has not renounced his entitlements in full or in part;
    •    Has not split the CAF;
    •    Is not a Renouncee to the Issue;
    •    Who applies through a bank account with one of the SCSBs.

CAF

The Registrar will dispatch the CAF to all Equity Shareholders as per their entitlement on the Record Date for
the Issue. Those Equity Shareholders who wish to apply through the ASBA payment mechanism will have to
select for this mechanism in Part A of the CAF and provide necessary details. Equity Shareholders desiring to
use the ASBA Process are required to submit their applications by selecting the ASBA Option in Part A of the
CAF only. Application in electronic mode will only be available with such SCSB who provides such facility.
The Equity Shareholder shall submit the CAF to the SCSB for authorizing such SCSB to block an amount
equivalent to the amount payable on the application in the said bank account maintained with the same SCSB.
Please note, no more than 5 applications (including CAF and plain paper) can be submitted per bank account in
the Issue.

Application on Plain Paper

An Equity Shareholder who has neither received the original CAF nor is in a position to obtain a duplicate CAF
and wanting to apply under ASBA process may make an application to subscribe for the Issue on plain paper.

The application on plain paper, duly signed by the applicants including joint holders, in the same order as per
specimen recorded with our Bank, must be submitted at a designated branch of a SCSB on or before the Issue
Closing Date and should contain the following particulars;

    •    Name of the issuer, being The Karnataka Bank Limited;

    •    Name and address of the Equity Shareholder, including any joint holders;

    •    DP ID number and client ID number;


                                                       120
    •    Number of Equity Shares held as on the Record Date;

    •    Rights Entitlement;

    •    Number of Equity Shares applied for;

    •    Number of additional Equity Shares applied for, if any;

    •    Total number of Equity Shares applied for;

    •    Savings/Current Account Number along with name and address of the SCSB and Branch from which
         the money will be blocked ;

    •    The permanent account number (PAN) of the Equity Shareholder and where relevant, for each joint
         holder, except in respect of Central and State Government officials, residents of Sikkim and officials
         appointed by the court (e.g., official liquidators and court receivers) who, in terms of a SEBI circular
         dated June 30, 2008, may be exempt from specifying their PAN for transacting in the securities market,
         subject to submitting sufficient documentary evidence in support of their claim for exemption,
         provided that such transactions are undertaken on behalf of the Central and State Government and not
         in their personal capacity;

    •    A representation that the Equity Shareholder is not a “U.S. Person” (as defined in Regulation S under
         the Securities Act);

    •    Signature of the Equity Shareholders to appear in the same sequence and order as they appear in the
         records of our Bank;

    •    In case of Non Resident Shareholders, NRE/FCNR/NRO A/c no., Name and address of the SCSB and
         Branch

    •    In the application, the ASBA Investor shall, inter alia, give the following confirmations/declarations:

         a. That he/she is an ASBA Investor as per the SEBI ICDR Regulations; and

         b. That he/she has authorized the SCSBs to do all acts as are necessary to make an application in the
           Issue, upload his/her application data, block or unblock the funds in the ASBA Account and transfer
           the funds from the ASBA Account to the separate account maintained by our Bank for Rights Issue
           after finalization of the basis of Allotment entitling the ASBA Investor to receive Equity Shares in
           the Issue etc

The Equity Shareholder shall submit the plain paper application to the SCSB for authorising such SCSB to
block an amount equivalent to the amount payable on the application in the said bank account maintained with
the same SCSB

If an applicant makes an application in more than one mode i.e. both in the Composite Application Form and on
plain paper, then both the applications may be liable for rejection.

The list of banks that have been notified by SEBI to act as SCSB for the ASBA Process are provided on
http://www.sebi.gov.in/pmd/scsb.html. For details on designated branches of SCSB collecting the CAF, please
refer the above mentioned SEBI link.

If the Investor violates any of these requirements, he/she shall face the risk of rejection of both the applications.
Our Bank shall refund such application amount to the Investor without any interest thereon.

