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					                                                                                                                                        IDBI FLEXIBONDS 19

                                                                               TABLE OF CONTENTS



PREAMBLE .................................................................................................................................................................................         1

ABBREVIATIONS USED ............................................................................................................................................................                    2

RISK FACTORS ..........................................................................................................................................................................            3

INSTRUMENTS AT A GLANCE ..................................................................................................................................................                         9

GENERAL INFORMATION .........................................................................................................................................................                     11

Target Amount .............................................................................................................................................................................       11

Issue Schedule ............................................................................................................................................................................       11

Authority for the Issue .................................................................................................................................................................         11

Eligibility of IDBI to come out with the issue ...............................................................................................................................                    12

Terms of the Issue .......................................................................................................................................................................        12

Objects of the Issue ....................................................................................................................................................................         12

Utilization of Funds ......................................................................................................................................................................       12

Disclaimer ....................................................................................................................................................................................   12

Filing of the Draft Shelf Offer Document .....................................................................................................................................                    13

General Disclaimer ......................................................................................................................................................................         13

Fictitious Applications ..................................................................................................................................................................        13

Disclaimer in respect of jurisdiction ............................................................................................................................................                13

Consents ......................................................................................................................................................................................   13

Minimum Subscription .................................................................................................................................................................            14

Credit Rating ................................................................................................................................................................................    14

Underwriting .................................................................................................................................................................................    15

ISSUE MANAGEMENT TEAM

LEAD MANAGERS ......................................................................................................................................................................              15

Co-managers ...............................................................................................................................................................................       15

Principal Marketing Co-ordinator .................................................................................................................................................                16

Registrar to the Issue ..................................................................................................................................................................         16

Trustee to the Bondholders .........................................................................................................................................................              16

Bankers to the Issue ...................................................................................................................................................................          16

CAPITAL STRUCTURE ..............................................................................................................................................................                  17

Share Capital History of IDBI ......................................................................................................................................................              18

Notes on Capital Structure ..........................................................................................................................................................             19

PRINCIPAL TERMS OF THE BONDS .......................................................................................................................................                              20

IDBI INFRASTRUCTURE (Tax Saving) BOND (2004 A) ............................................................................................................                                       20

IDBI MONEY MULTIPLIER BOND (2004 A) ..............................................................................................................................                                21




                                                                                                                                                                                                       i
     IDBI FLEXIBONDS 19

      IIDBI RETIREMENT BOND (2004 A) .........................................................................................................................................                             22

      IDBI REGULAR INCOME BOND (2004 A) .................................................................................................................................                                  23

      COMMON TERMS ......................................................................................................................................................................                  24

      Terms of Payment .......................................................................................................................................................................             24

      Investment holding and Market Lot .............................................................................................................................................                      25

      Depository Arrangement .............................................................................................................................................................                 25

      Procedure for opting for demat facility ........................................................................................................................................                     25

      Electronic Clearing Service for Payment of Interest ...................................................................................................................                              26

      Listing ..........................................................................................................................................................................................   26

      Nature of Instruments ..................................................................................................................................................................             26

      Tax Deduction at Source .............................................................................................................................................................                26

      Amendment of the Terms of the Bonds ......................................................................................................................................                           26

      Right to Purchase/ Reissue Bond(s) ...........................................................................................................................................                       27

      Future Borrowings / Issues .........................................................................................................................................................                 27

      Trustees to the Bondholders .......................................................................................................................................................                  27

      Rights of Bondholder (s) ..............................................................................................................................................................              28

      Role, Power and Obligations of Trustees ...................................................................................................................................                          28

      RETIREMENT AND REMOVAL OF TRUSTEES .......................................................................................................................                                           29

      Loan Facility against Pledge of Bonds ........................................................................................................................................                       29

      Market Making .............................................................................................................................................................................          29

      Compliance Officer ......................................................................................................................................................................            29

      ALLOTMENT AND REFUNDS

      Deemed Date of Allotment ..........................................................................................................................................................                  30

      Basis of Allotment .......................................................................................................................................................................           30

      Despatch of Bond Certificates and Refund orders .....................................................................................................................                                31

      Interest in case of Delay on Allotment/Despatch ........................................................................................................................                             31

      Rejection of Applications .............................................................................................................................................................              31

      Mode of Refunds .........................................................................................................................................................................            31

      TRANSFER AND REDEMPTION

      Transferability of Bonds ...............................................................................................................................................................             31

      Physical Certificates ....................................................................................................................................................................           31

      Certificates in Dematerialised Form ............................................................................................................................................                     31

      Record Date .................................................................................................................................................................................        32

      Payments to Registered Bondholders ........................................................................................................................................                          32

      Registration in the event of Redemption of Bond .......................................................................................................................                              32

      Nomination ...................................................................................................................................................................................       33




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                                                                                                                                          IDBI FLEXIBONDS 19

Succession ..................................................................................................................................................................................        33

Register of Bondholders ..............................................................................................................................................................               33

Issue of Duplicate Bond Certificates ...........................................................................................................................................                     34

WHO CAN APPLY

Declaration of Bonds as Public Securities ..................................................................................................................................                         34

Declaration of Bonds as Public Securities by Government of India under the Indian Trusts Act, 1882 ....................................                                                              35

Application by Provident Funds, Superannuation Funds and Gratuity Funds ...........................................................................                                                  35

HOW TO APPLY

Availability of Offer Document and Application Forms ...............................................................................................................                                 35

General Instructions ....................................................................................................................................................................            35

PAYMENT INSTRUCTIONS .......................................................................................................................................................                         36

SUBMISSION OF COMPLETED APPLICATION FORMS

Bankers to the Issue ...................................................................................................................................................................             36

Undertaking from the Issuer ........................................................................................................................................................                 36

Investor Relations and Grievance Redressal .............................................................................................................................                             37

Issue Expenses ...........................................................................................................................................................................           37

TAX BENEFITS ...........................................................................................................................................................................             38

PART B

INDUSTRIAL DEVELOPMENT BANK OF INDIA

Constitution and Milestones ........................................................................................................................................................                 41

Functions .....................................................................................................................................................................................      41

Offices ..........................................................................................................................................................................................   41

Government Holding ....................................................................................................................................................................              42

Regulation and Supervision ........................................................................................................................................................                  42

MANAGEMENT AND ORGANISATION

Corporate Governance ................................................................................................................................................................                42

The Board ....................................................................................................................................................................................       42

The Executive Committee ...........................................................................................................................................................                  43

Audit Committee ..........................................................................................................................................................................           43

Shareholder/ Investor Grievances Committee ............................................................................................................................                              43

Policy Committee ........................................................................................................................................................................            43

Board of Directors .......................................................................................................................................................................           44

Changes In The Board of Directors During The Last 3 Years ....................................................................................................                                       47

Management ...............................................................................................................................................................................           48

Human Resources .......................................................................................................................................................................              49




                                                                                                                                                                                                          iii
 IDBI FLEXIBONDS 19

     PRODUCTS AND SERVICES

     DIRECT FINANCE ......................................................................................................................................................................           49

     Indirect Finance ...........................................................................................................................................................................    50

     Financial Services .......................................................................................................................................................................      50

     Institutional Development and Promotional Activities .................................................................................................................                          51

     Shareholding in Institutions .........................................................................................................................................................          52

     LENDING POLICIES

     Lending Policies for Direct Assistance ........................................................................................................................................                 52

     Financing Criteria ........................................................................................................................................................................     52

     Lending Rates .............................................................................................................................................................................     52

     Credit Approval Process ..............................................................................................................................................................          53

     Lending Policies for Indirect Assistance .....................................................................................................................................                  54

     OPERATIONS

     SANCTIONS ................................................................................................................................................................................      54

     DISBURSEMENTS ......................................................................................................................................................................            55

     Outstanding Assistance Portfolio ................................................................................................................................................               56

     Industrywise Break-up .................................................................................................................................................................         57

     Investments .................................................................................................................................................................................   59

     ASSET CLASSIFICATION, INCOME RECOGNITION, PROVISIONING FOR
     NON-PERFORMING LOANS AND NPA STRATEGY

     ASSET CLASSIFICATION ..........................................................................................................................................................                 59

     Performing/Standard Assets .......................................................................................................................................................              59

     Non-performing Assets ................................................................................................................................................................          59

     Sub-standard assets ...................................................................................................................................................................         59

     Doubtful assets ............................................................................................................................................................................    60

     Loss Assets .................................................................................................................................................................................   60

     INCOME RECOGNITION ............................................................................................................................................................                 60

     PROVISIONING FOR NON PERFORMING LOANS .................................................................................................................                                         60

     Asset classification as per RBI guidelines ..................................................................................................................................                   60

     Industry-wise classification of NPAs ...........................................................................................................................................                63

     NPA Strategy ...............................................................................................................................................................................    64

     RESOURCE MANAGEMENT

     Borrowings from the Government ...............................................................................................................................................                  66

     Borrowings from Reserve Bank of India .....................................................................................................................................                     66

     Government Guaranteed Rupee Bonds .....................................................................................................................................                         67

     Public Issues and Private Placements of Unsecured Bonds .....................................................................................................                                   67




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                                                                                                                                        IDBI FLEXIBONDS 19

Deposits and Borrowings ............................................................................................................................................................              67

Foreign Currency Bonds .............................................................................................................................................................              67

Multilateral And Bilateral Credits, Syndicated Loans and Other Foreign Currency Borrowings ................................................                                                       67

Internal Generation ......................................................................................................................................................................        67

Equity Issue .................................................................................................................................................................................    67

DEBT OUTSTANDING

Top 25 Borrowings of IDBI under various schemes ....................................................................................................................                              69

Debt Servicing Track Record ......................................................................................................................................................                70

RISK MANAGEMENT

Risk Management Process

Credit Risk ...................................................................................................................................................................................   70

Market Risk ..................................................................................................................................................................................    71

Liquidity Risk ...............................................................................................................................................................................    71

Exchange Risk .............................................................................................................................................................................       71

Operational Risk ..........................................................................................................................................................................       71

Asset & Liability Management (ALM) ..........................................................................................................................................                     71

FINANCIALS

Cash Flow Statement ..................................................................................................................................................................            74

Balance Sheet .............................................................................................................................................................................       75

Profit and Loss Accounts ............................................................................................................................................................             76

Key Ratios ...................................................................................................................................................................................    78

Desired v/s Actual Ratios ............................................................................................................................................................            80

Average Balances and Average Interest Rates ..........................................................................................................................                            81

Details of Fixed and Floating Rate Assets and Liabilities ...........................................................................................................                             81

MANAGEMENT DISCUSSION

TAXATION

Income Tax ..................................................................................................................................................................................     82

Wealth Tax ...................................................................................................................................................................................    83

Interest Tax ..................................................................................................................................................................................   83

Statement of Tax Computation ....................................................................................................................................................                 83

SUBSIDIARIES

IDBI Capital Market Services Ltd. ...............................................................................................................................................                 84

IDBI Bank Ltd. .............................................................................................................................................................................      84

IDBI Intech Ltd. ............................................................................................................................................................................     86




                                                                                                                                                                                                       v
 IDBI FLEXIBONDS 19

     OTHER STATUTORY INFORMATION

     Capitalisation Statement .............................................................................................................................................................                88

     Outstanding Litigation and Material Development ......................................................................................................................                                88

     Stock Market Data .......................................................................................................................................................................             89

     Details of listing of IDBI and its group companies ......................................................................................................................                             90

     Private Placements .....................................................................................................................................................................              92

     Investor Grievances ....................................................................................................................................................................              93

     RISK FACTORS ..........................................................................................................................................................................               94

     AUDITORS’ REPORT .................................................................................................................................................................                    99

     PART C

     Extracts of relevant provisions of The Industrial Development Bank of India Act, 1964

     Preamble .....................................................................................................................................................................................       122

     Definitions ....................................................................................................................................................................................     122

     Corporate Status .........................................................................................................................................................................           122

     Capital ..........................................................................................................................................................................................   122

     Conversion of Equity Shares into redeemable preference shares .............................................................................................                                          123

     Management of the Development Bank .....................................................................................................................................                             123

     Constitution of the Board .............................................................................................................................................................              123

     Disqualification of Directors .........................................................................................................................................................              124

     Vacation of Office by Directors ....................................................................................................................................................                 125

     Borrowings and acceptance of deposits by Development Bank ................................................................................................                                           125

     Extracts of relevant provisions of Industrial Development Bank of India
     (Issue and Management of Bonds) Regulations, 1972 .........................................................................................................                                          125

     Extracts of Relevant Provisions of The Industrial Development Bank of India Bonds and
     Deposits (Nomination) Regulations, 1997 ..............................................................................................................................                               127

     PART D

     MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

     Material Contracts and Documents .............................................................................................................................................                       129

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

     GLOSSARY OF COMMON TERMS USED IN BOND STRUCTURES. ....................................................................................                                                               132

     THE BRANCHES OF IDBI ..........................................................................................................................................................                      136




vi
                                                                             IDBI FLEXIBONDS 19

                                                    PREAMBLE

             IDBI – PUBLIC ISSUE OF UNSECURED BONDS (FLEXIBONDS SERIES 2003-2004)
                 OF Rs.1500 CRORE WITH AN OPTION TO RETAIN OVER-SUBSCRIPTION
                UPTO Rs.1500 CRORE (AGGREGATING Rs.3000 CRORE) TO BE RAISED IN
                                     ONE OR MORE TRANCHES

The Lead Manager – SBI Capital Markets Ltd. had filed a draft Umbrella Offer Document for the Public Issue of
Unsecured Bonds in the nature of Promissory notes (Flexibonds Series 2003-2004) of Rs.1500 crore with an option
to retain an over-subscription upto Rs.1500 crore (aggregating Rs.3000 crore) to be raised in one or more tranches.
The present tranche is for raising Rs.300 crore with an option to retain over subscription upto Rs.300 crore.
The details of all the previous tranches (if any) is as follows:

  Tranche No.        Date of       Issue Size      Additional     Date of            Date of       No. of Investor
                      Issue           for the     Subscription  Despatch of        Listing and     grievances/
                                     tranche     Retained under    Bond           names of the      complaints
                                   (Rs. Crore)     the Green     certificates         Stock          pending
                                                  shoe option                      Exchanges
                                                   (Rs.Crore)
        _               _               _                _              _               _                _


The balance of Rs.1200 crore along with any shortfall in the target amount of Rs.300 crore of this tranche may be
raised in one or more tranches in the future but within the period of 12 months from SEBI’s observation letter dated
November 7, 2003.




                                                                                                                       1
    IDBI FLEXIBONDS 19


                                          ABBREVIATIONS USED
      ADB                               Asian Development Bank
      AY                                Assessment Year
      bps                               Basis points
      BSE                               The Stock Exchange, Mumbai
      CBDT                              Central Board of Direct Taxes
      CDSL                              Central Depository Services Ltd.
      CIT(A)                            Commissioner of Income Tax (Appeals)
      CMD                               Chairman & Managing Director, IDBI
      CRISIL                            Credit Rating Information Services of India Ltd.
      DER                               Debt Equity Ratio
      DMD                               Deputy Managing Director, IDBI
      FEDAI                             Foreign Exchange Dealers Association of India
      FII                               Foreign Institutional Investor
      FITCH                             Fitch Ratings India Private Ltd.
      FY                                Financial Year
      GOI                               Government of India
      HUF                               Hindu Undivided Family
      IBRD                              International Bank for Reconstruction and Development
      ICRA                              Investment Information and Credit Rating Agency
      ICMS                              IDBI Capital Market Services Ltd.
      IDBI/ the Institution/ the Bank   Industrial Development Bank of India
      ITAT                              Income Tax Appellate Tribunal
      LIBOR                             London Inter Bank Offered Rate
      MTLR                              Minimum Term Lending Rate
      MSTLR                             Minimum Short Term Lending Rate
      NDSCR                             Notional Debt Service Coverage Ratio
      NSDL                              National Securities Depository Ltd.
      NSE                               National Stock Exchange of India Ltd.
      OCBs                              Overseas Corporate Bodies
      RBI                               Reserve Bank of India
      SEBI                              Securities and Exchange Board of India
      SIDBI                             Small Industries Development Bank of India
      SLR                               Statutory Liquidity Ratio
      SWIFT                             Society for Worldwide Interbank Financial Telecommunication
      The Act                           The IDBI Act, 1964
      The Board                         The Board of Directors of IDBI
      TDS                               Tax Deducted at Source
      YTM                               Yield to Maturity
      YTP                               Yield to Put
      SAT                               Securities Appellate Tribunal




2
                                                                           IDBI FLEXIBONDS 19

                                               RISK FACTORS
Internal Factors
(a) Redemption Reserve: Creation of Redemption Reserve is not envisaged for the proposed issue
     of Bonds. IDBI being a public financial institution has been raising resources both from domestic
     market and overseas market in the form of unsecured borrowings. In respect of the monies borrowed
     from overseas markets, IDBI has agreed to create pari passu charge if any other lender is offered
     security on the assets of IDBI. Since the resources raised by IDBI are being utilised for the purpose
     of its business i.e. providing credit and other facilities to the industry, the assets of IDBI are mostly
     in form of loans and advances. Hence it is proposed that the Bonds shall be unsecured in nature
     in that they shall not be secured against any asset of IDBI. IDBI has appointed a trustee to protect
     the interest of the investors. In the event of default, the bondholders may proceed against IDBI in
     terms of the mechanism given under para ‘Trustees to the bondholders’ on page 27.
(b)   Credit Risk: The business of lending carries the risk of default by borrowers.
      Any term lending activity is exposed to credit risk arising from the risk of default by the borrowers. IDBI
      has put up a systematic credit evaluation process in place. Necessary control measures like maintain-
      ing a diversified portfolio with industry-wise, promoter group-wise and specific client-wise exposure
      limits are set to avoid concentration of lending to any specific industry segment/ promoter group/
      company. These limits help minimise credit risk. With a view to derisk the portfolio the exposure limits
      have been reviewed and exposure by way of Project Finance assistance to greenfield projects have
      been reduced as a matter of deliberate strategy. A Credit Risk Monitoring Group (CRMG) has been
      set up at the Head Office to monitor the risk associated with lending to individual projects, business
      groups and industries. IDBI monitors the performance of its asset portfolio on a regular basis and also
      constantly evaluates the changes and developments in industries to which it has substantial expo-
      sure.
(c)   Market Risk: Increased interest rate volatility exposes IDBI to market rate risk arising out of
      maturity/rate mismatches.
      Risk arising from interest rate volatility is inherent to the business of financial intermediation and
      term lending. This risk is minimised by linking the interest rates on term lending to a base rate (PLR
      / MTPLR etc), which varies in accordance with overall movement in market rates. Further, the rate
      applicable to each tranche of disbursement varies in accordance with the prevailing base rate. In
      case of lending pegged to floating rates, they are generally matched by floating rate liability (both
      rupee and foreign currency). IDBI manages market risks through active Asset Liability Management
      (ALM), viz. liquidity, interest rate and foreign exchange risk by way of Gap/Duration Analysis so as
      to optimize matching of the Assets and Liabilities. Active Asset Liability Management with efforts
      to match Duration of Assets and Liabilities as also availability of hedging mechanisms help moderate
      the market risk.
(d)   Asset Liability mismatch : The maturity profile of assets and liabilities as on March 31, 2003
      shows negative gaps in over 1 to 3 years bucket and Over 5 years bucket .
      As can be observed from the Table on Maturity profile of Assets and Liabilities given on page 72 there
      are negative gaps of Rs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years
      time bucket. However, the maturity buckets upto 1 year and over 3 years to 5 years have positive gaps
      of Rs.1303 crore and Rs.4802 crore. On cumulative basis, there is negative gap in only over 1 to
      3 years time bucket amounting to Rs.337 crore. This situation has arisen because the balance sheet
      of IDBI is Assets sensitive and the assets are maturing faster than liabilities. The statement does not
      take into account the effect of relending of these repayments from clients and fresh borrowings in future.
      Any gap resulting in any of the maturity buckets at any future date will be managed dynamically through
      suitable structuring of maturity profile of investment products, asset portfolio and liability products.
(e)   Credit Rating: The credit rating of outstanding bond issues of IDBI has been revised from “AAA”
      to “AA+” by CRISIL, from “LAAA to “LAA” by ICRA and from “Ind AAA” to “Ind AA+” by FITCH.