Acceptance of the Issue

You may accept the Issue and apply for the Equity Shares offered, either in full or in part, by filling Part A of
the CAF sent by the Registrar, selecting the ASBA process option in Part A of the CAF and submit the same to


                                                        121
the SCSB before the close of the banking hours on or before the Issue Closing Date or such extended time as
may be specified by the Board of Directors of our Bank in this regard.

Mode of payment

The shareholder applying under the ASBA Process agrees to block the entire amount payable on application
(including for additional Equity Shares, if any) with the submission of the CAF, by authorizing the SCSB to
block an amount, equivalent to the amount payable on application, in a bank account maintained with the SCSB.

After verifying that sufficient funds are available in the bank account provided in the CAF, the SCSB shall
block an amount equivalent to the amount payable on application mentioned in the CAF until it receives
instructions from the Registrar. Upon receipt of intimation from the Registrar, the SCSBs shall transfer such
amount as per Registrar’s instruction allocable to the Shareholders applying under the ASBA Process from bank
account with the SCSB mentioned by the Shareholder in the CAF. This amount will be transferred in terms of
the SEBI ICDR Regulations, into the separate bank account opened by our Bank for the Rights Issue. The
balance amount remaining after the finalisation of the basis of allotment shall be unblocked by the SCSBs on
the basis of the instructions issued in this regard by the Registrar to the Issue and the Lead Manager to the
respective SCSB.

The shareholders applying under the ASBA Process would be required to block the entire amount payable on
their application at the time of the submission of the CAF. The SCSB may reject the application at the time of
acceptance of CAF if the bank account with the SCSB details of which have been provided by the Shareholder
in the CAF does not have sufficient funds equivalent to the amount payable on application mentioned in the
CAF. Subsequent to the acceptance of the application by the SCSB, our Bank would have a right to reject the
application only on technical grounds.

Options available to the shareholder applying under the ASBA Process

The summary of options available to the Shareholders is presented below. You may exercise any of the
following options with regard to the Equity Shares offered, using the CAF received from Registrar:

Option Available                                          Action Required
1 Accept whole or part of your entitlement without        Fill in and sign Part A of the CAF (All joint holders
renouncing the balance.                                   must sign)
2 Accept your entitlement in full and apply for           Fill in and sign Part A of the CAF including Block III
additional Equity Shares                                  relating to the acceptance of entitlement and Block IV
                                                          relating to additional Equity Shares (All joint holders
                                                          must sign)

The shareholder applying under the ASBA Process will need to select the ASBA option process in the
CAF and provide required necessary details. However, in cases where this option is not selected, but the
CAF is tendered to the SCSB with the relevant details required under the ASBA process option and
SCSB blocks the requisite amount, then that CAF would be treated as if the shareholder has selected to
apply through the ASBA process option.

Additional Equity Shares

You are eligible to apply for additional Equity Shares over and above the number of Equity Shares (as the case
may be) that you are entitled too, provided that you have applied for all the Shares (as the case may be) offered
without renouncing them in whole or in part in favour of any other person(s). Applications for additional shares
shall be considered and allotment shall be made at the sole discretion of the Board, in consultation with the
Designated Stock Exchange and in the manner prescribed under paragraph titled “Basis of Allotment” on Page
111 of this Letter of Offer.

If you desire to apply for additional shares, please indicate your requirement in the place provided for additional
Securities in Part A of the CAF.

Renunciation under the ASBA Process

Renouncees cannot participate in the ASBA Process.

                                                       122
Last date of Application

The last date for submission of the duly filled in CAF is Tuesday, March 22, 2011. The Issue will be kept open
for a minimum of 15 (fifteen) days and the Board or any committee thereof will have the right to extend the said
date for such period as it may determine from time to time but not exceeding 30 (thirty) days from the Issue
Opening Date. If the CAF together with the amount payable is not received by the Bankers to the Issue/Registrar
to the Issue or if the CAF is not received by the SCSB on or before the close of banking hours on the aforesaid
last date or such date as may be extended by the Board/Committee of Directors, the offer contained in this Letter
of Offer shall be deemed to have been declined and the Board/Committee of Directors shall be at liberty to
dispose of the Equity Shares hereby offered, as provided under paragraph titled “Basis of Allotment” on Page no
111 of this Letter of Offer.