                                                                                                                    3
    IDBI FLEXIBONDS 19

           The revision in ratings reflects the perception of the rating agencies. While CRISIL has reaffirmed its
           ratings assigned to Fixed Deposit program of IDBI at “FAAA” and assigned the highest rating “P1+” to
           the Term Money Bonds, Commercial Papers and Corporate Deposits of IDBI, it has revised its rating
           assigned to the outstanding bond issues and Certificate of Deposit program of IDBI from “AAA” to
           “AA+”. ICRA has assigned the highest rating “A1+” to Commercial Paper, Term Money Bonds, Inter
           Corporate Deposits and Certificate of Deposits of IDBI. The ratings for Fixed Deposit Programme has
           been reaffirmed at “MAA+”. ICRA has revised its rating from “LAAA” to “LAA” for bonds. FITCH has
           revised its rating from “IndAAA” to “IndAA+” for bonds and Fixed Deposits program. While “AAA”
           denotes highest safety in terms of timely payment of interest and principal, “AA+” denotes high safety
           of timely payment of interest and principal. “LAA” indicates high safety. Risk Factors are modest and
           may vary slightly. The protective factors are strong and the prospect of timely payment of principal and
           interest as per terms under adverse circumstances, as may be visualized, differs from LAAA only
           marginally.
     (f)   Contingent Liabilities: As on March 31, 2003, IDBI had contingent liabilities of about Rs.4494
           crore on account of Guarantees, Letters of credit, Underwriting Commitments, uncalled monies on
           partly paid shares/debentures, claims against IDBI not acknowledged as debt and Disputed Tax
           claims. As on September 30, 2003 the contingent liabilities aggregated to Rs.4141 crore.
           The contingent liabilities are solely on account of normal operations and are subject to the prudential
           norms applicable to lending and investment operations.
     (g)   Pending Grievances: As on October 31, 2003 there were 17 references pending pertaining to
           Flexibonds-6, 12 pertaining to Flexibonds–8, 15 pertaining to Flexibonds-9, 52 pertaining to
           Flexibonds-10, 7 pertaining to Flexibonds-11, 20 pertaining to Flexibonds-12, 21 pertaining to
           Flexibonds-13, 5 pertaining to Flexibonds-14 and 1 pertaining to Equity shares. Further no complaint
           was pending for more than 60 days.
     (h)   Tax Liabilities: As on October 31, 2003, the gross demand raised by the Income Tax Department
           on account of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision
           made is Rs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which
           IDBI has favourable decisions in its own case in the earlier years. Thus the amount of contingent
           liability on account of Tax in dispute is Rs.700.33 crore.
           Appeals have been filed on matters covered by the disputed amount.
           (Please refer to page 82 of this document).
     (i)   Non Performing Assets (NPA) : The total NPAs of IDBI in amount terms has been increasing over
           the past 5 years. Movement of Net NPAs over the past 5 years is detailed in the Table on page
           62. Net NPAs (percent of total assets) has increased from Rs.6490 crore (12.05%) as on March
           31, 1999 to Rs.7330 crore as on March 31, 2003 (14.20%).
           IDBI has initiated measures for NPA containment by setting up Close Monitoring Cells and Restructur-
           ing Committees. IDBI actively monitors all assisted companies for timely recovery of dues. With re-
           spect to defaulting accounts, IDBI places emphasis on recovery, settlement and containment of NPAs.
           The Close Monitoring Cells constantly monitor performance of assisted companies to improve recov-
           ery and initiate pro-active remedial actions. Efforts of Close Monitoring Cells are reinforced by Em-
           powered Committee and High Power Committee at Head Office. These committees assess and ad-
           vise necessary restructuring and one-time settlement process. Wherever the long-term viability of
           assisted companies is in question, legal measures are initiated and securities are enforced. In cases
           where financial restructuring is under consideration, discussions are held with other term lenders as
           also with working capital bankers to have a co-ordinated approach to ensure quicker recovery. A
           Corporate Debt Restructuring (CDR) mechanism has been set up to facilitate this. Further, there has
           been substantial changes in the legislative and operating environment enabling FIs and banks to
           aggressively pursue recovery of overdues. Besides the Debt Recovery Tribunal (DRT) set up for



4
                                                                           IDBI FLEXIBONDS 19

      faster settlement of recovery litigation, GOI has recently promulgated ‘The Securitisation and Recon-
      struction of Financial Assets and Enforcement of Security Interest (SRES) Act, 2002’, enabling FIs
      and banks to securitise and reconstruct the financial assets and enforce security of FIs and banks
      without pursuing the available legal route. As on May 31, 2003 IDBI has issued notices to 49 defaulting
      borrowers with an outstanding assistance of Rs.1588 crore by invoking provisions under the said Act.
      Further in 33 cases IDBI has sought consent of other secured creditors for initiating action under the
      Act. After the SRES Act has come into effect IDBI has initiated action against chronic defaulters
      resulting in many defaulters willinglly coming forward for settlement of their dues. IDBI has been taking
      recourse to all available methods for recovery of overdues including reporting to RBI the name of
      wilful defaulters simultaneous with initiation of necessary steps for recovery. IDBI has also initiated
      aggressive One Time Settlement (OTS) measures to recover overdues. Aggregate of provisions /
      write offs as a percentage of Gross NPAs stood at 54% as on March 31, 2003. To facilitate recovery of
      overdues and reconstruction of weaker assets, IDBI in participation with SBI, ICICI Bank and a few
      other institutions and Banks have set-up an Asset Reconstruction Company viz. Asset Reconstruction
      Company of India Ltd (ARCIL). With the changes in operating and legislative environment including
      formation of the ARC coupled with the NPA management measures initiated the NPA levels are ex-
      pected to be contained/ reduced.
(j)   Overdues : The overdues of Videocon Group Companies, in which Shri R.N. Dhoot (industrialist
      director in the Board of IDBI) was associated, as on September 30, 2003 amounted to Rs. 31.06 crore
      including principal instalment of Rs. 7.50 crore. As against these the group has submitted post-dated
      cheques of Rs. 22.05 crore and has requested for deferment of principal instalment of Rs. 7.50 crore.
(k)   Asset concentration to few industries : The top 5 industries account for 48.17% of the total
      outstanding assistance as on March 31, 2003. Large exposures to specific industries will be impacted
      by global trends in these industries.
      IDBI’s loan portfolio is well diversified among industries. The major outstandings are to the iron and
      steel, power, cotton textiles, telecom services and petrochemicals, which together accounted for about
      48% of the outstandings as at March 31, 2003. As a prudential measure, IDBI has recently revised the
      exposure limit to individual industry at 10% of its total portfolio or Rs.5000 crore whichever is lower. As
      on March 31, 2003 only two industries viz. Iron & Steel (18.31%) and Electricity Generation (12.58%)
      exceeded the limit. This excess has been largely due to historical factors wherein IDBI had been
      extending assistance to core sector projects in line with overall national objectives. IDBI particularly
      monitors both domestic and global trends and developments in industries accounting for higher expo-
      sure within its portfolio and takes necessary actions and remedial measures to maintain its portfolio
      quality and reduce any possible adverse impact on its financials.
(l)   Change In Balance Sheet size : IDBI’s total asset and liabilities have decreased from Rs.66,643
      crore to Rs.63,116 crore during FY 2003.
      To improve the asset quality, IDBI has restricted new assistance and extends assistance only on
      very selective basis. On the liability side, IDBI has exercised call option on its high cost borrowings
      during the year. Change in the Balance Sheet size is a part of the deliberate strategy of IDBI to
      pursue quality asset growth and profitability in operations.
(m) Decrease in profit : The profit after tax of IDBI is Rs.401 crore for FY 2003 as against Rs.424 crore
    for FY 2002 and Rs.691 crore for FY 2001. IDBI’s profit after tax for the half year ended September
    30, 2003 stood at Rs.176 crore as against Rs.152 crore in the corresponding half year ended
    September 30, 2002.
    General economic slowdown in the recent past has led to lower industrial activity. During the last
    couple of years credit off-take has been low due to lower industrial growth in spite of fall in interest
    rates and other steps taken by the Government to boost the industrial performance. Foray of
    commercial banks into term lending has also resulted in increased competition to extend assistance



                                                                                                                    5
    IDBI FLEXIBONDS 19

           to creditworthy clients at very competitive rates. Resultant lowering of interest income and overall
           squeezing of margin has impacted the profit after tax. However with the expected economic upturn
           the position is expected to improve. Further recovery out of written off cases will directly add to the
           profit of IDBI.
     (n)   Return on Assets : The return on average assets has declined from 10.4% in FY 2002 to 9.8%
           in FY 2003 while the average cost of funds has also gone down from 9.2% to 8.5% over the same
           period.
           The major factor impacting the returns and costs is the sharp drop in interest rates during the last
           few years. This has resulted in prepayment of borrowing by high credit clients which in turn has,
           to some extent impacted credit composition of the portfolio. This coupled with NPAs adversely
           affected return on assets. On the cost front, impact of drop in incremental cost of rupee borrowing
           (12.08% in FY 2000 to 11.21% in FY 2001, to 9.81% in FY 2002 and further down to 8.35% in FY
           2003) and exercising of call option on high cost borrowings by IDBI has resulted in decline in cost
           of borrowing. The average cost of loan funds has reduced from 11.5% in FY 2002 to 10.5% in FY
           2003. As may be observed from above, the decline in average cost of funds has been more than
           the decline in average return on assets. Further as mentioned on page 68 of this Offer Document
           under the auspicies of GOI, the liabilities of IDBI to Public Sector Banks, Institutions etc. has been
           restructured, which will bring down the average cost of funds of IDBI significantly.
     (o)   Quoted Investments : IDBI has in its portfolio quoted investments aggregating Rs.2730.22 crore
           as on March 31, 2003 which are booked at cost whose market value amounted to Rs.2152.54 crore.
           As on September 30, 2003 its portfolio quoted investments aggregating Rs.5993.78 crore, which
           are booked at cost whose market value amounted to Rs.6392.20 crore.
           As on March 31, 2003, IDBI had debentures of Rs.4389.16 crore in its portfolio. All the debentures
           are secured by hypothecation/mortgage of fixed assets. However, in case of debentures amounting
           to Rs.795 crore, the final security by way of mortgage was yet to be created as on March 31, 2003.
           IDBI’s investment portfolio is predominantly of long term and strategic nature. Temporary diminution
           in value of securities arises on account of price volatility due to factors and forces affecting the
           stock market, interest rates, etc. IDBI has been classifying its investment portfolio and making
           appropriate provision for diminution in value as per RBI guidelines issued from time to time in this
           regard. The investments are classified under the following categories (i) Held to Maturity, (ii)
           Available for Sale (iii) Held for Trading. These investments were valued according to the prevailing
           valuation norms.
     (p)   Foreign Exchange Risk : IDBI may be exposed to foreign exchange risk on account of changes
           in foreign exchange rates.
           IDBI maintains a currency-wise matching of assets and liabilities. IDBI makes foreign currency
           loans on terms that are similar to its foreign currency borrowings thereby transferring the foreign
           exchange risk to the borrower. In case of certain foreign currency borrowings that are re-lent in
           rupees, the Govt. of India bears the foreign exchange risk on these borrowings pursuant to certain
           agreements between IDBI and GOI. IDBI’s foreign currency cash balances are generally maintained
           abroad in currencies matching with the underlying borrowings. IDBI also operates a USD denominated
           single currency pool (SCP) and interest rate risks under the SCPs are hedged through basic
           SWAPs. IDBI is therefore not exposed to any significant risk on account of foreign exchange
           fluctuations.
     (q)   Nature of Bonds : Bonds are unsecured and in the nature of promissory notes transferable by
           endorsement and delivery. The certificates are valuable documents and should be kept safely.
           Duplicate bonds will be issued only in accordance with the procedure specified later in the Offer
           Document. The bonds are also offered in demat mode.




6
                                                                        IDBI FLEXIBONDS 19

External Factors
(a) Changes in Government policies may impact the performance of the industrial sector, which
     may in turn affect IDBI
     Indian industry has demonstrated remarkable resilience in adjusting to the changed environment
     and competition in the wake of the economic reforms initiated by the Government. Further, IDBI’s
     diversified portfolio provides a sufficient cushion against any downtrend in a particular industry or
     sector.
(b) Risk of Competition : Competition in the financial sector has increased and is likely to increase
     further with the entry of commercial banks and other new players in term lending. IDBI faces
     competition both in corporate lending and in raising resources.
     While focusing attention on its core business of project financing and infrastructure financing in
     particular, IDBI has taken steps to diversify its operations in various other areas like working capital
     financing, merchant banking, corporate advisory services, forex services, venture capital, non-fund
     based activities etc. IDBI, through its subsidiary/ associate companies also addresses the needs of
     its clients for commercial banking requirements, depository services, capital market related services,
     mutual fund products, information technology services etc.
     On the resource-raising front, avenues like Mutual Funds,Charitable and Religious Trusts, Private
     insurance companies, Pension Funds, etc. hold good potential. IDBI has over the years strengthened
     its reach to retail segment through its public issues of retail bonds and Fixed Deposits marketed
     through its 35 branch offices, large agent network, broking outfits and debt market intermediaries.
(c) Development of the capital markets may lead to disintermediation by borrowers.
    With the development and maturing of the capital markets, there has been a distinct shift in the
    pattern of industrial financing. However, it will be noteworthy that while a part of the financial
    requirement of the industrial projects may be met by direct borrowing from the investors, a major
    portion will still need to be serviced by financial intermediaries. Consequent to the opening up of
    the economy, large projects in infrastructure, power, petroleum, telecom, etc. with huge financial
    outlays are being set up. Their large fund requirements are unlikely to be met by private investments
    alone. Accordingly, the requirement of funds both from lending institutions/banks and the capital
    market is likely to increase substantially. Also, the disintermediation brings with it the opportunity for
    IDBI to expand its fee based activities.
General Risks
    Investors are advised to read the risk factors carefully before taking an investment decision in this
    offering. For taking an investment decision, the investor must rely on his/her own examination of
    the issuer and the issue including the risks involved. The Bonds have not been recommended or
    approved by SEBI nor does SEBI guarantee the accuracy or adequacy of this document.
Notes
1.  Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond (2004 A) will
    be made on a full and firm allotment basis, upto the issue size Rs.300 crore plus the amount of
    over subscription retained by IDBI. Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004
    A) will have priority over subscribers to other bonds for allotment. Therefore, only after all eligible
    applicants for IDBI Infrastructure (Tax Saving) Bond (2004 A) have been allotted, applications for
    other bonds will be considered for allotment on proportionate basis.
2.    IDBI would like to clarify that inspection by RBI is a regular exercise and is carried out periodically
      by RBI for all Banks and Financial Institutions. IDBI is in dialogue with RBI in respect of observation
      made by RBI in their report for previous year. The reports of RBI are strictly confidential. RBI does
      not allow disclosure of its inspection report and that all the disclosures in the Offer Document are
      on the basis of Management and Audit Reports of the Issuer.




                                                                                                                 7
    IDBI FLEXIBONDS 19

     3.   The Networth of IDBI as on March 31, 2003 was Rs.6945 crore. The present issue size is Rs.300
          crore with an option to retain oversubscription upto Rs.300 crore.
     4.   The Book Value per share of IDBI as on March 31, 2003 was Rs.106.4. Cost per share to the
          promoter of IDBI i.e. GOI is Rs.10 (i.e. at par).
     5.   Shri R. N. Dhoot, a director on the board of IDBI, nominated by the Government of India, was on
          the board of some of the Videocon group companies during the last 5 years. SEBI had taken action
          against one of the Videocon group companies viz. Videocon International Ltd. and 3 of its officials.
          On an appeal filed by Videocon International Ltd, the SAT vide its order dated June 20, 2002 has
          set aside SEBI’s order directing Videocon International Ltd. in so far as not to raise money from
          the public in the capital market for a period of 3 years. SEBI has filed an appeal against the said
          SAT order in the Hon’ble High Court of Mumbai and the appeal is pending. Shri R.N. Dhoot is,
          however, not a Director on the Board of Videocon International Ltd., nor does he figure in the list
          of 3 officials mentioned above.
     6.   As on March 31, 2003, loan outstanding to companies with which industrialist director presently on
          the Board of IDBI was associated in the past, amounted to Rs. 908.64 crore, comprising of loans
          to (i) 8 companies engaged in the electronics and electronics appliances industry (Rs.567.44 crore),
          and (ii) a company in petroleum industry (Rs.341.20 crore). These loans constituted 1.76% of the
          total loan outstanding and 13.08% of IDBI’s Net Worth as on March 31, 2003. There was no default
          in respect of loans given by IDBI to such companies as on the said date.
     7.   The bonds may have various features/options. Such features need specific attention of the investor.
          For better understanding of such common features, investors are requested to refer to the discussion
          on ‘Glossary of common terms used in Bond structures’ on page 132 of this Offer Document.
     8. Summary of transactions of IDBI with its subsidiaries for three years ended
                                                                                             (Rs. crore)
                                                        March 31, 2001 March 31, 2002 March 31, 2003

          Interest income                                        145.42              5.81             2.91
          Dividend, fees, commission and other revenue            93.09             51.51           152.00
          Interest expense                                         5.86              2.57             0.17
          Administrative and other expenses                        1.75              8.37             7.73
          Outstanding Balances
          Loans                                                  809.76             1.20             58.00
          Investments                                            648.10           388.10            296.60
          Current assets                                           0.27            19.47            105.73
          Long term debt                                         112.58            50.00              4.61
          Current Liabilities                                      2.20             7.67              8.63
     9.   The financial information as contained in the Auditor’s Report, including the notes to accounts,
          significant accounting policies as well as Auditor’s qualifications have been duly certified by the
          Auditors of IDBI. As far as possible, the Audited numbers have been used for computation of or
          arriving at the other financial information contained in the Offer Document. However, such other
          financial information contained in the Offer Document except as contained in the Auditor’s Report
          has been certified by the management of IDBI.




8
                                                                             IDBI FLEXIBONDS 19



                                       INSTRUMENTS AT A GLANCE

Brief particulars of the four types of Bonds offered under the current series are tabulated below.
IDBI Infrastructure (Tax Saving) Bond (2004 A)
                                  Option A             Option B                Option C                Option D
                          (Annual interest)     (Annual interest)           (Cumulative)             (Cumulative)
 Face Value                       Rs.5,000              Rs.5,000                Rs.5,000                Rs.5,000
 Minimum                         One Bond              One Bond               One Bond                 One Bond
 Investment                       Rs.5,000              Rs.5,000               Rs.5,000                 Rs.5,000
 Interest Rate*                  5.75% p.a.           6.00% p.a.              Refer YTM               Refer YTM
 Tenor                              3 years              5 years        3 year 6 months                  5 years
 Maturity value                   Rs.5,000              Rs.5,000               Rs.6,080*               Rs.6,700*
 Yield to Maturity                   5.75%                 6.00%                  5.75%                   6.02%
 YTM with tax                       11.99%                 9.95%                 10.78%                    9.53%
 benefits u/s 88 #
 Put/ Call option                     None                  None                   None                    None
* Subject to TDS as applicable. Investors are advised to read the Offer Document for more details.
# Investment made in these bonds will be eligible for tax benefits under Section 88 of the Income Tax Act, 1961.The
YTM (with tax benefits) is calculated assuming the investor gets a tax benefit of 15% of the invested amount.
Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 A) will have priority over subscribers to other bonds
for allotment.



IDBI Money Multiplier Bond (2004 A)

                                                          Option A                Option B
 Issue Price                                               Rs.5,000                Rs.5,000
 Minimum Investment                                       One Bond               One Bond
                                                          Rs. 5,000              Rs. 5,000
 Tenor                                                      7 years                11 years
 Face Value / Maturity Value *                             Rs.7,650               Rs.10,000
 Yield to Maturity                                            6.26%                  6.50%
 Put/Call option                                               None                   None
* Subject to TDS as applicable. Investors are advised to read the Offer Document for more details.




                                                                                                                       9
     IDBI FLEXIBONDS 19

       IDBI Retirement Bond (2004 A)

                                                  Option A                           Option B
           Face Value                             Rs.5,000                           Rs.5,000
           Minimum Investment                     Six Bonds                          Six Bonds
                                                  Rs.30,000                          Rs.30,000
           Wait Period                            NIL                                NIL
           Repayment of Principal                 Paid in the form of                Paid in the form of
                                                  quarterly payments                 quarterly payments
           Quarterly Payment                      Rs.1325 per 6 Bonds                Rs.1020 per 6 Bonds
           Comprising
               Interest portion per quarterly     Rs.254 for first 27                Rs.270 for 40 quarterly payments
               payment* per 6 bonds               payments and Rs.242
                                                  for 28th payment

               Principal portion per quarterly    Rs.1071 for first 27               Rs.750 for 40 quarterly payments
               payment per 6 bonds                payments and Rs.1083
                                                  for 28th payment

           Number of quarterly payments           28                                 40
           Date of first quarterly payment        April 12, 2004                     April 12, 2004
           Date of last quarterly payment         January 12, 2011                   January 12, 2014
           Tenor                                  7 years                            10 years
           Yield to Maturity                      6.26%                              6.53%
           Put/Call Option                        None                               None
           *Subject to TDS as applicable. Investors are advised to read the Offer Document for more details.
       IDBI Regular Income Bond (2004 A)

                                      Option A           Option B        Option C           Option D          Option E
       Face Value                     Rs.5,000           Rs.5,000         Rs.5,000          Rs.5,000           Rs.5,000
       Minimum Investment           Two Bonds           Six Bonds       Two Bonds          Six Bonds         Two Bonds
                                     Rs.10,000          Rs.30,000        Rs.10,000         Rs.30,000          Rs.10,000
       Payment of Interest              Annual           Quarterly         Annual           Quarterly            Annual
       Interest Rate*               6.25% p.a.          6.00% p.a.      6.50% p.a.         6.25% p.a.        7.00% p.a.
       Tenor                            7 years            7 years        10 years          10 years           15 years
       Yield to Maturity                 6.25%              6.14%           6.50%              6.40%              7.00%
       Put Option                         None               None            None               None               None

       Call Option                        None               None            None               None    At the end of 9th
                                                                                                          and 12th year

       *Subject to TDS as applicable. Investors are advised to read the Offer Document for more details.