Option to receive Equity Shares in Dematerialized Form

SHAREHOLDERS UNDER THE ASBA PROCESS MAY PLEASE NOTE THAT THE EQUITY
SHARES OF OUR BANK UNDER THE ASBA PROCESS CAN ONLY BE ALLOTTED IN
DEMATERIALIZED FORM AND TO THE SAME DEPOSITORY ACCOUNT IN WHICH THE
EQUITY SHARES ARE BEING HELD ON RECORD DATE.

Issuance of Intimation Letters

Upon approval of the basis of Allotment by the Designated Stock Exchange, the Registrar to the Issue shall send
the Controlling Branches, a list of the ASBA Investors who have been allocated Equity Shares in the Issue,
along with:

 •     The number of Equity Shares to be allotted against each successful ASBA;
 •     The amount to be transferred from the ASBA Account to the separate account opened by our Bank for
       Rights Issue, for each successful ASBA; and
 •     The details of rejected ASBAs, if any, along with reasons for rejection to enable SCSBs to unblock the
       respective ASBA Accounts.

General instructions for shareholders applying under the ASBA Process

(a)   Please read the instructions printed on the CAF carefully.

(b)   Application should be made on the printed CAF/ plain paper only and should be completed in all
      respects. The CAF/ plain paper application found incomplete with regard to any of the particulars
      required to be given therein, and/or which are not completed in conformity with the terms of this Letter of
      Offer are liable to be rejected. The CAF/ plain paper application must be filled in English.

(c)   The CAF/ plain paper application in the ASBA Process should be submitted at a Designated Branch of
      the SCSB and whose bank account details are provided in the CAF and not to the Bankers to the
      Issue/Collecting Banks (assuming that such Collecting Bank is not a SCSB), to our Bank or Registrar or
      Lead Manager to the Issue.

(d)   All applicants, and in the case of application in joint names, each of the joint applicants, should mention
      his/her PAN number allotted under the Income-Tax Act, 1961, irrespective of the amount of the
      application. CAFs without PAN will be considered incomplete and are liable to be rejected.

(e)   All payments will be made by blocking the amount in the bank account maintained with the SCSB. Cash
      payment is not acceptable. In case payment is affected in contravention of this, the application may be
      deemed invalid and the application money will be refunded and no interest will be paid thereon.

(f)   Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule
      to the Constitution of India. Thumb impression and Signatures other than in English or Hindi must be
      attested by a Notary Public or a Special Executive Magistrate under his/her official seal. The shareholders
      must sign the CAF as per the specimen signature recorded with our Bank/or Depositories.




                                                      123
(g)        In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as
           per the specimen signature(s) recorded with our Bank. In case of joint applicants, reference, if any, will
           be made in the first applicant’s name and all communication will be addressed to the first applicant.

(h)        All communication in connection with application for the Rights Equity Shares, including any change in
           address of the shareholders should be addressed to the Registrar to the Issue prior to the date of allotment
           in this Issue quoting the name of the first/sole applicant Shareholder, folio numbers and CAF number.

(i)        Only the person or persons to whom the Rights Equity Shares have been offered and not renouncee(s)
           shall be eligible to participate under the ASBA process.

Do’s:

      a.     Ensure that the ASBA Process option is selected in part A of the CAF and necessary details are filled
             in. In case of non- receipt of the CAF, the application can be made on plain paper indicating the
             application through ASBA payment mechanism with all necessary details as indicated in this section
             titled “Terms and Procedure of the Issue” on Page no 98 of this Letter of Offer.

      b.     Ensure that you submit your application in physical mode only. Electronic mode is only available with
             certain SCSBs and not all SCSBs and you should ensure that your SCSB offers such facility to you.

      c.     Ensure that the details about your Depository Participant and beneficiary account are correct and the
             beneficiary account is activated as Equity Shares will be allotted in the dematerialized form only.

      d.     Ensure that the CAFs are submitted at the SCSBs whose details of bank account have been provided in
             the CAF.

      e.     Ensure that you have mentioned the correct bank account number in the CAF.