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                                                                              IDBI FLEXIBONDS 19

                                                        PART A

                                    INDUSTRIAL DEVELOPMENT BANK OF INDIA
                     (Established under the Industrial Development Bank of India Act, 1964)
                           IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005
             Tel: (022) 22189117 Fax:(022) 22181294 Grams:INDBANKIND. Website: www.idbi.com

Industrial Development Bank of India (IDBI) offers for public subscription, the following unsecured, redeemable
bonds through a simultaneous public issue (“the issue”).

                  IDBI Infrastructure (Tax Saving) Bond (2004 A)
                  IDBI Money Multiplier Bond (2004 A)
                  IDBI Retirement Bond (2004 A)
                  IDBI Regular Income Bond (2004 A)
The above bonds are collectively referred to in this Offer Document as “IDBI Flexibonds 19” or “Bonds”.
GENERAL INFORMATION
Target Amount
This issue is intended to collectively raise an amount of upto Rs.300 crore, with an option to retain oversubscription
upto Rs.300 crore (i.e. in all, upto Rs.600 crore).
Issue Schedule
The Issue will open for subscription at the commencement of business hours and close at the close of business
hours on the dates indicated below:

                  OPENING DATE                                 :        December 1, 2003
                  CLOSING DATE                                 :        December 17, 2003
                  DEEMED DATE OF ALLOTMENT                     :        January 12, 2004
Authority for the Issue
The Issue is made pursuant to Section 11(1)(a) of the Industrial Development Bank of India Act, 1964 (IDBI Act).
The Board of Directors of IDBI at its Meeting held on June 20, 2003, passed resolution approving the Umbrella Offer
Document for 2003-2004 for raising Rs.1500 crore with an option to retain additional subscription upto Rs.1500 crore
and authorising the Chairman & Managing Director to exercise powers in relation to the Public Issue.
Chairman & Managing Director vide his approval dated November 17, 2003, has authorised Shri O.V.Bundellu/
Shri K.Sivaprakasam, Executive Directors, severally, to sign the Offer Document of Flexibonds-19 on his behalf.
The Issue is made in accordance with the Guidelines for Issue of Capital by Designated Financial Institutions, SEBI
Guidelines 2000. The current issue of IDBI is in accordance with the terms of RBI’s letter No. DBS.FID. 21/09.01.02/
1999-2000 dated June 21, 2000 and DBS.FID No.966/09.01.02/2001-02 dated March 2, 2002 regarding issue of
bonds by Financial Institutions.
IDBI can issue the bonds proposed by it in view of the present approvals and no further approvals in general from
any Government Authority / RBI are required by IDBI to undertake the proposed activity. IDBI, in future, will secure
any other required approvals from the statutory authorities, if necessary.
IDBI being a public financial institution has been raising resources both from domestic market and overseas
market in the form of unsecured borrowings. In respect of the monies borrowed from overseas markets, IDBI has
agreed to create pari passu charge if any other lender is offered security on the assets of IDBI. Since the
resources raised by IDBI are being utilised for the purpose of its business i.e. providing credit and other facilities
to the industry, the assets of IDBI are mostly in form of loans and advances. Hence it is proposed that the Bonds
shall be unsecured in nature in that they shall not be secured against any asset of IDBI. IDBI has appointed a
trustee to protect the interest of the investors.




                                                                                                                         11
     IDBI FLEXIBONDS 19

      Eligibility of IDBI to come out with the issue
      IDBI, its directors or any of its subsidiaries have not been prohibited from accessing the capital market under any order
      or directions passed by SEBI. Also, IDBI is eligible to do an issue of bonds under the applicable guidelines pertaining to
      Designated Financial Institutions of SEBI (DIP) guidelines.
      Terms of the Issue
      The Bonds will be subject to the IDBI Act 1964, the Industrial Development Bank of India General Regulations, 1994,
      Industrial Development Bank of India (Issue and Management of Bonds) Regulations, 1972, Industrial Development
      Bank of India Bonds and Deposits (Nomination) Regulations, 1997, relevant statutory guidelines and regulations for
      allotment and listing of securities issued from time to time by the Government of India (GOI), SEBI, Reserve Bank
      of India (RBI) and the Stock Exchanges concerned, the terms of this Offer Document and Application Form.
      Objects of the Issue
      The Issue is for augmenting the medium to long-term rupee resources of IDBI for the purpose of carrying out its
      functions authorised under the IDBI Act.
      The Main Object Clause of IDBI as contained in the IDBI Act, 1964 (as disclosed in ‘Part C’ of the Offer Document)
      enables IDBI to undertake the activities for which the funds are being raised in the present issue. Also, the main objects
      of IDBI as contained in IDBI Act, 1964 adequately cover its existing and proposed activities. The funds raised by way of
      this public issue will be utilised for project lending/ investment in shares/debenture, debt servicing and such other
      activities as may be permitted under the IDBI Act. Further, the funds raised through Infrastructure Bonds will be used for
      lending to infrastructure projects.
      Utilization of Funds
      IDBI will have access to the funds raised through the Issue as per the provisions of the Guidelines for Issue of
      Capital by Designated Financial Institutions, SEBI Guidelines 2000.
      Disclaimer
      As required, a copy of the Offer Document has been submitted to SEBI. It is to be distinctly understood
      that the submission of Offer Document to SEBI should not in any way be deemed or construed that the
      same has been cleared or approved by SEBI. SEBI does not take any responsibility either for the financial
      soundness of any scheme or the project for which the issue is proposed to be made, or for the correctness
      of the statements made or opinions expressed in the Offer Document. The Lead Manager, SBI Capital
      Markets Ltd. has certified that the disclosures made in the Offer Document are generally adequate and are
      in conformity with the Guidelines for Issue of Capital by Designated Financial Institutions, SEBI Guidelines
      2000. This requirement is to facilitate the investors to take an informed decision for making investment
      in the proposed issue.
      It should also be clearly understood that while the Issuer is primarily responsible for the correctness,
      adequacy and disclosure of all relevant information in the Offer Document, the lead merchant banker is
      expected to exercise due diligence to ensure that the Issuer discharges its responsibility adequately in this
      behalf and towards this purpose, the Lead Manager, SBI Capital Markets Ltd. has furnished to SEBI a due
      diligence certificate dated September 18, 2003 in accordance with SEBI (Merchant Bankers) Regulations,
      2000 which reads as follows:
      1.    We have examined various documents including those relating to litigation like commercial disputes
            etc. and other materials in connection with the finalisation of the draft Offer Document pertaining to
            the said issue.
      2.    On the basis of such examination and the discussions with IDBI, its Directors and other officers,
            other agencies, independent verification of the statements concerning objects of the issue and the
            contents of the documents mentioned in the Annexure and other papers furnished by IDBI, we
            confirm that:
            a)     the Offer Document forwarded to SEBI is in conformity with the documents, materials and
                   papers relevant to the Issue;
            b)     all the legal requirements connected with the said issue as also the guidelines, instructions etc.
                   issued by SEBI, the Government and any other competent authority in this behalf have been duly
                   complied with; and



12
                                                                              IDBI FLEXIBONDS 19

      c)    the disclosures made in the Offer Document are true, fair and adequate to enable the investors
            to make a well informed decision as to the investment in the proposed issue.
3.    We confirm that besides ourselves, all the intermediaries named in the Offer Document are registered
      with SEBI and that till date such registration is valid.
The Lead Manager has issued a fresh due diligence certificate dated November 20, 2003 which reiterates the
statements made in the certificate dated September 18, 2003 referred to above and states that all
observations made by SEBI vide letter dated November 7, 2003 have been incorporated in the Offer
Document.
The filing of the Offer Document does not, however, absolve the issuer from any liabilities arising out of
misstatements in the Offer Document or from the requirement of obtaining statutory or other approvals as
may be necessary for 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 the Offer Document.
Filing of the Draft Shelf Offer Document
The Draft Shelf Offer Document was filed with SEBI on September 18, 2003 at Mumbai. A copy of this Offer Document,
having attached thereto the ‘Material contracts & documents’ referred to elsewhere in the Offer Document, has been
delivered for registration to the Stock Exchange, Mumbai and National Stock Exchange. The complete copy of the said
documents has been kept open for public inspection at the Head Office of IDBI. The Lead Managers and the Bank shall
make all information available to the public and investors at large and no selective or additional information would be
available for a section of investors in any manner whatsoever.
General Disclaimer
IDBI accepts no responsibility for statements made otherwise than in the Offer Document or in the advertisements
or other material issued by or at the instance of IDBI and the Lead Managers and any one placing reliance on
any other source of information would be doing so at their own risk.
Fictitious Applications
Any person who -
(a)   makes, in a fictitious name, an application to a body corporate for acquiring, or subscribing to, the bonds,
      or
(b)   otherwise induces a body corporate to allot, or register any transfer of, bonds therein to them, or any other
      person in a fictitious name,
      shall be liable for legal consequences of such action.
Disclaimer in respect of jurisdiction
This offer of Bonds is made in India to persons resident in India. This Offer Document does not constitute an offer
to sell or an invitation to subscribe to the bonds offered herein, in any other jurisdiction to any person to whom it
is unlawful to make an offer or invitation in such jurisdiction.
Any person, in whose possession this Offer Document comes, is required to inform himself about and to observe
any such restrictions.
Consents
Consents in writing from the Lead Managers, the Principal Marketing Co-ordinator, the Co-Managers, the Trustees
to the Bondholders, the Registrars and the Bankers to the Issue to act in their respective capacities have been
obtained and filed with The Stock Exchange, Mumbai and the National Stock Exchange of India Ltd., along with a
copy of this Offer Document and none of them have withdrawn their consent upto the date of delivery of a copy of
this Offer Document to the said Stock Exchanges. M/s Sorab S. Engineer & Co., Chartered Accountants, (Ismail
Building, 381, Dr. D. Naoroji Road, Fort, Mumbai - 400 001) Auditors of IDBI, and Tax Consultants to IDBI have given
their written consent to the inclusion of their report in this Offer Document in the form and context in which they
appear herein and such consent has not been withdrawn upto the date of delivery of a copy of this Offer Document
to the said Stock Exchanges.
Minimum - Maximum Target
The basic issue size is Rs.300 crore with a right to retain oversubscription of any amount upto Rs.300 crore.




                                                                                                                          13
     IDBI FLEXIBONDS 19

      Minimum Subscription
      The provisions as to minimum subscription are not applicable to the Issue as per the Guidelines for Issue of Capital
      by Designated Financial Institutions, SEBI Guidelines 2000. IDBI would be free to retain whatever amount is
      received by it subject to a maximum of Rs.600 crore.
      CREDIT RATING
       Domestic Rating
      An issue of unsecured bonds of Rs.1,500 crore with an option to retain oversubscription upto Rs.1,500 crore filed
      under the Umbrella Offer Document for the FY 2003-2004 has been rated “AA+” (pronounced Double A Plus) by
      CRISIL, “AA+(ind)” by FITCH Ratings India Pvt Ltd and “LAA” by ICRA
      The proposed tranche of bond issue has been rated by three Agencies and the rating details are as below:
       Institution                   Rating              Category              Meaning of the Rating
       CRISIL                        “AA+”               Debentures            High safety with regard to timely
       (Credit Rating Information    (Rating watch       (Bonds)               payment of principal and interest.
       Services of India Ltd)        with Developing     Though                the        circumstances    providing
                                     implication)                              this degree of safety are likely to
                                                                               change, such changes as can be
                                                                               envisaged are most unlikely to affect
                                                                               adversely the fundamentally strong
                                                                               position of such issues.

       FITCH (Fitch Ratings          “AA+(ind)”          Long Term debt        High credit quality. AA(ind) ratings
       India Pvt. Ltd.)              (The outlook                              indicate a low expectation of credit risk.
                                     on the rating                             They indicate strong capacity for timely
                                     is Evolving)                              paymentof finanical commitments.This
                                                                               capacity may vary slightly from time to
                                                                               time because of ecnomic conditions.
       ICRA (Investment               “LAA”              Debentures,           High safety. Risk factors are modest
       Information and Credit                            Bonds,                and may vary slightly. The protective
       Rating Agency)                                    Preference Shares     factors are strong and the prospect
                                                                               of timely payment of principal and
                                                                               interest as per terms under adverse
                                                                               circumstances, as may be visualised,
                                                                               differs from ‘LAAA’ only marginally.
      As IDBI is a promoter shareholder of CARE, ratings of proposed instruments of borrowings are not being obtained
      from CARE as a measure of good corporate governance.
      International Rating
      Standard & Poor’s has assigned “BB” (with negative outlook) long-term foreign currency credit rating to IDBI.
      Moody’s Investors Services has assigned a long-term foreign currency debt rating to IDBI of ‘Ba1’. The rating has
      been placed on review for possible upgrade along-with the sovereign India rating. Fitch, the international rating
      agency, has assigned long-term foreign currency rating of “BB” (with negative outlook) to IDBI. Rating and
      Investment Information Inc. (R&I) formerly known as Japan Bond Research Institute (JBRI), has in the past accorded
      foreign currency long term rating of ‘BBB’ to IDBI for Samurai Bonds. The bonds have since been repaid.
      Meaning of International Ratings
       ‘BB’ long term foreign currency rating from Standard & Poor’s : Less vulnerable in the near term than other lower
       rated obligors. However it faces major ongoing uncertainties and exposure to adverse business, financial and
       economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitments.
       ‘Ba’ long term foreign currency debt rating from Moody’s : Bonds and preferred stock which are rated Ba are
       judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of
       interest and principal payments may be very moderate, and thereby not well safeguard during both good and bad
       times over the future. Uncertainty of position characterizes bonds in this class.



14
                                                                                    IDBI FLEXIBONDS 19


 ‘BB’ long term foreign currency rating from Fitch : Indicates that there is possibility of credit risk developing,
 particularly as a result of adverse economic change over time; However, business or financial alternatives may
 be available to allow financial commitments to be met. Securities rated in this category are not investment grade.
Investors are requested to note that a security rating is not a recommendation to buy, sell or hold securities
and that it may be subject to revision or withdrawal at any time by the agency assigning the rating and that
each rating should be evaluated independently of any other rating.
Details of rating in the past 3 years
                                                CRISIL                       ICRA                     FITCH/DCR
 FY 2002-2003                                   AA+                          LAA                      AA+ (ind)
 FY 2001-2002                                   AA+                          LAA+                    Ind AA+
 FY 2000-2001                                   AAA                          LAAA                    Ind AAA
Underwriting
The Issue of Bonds has not been underwritten.

                                           ISSUE MANAGEMENT TEAM
                                                    LEAD MANAGERS
 SBI Capital Markets Ltd.                                          KJMC Global Market (India) Ltd.
 202, Maker Tower ‘E’,                                             168, Atlanta, 16th Floor,
 Cuffe Parade, Mumbai 400 005.                                     Nariman Point, Mumbai - 400 021.
 Tel: (022) 2218 9166; Fax: (022) 2218 8332.                       Tel : (022) 2283 2350, 2284 1542;
 e-mail : cmg@sbicaps.com                                          Fax : (022) 2285 2892
 DSP Merrill Lynch Ltd.                                            RR Financial Consultants Ltd.
                                                                                             th
 Mafatlal Centre, 10th Floor,                                      412-422 Indra Prakash, 4 Floor,
 Nariman Point, Mumbai – 400 021.                                  21, Barakhamba Road, New Delhi 110 001.
 Tel (022) 5632 8000 ; Fax (022) 5604 8518                         Tel : (011) 335 2496 - 99; Fax : (011) 335 3703
 J M Morgan Stanley Pvt. Ltd.                                      Bajaj Capital Ltd.
 141, Maker Chambers III,                                          Bajaj House, 97 Nehru Place
 Nariman Point, Mumbai-400 021.                                    New Delhi – 110 019.
 Tel: (022) 5630 3030;Fax (022) 5604 2137                          Tel : (011) 641 8903; Fax : (011) 647 6638
 Enam Financial Consultants Pvt. Ltd.                              Karvy Investor Services Ltd.
 2nd Floor, Khatau Building,                                       Karvy House, 46 Avenue 4, Street No. 1,
 44, Bank Street, Off Shahid Bhagat Singh Road,                    Banjara Hills, Hyderabad 500 034.
 Fort, Mumbai - 400 023                                            Tel: (040) 335 1840; Fax: (040) 335 1989
 Tel: (022) 2267 7901;Fax: (022) 2266 5613
 Kotak Mahindra Capital Co. Ltd.
 229, Bakhtawar, 1st Floor,
 Nariman Point, Mumbai – 400 021.
 Tel (022) 5634 1100; Fax (022) 5682 6632

                                                      CO-MANAGERS
 Integrated Enterprises (India) Ltd.                               UTI Securities Exchange Ltd.
 5A, 5th Floor, Kences Towers,                                     41, Sir Vithaldas Thackersay Marg; New Marine Line
 No.1, Ramkrishna Street, North Usmad Road,                        Mumbai - 20 Tel : (022) 22030127 Fax:(022) 22030165
 T. Nagar, Chennai – 600 017.                                      United Bank of India
 Tel: (044) 814 3045/46;                                           16, Old Court House Street
 Fax: (044) 814 4826                                               Kolkata -700 001;Tel:(033) 248 3857 Fax: (033) 248 9391
 AK Capital Services Ltd.                                          Centrum Finance Ltd.
 Flat No. ‘N’ Sagar Apartments,                                    Bombay Mutual Building, 2nd Floor,
 6, Tilak Marg, New Delhi - 110 001                                Dr. D.N. Road, Fort, Mumbai - 400 001.
 Tel: (011) 338 2380, 338 8235;                                    Tel: (022) 2266 2434, 2266 4611;
 Fax: (011) 338 5189                                               Fax: (022) 2266 3458
                                                     Allianz Securities Ltd.
                                                     C-2, Green Park Extn,
                                                      New Delhi - 110 016
                                      Tel ( 011) 656 8607, 696 0902 Fax : (011) 696 9478




                                                                                                                             15
     IDBI FLEXIBONDS 19

                                                    PRINCIPAL MARKETING CO-ORDINATOR
                                                    IDBI Capital Market Services Ltd.
                                                    8th Floor, Bakhtawar,
                                                    229, Nariman Point, Mumbai - 400 021
                                                    Tel ( 022) 56371212; Fax : (022) 5688 5850

       REGISTRAR TO THE ISSUE                                                TRUSTEE TO THE BONDHOLDERS
       Datamatics Financial Software & Services Ltd                          IL&FS Trust Company Ltd.
       Plot No A 16 & 17, MIDC                                               The IL&FS Financial Centre,
       Part B Crosslane, Marol, Andheri (East), Mumbai - 400 093             Plot - C22, Block - G, Bandra Kurla Complex,
       Tel:(022) 2837 5519 Fax:(022) 2835 0217                               Bandra (East), Mumbai - 400 051
       REGISTRAR AND TRANSFER AGENT                                          Tel : (022) 2653 3333
       Investor Services of India Ltd.                                       Fax : (022) 2653 3297
       IDBI Building; Plot No. 39-41, Sector 11
       CBD Belapur; Navi Mumbai - 400614
       Tel : (022) 2757 9645 Fax : (022) 2757 9650

                                                             BANKERS TO THE ISSUE
       Abu Dhabi Commercial Bank                      HDFC Bank Ltd.                 State Bank of Hyderabad
       Bank of Maharashtra                            IDBI Bank Ltd.                 Syndicate Bank
       Central Bank of India                          Indian Bank                    Union Bank of India
       Corporation Bank                               Indian Overseas Bank           United Bank of India
       Citibank, N.A.                                 The Sangli Bank Ltd            UCO Bank
       Development Credit Bank Ltd                    State Bank of India            UTI Bank Ltd


                                  STATEMENT OF INTER-SE ALLOCATION OF RESPONSIBILITIES
                                        AMONG THE LEAD MANAGERS TO THE ISSUE
       Responsibility : SBI Capital Markets Ltd.
       Co-ordinator : SBI Capital Markets Ltd.
       Capital Structuring with the relative components and aspects such as composition of debt.
       Structuring of the Issue instruments
       Draft design of Offer Document and memorandum containing salient features of the Offer Document, Due Diligence
       and completion of formalities with SEBI; completion of prescribed formalities with the Stock-Exchange Draft and
       design of advertisement/publicity material including newspaper advertisement.
       Selection of various agencies connected with the issue, namely printers and advertising agencies.
       Selection of Registrars to the Issue.
       Follow-up with Bankers to the Issue to get quick estimates of collection and advising the issuer about closure
       of the issue, based on the correct figures.
       The post-issue activities involving essential follow-up steps, finalisation of basis of allotment, weeding out of
       multiple applications, listing of instruments and despatch of certificates and refunds, with the various agencies
       connected with the work such as Registrars to the Issue. Bankers to the Issue, and the bank handling refund
       business. Even if many of these activities would be handled by other intermediaries, the designated Lead
       Managers shall be responsible for ensuring that these agencies fulfil their function and enable him to discharge
       this responsibility through suitable arrangement with IDBI.
       Responsibility : SBI Capital Markets Ltd., DSP Merril Lynch Ltd., Enam Financial Consultants Pvt. Ltd., J.M.
       Morgan Stanley Private Ltd., Kotak Mahindra Capital Company Ltd., RR Financial Consultant Ltd., Bajaj Capital
       Ltd., Karvy Investors Services Ltd., KJMC Global Market (India) Ltd.
       Co-ordinator : SBI Capital Market Ltd.
       Marketing of Issue covering inter-alia formulating marketing strategies, preparation of publicity budget,
       arrangements for selection of (i) ad media (ii) centres for holding press conference (iii) Bankers to the Issue (iv)
       collection centres (v) distribution form, prospectus and brochure (vi) deciding on the quantum of issue material.