      f.     Ensure that there are sufficient funds (equal to {number of Equity Shares applied for} X {Issue Price
             per Equity Share as the case may be}] available in the bank account maintained with the SCSB
             mentioned in the CAF before submitting the CAF to the respective Designated Branch of the SCSB.

      g.      Ensure that you have authorised the SCSB for blocking funds equivalent to the total amount payable
             on application mentioned in the CAF, in the bank account maintained with the respective SCSB, of
             which details are provided in the CAF and have signed the same.

      h.     Ensure that you receive an acknowledgement from the SCSB for your submission of the CAF in
             physical form.

      i.     Each applicant should mention their Permanent Account Number (“PAN”) allotted under the I. T. Act.

      j.     Ensure that the name(s) given in the CAF is exactly the same as the name(s) in which the beneficiary
             account is held with the Depository Participant. In case the CAF is submitted in joint names, ensure
             that the beneficiary account is also held in same joint names and such names are in the same sequence
             in which they appear in the CAF.

      k.     Ensure that the Demographic Details are updated, true and correct, in all respects.

Don’ts:

      1.     Do not apply on duplicate CAF after you have submitted a CAF to a Designated Branch of the SCSB.

      2.     Do not pay the amount payable on application in cash, by money order or by postal order.

      3.     Do not send your physical CAFs to the Lead Manager to Issue / Registrar / Collecting Banks (assuming
             that such Collecting Bank is not a SCSB) / to a branch of the SCSB which is not a Designated Branch
             of the SCSB / Bank; instead submit the same to a Designated Branch of the SCSB only.

      4.     Do not submit the GIR number instead of the PAN as the application will get rejected on this ground.


                                                           124
    5.   Do not instruct their respective banks to release the funds blocked under the ASBA Process.

    6.   Do not submit more than 5 applications (including CAF and plain paper applications) per bank account
         maintained with an SCSB for the Issue.

Grounds for Technical Rejection for ASBA Process:

In addition to the grounds listed under paragraph titled “Grounds for Technical Rejection” mentioned on Page
no 118 of this Letter of Offer, applications under ASBA Process can be rejected on following additional
grounds:

    a.   Application on split form.

    b.   Application for entitlements or additional shares in physical form.

    c.   DP ID and Client ID mentioned in CAF not matching with the DP ID and Client ID records available
         with the Registrar.

    d.   Sending CAF to a Lead Manager / Registrar / Collecting Bank (assuming that such Collecting Bank is
         not a SCSB) / to a branch of a SCSB which is not a Designated Branch of the SCSB / Bank.

    e.   Renouncee applying under the ASBA Process.

    f.   Insufficient funds are available with the SCSB for blocking the amount.

    g.   Funds in the bank account with the SCSB whose details are mentioned in the CAF having been frozen
         pursuant to regulatory orders.

    h.   Application for RTS entitlements or additional shares in physical form.

    i.   Account holder not signing the CAF or declaration mentioned therein.

    j.   Application by shareholder holding Equity Shares in physical form

COMMUNICATIONS

All future communication in connection with ASBA applications made in this Issue should be addressed
to the Registrar to the Issue quoting the full name of the sole or first ASBA Investor, CAF number,
details of Depository Participant, number of Equity Shares applied for, date of CAF, name and address of
the Designated Branch where the application was submitted and bank account number of the ASBA
Account, with a copy to the relevant SCSB. The Registrar to the Issue shall obtain the required
information from the SCSBs for addressing any clarifications or grievances. The SCSB shall be
responsible for any damage or liability resulting from any errors, fraud or willful negligence on the part
of any employee of the concerned SCSB, including its Designated Branches and the branches where the
ASBA Accounts are held.

ASBA Investors can contact the Compliance Officer, the Designated Branch where the application was
submitted, or the Registrar to the Issue in case of any pre or post-Issue related problems such as
nonreceipt of credit of Allotted Equity Shares in the respective beneficiary accounts, blocking of excess
Amount, etc.

Depository account and bank details for shareholders applying under the ASBA Process

IT IS MANDATORY FOR ALL THE SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS
TO RECEIVE THEIR EQUITY SHARES IN DEMATERIALISED FORM. ALL SHAREHOLDERS
APPLYING UNDER THE ASBA PROCESS SHOULD MENTION THEIR DEPOSITORY
PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND
BENEFICIARY ACCOUNT NUMBER IN THE CAF. SHAREHOLDERS APPLYING UNDER THE
ASBA PROCESS MUST ENSURE THAT THE NAME GIVEN IN THE CAF IS EXACTLY THE SAME


                                                       125
AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. IN CASE THE CAF IS
SUBMITTED IN JOINT NAMES, IT SHOULD BE ENSURED THAT THE DEPOSITORY ACCOUNT
IS ALSO HELD IN THE SAME JOINT NAMES AND ARE IN THE SAME SEQUENCE IN WHICH
THEY APPEAR IN THE CAF.

Shareholders applying under the ASBA Process should note that on the basis of name as provided by
them, Depository Participant’s name and identification number and beneficiary account number
provided by them in the CAF, the Registrar to the Issue will obtain from the Depository their
demographic details such as address, bank account details for printing on refund orders / advice and
occupation (“Demographic Details”). Hence, shareholders applying under the ASBA Process should
carefully fill in their Depository Account details in the CAF.

These Demographic Details would be used for all correspondence with such shareholders including mailing of
the letters intimating unblock of bank account of the respective Shareholder. The Demographic Details given by
shareholders in the CAF would not be used for any other purposes by the Registrar. Hence, shareholders are
advised to update their Demographic Details as provided to their Depository Participants. By signing the CAFs,
the shareholders applying under the ASBA Process would be deemed to have authorised the Depositories to
provide, upon request, to the Registrar to the Issue, the required Demographic Details as available on its records.

Letters intimating allotment and unblocking or refund (if any) would be mailed at the address of the
shareholder applying under the ASBA Process as per the Demographic Details received from the
Depositories. Refunds, if any, will be made directly to the bank account in the SCSB and which details are
provided in the CAF and not the bank account linked to the DP ID. Shareholders applying under the
ASBA Process may note that delivery of letters intimating unblocking of bank account may get delayed if
the same once sent to the address obtained from the Depositories are returned undelivered. In such an
event, the address and other details given by the shareholder in the CAF would be used only to ensure
dispatch of letters intimating unblocking of bank account.

Note that any such delay shall be at the sole risk of the shareholders applying under the ASBA Process
and none of the Bank, the SCSBs or the Lead Manager shall be liable to compensate the Shareholder
applying under the ASBA Process for any losses caused to such Shareholder due to any such delay or
liable to pay any interest for such delay.

In case no corresponding record is available with the Depositories that matches three parameters, namely, names
of the shareholders (including the order of names of joint holders), the DP ID and the beneficiary account
number, then such applications are liable to be rejected.

Disposal of application and application money

No acknowledgment will be issued for the application moneys received by our Bank. However, the Bankers to
the Issue / Registrar to the Issue receiving the CAF will acknowledge its receipt by stamping and returning the
acknowledgment slip at the bottom of each CAF.

In case an application is rejected in full, the whole of the application money received will be refunded.
Wherever an application is rejected in part, the balance of application money, if any, after adjusting any money
due on Equity Shares allotted, will be refunded to the applicant within fifteen days from the close of the Issue.
The dispatch of share certificates/ refund orders and demat credit will be completed and the allotment and listing
documents will be submitted to the stock exchanges within fifteen days from the close of Issue.

For further instruction, please read the paragraph titled “Options available to the Equity Shareholders”
beginning on Page no 103 of this Letter of Offer carefully.

Restriction on Share Capital and Voting Rights

Banks can issue only ordinary shares. The Banking Regulation Act specifies that no shareholder in a banking
company can exercise voting rights on poll in excess of 10% of total voting rights of all the shareholders of the
banking company.