16
                                                                                     IDBI FLEXIBONDS 19

                                                     CAPITAL STRUCTURE
                                                    (As on March 31, 2003)
                                                                                                                  (Rs. Crore)
     (A)      Authorised Capital
              Preference Capital
              50,00,00,000 Redeemable Preference Shares of Rs.10/- each                             500
              Equity Capital
              150,00,00,000 Equity Shares of Rs.10/- each                                          1500                2000
 (B)          Issued, subscribed and paid-up capital
              Equity Capital
              65,28,30,400 equity shares of Rs.10/- each                                                                653
 (C)          Reserves,Funds and Surplus                                                                               6325
              Including Share Premium Account                                                      1624
 (D)          Loan Funds
              Bonds and Debentures
              (i) Issued in Rupees                                                               40618
              (ii) Issued in Foreign Currency                                                     1180               41798
              Deposits                                                                                                4330
              Borrowings
              (i) Issued in Rupees                                                                  409
              (ii) Issued in Foreign Currency                                                      4951                5360
 (D)          Present Issue to Public through this Offer Document                                                       300
Notes :
1.   The Promoters / Directors / Lead Managers / IDBI have not entered into standby or similar arrangements
     for these bonds.
2.         The present issue of unsecured bonds by IDBI is made under Guidelines for Issue of Capital by Designated
           Financial Institutions, SEBI DIP Guidelines 2000, and therefore, provisions of lock-in of share of the promoters
           are not applicable.
3.         IDBI has not raised any bridge loan or any other similar financial arrangement, the amount of which would
           be repaid out of the proposed public issue of unsecured bonds.
4.         IDBI being a financial institution is in the business of raising resources and deploying them on an ongoing
           basis. However, no specific issue of ‘Security’ in domestic currency by way of a private placement or a public
           issue (by means of an Offer Document/ information memorandum, wherein a specific invitation is given to
           investors to subscribe to securities) shall be made during the time when the tranche is open.
5.         To the best of knowledge of IDBI, there is no intention of IDBI to significantly alter its capital structure within
           a period of 6 months from the date of opening the present issue.
6.         In the event of oversubscription beyond the green shoe option, the basis of allotment shall be decided on
           a proportionate manner in consultation with the Stock Exchange, Mumbai and the National Stock Exchange
           as per the procedure laid out in para Basis of Allotment on page 30 of the Offer Document.
7.         No single applicant in the net offer to the public category can make an application for a number of bonds,
           which exceeds the net offer to the public.
8.         The number of shareholders of IDBI as on October 31, 2003 was 3,01,699.




                                                                                                                                 17
     IDBI FLEXIBONDS 19

      SHARE CAPITAL HISTORY OF IDBI
      The ownership of IDBI from 1964 to 1976 was with the Reserve Bank of India. The ownership was transferred to
      the Government of India with effect from February 16, 1976. The contribution to the share capital, since inception
      was made by the RBI (later transferred to the Government of India in 1976 ) / Government of India. Details of
      capital history are as under :
          Year@                                                        No. of           Face Value           Cumulative
                                                                equity shares                              Share Capital
          1964-65                                                  1,00,00,000         10,00,00,000          10,00,00,000
          1966-67                                                  1,00,00,000         10,00,00,000          20,00,00,000
          1970-71                                                  1,00,00,000         10,00,00,000          30,00,00,000
          1971-72                                                  1,00,00,000         10,00,00,000          40,00,00,000
          1973-74                                                  1,00,00,000         10,00,00,000          50,00,00,000
          1977-78                                                  1,00,00,000         10,00,00,000          60,00,00,000
          1978-79                                                  3,00,00,000         30,00,00,000          90,00,00,000
          1979-80                                                  1,50,00,000         15,00,00,000         105,00,00,000
          1980-81                                                  4,00,00,000         40,00,00,000         145,00,00,000
          1981-82                                                  5,50,00,000         55,00,00,000         200,00,00,000
          1982-83                                                  5,50,00,000         55,00,00,000         255,00,00,000
          1983-84                                                 13,00,00,000        130,00,00,000         385,00,00,000
          1984-85                                                  3,00,00,000         30,00,00,000         415,00,00,000
          1985-86                                                  3,00,00,000         30,00,00,000         445,00,00,000
          1986-87                                                  3,00,00,000         30,00,00,000         475,00,00,000
          1987-88                                                  2,00,00,000         20,00,00,000         495,00,00,000
          1988-89                                                  4,50,00,000         45,00,00,000         540,00,00,000
          1989-90                                                  9,70,00,000         97,00,00,000         637,00,00,000
          1990-91                                                  6,60,00,000         66,00,00,000         703,00,00,000
          1991-92                                                  5,00,00,000         50,00,00,000         753,00,00,000
          16.11.1994*                                           (25,30,00,000)      (253,00,00,000)         500,00,00,000
          25.8.1995 **                                            17,30,93,300        173,09,33,000         673,09,33,000
          5.6.2000 ***                                          (24,70,00,000)      (247,00,00,000)         426,09,33,000
          25.8.2000#                                             (1,80,74,300)       (18,07,43,000)         408,01,90,000
          29.3.2001##                                             24,48,11,400        244,81,14,000         652,83,04,000

      @       The financial year upto 1987-88 was July – June year and April-March thereafter.
      *       Conversion of equity capital into redeemable preference shares, since redeemed.
      **      Initial Public Offer
      ***     The Government of India vide notification dated June 5, 2000 converted 24.70 crores equity shares held by
              it into three year redeemable preference shares of Rs. 10 each aggregating Rs.247 crore carrying dividend
              @ 13% p.a. Consequently, the equity shareholding of the Government in IDBI stands reduced from Rs.485.58
              crore (i.e. 72.14%) to Rs.238.58 crore(i.e. 57.76%).
      #       On August 25,2000 1,80,74,300 partly paid up equity shares of face value Rs. 10/- each were forfeited
              Consequently (i) the aggregate face value of Rs. 18,07,43,000 has been reduced from the subscribed and
              paid up equity capital (ii) Allotmentmoney in Arrears of Rs.13,55,57,250 has been written down fully and (iii)
              Capital Reserve account has been credited by Rs.4,51,85,750 being the amount actually paid up on the
              forfeited shares. On account of this, Government’s shareholding has gone up to 58.5% with effect from
              August 25,2000.
      ##      The board of IDBI has recommended bonus in the ratio of 3 equity shares for every 5 equity shares held vide
              Board resolution dated December 19,2000 which was subsequently ratified in the EGM held on January
              23,2001.Consequently IDBI has issued 24,48,11,400 fully paid equity shares of Rs.10/- each issued as bonus
              shares on March 29, 2001 by capitalisation of Capital Reserve of Rs. 4.52 crore and Share Premium of Rs.
              240.29 crore.



18
                                                                           IDBI FLEXIBONDS 19

3.     NOTES ON CAPITAL STRUCTURE
(i)    The list of top ten shareholders of IDBI on the date of Stock Exchange filing on November 20, 2003 and the
       number of shares held by them is as follows.
  Sr.No       Name of the Shareholder                                                            No of Shares
  1           Government of India                                                                  38,17,28,000
  2           Unit Trust of India                                                                   2,85,66,899
  3           Life Insurance Corporation of India                                                   2,85,21,950
  4           State Bank of India                                                                   1,71,24,960
  5           HSBC Global Invest.Funds a/c & HSBC GlobalInvest.Funds MAU LTD                          97,83,005
  6           Commonwealth Equity Fund Ltd.                                                           63,31,960
  7           HSBC Financial Services (Middle East) Ltd                                               52,42,232
  8           Morgan Stanley Invest. Management A/C Morgan Stanley Ind Inv. Fund Inc.                 39,84,704
  9           Morgan Stanley Mutual Fund A/C & Morgan Stanley Growth Fund                             32,89,519
  10          General Insurance Corporation of India                                                  32,43,462
(ii) The list of top ten shareholders 10 days prior to the date of Stock Exchange filing and the number of shares
     held by them is as follows.
  Sr.No       Name of the Shareholder                                                            No of Shares
  1           Government of India                                                                  38,17,28,000
  2           Unit Trust of India                                                                   2,85,66,899
  3           Life Insurance Corporation of India                                                   2,85,21,950
  4           State Bank of India                                                                   1,71,24,960
  5           HSBC Global Invest.Funds a/c & HSBC GlobalInvest.Funds MAU LTD                          97,83,005
  6           Commonwealth Equity Fund Ltd.                                                           63,31,960
  7           HSBC Financial Services (Middle East) Ltd                                               52,42,232
  8           Morgan Stanley Invest. Management A/C Morgan Stanley Ind Inv. Fund Inc.                 39,84,704
  9           Morgan Stanley Mutual Fund A/C & Morgan Stanley Growth Fund                             32,89,519
  10          General Insurance Corporation of India                                                  32,43,462
(iii) The list of top ten shareholders of IDBI 2 years prior to the date of Stock Exchange filing and the number
      of shares held by them is as follows.
  Sr.No       Name of the Shareholder                                                            No of Shares
  1           Government of India                                                                  23,85,80,000
  2           Unit Trust of India                                                                   3,13,60,753
  3           Life Insurance Corporation of India                                                   1,52,23,800
  4           State Bank of India                                                                   1,07,03,100
  5           Export Import Bank of India                                                             20,00,000
  6           The Industrial Finance Corporation of India Ltd.                                        17,83,800
  7           Nagarjuna Fertilizers & Chemicals Ltd.                                                  17,17,000
  8           Synducate bank                                                                          17,15,200
  9           ICICI Ltd.                                                                              16,94,700
  10          Canara bank                                                                             16,94,700




                                                                                                                    19
     IDBI FLEXIBONDS 19

      PRINCIPAL TERMS OF THE BONDS
      Under the present Offer Document, IDBI offers for public subscription four types of unsecured Bonds. These Bonds
      have been structured with several investor-friendly features to meet the needs of different types of investors.
      Investors can apply for any or all types of Bonds, as they desire.
      This offer of Bonds is made in India to persons resident in India.
      The bonds issued herein are subject to applicable prudential norms of RBI, as applicable. The Bonds are also governed
      by the Trustee agreement, which stipulates a covenanted DER and NDCSR ratio to be maintained throughout the
      currency of the bonds. If IDBI fails to meet the minimum required criteria regarding DER and NDSCR, no dividend shall
      be declared for the relevant year except with the approval of the Trustees and the rate of dividend shall not exceed 10%.
      IDBI INFRASTRUCTURE (Tax Saving) BOND (2004 A)
      Investors in IDBI INFRASTRUCTURE (Tax Saving) BOND (2004 A) will receive interest @ 5.75% p.a. payable
      annually for 3 years (option A) or @ 6.00% p.a. payable annually for a period of 5 years (option B). The investor
      may also choose from the cumulative options, Option C with maturity of 3 year 6 months (YTM 5.75%) and Option
      D with maturity of 5 years (YTM 6.02%). Investment made in these bonds will be eligible for tax benefits under
      Section 88 of the Income Tax Act, 1961.
      KEY TERMS
      The Investor in the IDBI Infrastructure (Tax Saving) Bond (2004 A) will have the following options.
      Option A: Annual Interest Option
      The Investor receives interest at 5.75% p.a. annually for 3 years.
      Option B: Annual Interest Option
      The Investor receives interest at 6.00% p.a. annually for 5 years.
      Option C: Cumulative Option
      The Investor receives cumulative amount of Rs.6,080 per bond at the end of 3 year 6 months.
      Option D: Cumulative Option
      The Investor receives cumulative amount of Rs.6,700 per bond at the end of 5 years.
      Minimum Investment
      Each bond has a issue price of Rs.5,000. The minimum investment shall be 1 bond i.e. Rs.5,000 and in multiples
      of 1 bond i.e. Rs.5,000 thereafter.
      Interest Payment Dates for Option A and Option B
      Interest on bonds under Option A and Option B accrues from the deemed date of allotment, i.e. January 12, 2004.
      Interest will be due and payable on January 12 every year. The first payment of interest for the period from the
      deemed date of allotment up to January 11, 2005 will be made on January 12, 2005.
      Maturity
      Option A : The Bonds under Option A will mature on the expiry of 3 years from the deemed date of allotment i.e.
      January 12, 2004. The date of maturity will be January 12, 2007. On maturity, the Bonds will be redeemed at face
      value (Rs. 5,000).
      Option B: The Bonds under Option B will mature on the expiry of 5 years from the deemed date of allotment. i.e.
      January 12, 2004. The date of maturity will be January 12, 2009. On maturity, the Bonds will be redeemed at face
      value (Rs. 5,000).
      Option C: The Bonds under Option C will mature on the expiry of 3 year 6 months from the deemed date of
      allotment i.e. January 12, 2004. The date of maturity will be July 12, 2007. On maturity, the bonds will be redeemed
      at the cumulative value of Rs.6,080.
      Option D: The Bonds under Option D will mature on the expiry of 5 years from the deemed date of allotment. i.e.
      January 12, 2004. The date of maturity will be January 12, 2009. On maturity, the bonds will be redeemed at the
      cumulative value of Rs.6,700.




20
                                                                              IDBI FLEXIBONDS 19

Early Encashment Option / Put Option
There is no early encashment option/put option for investors in IDBI Infrastructure (Tax Saving) Bond (2004 A).
Call Option
There is no call option for IDBI in the IDBI Infrastructure (Tax Saving) Bond (2004 A).
Priority for Allotment
Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond (2004 A) will be made on a full
and firm allotment basis, upto the issue size Rs.300 crore plus the amount of over subscription retained by IDBI.
Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 A) will have priority over subscribers to other bonds
for allotment. Therefore, only after all eligible applicants for IDBI Infrastructure (Tax Saving) Bond (2004 A) have
been allotted, applications for other bonds will be considered for allotment on proportionate basis.
Yield to Maturity
The table of annualised yields to maturity per bond is given below.
 Option                    Tenor            Interest rate       Amount               YTM                YTM
                                                               payable on        (without tax         (with tax
                                                              maturity (Rs)         benefit)          benefits)*

 A : Annual               3 years            5.75% p.a.          Rs.5,000         5.75% p.a.         11.99% p.a.
 B : Annual               5 years            6.00% p.a.          Rs.5,000         6.00% p.a.         9.95% p.a.
 C : Cumulative      3 year & 6 months       Refer YTM           Rs.6,080         5.75% p.a.         10.78% p.a.
 D : Cumulative            5 years           Refer YTM           Rs.6,700         6.02% p.a.         9.53% p.a.
 * The YTM (with tax benefits) is calculated assuming the investor gets a tax benefits of 15% of the invested
amount.
Tax Benefits
CBDT has, vide letter F.No. 178/40/2003-ITA-I dated September 12, 2003 declared Infrastructure Bonds issued by
IDBI in the financial year 2003-2004 upto an amount of Rs.3,000 crore as eligible for the purpose of clause (xvi)
of sub-section (2) of Section 88 of the Income Tax Act, 1961 read with Rule 20 of the Income Tax Rules,1962.
Accordingly, allottees (sole/first applicant) of the these bonds can avail of tax rebate under Section 88 of IT Act,
subject to certain conditions as details under ‘Tax Benefits’ in the Offer Document.
For tax benefits and tax treatment of interest income, please refer ‘Tax Benefits’ later in this document.
An assessee being an Individual or HUF may out of his / its taxable income invest up to Rs. 1,00,000 in these
Bonds along with other eligible modes of investments specified in Section 88 of IT Act and secure a tax rebate
as given in the table on page 39.
Tax Deduction at Source
Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified under
‘Common Terms’ appearing later in the Offer Document.
IDBI MONEY MULTIPLIER BOND (2004 A)
IDBI MONEY MULTIPLIER BOND (2004 A) is issued at a discounted price of Rs.5,000. After the maturity period
of 7 years in case of Option A and 11 years in case of Option B, the Bonds will be redeemed at their face value
of Rs.7,650 and Rs.10,000 respectively.
KEY TERMS
Discounted Price/ Issue Price
Each Bond under Option A and Option B has a discounted price of Rs. 5,000.
Minimum Investment
The minimum investment is one Bond i.e. Rs. 5,000 and thereafter the investors can apply in multiples thereof.
Maturity
The Bonds will mature on the expiry of 7 years under Option A and 11 years under Option B from the deemed date
of allotment. The deemed date of allotment will be January 12, 2004. The Bonds will, therefore, mature on January
12, 2011 and January 12, 2015 under Option A and Option B respectively.



                                                                                                                         21
     IDBI FLEXIBONDS 19


      Maturity Value
      On maturity, investors can redeem the Bond at their face value of Rs.7,650 and Rs.10,000 for Option A and Option
      B respectively.
      Yield To Maturity
      The annualized yield to maturity in case of Option A (on redemption after 7 years) is 6.26% and for Option B (on
      redemption after 11years) is 6.50%.
      Early Encashment Option / Put Option
      Investors will not have the put option to encash the Money Multiplier Bond (2004 A) prior to the date of maturity.
      Call Option
      IDBI will not have Call option to redeem the Money Multiplier Bond (2004 A) prior to the date of maturity.
      Tax Treatment
      For tax benefits, please refer ‘Tax Benefits’ later in the Offer Document.
      Tax Deducted at source
      Tax will be deducted at source as per the prevailing tax laws and as specified under ‘Common Terms’ appearing
      later in the Offer Document.
      IDBI RETIREMENT BOND (2004 A)
      Under IDBI RETIREMENT BOND (2004 A) investor, in case of Option A, will receive 28 equal quarterly payments
      comprising of interest and part of principal repayment of Rs.1,325 (per 6 bonds) and in case of Option B, will receive
      40 equal quarterly payments of Rs.1,020 (per 6 bonds), starting from the first quarter from the deemed date of
      allotment i.e. January 12, 2004. There is no wait period for both the Options (Option A and B) of IDBI Retirement
      Bond (2004 A). Investors may please note that no principal repayment will be made on maturity to the bondholders
      under Option A and B as the entire face value, alongwith interest on the bonds, is being paid during the currency
      of the bond.
      KEY TERMS
      Face Value
      Each Bond has a face value of Rs.5,000.
      Minimum Investment
      The minimum investment under Option A and Option B shall be 6 Bonds i.e. Rs.30,000 and thereafter in multiples
      of one Bond i.e. Rs.5,000.
      Wait Period and Quarterly payments
      Option A : There is no wait period under Option A. The holder of IDBI Retirement Bond (2004 A) Option A will
      receive 28 equal quarterly payments comprising of interest and principal repayment of Rs.1325 per 6 bonds
      starting from the first quarter. The first quarterly payment will be made on April 12, 2004.
      Option B : There is no wait period under Option B. The holder of IDBI Retirement Bond (2004 A) Option B will
      receive 40 equal quarterly payments of Rs.1,020 per 6 bonds starting from the first quarter. The first quarterly
      payment will be made on April 12, 2004.
      Payment Dates, Maturity and Yield to Maturity
      Each quarterly payment comprises of interest and principal in case of Option A and Option B as indicated in the
      following table. The payment date, maturity and yield to maturity alongwith the other key features of the Bond
      will be as indicated in the table as follows.
                                                   Option A                            Option B
            Wait Period                                     NIL                                 NIL
            Repayment of Principal                 Paid in the form of                 Paid in the form of
                                                   quarterly payments                  quarterly payments




22
                                                                            IDBI FLEXIBONDS 19


                                            Option A                           Option B
     Quarterly Payment                      Rs.1325 per 6 Bonds                Rs.1020 per 6 Bonds
     Quarterly Payments comprise of
         Interest portion per quarterly     Rs.254 for first 27                Rs.270 for 40 quarterly payments
         payment per 6 bonds                payments and Rs.242
                                            for 28th payment

         Principal portion per quarterly    Rs.1071 for first 27               Rs.750 for 40 quarterly payments
         payment per 6 bonds                payments and Rs.1083
                                            for 28th payment

     Number of quarterly payments           28                                 40


     Date of first quarterly payment         April 12, 2004                    April 12, 2004
     Date of last quarterly payment          January 12, 2011                  January 12, 2014
     Tenor                                  7 years                            10 years
     Yield to Maturity                       6.26%                             6.53%
Put Option
There is no early encashment/put option for investors in the IDBI Retirement Bond (2004 A).
Call Option
There is no call option with IDBI in respect of IDBI Retirement Bond (2004 A).
Tax Benefits
For tax benefits, please see under ‘Tax Benefits’ later in this document.
Tax Deduction at Source
Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified under
‘Common Terms’ appearing later in this Offer Document.
Tax Benefits
For tax benefits, please see under ‘Tax Benefits’ later in this document.
Tax Deduction at Source
Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified under
‘Common Terms’ appearing later in the Offer Document.