Any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or more of the
paid up capital of the bank would require acknowledgement of RBI in terms of the criteria laid down in the RBI


                                                       126
guidelines contained in the Circular DBOD. NO.PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004.
Further, in terms of the guidelines on ownership and governance issued on February 28, 2005 any acquisition
that will take the shareholding of any entity/ group, directly or indirectly, to 10% or more of the paid-up capital
of the bank will require the prior approval of RBI

Restriction on foreign ownership of Banks

The Government of India regulates foreign ownership in private sector banks. Under guidelines issued by the
Government, total foreign ownership in a private sector Bank from all sources (FDI, FII, NRI) cannot exceed 74
percent of the paid-up capital. The limit of 74 per cent will be reckoned by taking the direct and indirect
holding. In other words, at all times, at least 26 per cent of the paid up capital of the private sector bank will
have to be held by residents. Presently, the FII shareholding limit of our Bank is 49% of our paid up capital as
approved by the shareholders at its meeting held on July 7, 2006.

RELEVANT RBI PROVISIONS

Rights issues by private sector banks – Acknowledgement of transfer / allotment of shares

1) In terms of RBI Circular DBOD.No.PSBS.BC.79/16.13.100 /2001-2002 dated March 20, 2002, listed as
   well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue.

2) While reviewing the following issues have emerged with reference to percentage of holding at the time of
   rights issue:-
   a) When some shareholders (individuals/ entities / groups) pick up unsubscribed shares which would
        result in his / its holding going up as a percentage of total paid up capital of the bank.
   b) When Some shareholders not picking up their entitlements, holdings of the other shareholders would
        go up in percentage even if they pick up their own entitlements.

The above matter has been examined from the point of view of applicability of RBI Circular DBOD. NO.PSBS.
BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004 on acknowledgement of transfer/ allotment of shares in
private sector banks and DBOD. NO. BP.BC.71/ 21.01.01/ 2004-05 dated February 28, 2005 on ownership and
governance and also the regulatory limits such as the cap for the aggregate FDI/FII/NRI holdings and the 5%
limit for a bank’s investment in equity of another bank.

The RBI has advised banks going for rights issue to make complete disclosure of the regulatory requirements in
the offer documents, including the following that:

    i.        Subscription to rights other than own entitlement will not be permitted if such subscription would
              result in breach of any statutory / regulatory ceilings

    ii.       Any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or
              more of the paid up capital of the bank would require acknowledgement of RBI in terms of the
              criteria laid down in the RBI guidelines contained in the Circular DBOD. NO.PSBS. BC. 64/
              16.13.100/ 2003-04 dated February 3, 2004. Further, in terms of the guidelines on ownership and
              governance issued on February 28, 2005 any acquisition that will take the shareholding of any
              entity/ group, directly or indirectly, to 10% or more of the paid-up capital of the bank will require
              the prior approval of RBI

    iii.      If the holding of any shareholder breaches any statutory / regulatory ceilings as a result of non-
              subscription of rights by other shareholders, the shareholder concerned will not be able to acquire
              any further shares till his/ its shareholding is brought within the stipulated ceilings.

In case the permission to deal in and for an official quotation of the Equity Shares is not granted by the Stock
Exchanges, our Bank shall forthwith repay without interest, all monies received from the applicants in
pursuance of this Letter of Offer and if such money is not repaid within eight days after the day from which our
Bank is liable to repay it, i.e. fifteen days after closure of the Issue, we shall pay interest at the rate of 15% p.a.
as prescribed under Section 73 (2) / 73 (2A) of the Companies Act, 1956.

The above is subject to the terms mentioned under the section titled “Basis of Allotment” on page 111 of this
Letter of Offer.


                                                         127
General Instructions

Issue Period

Issue Opens on                                                     Tuesday, March 8, 2011
Last date for receiving request for Split                          Monday, March 14, 2011

Application Forms
Issue Closes on                                                    Tuesday, March 22, 2011

8. The Board may however decide to extend the Issue period as it may determine from time to time but not
exceeding 30 days including the Issue Opening Date.

9.   Allotment Schedule

     1.   Our Bank agrees that as far as possible allotment of the Rights Equity Shares offered to the
          shareholders shall be made within 15 days from the date of the closure of the Issue.

     2.   Our Bank further agrees that it shall pay interest @ 15% per annum for the delayed period if the
          allotment has not been made and/or allotment letters / the refund orders have not been dispatched to the
          applicants/ refund instruction beyond 8 days from the date specified above.

10. General

Applications should be made only on the prescribed CAFs provided by our Bank and should be complete in all
respects. Applications which are not complete or which are not accompanied with remittance of the proper
amount calculated as aforesaid are liable to be rejected and the money paid in respect thereof will be refunded
without interest.

The CAF must be filled in English in BLOCK LETTERS.

In case of joint holders, all joint holders must sign the CAF at the appropriate places in the same order as per
specimen signatures recorded in the Register of Members of our Bank / Depository.

In case of renouncee(s), the name of the applicant(s), details of occupation, address and father’s/husband’s name
must be filled in Block Letters.

The CAF must be submitted to the Collection Centres as mentioned in the CAF/ Registrar to the Issue, as the
case may be, in its entirety. If any of the parts A, B, C, D and the acknowledgement of the CAF is/are detached
or separated; such applications will be rejected forthwith.

Any dispute or suit or action or proceeding arising out of or in relation to this Letter of Offer or this Issue or in
respect of any matter or thing contained therein and any claim by either party against the other shall be instituted
or adjudicated upon or decided solely by the appropriate Court in Mangalore .

All communications in connection with your application for the Equity Shares should be addressed to the
Registrars to the Issue.

Shareholder’s Depository Account and Bank details

Shareholder’s applying for shares in demat mode should note that on the basis of the name of the shareholder(s),
Depository Participant’s Name, Depository Participant’s Identification Number and Beneficiary Account
Number provided by them in the CAF, the Registrars to the Issue will obtain from the Depository the
demographic details including the address, Shareholders bank account details, MICR code and occupation
(hereinafter referred to as ‘Demographic Details’). These bank account details would be used for giving refunds
to the shareholder(s). Hence, the shareholder(s) are requested to immediately update their bank account details

                                                        128
as appearing in the records of the Depository Participant. Please note that failure to do so could result in delays
in dispatch / credit of refunds to the shareholder(s) at the shareholder(s) sole risk and neither the Lead
Manager’s or the Registrars or the Refund Banker nor our Bank shall have any responsibility and undertake any
liability for the same. Hence, applicants should carefully fill their Depository Account details in the Composite
Application Form.

These demographic details would be used for all correspondences with the shareholder(s) including mailing of
Allotment advice and printing of bank particulars on the refund order or for refunds through electronic transfer
of funds, as applicable. By signing the Composite Application Form the shareholder(s) would be deemed to
have authorized the depositories to provide, upon request, to the Registrar to the Issue, the required
Demographic Details as available in its records.

In case of shareholder(s) receiving refunds through electronic transfer of funds, delivery of refund
orders/allocation advice gets delayed if the same once sent to the address obtained from the depositories are
returned undelivered.

INVESTORS MAY PLEASE NOTE THAT THE EQUITY SHARES OF OUR BANK CAN BE
TRADED ON THE STOCK EXCHANGE ONLY IN DEMATERIALIZED FORM.

Important

1.       Please read this Letter of Offer carefully before taking any action. The instructions contained in the
         Composite Application Form (CAF) are an integral part of the conditions of this Letter of Offer and the
         Abridged Letter of Offer and must be carefully followed otherwise the application is liable to be
         rejected.

All enquiries in connection with the Letter of Offer or accompanying CAF and requests for Split Application
Forms must be addressed (quoting the Registered Folio Number/ DP and Client ID number, the CAF number
and the name of the first Equity Shareholder as mentioned on the CAF and superscribed THE KARNATAKA
BANK LIMITED -Rights Issue on the envelope) to the Registrar to the Issue at the following address:

         Integrated Enterprises India Limited
         No 30 Ramana Residency 4th Cross,
         Sampige Road, Malleswaram,
         Bangalore 560 003
         Telephone: + 91 80 23460815-818
         Facsimile: + 91 80 23460819
         E-mail: alfint@vsnl.com
         Investor Grievance E-mail: ktkbankrights@vsnl.net
         Website:www.iepindia.com
         Contact Person: Mr. S. Vijayagopal
         SEBI Registration No: INR 000000544

2.       It is to be specifically noted that this Issue of Equity Shares is subject to the section entitled “Risk
         Factors” beginning on Page no 8 of this Letter of Offer

3.       Our Bank will not be liable for any postal delays and applications received through mail after the
         closure of the Issue, are liable to be rejected and returned to the applicants.