IDBI REGULAR INCOME BOND (2004 A)
Investors in IDBI REGULAR INCOME BOND (2004 A) will receive interest @ 6.25% p.a. payable annually (Option
A) or @ 6.00% p.a. payable quarterly (Option B) for a period of 7 years or interest @ 6.50% p.a. payable annually
(Option C) or @ 6.25% p.a. payable quarterly (Option D) for a period of 10 years or @ 7.00% p.a. payable annually
(Option E) for a period of 15 years.
KEY TERMS
Face Value
Each Bond has a face value of Rs. 5,000.
Minimum Investment
Minimum investment shall be Rs.10,000 (2 Bonds), Rs.30,000 (6 Bonds), Rs.10,000 (2 Bonds), Rs.30,000 (6
Bonds) and Rs.10,000 (2 Bonds) for Option A, Option B, Option C, Option D and Option E respectively and
thereafter in multiples of one Bond i.e. Rs.5,000.




                                                                                                                      23
     IDBI FLEXIBONDS 19

      Interest Rate
      Investors have the option to receive interest payments either annually (Option A, C and E) or quarterly (Option B
      and D) at the rates mentioned in the table as follows.
                                Option A          Option B            Option C        Option D              Option E
       Payment of Interest       Annual          Quarterly           Annual           Quarterly                Annual
       Interest Rate            6.25% p.a.      6.00%p.a.         6.50% p.a.          6.25% p.a.           7.00% p.a.
       Yield to Maturity          6.25%           6.14%              6.50%               6.40%                  7.00%
       Tenor                    7 years          7 years           10 years            10 years              15 years

      Interest Payment Dates
      Option A: Annual Interest Option (Tenor 7 years)
      Interest will be due and payable on January 12 every year. The first payment of interest for the period from the
      deemed date of allotment up to January 11, 2005 will be be due and payable on January 12, 2005.
      Option B: Quarterly Interest Option (Tenor 7 years)
      Interest will be due and payable on April 12, July 12, October 12 and January 12 every year. The first payment of
      interest for the period from deemed date of allotment up to April 11, 2004 will be due and payable on April 12, 2004.
      Option C: Annual Interest Option (Tenor 10 years)
      Interest will be due and payable on January 12 every year. The first payment of interest for the period from the
      deemed date of allotment up to January 11, 2005 will be be due and payable on January 12, 2005.
      Option D : Quarterly Interest Option (Tenor 10 years)
      Interest will be due and payable on April 12, July 12, October 12 and January 12 every year. The first payment
      of interest for the period from deemed date of allotment up to April 11, 2004 will be due and payable on April 12,
      2004.
      Option E: Annual Interest Option (Tenor 15 years)
      Interest will be due and payable on January 12 every year. The first payment of interest for the period from the
      deemed date of allotment up to January 11, 2005 will be be due and payable on January 12, 2005.
      Maturity
      The Bonds with Option A and Option B will mature on the expiry of 7 years from the deemed date of allotment, the
      Bonds with Option C and Option D will mature on the expiry of 10 years from the deemed date of allotment and
      the Bonds with Option E will mature on the expiry of 15 years from the deemed date of allotment. As the deemed
      date of allotment will be January 12, 2004 therefore Option A and Option B of the IDBI Regular Income Bonds
      (2004 A) will mature on January 12, 2011, Option C and Option D will mature on January 12, 2014 and Option E
      will mature on January 12, 2019. On maturity, the Bonds will be redeemed at face value.
      Put Option
      There is no early encashment/put option for investors in any of the options of IDBI Regular Income Bond (2004 A).
      Call Option
      There is no call option in case of Option A, Option B, Option C, Option D of IDBI Regular Income Bond (2004
      A). IDBI shall have call option to redeem Option E of IDBI Regular Income Bond (2004 A) at their face value at
      the end of 9th and 12th year from the deemed date of allotment (January 12, 2004) i.e as on January 12, 2013
      and January 12, 2016. On the bondholders receiving the face value (Rs.5,000 per bond) on exercise of call option
      by IDBI, the Bonds shall stand fully extinguished. In case IDBI decides to exercise call option to redeem the bonds
      as per the terms of this Offer Document, it will announce its intention to do so in one National Newspaper atleast
      two months prior to the date of call options.
      Tax Treatment / Tax Deducted at source
      For tax benefits/ TDS please refer ‘Tax Benefits’ later in the Offer Document.
        COMMON TERMS
      Terms of Payment
      The full amount of issue price of the Bonds applied for should be paid along with the application.
      Interest on Application money
      Successful applicants will be paid interest on their application money @ 3.50% p.a. from the third day from the date
      of deposit of their application upto the deemed date of allotment. Interest on application money will be sent to the



24
                                                                                IDBI FLEXIBONDS 19

investor by way of a warrant and will be despatched along with the bond certificate. However in case of Regular
Income Bond, Retirement Bond and Option A & B of Infrastructure (Tax Saving) Bond interest on application money
upto Rs.100 will be sent alongwith the first interest cheque.
Investment holding and Market Lot
Investment in the bonds may be held either in “Physical form” or in “Demat form”. The market lot will be one bond.
Denomination of Bond Certificates (Physical form)
Investors may opt for certificates in market lot or consolidated certificate by indicating in the application form. If
“Consolidated Certificate” option is chosen, one consolidated Bond Certificate will be issued for each option/bond
for the total number of bonds allotted. Investors may later ask for split of the certificate into market lots at any time.
This will be done free of cost once. If “Market Lots” option is chosen, separate Bond Certificate will be issued for
each bond allotted. If no option is indicated, a Consolidated Certificate will be issued. Those investors who wish
to trade on the stock exchanges are advised to opt for certificates in “Market Lots”. Others may opt for “Consolidated
Certificate” for ease and convenience.
Depository Arrangement
IDBI has entered into depository arrangements with National Securities Depository Ltd. (NSDL) and Central
Depository Services Ltd. (CDSL). Investors will have the option to hold the security in dematerialised form and deal
with the same as per the provisions of Depositories Act, 1996 (as amended from time to time).
IDBI has signed two tripartite agreements in this connection viz.
1)    Tripartite Agreement dated September 18, 2000 between IDBI, National Securities Depository Ltd. (NSDL)
      and the Registrar to Issue, Datamatics Financial Software and Services Ltd.
2)    Tripartite Agreement dated November 3, 2000 between IDBI, Central Depository Services Ltd. (CDSL) and
      the Registrar to Issue, Datamatics Financial Software and Services Ltd.
Procedure for opting for demat facility
1.   Investor(s) should have / open a Beneficiary Account with any Depository Participant of NSDL or CDSL.
2.    Responsibility for correctness of investor’s age and other details given in the Application Form vis-à-vis
      those with the investor’s Depository Participant would rest with the investors. Investors should ensure that
      the names of the sole/all the applicants and the order in which they appear in the application form should
      be same as Registered with the Investor’s Depository Participant.
3.    For opting for Bonds in dematerialized form, the beneficiary account number and depository participant’s ID
      shall be specified in the relevant columns of the Application Form.
4.    If incomplete/incorrect Beneficiary Account details are given in the application form or where the investor
      does not opt for the option to receive the Bonds in dematerialized form, the Bonds will be issued in the form
      of physical certificate(s).
5.    The Bonds allotted to investor opting for dematerialized form, would be directly credited to the Beneficiary
      Account as given in the application form after verification. Allotment advice/refund order (if any) would be
      sent directly to the applicant by the Registrars to the Issue but the confirmation of the credit of the bonds
      to the investor’s Depository Account will be provided to the investor by the investor’s Depository Participant.
6.    Investors may choose to opt for part of the total number of bonds applied for in demat form and the balance
      in physical form. In case of partial allotment, bonds will first be allotted in demat form and the balance if any
      in physical form. Separate applications in physical and dematerialised form would be considered as multiple
      applications and are liable to be rejected at the sole discretion of IDBI.
7.    Interest or other benefits with respect to the bonds held in dematerialised form would be paid to those
      bondholders whose names appear on the list of beneficial owners given by the depositories to IDBI as on
      the Record Date. In case, the beneficial owner is not identified by the depository on the Record Date due
      to any reason whatsoever, IDBI shall keep in abeyance the payment of interest or other benefits, till such
      time the beneficial owner is identified by the depository and intimated to IDBI. On receiving such intimation,
      IDBI shall pay the interest or other benefits to the beneficiaries identified, within a period of 15 days from
      the date of receiving such intimation.
8.    Investors may please note that the bonds in demat form can be traded only on the stock exchanges having
      electronic connectivity with NSDL or CDSL.




                                                                                                                             25
     IDBI FLEXIBONDS 19


      Electronic Clearing Service for Payment of Interest
      Reserve Bank of India has introduced the concept of Electronic Clearing Service (ECS) through the clearing-house
      to obviate the need for issuing and handling paper instruments and thereby facilitate improved customer service.
      This facility would be available in cities where RBI provides such facility.
      As per the guidelines issued by RBI in this regard, the investor is required to give his mandate for ECS with all the
      details. This will help IDBI to credit the interest amount to investor’s account with the concerned bank at the earliest.
      The investors will also have the convenience of direct credit to their bank account without the need to receive
      interest warrants by post and deposit the same in their bank accounts. The bank branch will credit the investor’s
      account and indicate the credit entry with ECS in the passbook/statement of account.
      Investors who have not opted for ECS will be sent interest warrants by post.
      Listing
      Applications have been made to The Stock Exchange, Mumbai and the National Stock Exchange of India Ltd. for
      permission to deal in and for official quotation of the Bonds. The Stock Exchange, Mumbai and the National Stock
      Exchange have given their in-principle approvals vide their letters dated October 29, 2003 and November 3, 2003
      respectively. IDBI shall complete all the formalities relating to the listing of the bonds within seventy days from the date
      of closure of each tranche/issue. If the permissions to deal in and for an official quotation of bonds are not granted by
      any of the Stock Exchanges, IDBI shall forthwith repay, without interest, all such moneys received from the applicants
      in pursuance of this Offer Document. If such money is not repaid within eight days after the Bank becomes liable to
      repay it (i.e. from the date of refusal or within 70 days from the date of closing of the subscription list, whichever is
      earlier), then the Bank will be liable to repay the money, with interest, as prescribed under applicable regulations.
      Nature of Instruments
      The Bonds will be unsecured and issued in the form of promissory notes. The Bonds shall rank pari passu, inter se,
      and subject to any obligations preferred by mandatory provisions of the law prevailing from time to time shall also, as
      regards repayment of principal and payment of interest, rank pari passu with all other unsecured unsubordinated
      borrowings of IDBI. These Bonds will rank superior to all the existing and future unsecured subordinated borrowings
      of IDBI.
      Tax Deduction at Source
      As per the prevailing income tax laws [as applicable for FY 2003-04] :
      (a) In case of payment of interest to a bondholder who is an individual, tax is required to be deducted @10%
           (plus surcharge as applicable) where the interest payment in the aggregate, during the financial year
           exceeds Rs.2,500. However tax will not be deducted where a declaration, in duplicate, in the prescribed
           Form is submitted in accordance with the Income Tax Rules and the aggregate amount payable does not
           exceed the maximum amount not liable to tax.
      (b)   In the case of payment of interest to entities other than individuals, tax is required to be deducted at source
            @ 10% (plus surcharge at applicable rate) except in the case of domestic company where the tax is to be
            deducted @ 20% (plus surcharge at applicable rate). Investors eligible for exemption from deductions of tax
            at source or eligible for a lower rate of taxation may submit declaration in the prescribed Form or a certificate
            signed by the Assessing Officer to that effect.
      Such a declaration for the financial year 2003-04 may be attached to the Application Form. For subsequent years,
      the investor will have to submit the prescribed Form every financial year (April-March) to the Registrar and Transfer
      Agent (ISIL) separately, atleast two months prior to the date for payment of interest or despatch of post dated interest
      warrants as the case may be, failing which the tax will be deducted at source as per prevailing tax laws. Investors
      may approach any of IDBI’s offices for copies of prescribed Form. The TDS certificate if applicable is mailed to the
      investors by the Registrars. Investors desirous of receiving one consolidated certificate of Tax Deduction at Source
      in case of IDBI Retirement Bond (2004 A) and IDBI Regular Income Bond (2004 A) Option B & Option D, with
      quarterly interest options, may indicate their request for the same at the appropriate place in the application form.
      Amendment of the Terms of the Bonds
      IDBI may amend the terms of the Bond(s) at any time by a resolution passed at a meeting of the bondholders with
      the consent of the bondholders holding in the aggregate more than 50% in nominal value of the Bonds held and
      outstanding under the respective schemes from those present and voting.




26
                                                                               IDBI FLEXIBONDS 19

Right to Purchase / Reissue Bond(s)
IDBI may purchase the Bonds in the open market, through market makers or otherwise. Such Bonds may be cancelled
(extinguished), held, resold or reissued to any person at the discretion of IDBI. Where IDBI purchases Bonds, IDBI shall
have and shall be deemed always to have had the right to keep such Bonds alive for the purposes of resale or reissue
and in exercising such right, IDBI shall have and deemed always to have had the power to resell or reissue the same
Bonds or by issuing other Bonds in lieu thereof.
Future Borrowings / Issues
IDBI will be entitled to borrow/ raise loans or avail of financial assistance in whatever form as also issue debentures
/ bonds / other securities in any manner having such ranking in priority, pari passu or otherwise and change the
capital structure including the issue of shares of any class, on such terms and conditions as IDBI may think
appropriate, without the consent of, or intimation to, the bondholders or the Trustees.
TRUSTEES TO THE BONDHOLDERS
IDBI has appointed IL&FS Trust Company Ltd. to act as Trustees to the Bondholders. IDBI and the Trustees will
enter into a Trustee Agreement, specifying inter alia, the powers, authorities and obligations of the Trustees and
IDBI. The bondholders shall, without further act or deed, be deemed to have irrevocably given their consent to the
Trustees or any of their agents or authorised officials to do all such acts, deeds, matters and things in respect of
or relating to the Bonds as the Trustees may in their absolute discretion deem necessary or require to be done in
the interest of the bondholders.
The complete name and address of the Trustees to the Bondholders will be disclosed in the annual report. IDBI
will provide a compliance certificate to the bondholders on (yearly basis) in respect of compliance with the terms
and conditions of issue of bonds as contained in the Offer Document, duly certified by the Trustees to the
Bondholders. The certificate will be published by way of a notice in a National Daily.
It is proposed that in terms of the agreement, the Trustees will endeavor to protect the interest of the bondholders,
in the event of default in regard to timely payment of interest or repayment of principal by IDBI. Any payment made
by IDBI to the Trustees on behalf of the bondholders shall discharge IDBI pro tanto to the bondholders. No
Bondholder shall be entitled to proceed directly against IDBI unless the Trustees, having become so bound to
proceed, fail to do so. The events of default under the trustee agreement are as follows:
Events of default which occur and continue without being remedied for a period of 30 days after the dates on which
the monies specified in (i) and (ii) below become due and will necessitate repayment before maturity are as follows:
(i)    Default in payment of monies due in respect of interest owing upon Bond(s);
(ii)   Default in payment of any other monies including costs, charges and expenses incurred by the Trustees.
Additional events of default
1     Default is committed in the performance or observance of any covenant, condition or provision contained in
      the trustee agreement and/or the financial Covenants and Conditions (other than the obligation to pay
      principal and interest) and, except where the Trustees certify that such default is in their opinion incapable
      of remedy (in which case no notice shall be required), such default continues for thirty days after written
      notice has been given thereof by the Trustees to the IDBI requiring the same to be remedied.
2.     Any information given by the IDBI in its applications to the Bondholders, in the reports and other information
       furnished by the IDBI and the warranties given/ deemed to have been given by it to the Bond holders/
       Trustees is misleading or incorrect in any material respect.
3.     The IDBI is unable to or has admitted in writing its inability to pay its debt as they mature.
4.     Receiver or a Liquidator has been appointed or allowed to be appointed for all or any part of the undertaking
       of the IDBI and such appointment is not dismissed within 60 days of appointment.
5.     The IDBI ceases to carry on its business.
       •    IDBI hereby declares that it has not defaulted in payment of any of its previous borrowings.
       •    IDBI has executed Memorandum of Understanding (MoU) in respect of all its previous public issues
            within a period of six months from the closure of each of the public issue which was subsequently
            followed up with a Trustee Agreement.
       •    IDBI confirms that the NDSCR ratio covenanted to be maintained in the said agreement has been
            maintained as on the date of filing the present document with the Stock Exchange as also in past three
            years.



                                                                                                                           27
     IDBI FLEXIBONDS 19

           •     If IDBI fails to meet the minimum required criteria regarding DER and NDSCR, no dividend shall be
                 declared for the relevant year except with the approval of the Trustees and the rate of dividend shall
                 not exceed 10%.
      Rights of Bondholder(s)
      a)   The Bond(s) shall not, except as provided in the Act, confer upon the holder(s) thereof any rights or
           privileges available to the members of the IDBI including the right to receive notices or Annual Reports of,
           or to attend and/or vote, at the General Meeting of the IDBI. However, if any resolution affecting the rights
           attached to the Bond(s) is to be placed before the shareholders, the said resolution will be first placed before
           the concerned registered Bondholder(s) for their consideration. Holder(s) of the Bond(s) shall be entitled
           to a copy of the Annual Report on a specific request made to the IDBI.
      b)   The registered Bondholder or in the case of joint-holders, the one whose name stands first in the register
           of Bondholder(s) shall be entitled to vote in respect of such Bond(s), resolution(s), either in person or by
           proxy, at any meeting of the concerned Bondholder(s) and every such holder shall be entitled to one vote
           on a show of hands. On a poll, his/her voting rights shall be in proportion to the outstanding nominal value
           of Bond(s) held by him/her on every resolution placed before such meeting of the Bondholder(s). The
           quorum for such meetings shall be at least five Bondholder(s) present in person.
      c)   The Bond(s) are subject to the provisions of the IDBI Act 1964, the terms of this Offer Document and
           Application Form. Over and above such terms and conditions, the Bond(s) shall also be subject to the other
           terms and conditions as may be incorporated in the Trustee Agreement/ Letters of Allotment /Bond Certificates,
           guidelines, notifications and regulations relating to the issue of capital and listing of securities issued from
           time to time by the Government of India and/or other authorities and other documents that may be executed
           in respect of the Bond(s).
      d)   The Bonds will be subject to provisions of this Offer Document, application form, IDBI Act 1964, Industrial
           Development Bank of India (Issue and Management of Bonds) Regulations 1972, Industrial Development
           Bank of India General Regulations 1994, IDBI Bonds and Deposits (Nomination) Regulations 1997 and rules
           and regulations of Govt. of India, SEBI, RBI and concerned Stock Exchanges as prevailing and to the extent
           applicable, will apply in relation to matters not otherwise provided for in terms of the issue of the Bond(s).
      e)   A register of Bondholder(s) will be maintained in accordance with the aforesaid provisions of the Act and
           all interest and principal sums becoming due and payable in respect of the Bond(s) will be paid to the
           registered holder thereof for the time-being or in the case of joint-holders to the person whose name stands
           first.
      f)   The bondholders will be entitled to their bonds free from equities and/or cross claims by IDBI against the
           original or any intermediate holders thereof.
      g)   Bonds can be rolled over only with the positive consent of the bondholders.
      Role, Power and Obligations of Trustees
      The major clauses relating to the general rights, powers and discretions of the Trustees shall be as under. These
      are in addition to other powers conferred on the Trustees and provisions for their protection.
      a)   The trustee shall not be bound to give notice to any person of the execution of the Trustee Agreement or
           to see to the performance or observance of any of the obligations hereby imposed on the IDBI or in any
           way to interfere with the conduct of the IDBI’s business unless and until the rights under the Bonds shall
           have become enforceable and the Trustees shall have determined to enforce the same.
      b)   Save as otherwise expressly provided in the Agreement, the Trustees shall, as regards all trusts, powers,
           authorities and discretions, have absolute and uncontrolled discretion as to the exercise thereof and to the
           mode and time of exercise thereof and in the absence of fraud shall not be responsible for any loss, costs,
           charges, expenses or inconvenience that may result from the exercise or non-exercise thereof and in
           particular they shall not be bound to act at the request or direction of the Bondholders under any provisions
           of these presents unless sufficient monies shall have been provided or provision to the satisfaction of the
           Trustees made for providing the same and the Trustees are indemnified to their satisfaction against all
           further costs, charges, expenses and liability which may be incurred in complying with such request or
           direction;



28
                                                                            IDBI FLEXIBONDS 19

c)   With a view to facilitate any dealing under any provision of these presents the Trustees shall have full power
     to consent (where such consent is required) to a specified transaction or class of transactions conditionally;
d)   The Trustees shall not be responsible for the monies paid by applicants for the Bonds;
e)   The Trustees shall not be responsible for acting upon any resolution purporting to have been passed at any
     meeting of the Bondholders in respect whereof minutes have been made and signed even though it may
     subsequently be found that there was some defect in the constitution of the meeting or the passing of the
     resolution or that for any reason the resolution was not valid or binding upon the Bondholders;
f)   The Trustees shall have full power to determine all questions and doubts arising in relation to any of the
     provisions of the trustee agreement and every such determination bonafide made (whether or not the same
     shall relate wholly or partially to the acts or proceedings of the Trustees) shall be conclusive and binding
     upon all persons interested hereunder;
g)   The Trustees shall not be liable for anything whatsoever except a breach of trust knowingly and intentionally
     committed by the Trustees;
h)   The Trustees shall not be liable for any default, omission or delay in performing or exercising any of the
     powers or trusts under the trustee agreement expressed or contained or any of them or in enforcing the
     covenants or in giving notice to any person or persons of the execution hereof or in taking any other steps
     which may be necessary, expedient or desirable for any loss or injury which may be occasioned by reason
     thereof unless the Trustees shall have been previously requested by notice in writing to perform, exercise
     or do any of such steps as aforesaid by the holders representing not less than three fourths of the nominal
     amount of the Bonds for the time being outstanding or by a Special Resolution duly passed at a meeting
     of the Bondholders and the Trustees shall not be bound to perform, exercise or do any such acts, powers
     or things or to take any such steps unless and until sufficient moneys shall have been provided or provision
     to the satisfaction of the Trustees made for providing the same by or on behalf of the Bondholders or some
     of them in order to provide for any costs, charges and expenses which the Trustees may incur or may have
     to pay in connection with the same and the Trustees are indemnified to their satisfaction against all further
     costs, charges, expenses and liabilities which may be incurred in complying with such request PROVIDED
     NEVERTHELESS that nothing contained in this clause shall exempt the Trustees from or indemnify them
     against any liability for breach of trust nor any liability which by virtue of any rule or law would otherwise
     attach to them in respect of any negligence, default or breach of trust which they may be guilty of in relation
     to their duties under the Trustee Agreement.
RETIREMENT AND REMOVAL OF TRUSTEES
     The trustees shall not retire without other trustee being appointed.
a)   The Trustees hereof may retire at any time after giving at least one month’s previous notice in writing to the
     IDBI in that behalf.
b)   The Trustees hereof may be removed by the Bondholders by a Special Resolution duly passed at the
     meeting of the Bondholders. The IDBI shall appoint such person or persons as may be nominated by such
     Resolution as new Trustee or Trustees hereof.
c)   For the purposes aforesaid, forthwith upon receipt of the notice of retirement from the Trustees for the time
     being hereof or on the occurrence of the vacancy in the office of the Trustee or Trustees hereof, the IDBI
     shall convene a meeting of the Bondholders.
Loan Facility against Pledge of Bonds
Investors may avail loan against these bonds from any of the scheduled banks. IDBI will note the bank’s lien on
any of the bonds against which they have extended the loan facility in their normal course of business.
Market Making
IDBI may consider making arrangements for market making in order to provide liquidity.
Compliance Officer
IDBI has appointed a Compliance Officer for the issue. Investors may contact the Compliance Officer at the address
and telephone/Fax numbers mentioned below in case of any pre-issue / post-issue related problems such as non-
receipt of refund orders etc.