The Issue will not be kept open for more than 15 days unless extended, in which case it will be kept open for a
maximum of 30 days.




                                                       129
                   MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The contracts referred to below (not being contracts entered into in the ordinary course of business carried on by
our Bank or entered into more than two years prior to the date of the Draft Letter of Offer) which are or may be
deemed material have been entered into by our Bank or are to be entered into by our Bank. Copies of these
contracts, together with the copies of the documents referred to below, may be inspected at the Registered and
Head Office of our Bank between 10.00 A.M. and 3.00 P.M. on any working day of our Bank from the date of
the Draft Letter of Offer until the date of closing of the subscription list.

A) Material contracts

1. Engagement Letter dated September 20, 2010 between our Bank and Edelweiss Capital Limited appointing
   them as the Lead Manager to the Issue.
2. Issue Agreement between our Bank and Edelweiss Capital Limited dated October 15, 2010.
3. Agreement between our Bank and Integrated Enterprises India Limited dated October 15, 2010 to act as
   Registrar to the Issue.
4. Escrow letter dated January 28, 2011 from the Bankers to the Issue to Edelweiss Capital Limited.

B) Documents

1.    Our Memorandum and Articles of Association as amended from time to time.
2.    Board resolution in relation to the Issue passed on July 30, 2010.
3.    Shareholders Resolution in relation to the Issue passed on September 9, 2010.
4.    Letter of Offer of the Rights Issue (being the last rights issue) dated January 07, 2005.
5.    RBI letter no. DBOD No. 20953/08.40.001/2008-09 dated June 8, 2009 granting approval for appointment
      of Mr P Jayarama Bhat as Managing Director of our Bank.
6.    RBI letter No. DBOD.No. 20957/08.40.001/2008-09 dated June 8, 2009 granting approval for the
      appointment of Mr. Ananthakrishna as Part-time Non-Executive Chairman of our Bank.
7.    Consents of Lead Manager, Registrar to the Issue, Legal Advisor to the Issue, Auditors, Directors of our
      Bank, Compliance Officer, as referred to, in their respective capacities.
8.    Annual reports of our Bank for last five years.
9.    Limited Review of the Auditors dated January 24, 2011 for the unaudited financial results for the nine
      months and quarter ended December 31, 2010
10.   Report of the Auditors dated October 15, 2010 in relation to the Financial Statements of our Bank for the
      year ended March 31, 2010.
11.   Report of the Auditors dated October 15, 2010 in relation to the Limited Review of Financial Statements
      of our Bank for the half year ended September 30, 2010.
12.   Statement of Tax Benefits dated January 24, 2011.
13.   Initial listing applications for this Rights Issue dated October 19, 2010 filed with the BSE and the NSE
      respectively.
14.   In-principle listing approval dated November 10, 2010 and November 11, 2010 received from the BSE and
      the NSE respectively.
15.   Tripartite Agreement between NSDL, our Bank and the Registrar and the Alpha Systems Private Limited*
      for the Bank dated October 16, 2000.
16.   Tripartite Agreement between CDSL, our Bank and the Alpha Systems Private Limited* for the Bank
      dated October 14, 2000.
17.   Due diligence certificate dated October 15, 2010 to SEBI from the Lead Manager.
18.   SEBI Observation Letter bearing no. CFD/DIL/SM/1689/2011 dated January 14, 2011.

*Pursuant to the scheme of merger Alpha Systems Private Limited has merged with Integrated Enterprises India
Limited.

Any of the contracts or documents mentioned in this Letter of Offer may be amended or modified at any time if
so required in the interest of our Bank or if required by the other parties, without reference to the shareholders
subject to compliance of the applicable laws.




                                                       130
TH
  IS
       PA
         G
             E
                 H
                     AS
                          BE
                            EN
                                 IN
                                      TE
                                        N
                                            TI
                                                 O
                                                     NA
                                                        LL
                                                          Y
                                                              LE
                                                                FT
                                                                     BL
                                                                       AN
                                                                            K

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:140
posted:6/26/2011
language:English
pages:191