                                                                                                                       29
     IDBI FLEXIBONDS 19

      K P Ramakrishnan
      General Manager
      Domestic Resources Department, IDBI
      22nd Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005
      Tel : (022) 22180479, 22189117 ; Fax : (022) 22188137, 22181155 ; e-mail : kp.ramakrishnan@idbi.co.in
      ALLOTMENT AND REFUNDS
      Deemed Date of Allotment
      January 12, 2004 shall be the deemed date of allotment of the Bonds under all the schemes for Flexibonds-19. All
      the benefits under the bonds will accrue to the investor from this date even though the actual allotment may take
      place on a date other than the specified deemed date of allotment.
      Basis of Allotment
      In the event of oversubscription, the Basis of Allotment will be decided in consultation with the regional stock
      exchanges, i.e. The Stock Exchange, Mumbai and National Stock Exchange.
      The drawal of lots (where required) to finalise the basis of allotment, shall be done in the presence of a Public
      Representative on the governing board of the Regional Stock Exchange. The Executive Director/Managing Director of
      the Regional Stock Exchange along with the post-issue Lead Managers and the Registrars to the Issue shall be
      responsible to ensure that the basis of allotment is finalised in a fair and proper manner in accordance with the SEBI
      Guidelines.
      The investors should note that allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond
      (2004 A) will be made on a full and firm allotment basis, subject to a limit of issue size plus the amount of over
      subscription retained by IDBI.
      Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 A) will have priority over subscribers to other bonds for
      allotment. Therefore, only after all eligible applications for IDBI Infrastructure (Tax Saving) Bonds (2004 A) have been
      allotted, will applications for other bonds be considered on a proportionate basis.
      The procedure for proportionate allotment is as under:
      (a)   A minimum of 50% of the net offer of the Bonds to the public shall be initially made available for allotment
            to individual applicants who have applied for allotment of 10 or less than 10 Bonds.
      (b)   The balance of the net offer shall be made initially available for allotment to investors, including corporate
            bodies / institutions and individual applicants who have applied for allotment of more than 10 Bonds.
      (c)   The unsubscribed portion of the offer to any one of the categories specified in (a) or (b) may be made
            available for allotment to applicants in the other category, if so required.
      (d)   Allotment will be made on a proportionate basis in lots of one bond as given below:
            i)    Applications will be categorised according to the number of bonds applied for.
            ii)    The total number of bonds to be allotted to each category as a whole shall be arrived at on a
                   proportionate basis, i.e., the total number of bonds applied for in that category multiplied by the inverse
                   of the oversubscription ratio.
            iii)   The number of bonds to be allotted to the successful allottees will be arrived at on a proportionate basis
                   (i.e. total number of bonds applied for multiplied by the inverse of the oversubscription ratio).
            iv)    For applications where the proportionate allotment works out to less than one bond the allotment will
                   be made as follows:
                   •     Each successful applicant will be allotted one Bond; and
                   •     The successful applicants out of the total applicants for that category shall be determined by the
                         drawal of lots in such a manner that the total number of bonds allotted in that category is equal
                         to the number of bonds worked out as per (ii) above.
      e)    If the proportionate allotment to an applicant works out to a number that is not a multiple of bonds, the
            applicant would be allotted bonds by rounding off to the nearest multiple of one.
      f)    If the number of bonds allocated on a proportionate basis to any category is more than the bonds allotted
            to the applicants in that category the balance available bonds for allotment shall be first adjusted against



30
                                                                                IDBI FLEXIBONDS 19

      any category, where the allocated bonds are not sufficient for proportionate allotment to the successful
      applicants in that category. The balance bonds, if any, remaining after such adjustments will be added to
      that category comprising applicants applying for the minimum number of bonds.
g)    Investors may note that in case of investors applying for more than 1 type of bond and applying for more
      than 1 bond, if the number of bonds allotted is less than the number of bonds applied for, the number of
      bonds allotted under each type of bond will be proportionate to the number of bonds applied under each
      type of bond.
Despatch of Bond Certificates and Refund orders
IDBI shall ensure despatch of refund orders of value over Rs.1,500/- and bond certificates by Registered Post/Speed
Post only and adequate funds for the purpose shall be made available to the Registrars by the issuer company. Refund
orders of less than Rs.1,500/- shall be mailed under Certificate of Posting at the applicant’s sole risk. Despatch of bond
certificates shall be completed within 10 weeks of the closure of the issue and IDBI shall be liable to pay penal interest
as per applicable regulations for the delay period beyond 10 weeks.
Despatch of Interest Warrant
Interest warrants of value over Rs.5,000/- will be despatched by Registered Post/Speed Post. Interest warrants of
value upto Rs.5,000/- shall be mailed under Certificate of Posting at the applicant’s sole risk.
Interest in case of Delay on Allotment/Despatch
IDBI agrees that
a)    as far as possible allotment of securities offered to the public shall be made within 30 days of the closure
      of the public issue;
b)    interest shall be paid @ 15% p.a. if the allotment has not been made and/or the refund orders have not
      been despatched to the investors within 30 days from the date of closure of the Issue, for the delay beyond
      30 days.
Rejection of Applications
IDBI reserves the right to accept or reject any application in whole or in part and in either case without assigning
any reason therefor. In the event the Bonds applied for are not allotted in full/part, the excess application money,
without interest, in respect of any application will be refunded. Any application for bonds, which is not complete in
all respects, may be rejected. The various reasons for rejections could be, but not limited to following: incomplete
or illegible applications, number of bonds applied for less than minimum required number, no information about PAN/
GIR in case of applications of value over Rs.50,000, applications accompanied by cash of more than Rs. 20,000.
Applicants are also advised to refer para on ‘General Instructions’ to understand various other reasons for rejection
of applications.
Mode of Refunds
In case of rejection of applications or non-allotment of the Bonds, refunds will be made by cheque or by pay order
drawn on any Bank payable at centres where the applications were received.
TRANSFER AND REDEMPTION
Transferability of Bonds
Physical Certificates
The Bonds in physical form being negotiable instruments are transferable by endorsement and delivery by the
transferor. Bondholders should, therefore, note that Bonds are valuable documents and should be kept safely.
The endorsement by the transferor shall be made on the Bond by affixing his signature at the place indicated
thereon. The transferee shall also affix his signature on the Bond at the appropriate place. All endorsements must
be clear. Vernacular endorsement must be translated into English immediately below the endorsement.
At present, no stamp duty is payable on transfer of the Bonds by endorsement and delivery.
Certificates in Dematerialised/Electronic form
In case of bonds in electronic form, the normal procedure applicable for dematerialized securities shall be followed.
In case of transfer from one demat holder to another demat holder, the seller will give delivery instructions containing
details of the buyer’s DP account to his Depository Participant.
In case of transfer from a demat holder to a non-demat holder (physical), the seller rematerialises his bonds and
then transfers the bonds to the buyer by endorsement and delivery.



                                                                                                                             31
     IDBI FLEXIBONDS 19

      In case of transfer from a non-demat holder to a demat holder, the buyer can choose to dematerialise his holding
      or hold the bonds in physical form only.
      Trading on stock exchange: IDBI Flexibonds are not in compulsory demat mode and hence trading can take place
      both in physical and electronic mode, unless otherwise specified by the exchange.
      Registration of Transfer
      Physical Certificates
      Though the Bonds are transferable by mere endorsement and delivery, the transferee is advised to send the Bond
      Certificates to IDBI/ Registrars for being registered in his/her name. IDBI, on being satisfied, will register the transfer
      of such Bonds in its books. For the purpose of registration, the transferee shall intimate his/her name, address,
      occupation, if any, and shall deliver the bond certificate(s) to IDBI/Registrars to the Issue.
      In the case of transfer by or to companies, body corporates, societies registered under the applicable laws in India,
      trusts, provident funds, superannuation funds, gratuity funds, commercial banks, co-operative banks, regional rural
      banks or NRIs/OCBs/FIIs etc, certified true copy of the power of attorney or other acceptable authority must be
      lodged with IDBI or Registrars along with the request to register transfer.
      Transfer of bonds to and from NRIs/OCBs/FIIs will be governed by the prevailing guidelines of RBI.
      IDBI may, at any time, review and modify the procedure for transfer / registration of transfer of these Bonds in
      consultation with The Stock Exchange, Mumbai and the National Stock Exchange of India Ltd.
      Certificates in Dematerialised Form
      The necessary transfers will be effected by the depository, NSDL/CDSL. The concerned depositories shall inform
      the Registrars about the rightful owners of the bonds for payment of interest and principal amount.
      Record Date
      The Record Date for all interest payments / sending post dated interest warrant and for the repayment of the face
      value / cumulative amount upon redemption of the Bonds/exercise of call option will be one month prior to the due
      date of payment of interest / sending post dated interest warrant or repayment of face value / cumulative value. In
      case of bonds where interest is paid annually, the interest accruing upto January 11 every year will be paid on
      January 12 every year. Therefore, December 11 of the previous year will always be considered as Record Date for
      the purpose of such payment of interest. In case of IDBI Retirement Bond (2004 A), IDBI Regular Income Bond
      (2004 A) Option B and Option D (quarterly payment options) the interest accruing upto April 11, July 11, October
      11 and January 11 every year is paid on April 12, July 12, October 12 and January 12 respectively. Therefore the
      record date in this case would be March 11, June 11, September 11, December 11 (of the previous year)
      respectively. In case IDBI decides to send 4 post dated interest warrants for IDBI Retirment Bond (2004 A) and
      Option B and D of IDBI Regular Income Bond (2004 A) (i.e. quarterly payment options) for any financial year the
      record date for sending post dated warrants will be February 28 of that year. Interest will be paid as mentioned under
      the head ‘Interest Payment Dates’ under key terms of each bond.
      Payments to Registered Bondholders
      In case of transfer of bonds, the transferee is required to register his/her name with IDBI or Registrars as interest
      payments or redemption amount on the Bonds are paid or credited only to Registered bondholders. Interest
      payments will be made by way of post-dated warrants sent in advance. Transferees should register transfers with
      IDBI or Registrars at least one month prior to the date on which the interest is due / post dated interest warrants
      are sent. In case four post dated interest warrants are sent in advance for Retirement Bond and Regular Income
      Bond with quarterly payment options, the buyer of such Bonds shall have to send the Bond Certificate and uncashed
      interest warrants to be transferred in his/her name.
      If the request for registration of transfer is not received by IDBI or the Registrars to the Issue before the record date,
      payments shall be made to the Registered Bondholder (as on the record date) and claims, if any, shall be inter-se
      among the parties and shall not be against IDBI.
      Registration in the event of Redemption of Bond
      The Bondholder must get his name registered with IDBI if he/she decides to exercise early exit or redemption option.
      The Bonds will be redeemed only on the surrender of the duly discharged Bond certificates by Registered
      Bondholders. The record date in such instances will be one month prior to the deemed date of encashment/
      redemption. Investors may note that this is necessary as the Bonds are transferable by endorsement and delivery.




32
                                                                               IDBI FLEXIBONDS 19

However, IDBI shall be deemed to have a right to dispense with the requirement of surrender of Bond certificates
for redemption or on exercise of call option, at its sole discretion. IDBI shall exercise the option to dispense with
the requirement of surrender of bond certificates after giving a public notice through one English and one Hindi
National daily at least 15 days prior to the record date. In case of such dispensation, IDBI shall be discharged of
its liability if the redemption proceeds are remitted to the Bondholders appearing in its register of bond holders as
on the record date.
Nomination
The sole Bondholder or all the holders jointly or the surviving holder or holders not being person(s) holding the Bond
as holder of an office, or acting for a trust, or acting in any other capacity for any other person with a beneficial
interest in the Bond, may nominate one or more persons not exceeding four, including a minor, who shall in the event
of death of the sole holder or all the joint-holders, be entitled to the amount payable by IDBI in respect of the bond.
The nomination made at the time of Application may be substituted or cancelled at a later date by a request in writing
to IDBI or Registrars, signed by all the bondholders. A nomination shall stand rescinded upon the transfer of the
Bond by the person nominating. A transferee will be entitled to make a fresh nomination for which request in writing
should be made to IDBI or the Registrars to the Issue. When the Bond is held by two or more persons, the nominee
shall become entitled to receive the amount only on the demise of all the holders. Nominations so made by investors
will be subject to the Industrial Development Bank of India Bonds and Deposits (Nomination) Regulations, 1997. The
share of each nominee can also be specified.
Succession
On the demise of the sole holder of a Bond or the last survivor in case of joint bondholders, the title of any person(s)
to the Bond may be recognised by IDBI subject to the provisions of Regulation 15 of the, Industrial Development
Bank of India ( Issue and Management of Bonds) Regulations , 1972.
1.     The executors or administrators of a deceased sole holder of a Bond (whether a Hindu, Mohammedan, Parsi
       or otherwise) or the holder of a succession certificate issued under Part X of the the Indian Succession Act,
       1925 (39 of 1925) in respect of the bond shall be the only persons who may be recognized by the Office
       of the Issue (subject to any general or special instructions of the Prescribed Officer) as having any title to
       the bond.
2.     Notwithstanding anything contained under Section 45 of the Indian Contract Act 1872 ( 9 of 1872), in the
       case of the bond issued, sold or held payable to two or more holders, the survivor or survivors and on the
       death of the last survivor, his executors or administrators or any person who is the holder of a succession
       certificate in respect of such bond shall be the only person who may be recognised by the Office of Issue
       (subject to any general or special instructions of the Prescribed Officer) as having any title to the Bond.
3.     The Office of the issue shall not be bound to recognize such executors or administrators unless they shall
       have obtained letters of probate or letters of administration, as the case may be from a competent court or
       office in India, having effect as the place of situation of the Office of Issue, provided that in any case where
       the Prescribed Officer his absolute discretion thinks fit, it shall be lawful for him to dispense with the
       production of probate or letters of administration or other legal representation upon such terms as to
       indemnify or otherwise as be may think fit.
Where on the demise of the sole or last of the survivors of the joint holders, who is a resident , an NRI becomes
entitled to the Bond, the following steps have to be complied with:
(i)    to the effect that the Bond was acquired by the NRI as part of the legacy left by the deceased holder.
(ii)   Proof that the NRI is an Indian national or is of Indian origin. Such holding by the NRI will be on a non-
       repatriable basis.
Where on the demise of the sole or last of the survivors of the joint holders who is a non-resident another NRI
becomes entitled to the bonds, the steps as stated earlier will have to be complied with. The holding of the inheriting
NRI would be on the same basis as held by the NRI from whom the bonds are inherited.
Register of Bondholders
A Register of bondholders containing necessary particulars will be maintained by IDBI, at such place(s) as it may
decide.




                                                                                                                           33
     IDBI FLEXIBONDS 19

      Issue of Duplicate Bond Certificates
      Industrial Development Bank of India (Issue and Management of Bonds) Regulations, 1972, govern the issue of
      duplicate bonds. In terms of the said Regulations, IDBI will publish on behalf of the applicants, details of loss, theft
      or destruction (mutilation or defacement) of a Bond in the form of a promissory note in a leading newspaper of the
      area. Upon satisfying itself about the loss, theft, destruction or defacement of a Bond in the form of a promissory
      note, IDBI may issue a duplicate Bond in the form of a promissory note on applicant’s furnishing an indemnity bond
      with one or more sureties. No surety is required if the denomination of the bond does not exceed Rs. 50,000. IDBI
      shall not incur any liability for issuing such Bonds in good faith under this Regulation. IDBI shall have the right to
      claim reimbursement of expenses incurred in connection with the issue of duplicate certificate. No fees shall be
      charged for the issue of Bond certificates in respect of mutilated or defaced certificates or in case of bond certificates
      where the cages for recording the transfer of Bond are fully utilised.
      Investors are advised to carefully read the relevant provisions of the IDBI (Issue and Management of Bonds)
      Regulations, 1972 reproduced in Part C of this Offer Document.
      WHO CAN APPLY
      Applications can be made by:
      a)    Resident Indian Individuals in their own names or in the name of their minor children as natural/legal
            guardians. Individuals can apply in single or joint names (but not exceeding three).
      b)    Hindu Undivided Families through the Karta of the Hindu Undivided Family. (Applications by HUF would be
            given the same treatment as that to applications by individuals).
      c)    Provident Funds, Superannuation Funds and Gratuity Funds
      d)    Companies, Body Corporates and Societies registered under the applicable laws in India and authorised to
            invest in the Bonds
      e)    Trusts which are authorised to invest in the Bonds
      f)    Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional
            Rural Banks.
      g)    Mutual Funds and Insurance companies
      Declaration of Bonds as Public Securities
      1)    The Bonds have been declared as Public Securities as follows:
            a)    The Endowments Department of Andhra Pradesh has approved investment of surplus funds of the
                  Endowment Institutions/ Trusts in the Bonds of IDBI vide notification No. G.O. Rt No. 292 dated
                  23.02.1996.
            b)    Government of Madhya Pradesh has declared Bonds issued by IDBI as public securities under Section
                  13 of the Madhya Pradesh Trusts Act, 1951.
            c)    Government of India, Ministry of Surface Transport has declared the Bonds as ‘securities’ under Section
                  88(2) of the Major Port Trusts Act, 1963 vide notification no .PR-15018/14/96-PG dated 23.12.1997.
            d)    Government of Gujarat, Agriculture and Co-operation Department has permitted Co-operative Societies
                  to invest their surplus money in Flexibonds of IDBI under Section 71(1)(g) of Gujarat State Co-operative
                  Societies Act, 1964 vide its notification-dated 19.12.1997 no. GHKH/67-97-SMB-2097-4249-CH.
      2)    Applications have been made by IDBI for declaration of these Bonds as Public Securities as follows:
            a)    To the Government of Maharashtra for declaration of these Bonds as public securities under Section
                  2(12)(d) of the Bombay Public Trusts Act, 1950.
            b)    To the Government of Gujarat for declaration of these Bonds as public securities under Section 2(12)(d)
                  of the Bombay Public Trusts Act, 1950.
            c)    To the Government of Rajasthan for declaration of these Bonds as public securities under u/s 2(10)(c)
                  of the Rajasthan Public Trusts Act, 1959.
      Subject to declaration by the State Governments as above, Public Trusts and Co-operative Societies in the above
      states will be eligible to invest in IDBI Bonds. In other States, public trusts may invest in the Bonds of IDBI subject
      to the relevant provisions of the respective trust deeds and applicable statutory provisions, if any, governing their
      investments.



34
                                                                                IDBI FLEXIBONDS 19

Declaration of Bonds as Public Securities by Government of India under the Indian Trusts Act, 1882
Applications have been made by IDBI to Government of India, Ministry of Finance, Department of Economic Affairs
(Capital Market Division) for declaration of these Bonds as Public Securities under section 20(f) of the Indian Trusts
Act, 1882.
Application by Provident Funds, Superannuation Funds and Gratuity Funds
The Government of India has, vide notification No.F-5(18)-ECB/2001 dated March 6, 2003 permitted Recognised
Provident Funds, Approved Superannuation Funds and Approved Gratuity Funds to invest upto 30% of their in-
vestible moneys in the bonds and securities issued, inter alia, by a Public Financial Institution. In addition, 30% of the
investible moneys may be invested in any of the three categories specified in the notification. Recognised Provident
Funds and Approved Superannuation and Gratuity Funds can, therefore, subject to compliance of the terms and
conditions of their Trust Deeds, invest upto 60% of their investible monies in IDBI Bonds.
HOW TO APPLY
Availability of Offer Document and Application Forms
Copies of Offer Document and Application Forms may be obtained from the Head Office, Zonal Offices or the Branch
Offices of IDBI, Lead Managers, Principal Marketing Co-ordinator, Co-Managers and Bankers to the Issue named
herein or from their branches as stated in the Application Form. Copies of Application Forms and Offer Document
may also be obtained through members of recognised Stock Exchanges.
GENERAL INSTRUCTIONS
Investors are advised to comply with the following General Instructions:
1.    Instructions for filling in Application Forms
      a)    Application for the Bonds must be in the prescribed form and completed in BLOCK LETTERS in English
            as per the instructions contained therein.
      b)    Thumb impressions and signatures other than in English, Hindi or any of the other languages specified
            in the Eighth Schedule of the Constitution of India must be attested by a Magistrate or a Notary Public
            or a Special Executive Magistrate under his/her official seal.
      c)    Application Form Number (including the prefix) should be mentioned on the reverse of the cheque/draft.
            Where applications without number are used, the number may be obtained at the time of deposit with
            the Collection Centres.
      d)    A separate cheque/draft must accompany each application form.
2.    If the applicant does not indicate the desired option clearly on the application form or if the option is not
      ticked on the application form, then Option A of the respective Bonds shall be allotted to such an applicant
      for the amount applied for, subject to the application being for an amount not less than the minimum
      investment amount required for the respective option. If bond type is not indicated in the application form
      then IDBI Regular Income Bond Option A would be allotted to the investors. The decision of IDBI will be final
      in this regard.
3.    Applications under Power of Attorney
      In the case of applications made under Powers of Attorney or by limited companies, corporate bodies, trusts
      etc a certified copy of the Power of Attorney and/or the relevant authority, as the case may be, alongwith
      a certified copy of the Memorandum and Article of Association and byelaws as the case may be must be
      lodged separately at the office of the Registrars to the Issue, Datamatics Financial Software & Services Ltd,
      simultaneously with the submission of the Application Form, indicating the serial number of the Application
      Form and the name of the bank and the branch or the IDBI Collection Centre where the application is
      submitted.
4.    PAN/GIR Number
      Where application is for a total value of Rs. 50,000 or more, 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 Income Tax Act, 1961 or where the same has not been allotted, the GIR No. and the Income Tax
      Circle/Ward/District. In case neither the PAN nor the GIR No. has been allotted, or the Applicant is not
      assessed to income tax, the appropriate information should be mentioned in the space provided. Application
      Forms without this information will be considered incomplete and are liable to be rejected.




                                                                                                                             35
     IDBI FLEXIBONDS 19

      5.    Joint Applications in the case of Individuals
            Applications may be made in single or joint names (not more than three). In the case of joint applications,
            all payments will be made out in favour of the first applicant. All communications will be addressed to the
            applicant whose name appears first at the address stated in the Application Form.
      6.    Multiple Applications
            An applicant should submit only one application (and not more than one) for the total number of Bonds
            required. Applications may be made in single or joint names (not more than three). Two or more applications
            in single or joint names will be deemed to be multiple applications, if the sole and/or first applicant is one
            and the same. IDBI reserves the right to accept or reject in its absolute discretion all or any multiple
            applications in conformity with relevant statutory guidelines. Separate applications for Bonds in demat and
            physical mode shall be treated as multiple applications.
      7.    Bank Account Details
            The applicant must fill in the relevant column in the application form giving particulars of Savings Bank/
            Current Account number and name of the bank with whom such account is held, to enable the Registrars
            to the Issue to print the said details in the refund order / interest warrant. This is in the interest of the
            applicant for avoiding misuse of the refund order / interest warrant. Furnishing this information is mandatory
            and applications not containing such details are liable to be rejected.
            Investors desirous of holding the bonds in demat form may please refer to the paragraph on ‘Depository
            Arrangement’ in this Offer Document.
      PAYMENT INSTRUCTIONS
      (a) Payment may be made by way of cash (not exceeding Rs.20,000) or cheques/drafts drawn on any bank,
          including a Co-operative Bank which is situated at and is a member or sub-member of the Bankers’ Clearing
          House located at the bank collection centre where the Application Form is submitted. Outstation cheques/
          bank drafts or cheques/bank drafts drawn on a bank not participating in the clearing process will not be
          accepted. Money orders/Postal orders will also not be accepted.
      (b)   All cheques/drafts must be made payable to “IDBI FLEXIBONDS” and crossed “A/C PAYEE ONLY”.
      (c)   Applications complete in all respects must be submitted at any of the bank branches designated for collection
            of such applications mentioned in the application form.
            The applicants are advised in their own interest to remit the money along with the Application Form by
            means of an account payee cheque or a bank draft. Charges for the bank draft are to be borne by the
            investor and should not be deducted from the amount payable on application.
      SUBMISSION OF COMPLETED APPLICATION FORMS
      Bankers to the Issue
      Applications, duly completed and accompanied by cash/cheque/demand draft must be lodged before the closure of
      the Issue with the Bankers to the Issue or their designated branches as mentioned in the Application Form.
      Applications should not be sent to the Lead Managers, Co-Managers or Principal Marketing Co-ordinator.
      IDBI Collection Centres
      Applications, duly completed and accompanied by cheque/demand draft may also be lodged with the IDBI Collection
      Centres as mentioned in the Application Form. The IDBI Collection Centres are not authorised to accept cash. They
      will accept Applications accompanied by cheque or demand draft. Applications sent through post should reach IDBI
      before the issue closes for subscription. The envelope should be marked ‘IDBI Flexibonds-19 Application’.
      Acknowledgements
      No separate receipts will be issued for the application money. However, the Bankers to the Issue or their approved
      collecting branches and the Collection Centres receiving the duly completed Application Form will acknowledge
      receipt of the application by stamping and returning to the applicant the Acknowledgement slip at the bottom of each
      Application Form.
      UNDERTAKING FROM THE ISSUER
      IDBI hereby undertakes that
      (a) The complaints in respect of the issue would be attended to expeditiously and satisfactorily.
      (b)   IDBI would get the instruments listed on time and would take necessary steps for the purpose.



36
                                                                            IDBI FLEXIBONDS 19

(c)   The requisite funds for despatch of refunds/certificates by Registered Post will be made available to the
      Registrars
(d)   IDBI shall co-operate with the rating agencies in providing true and adequate information.
INVESTOR RELATIONS AND GRIEVANCE REDRESSAL
Arrangements have been made to redress investor grievances expeditiously. All grievances related to the Issue
quoting the Application Number (including prefix), number of Bonds applied for, amount paid on application and
Bank and Branch / IDBI Collection Centre where the Application was submitted, may be addressed to the Registrars
at the following address.
Registrars to the Issue
Datamatics Financial Software & Services Ltd
Plot No A 16 & 17 MIDC, Part B Crosslane, Marol, Andheri (East), Mumbai - 400 093.
Tel : (022) 2837 5519 - 24; Fax : (022) 2835 0217; e-mail : idbiflexi@dfssl.com.
Registrars and Transfer Agent
Investor Services of India Ltd.
IDBI Building, Plot No.39-41
Sector 11, CBD Belapur, Navi Mumbai - 400 614
Tel. : (022) 27579645 Fax : (022) 27579650 e-mail : flexi19@isilindia.com
Applicants may also get in touch with the Investor Relations Department of IDBI for assistance, at the following
address:
Deputy General Manager
Domestic Resources Department (Customer Relations Management Cell)
Industrial Development Bank of India
7th Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005
Tel : (022) 22189117 / 22151051, Fax : (022) 22180930 e-mail : ird@idbi.co.in
ISSUE EXPENSES
The expenses of the Issue payable by IDBI including brokerage, fees to the Issue Management team and the
Auditors, fees to the Credit Rating agencies, fees and reimbursement of expenses to the Registrars and Bankers
to the Issue, printing and distribution expenses, Issue advertisement expenses, Listing fees and other expenses are
estimated to be around Rs.16 crore and will be met out of the proceeds of the Issue.
The terms and conditions of appointment of the Issue Management Team and Registrars to the Issue are as set
out in their letters of appointment / MoU, copies of which are available for inspection.
Brokerage
IDBI will pay brokerage to all the members of recognised Stock Exchanges, Bankers to the Issue and agents of IDBI
on applications bearing their stamp in the Broker/Agent column in the following manner.
A)    For IDBI Infrastructure (Tax Saving) Bond (2004 A) :
      1) For individuals and HUFs, investing upto Rs.1 crore, Brokerage will be
         • For investment in Option A & C : @ 0.70% of amount allotted
           In addition to above Rs.30/- per application (if allotted) would be paid on application amounting to
           Rs.20,000 and above on single application and Rs.10/- per application (if allotted) would be paid on
           application amounting to Rs.10,000 or Rs.15,000 on single application.
           • For investment in Option B & D : @ 1.00% of amount allotted.
      2) For individuals and HUFs, investing above Rs.1 crore, Brokerage will be paid @ 0.25% of amount allotted.
      3) For other investors, brokerage will be paid @ 0.25% of amount allotted.
B)    For IDBI Money Multiplier Bond (2004 A), IDBI Retirement Bond (2004 A) and IDBI Regular
      Income Bond (2004 A) :
      1)     For individuals and HUFs, Brokerage will be paid @ 0.75% of amount allotted upto an investment of
             Rs. 1 crore and 0.25% of the amount allotted on investment above Rs.1 crore.
      2)     For other investors, brokerage will be paid @ 0.25% of amount allotted.



                                                                                                                      37
     IDBI FLEXIBONDS 19

      C)       Apart from the brokerage indicated above, IDBI may, at its sole discretion, pay kitty/incentive to the top
               performing Lead team members/brokers/agents etc., based on the mobilisation/number of applications
               procured etc.
      In case of overwriting etc. in the broker’s column, the decision of payment of brokerage will be made by IDBI and
      would be final/binding on all parties.
      The aggregate of brokerage and kitty amount, if any, paid by IDBI shall not exceed 1.50% of the total amount raised
      and retained by IDBI.
      TAX BENEFITS
      IDBI has been advised by its Tax Consultant that under the current tax laws, the following tax benefits inter
      alia, will be available to the bondholders. However, investors are advised to consider in their respective
      own cases the tax implications of the investment in the bonds now being offered under this Offer
      Document.
      1.             To Resident Indian Bondholders :
      1.1.           Deduction under Section 80L in respect of interest on bonds :
      1.1.1.         On issue of notification by the Central Government, interest earned on these bonds by bondholders, being
                     individuals and Hindu Undivided Families, would be eligible for deduction from the Gross Total Income
                     of the eligible bondholders under Section 80L of the Income Tax Act, 1961 upto an overall ceiling as
                     prescribed in the section.
      1.1.2.         An application has been made to the Central Government for notifying the interest income on the Bonds,
                     as eligible for deduction u/s 80L of the IT Act.
      1.2. Tax Deduction at Source :
      1.2.1. No Income tax will be deducted at source from interest payable on Bonds in the following cases:
               (a)     in case of payment of interest to a Bondholder, who is an individual and resident in India, where the
                       interest payment in the aggregate during the financial year does not exceed Rs.2,500/-.
               (b)     Where the Bondholder (not being a company or a firm) submits a declaration (wherever applicable)
                       in the prescribed form and verified in the prescribed manner.
               (c)     Where on application by any Bondholder, the Assessing Officer issues a certificate that the total
                       income of the bondholder justified no deduction, as per the provisions of Section 197(1) of the Income
                       Tax Act.
               (d)     Tax will be deducted at a lower rate where the Assessing Officer, on an application of any Bondholder,
                       issues a certificate for deduction of tax at such lower rate as per provisions of the Section 197(1) of
                       the Income Tax Act.
      1.3. Capital Gains
               The difference between the sale price on transfer and the cost of acquisition of the Bond held by the
               bondholder as a capital asset, will be treated as long-term capital gain/loss in the hands of the investor,
               provided that such Bond was held for a continuous period of more than twelve months. However, in the case
               of Money Multiplier Bond and Cumulative Options of IDBI Infrastructure (Tax Saving) Bond, held as investment,
               where the income is offered on accrual basis in accordance with the CBDT circular dated February 15, 2002,
               the gains arising on transfer of bonds will be treated as short term capital gains, as clarified in the said
               circular. As per the amendment of Section 112 by Finance Act, 1998, tax on long term capital gain arising
               on transfer of listed securities will be limited to 10% plus surcharge of such gain for all the assessees. IDBI
               Bonds, on being listed, will be eligible for this benefit. It may be noted that the various Bonds under
               consideration, being debt instruments, will not have the benefit of cost indexation.
               Investors who wish to avail of the exemption from tax on capital gains on transfer of capital asset as provided
               in sections 54EC, 54ED or 54F, may do so subject to the conditions as prescribed in those sections.
               Moreover, bondholders are advised to consult their tax advisors in this matter.
      2.       To Other Eligible Institutions
      2.1. Investment in bonds by charitable/religious trusts will qualify as eligible investments under Section 11(5) of
           the IT Act.




38
                                                                             IDBI FLEXIBONDS 19

2.2. A mutual fund registered under the SEBI Act or regulations made thereunder or such other mutual fund set
     up by a public sector bank or a public financial institution or authorized by Reserve Bank of India and notified
     by the Central Government will, subject to the provisions of Chapter XII-E be exempt from income tax on
     all its income, including income from investments in bonds under the provisions of Section 10(23D) of the
     IT Act.
2.3. Section 10(25) of the IT Act, inter alia, exempts from tax, any income received by a Recognized Provident
     Fund, an approved Superannuation Fund or an approved Gratuity Fund. As per the pattern of investment
     laid down in Rule 67 [as amended by Income Tax (Seventh Amendment) Rules, 1997] of the Income Tax
     Rules, Recognized Provident Funds, Approved Superannuation Funds and Approved Gratuity Funds can
     invest up to 40% of the “investible money” in bonds and securities issued by a Public Financial Institution
     or a public sector company. They can also invest an additional 20% of the “investible money” in any of the
     three permitted categories mentioned in the Rules, including the category of bonds / securities of a public
     financial institution. Therefore in the aggregate 60% of the “ investible money “ can be invested in the bonds
     / securities of the public financial institution. The subscription to the bonds being issued under this Offer
     Document, within the permissible limits, would satisfy the requirements of the said Rule.
3.   Tax provisions relating to various Bonds :
3.1. IDBI Infrastructure (Tax Saving) Bond
     Interest payable on these bonds with Annual Interest Option in any financial year will be taxable in that year.
     In case of Cumulative Options, the interest income/capital gains would be calculated as given under IDBI
     Money Multiplier Bonds.
     Tax Rebate under Section 88(2)(xvi)
     CBDT has approved Infrastructure (Tax Saving) Bond forming part of the present Issue for the purpose of
     Section 88(2)(xvi) of the Income Tax Act, 1961 vide their letter F.No.178/40/2003-ITA-I dated September 12,
     2003. Therefore, investment in the Infrastructure (Tax Saving) Bond will be eligible for rebate under Section
     88 within the limits mentioned in that Section provided that the bonds are not “sold or otherwise transferred”
     at any time within a period of three years from the date of investment.
     An assessee being an Individual or HUF may out of his / its taxable income invest up to Rs.1,00,000 in these
     Bonds along with other eligible modes of investments specified in Section 88 and secure a tax rebate as
     given in the following table.

        (a)   Income {before deduction u/s 16 (i.e. standard deduction)
              and salary income being 90% of such income} upto Rs. 1,00,000/-       30% of the qualifying amount.
        (b)   For gross total income upto Rs.1,50,000/-                             20% of the qualifying amount.
        (c)   Gross Total Income above Rs.1,50,000/- below Rs.5,00,000/-            15% of the qualifying amount.
        (d)   Gross Total Income above Rs.5,00,000/-                                Nil

     Rebate under section 88 is available provided the bonds are held for a minimum period of 3 years. Bondholders
     intending to pledge the bonds as a security for availing loans, are advised to consult their tax advisors, as
     in terms of section 88(7A) of the Act, such pledge of the bonds could be construed as a sale or transfer,
     resulting in non availability of the benefit under section 88.
3.2. IDBI Money Multiplier Bond
     Small non-corporate investors investing upto an aggregate face value of Rs.1 lakh
     CBDT has clarified the position regarding Deep Discount Bonds for small non-corporate investors investing
     upto an aggregate face value of Rs.1 lakh, by its letters dated March 12 and May 27, 1996 as follows:
     “ It is clarified that the difference between the issue price and the redemption price of Deep Discount Bonds
     will be treated as interest income assessable under the IT Act. On transfer of bonds before maturity, the
     difference between the sale consideration and the issue price will be treated as Capital Gains/Loss, if the
     assessee purchased them by way of investment. However, in the case of an assessee who deals in
     purchase and sale of bonds, securities, etc. the profit or loss shall be treated as trading profit or loss.”
     “…… the difference between the issue and redemption price will be treated as interest income assessable
     under the Income Tax Act and therefore, tax will have to be deducted at source under the relevant provisions



                                                                                                                        39
     IDBI FLEXIBONDS 19

           of the IT Act. However, in case of transfer before maturity, the difference between the issue price and the
           sale consideration will be capital gain. This position will hold good for transfer till date of redemption.”
           As mentioned below, CBDT has provided such investors an option to offer income from Money Multiplier
           Bonds to tax in the manner available to the other investors as given in the immediate paragraph below. Such
           investors may, therefore, at thier option, choose between any one of the two methods for computing income
           from Money Multiplier Bonds.
           Other investors
           CBDT has further clarified the position regarding Deep Discount Bond by its circular dated February 15,
           2002:
           “It is clarified that every person holding a Deep Discount Bond will make a market valuation of the bond as
           on March 31st of each financial year (hereinafter referred to as the valuation date) and mark such bonds
           to such market value in accordance with the guidelines issued by RBI for valuation of investments. For this
           purpose, market values of different instruments declared by RBI or by Primary Dealers’ Association of India
           jointly with the FIMMDA may be referred to”.
           “.... The difference between the market valuation as on two successive valuation dates will represent the
           accretion to the value of the bond during the relevant financial year and will be taxable as interest income
           (where the bonds are held as investments) or business income (where the bonds are held as trading
           assets)”.
           “.... Where the bond is transferred at any time before the maturity date the difference between sale price
           and the cost of the bond will be taxable as capital gains in the hands of the investor or as business income
           in the hands of the trader. For computing such gains the cost of the bond will be taken to be the aggregate
           of the cost for which the bond was acquired by the transferor and the income, if any, already offered to tax
           by such transferor (as mentioned above) upto the date of transfer.”
           “.... Since the income chargeable in this case is only the accretion to the value of the bond over a specific
           period, for the purpose of computing capital gains, the period of holding in such           cases will be
           reckoned from the date of purchase/subscription, or the last valuation date in respect of which the transferor
           has offered income to tax, whichever is later. Since such period would always be less than one year the
           capital gains will be chargeable to tax as short term capital gains.”
           “.... Where the bond is redeemed by the original subscriber the difference between the redemption price and
           the value, as on the last valuation date immediately preceeding the maturity date will be taxed as interest
           income in the case of investors, or business income in the case of traders.”
           “.... The difference between the bid price of Deep Discount Bond and its redemption price which is actually
           paid at the time of maturity, will continue to be subject to tax deduction at source u/s 193 of the IT Act. ....
           Further the Central Government is empowered to specify any such bonds issued by an institution, authority,
           public sector company or co-operative society by way of notification, exempting them from the requirement
           of tax deduction at source.”
           “.... Considering the difficulties which might be faced by small non-corporate investors in determining market
           values under the RBI Guidelines and computing income taxable in each year of holding, it has further been
           decided that such investors holding Deep Discount Bonds upto an aggregate face value of Rs.1 lakh may,
           at their option, continue to offer income for tax in accordance with the earlier clarifications issued by the
           Board (CBDT letters dated March 12 and May 27, 1996).”

      3.3. IDBI Retirement Bond
           Under this bond the investor may choose quarterly payments from the two options. Under both the options
           interest portion of quarterly payment receivable on these bonds in any financial year will be taxable as
           income of the Bondholder in that year.
      3.4. IDBI Regular Income Bond
           Interest receivable on these Bonds in any financial year will be taxable as income of the Bondholder in that
           year under all the five options.
      4.   Wealth Tax
      4.1. The bonds are exempt from Wealth Tax without any monetary limit in case of all assessees.




40
                                                                              IDBI FLEXIBONDS 19


                                              PART B
                               INDUSTRIAL DEVELOPMENT BANK OF INDIA

Constitution and Milestones
Industrial Development Bank of India (IDBI) was established in 1964 by the Government of India under an Act of
Parliament, the Industrial Development Bank of India Act, 1964 (the IDBI Act). The functions and working of IDBI
are governed by the IDBI Act. Initially, IDBI was set up as a wholly-owned subsidiary of Reserve Bank of India
(RBI) to provide credit and other facilities for the development of industry. In 1976, the ownership of IDBI was
transferred to the Government of India and it was entrusted with the additional responsibility of acting as the
principal financial institution for co-ordinating the activities of institutions engaged in the financing, promotion or
development of industry.
In 1982, IDBI’s portfolio relating to its International Finance Division (which was providing export finance to
industry), was transferred to Export-Import Bank of India (EXIM Bank), which was established as a wholly owned
corporation of the Government of India under the Export-Import Bank of India Act, 1982.
In 1990, IDBI’s portfolio relating to the small scale industrial sector was transferred to the Small Industries
Development Bank of India (SIDBI) which was established as a wholly-owned subsidiary of IDBI under the Small
Industries Development Bank of India Act, 1989 (SIDBI Act, 1989).
RBI vide its circular No.C-24/01-02-00/2000-2001 dated 28-April-2001 has mentioned that DFI’s can either convert
themselves into a commercial bank or a Non Banking Finance Company (NBFC). The Board of Directors of IDBI
has decided ‘in-principle’ to convert IDBI into a Commercial Bank.
The Hon’ble Finance Minister while presenting the Union Budget for the year 2002-03 to the Parliament
announced the proposal to make legislative changes to corporatise IDBI to provide greater flexibility.
Accordingly, the Govt. of India has introduced ‘The Industrial Development Bank (Transfer of Undertaking and
Repeal) Bill, 2002’, wherein, inter-alia, repeal of IDBI Act, 1964 and corporatisation of IDBI is proposed, in the
Winter Session (2002) of Parliament. The said Bill was referred to the Standing Committee on Finance. The
committee has since submitted its report which has been placed in the Parliament in its Monsoon Session
(2003). It is understood that the report envisages, inter alia, (a) conversion of IDBI into a Commercial Bank and
also continues to be a Development Bank which will provide term lending to industry - large, medium and small;
(b) The Bank will be given certain forebearance from banking regulations such as SLR/CRR and obligation for
payment of Income Tax and Capital Gains Tax for 5 years; (c) The report has also recommended that GOI’s
shareholding in the Bank is to be retained at atleast 51%.
Functions
Over the last thirty eight years, IDBI’s role as a catalyst to industrial development has encompassed broad
spectrum of activities. IDBI can finance all types of industrial concerns covered under the provisions of the IDBI
Act, irrespective of the size or form of organisation. IDBI primarily provides finance to large and medium industrial
enterprises and is authorised to finance all types of industrial concerns engaged or to be engaged in the
manufacture, processing or preservation of goods, mining, shipping, transport, hotel industry, information
technology, medical and health services, leasing, generation or distribution of power, maintenance, repair, testing
or servicing of vehicles, vessels and other types of machinery and the setting up and development of industrial
estates. IDBI may also assist industrial concerns engaged in the research and development of any process or
product or in the provision of special technical knowledge or other services for the promotion of industrial growth.
In addition, floriculture, road construction and the establishment and development of tourism related facilities
including amusement parks, cultural centres, restaurants, travel and transport facilities and other tourist services,
film industry and construction activity have been recognised as industrial activities eligible for finance from IDBI.
IDBI has been assigned a special role for co-ordinating the activities of institutions engaged in financing,
promoting or developing industries as also provision of technical, legal and marketing assistance to industry and
undertaking market surveys, investment research as well as techno-economic studies in connection with the
development of industry.
Offices
IDBI has its Head Office at Mumbai and has an all India presence through its branch network. It operates through
a network of 5 Zonal offices, one each in Chennai, Guwahati, Kolkata, Mumbai and New Delhi. Besides, IDBI has
36 branch offices located in state capitals and major commercial centres in India.



                                                                                                                          41
 IDBI FLEXIBONDS 19

     Government Holding
     The IDBI Act was amended in October 1994 which, inter alia, permitted IDBI to raise equity from the public subject
     to the holding of the Government not falling below 51% of the issued capital. Pursuant to the amendment, in July
     1995, IDBI made its initial public offering of equity shares aggregating Rs.2184 crore. Simultaneously, the
     Government also offered for sale a part of its holding of equity shares in the capital of IDBI aggregating Rs.187.5
     crore (including premium of Rs.120 per share) to the Indian public. On completion of the allotment of the shares
     offered to the public, the Government’s shareholding in IDBI reduced to 72.14%. The Government’s share holding
     has further come down to 57.76% with effect from June 5, 2000 as the Government of India converted 24.7 crore
     equity shares (out of its holding of 48.6 crore equity shares) into 24.70 crore fully paid preference shares of Rs.
     10 each (equivalent to Rs.247 crore) redeemable within 3 years and carrying dividend @ 13% p.a. The preference
     shares have since been redeemed. On August 25, 2000, 18,074,300 partly paid up equity shares of face value
     Rs. 10/- each were forfeited and aggregate face value of Rs. 180,743,000 has been reduced from the subscribed
     and paid-up equity capital. On account of this, Government’s shareholding has gone up to 58.5% with effect from
     August 25, 2000.
     IDBI made its bonus issue in March 2001 in the ratio of 3 bonus shares for every 5 held. Accordingly, GOI has
     been allotted 1,431,48,000 bonus shares. The shareholding of GOI remains at 58.5 % only.
     Regulation and Supervision
     IDBI, being a statutory organization is governed by the Industrial Development Bank of India Act, 1964 (IDBI Act).
     The functions and business of IDBI are regulated by the IDBI Act. In addition, IDBI being a financial institution
     is subject to regulatory supervision by RBI. Section 45L of the Reserve Bank of India Act, 1934 empowers RBI,
     inter alia, to call for certain information relating to the business of IDBI and give directions relating to the conduct
     of its business. RBI had set up a Board for Financial Supervision (BFS) in 1995 under the chairmanship of the
     Governor of Reserve Bank of India. Under the guidance of the Board for Financial Supervision, the department
     of Financial Supervision of the RBI supervises Financial Institutions and Commercial Banks. The Department of
     Financial Supervision also undertakes off-site and on-site supervision over banks and financial institutions. As part
     of such surveillance, the Reserve Bank of India carries out periodical inspection of IDBI. As clarified by RBI the
     contents of the inspection report is strictly confidential. It may be mentioned that IDBI has replied all the points
     referred to by the RBI in its latest inspection report.
     The Reserve Bank of India has been issuing detailed guidelines to Financial Institutions on Asset Classification,
     Income Recognition and Provisioning, Capital Adequacy, Asset Liability Management etc. from time to time. IDBI
     adheres to all such guidelines and submits necessary information to RBI as per the guidelines.

     MANAGEMENT AND ORGANISATION

     CORPORATE GOVERNANCE
     Corporate governance is administered in IDBI through the Board and three major committees of the Board, i.e,
     the Executive Committee, Audit Committee and Shareholders/ Investors Grievances Committee. However, the
     primary responsibility of upholding high standards of corporate governance in its operations and providing
     necessary disclosures within the framework of legal provisions and banking conventions with commitment to
     enhance the shareholders’ value, lies with the Board of IDBI.
     IDBI has complied with SEBI guidelines in respect of Corporate Governance specially with respect to broad basing
     of Board, Constituting the Committees such as Shareholders/ Investors Grievances Committee and Audit
     Committee etc.
     The Board
     The general superintendence, direction and management of the affairs and business of IDBI is vested in the Board
     of Directors which exercises all powers and does all acts and things which may be done by IDBI under the IDBI
     Act. The Board may direct that any power exercisable by it may also be exercised by the Chairman, Managing
     Director or Wholetime Director.
     As per the IDBI Act, 1964, the Board can have maximum 12 directors, consisting of a Chairman and a Managing
     Director appointed by the Government of India (both functions can be assumed by the same person), a wholetime
     Director appointed by the Government on the recommendations of the Board, two Government nominees, three
     directors having special knowledge/ professional experience in diverse fields nominated by the Central
     Government and four directors elected by the shareholders other than the Government of India.



42
                                                                           IDBI FLEXIBONDS 19


Shri M Damodaran, Chairman, UTI, has assumed concurrent charge of the post of Chairman and Managing
Director of IDBI w.e.f. October 1, 2003 in terms of Notification F.No.24(4)/2003-IF-I dated September 29, 2003
issued by Government of India. Presently the Board comprises of 10 directors including CMD in the category of
Executive Director, 2 Government Directors in the category of Non-Executive Directors, 3 Professional Directors
nominated by GOI and 4 Elected Directors in the category of Non Executive and independent Directors. The
primary responsibility of the Board includes:
1.   Maintaining high standards of corporate governance and compliance with various laws and regulations.
2.   Shaping the policies and procedures of the Bank.
3.   Monitoring performance of the organization and evolving the growth strategy.
4.   Setting up counter-party and other prudential risk management limits.
5.   Overseeing financial management of the Bank and approve various products and their policies.
The Executive Committee
The Executive Committee, presently comprising of 6 directors including the CMD of IDBI as the committee
Chairman, deals with sanctions of assistance and other operational matters. All project proposals for sanction of
assistance above the threshold limits applicable to Credit Committee are dealt with by the Executive Committee.
The EC also decides on matters relating to Business Plans, Resource Mobilization, Investments, Capital
Expenditure, Risk Management Systems, assessment of performance against goals, initiating corrective measures
etc.
Audit Committee
Audit Committee presently comprises of 5 directors including one independent professional director qualified as
Chartered and Cost Accountant as chairman of the committee. Senior Executives of IDBI are invited as and when
considered necessary. The Audit Committee acts as an interface between the management and the statutory and
internal auditors overseeing the internal audit functions. The functions of the Audit Committee are as follows:
1.   To provide direction and oversee audit functions of the Bank.
2.   To review periodically financial statements before submission to the Board focussing primarily on:
     -     Any changes in accounting policies and practices.
     -     Major accounting entries on exercise of judgement by management.
     -     Qualification in draft audit report.
     -     Significant adjustments arising out of credit.
     -     The going concern assumption
     -     Compliance of accounting standards.
     -     Compliance with stock exchange and legal requirements concerning financial statements.
     -     Any related party transactions i.e. transactions of the bank of material nature, with promoters or the
           management, their subsidiaries or associates etc. that may have potential conflict with the interests of
           the bank at large.
3.   Review with management, external and internal auditors, adequacy of internal control system.
4.   Discussions with internal auditors and in house Audit Committee.
5.   Review action taken on inspection reports of RBI and Statutory Auditors Report.
6.   Review action taken on major findings of internal audit reports having bearing on policy, business risk,
     control and corporate governance.
7.   To review cases of fraud and action taken.
8.   Such other matters as may be delegated by the Board.
Shareholders’/ Investors’ Grievances Committee
The Committee presently consists of 4 independent directors. The Committee looks into the redressal of
shareholders’ and investors’ grievances mainly relating to transfer of shares/bonds, non-receipt of annual accounts
and dividend, interest etc.
Policy Committee
A Policy committee has also been constituted and presently comprises of 5 Directors including CMD as the
Chairman of the committee.



                                                                                                                      43
 IDBI FLEXIBONDS 19


     Board of Directors
     The present composition of Board is as follows :
         Name                            Tenure         Age   Qualification       Other Directorships/
                                                                                  Membership
      1. Shri M. Damodaran               As may be      56    Graduate in         Administrator
         Chairman and Managing           decided by            Economics          Administrator of the Specified
         Director                        GOI                   (Rank holder)       Undertaking of the UTI
         Industrial Development                                 University of     Chairman & Managing Director
         Bank of India,                                         Madras            UTI AMC Pvt. Ltd.
         Cuffe Parade,                                        Graduate in Law     Chairman
         Mumbai 400 005                                        (First Division)   The India Infrastructure Fund Ltd
                                                                University of     UTIAS (Mauritius) Ltd.,
                                                                Delhi             UTI - Investment Advisory
                                                                                   Services Ltd.
                                                                                  The India Media, Internet &
                                                                                   Communication Fund Ltd.
                                                                                   (IMIC Fund)
                                                                                  UTI - Investor Services Ltd.
                                                                                  UTI - Securities Ltd.
                                                                                  India Fund
                                                                                  Infrastructure Leasing &
                                                                                   Financial Services Ltd.
                                                                                  Chairman of Governing
                                                                                  Council - Indian Institute
                                                                                   of Capital Markets
                                                                                  Director
                                                                                  National Stock Exchange of
                                                                                   India Ltd.
                                                                                  The India IT Fund Ltd.
                                                                                  Indian Airlines Ltd.
                                                                                  Export Import Bank of India
      2. Shri Rajeeva Ratna Shah         As may be      58    MA from             Ex-Offico Director
         Secretary, Ministry of          decided by            Allahabad          EXIM Bank,
         Commerce & Industry,            GOI                   University         Media Lab Asia
         Department of Industrial                             MBA from New
         Policy & Promotion,                                   York, USA
         Government of India,
         Udyog Bhavan,
         New Delhi-110011
      3. Shri N. S. Sisodia              As may be      58    Master Degree       State Bank of India
         Secretary                       decided by            in Public Policy   Life Insurance Corpn of India
         (Banking & Insurance)           GOI                   & Management       LIC International (Bahrain) Ltd.
         Department of Economic                                from Harvard       LIC (Nepal) Ltd.
         Affairs, Ministry of Finance,                         University, USA    India International Insurance
         3rd floor, Room No. 35,                              M.Phil (Social       Pte Ltd., Singapore
         Jeevan Deep Building,                                 Sciences)          Member
         Parliament Street,                                                       Audit Committee of SBI
         New Delhi - 110001                                                       Investment Committee of LIC
      4. Shri R. N. Dhoot                Upto           48    B.Com., M.E.        -NIL-
         Dhoot Bungalow,                 March                – A.M.I.E.
         Station Road, Aurangabad        29, 2004




44
                                                                  IDBI FLEXIBONDS 19


   Name                             Tenure     Age   Qualification    Other Directorships/
                                                                      Membership
5. Shri Shekhar Datta               Upto       66    Graduate in      Director
   Chairman,                        March             Mech. Engg.     Piaggio Vehicles Pvt. Ltd.
   Piaggio Vehicles Pvt. Ltd.,      29, 2004           [London],      Piaggio India Pvt. Ltd.
   Trade World, B Wing, 4th floor                    F.I.M.A.         Lombardini (India) Pvt. Ltd.
   Unit No.5, Kamala Mills
   Compound, Lower Parel,                                             Director and Member of ACB
   Mumbai - 400013                                                    Wockhardt Ltd
                                                                      Share Transfer & Investors
                                                                      Grievance Committee and
                                                                      Finance Committee
                                                                      Vesuvius India Ltd.
                                                                      Member
                                                                      National Council, Confederation
                                                                        of Indian Industries
6. Shri K. Narasimha Murthy        Upto        46    B.Sc., F.C.A.,   Non-Executive Chairman
   Partner - Narsimha Murthy & Co. March 29,         F.I.C.W.A.       SWIL Ltd. (Copper Project
   (Cost Accountants firm)         2004                                 after demerger of other
   104, Pavani Estate,                                                  Divisions)
   Himayat Nagar,                                                     Director
   Hyderabad – 500 029.                                               Srikari Management
                                                                        Consultants Pvt. Ltd.
                                                                      Director and Member of ACB,
                                                                      Remuneration Committee and
                                                                      Risk Management Committee
                                                                      UTI Bank
                                                                      Directors Member of Project
                                                                      Management Committee,
                                                                      Share Transfer Committee
                                                                      and Remuneration Committee
                                                                      SWIL Ltd.
                                                                      Director and Member of ACB
                                                                      Spectrum Power
                                                                      Partner
                                                                      Narasimha Murthy & Co.
                                                                        (Cost Accountants Firm)
                                                                      Member
                                                                      Expert Group on Transfer
                                                                       Pricing, Dept. of Company
                                                                        Affairs, Govt. of India
7. Dr. Kirit S. Parikh              Upto       68    B.E. [Civil],      Director
   Professor Emeritus,              May 31,          M.Tech
   Indira Gandhi Institute of       2006             [Structures]       Business Standard Ltd.
   Development Research,                             I.I.T. Kharagpur, SKP Cross Border Consulting
   Gen. Vaidya Marg,                                 Sc.D. [Civil         Pvt. Ltd.
   Goregaon (E),                                     Engineering],
   Mumbai 400 065.                                   MIT, USA,
                                                     M.S. [Economics
                                                      and Engineering],
                                                     MIT, USA




                                                                                                        45
 IDBI FLEXIBONDS 19


     Name                               Tenure      Age   Qualification   Other Directorship/
                                                                          Memberhip
     8. Shri. R.V. Gupta                Upto        65    B.A (Honours)   Chairman
        9, Anand Lok,                   August 02         Economics &     Pannel Keir Foster
        August Kranti Marg,             2005              Course on        Consultants
        New Delhi - 110049                                Development,    Ambit Corporate Finance
                                                          Cambridge       Local advisory board for
                                                                           India in Deutsche Bank
                                                                          Vira Charitable Society.
                                                                          Director
                                                                          Southern Pertrochemical
                                                                           Industries Corporation
                                                                          Goodyear(India) Ltd.
                                                                          Delhi Safe Deposit Company Ltd.
                                                                          Steel Authority of India Ltd.
                                                                          DCM Precision Engineering Ltd.
                                                                          Seshasayee Paper and
                                                                          Boards Ltd.,GW Capital Pvt. Ltd.
                                                                          SIEL Sugar Ltd.
                                                                          Trustee
                                                                          Indian National Theatre Trust
                                                                          President
                                                                          Shriram Centre for the
                                                                           Performing Arts
                                                                          Member
                                                                          National Committee for
                                                                           United World Colleges
     9. Shri. M. G. Bhide               Upto        64    M.A.            Director & Chairman of the
        Director, Credit Rating         August 02         CAIIB           Audit Committee (ACB)
        Information Services of India   2005                              Mahindra & Mahindra Financial
        Ltd., CRISIL House,                                               Service Ltd.
        121/122,Andheri Kurla Road                                        Mahindra Shubhalabh Services Ltd
        Andheri(East)                                                     JP Morgan Securites India Pvt. Ltd.
        Mumbai-400093                                                     Global Trade Finance Pvt. Ltd.
                                                                          Director & Member of ACB
                                                                          - Finolex Industries Ltd.
                                                                          Director & Member of ACB
                                                                          & Investor Grievance
                                                                          Committee (IGC)
                                                                          Shipping Corporation of India
                                                                           Limited.
                                                                          Director & Member of ACB,
                                                                          Inv. Com. & Executive Com.
                                                                          - The Credit Rating Information
                                                                            Services of India Ltd. (CRISIL)
                                                                          Director
                                                                          Deposit Insurance and
                                                                          Credit Guarantee Corporation
                                                                          of India,
                                                                          Indian Oiltanking Ltd.
                                                                          Asset Reconstructions Company
                                                                           (India) Ltd.




46
                                                                                      IDBI FLEXIBONDS 19


 Name                                     Tenure                  Age   Qualification     Other Directorship/
                                                                                          Memberhip
 10. Shri H. L. Zutshi                    Upto                    61    B.E. (Hons)       Chairman
     D-25, Defence Colony,                August 22,                     Mechanical       Petroleum, Coal and Related
     New Delhi - 110 024                  2006                           Engg.             Products Division Council
                                                                        SMDP(Oxford)      Director
                                                                                          Rain Calcining Ltd.
                                                                                          Member
                                                                                          MOU setting Committee of
                                                                                          Adhoc Task Force for 2003-04,
                                                                                          Department of Public Enterprise,
                                                                                           Govt. Of India.
 The holding of equity shares of IDBI by the above Directors is Nil.
Changes In The Board Of Directors During The Last 3 Years
(a)   During the period 1st April, 2000 –March 31, 2001.
      Name of Director           Change            Date of Change               Reason
      Shri J.R. Gagrat           Ceased            31st May, 2000               Expiry of term of office
                                                             st
      Dr. Kirit S. Parikh        Appointed         31 May, 2000                 Appointed as director
      Dr. A. Besant C. Raj       Ceased            23rd October, 2000           Expiry of term of office
      Shri Ajit Kumar            Ceased            31st October, 2000           Relinquished charge as Govt. nominee
      Shri Piyush G.Mankad       Appointed         31st October 2000            Appointed as Govt. nominee
                                                             th
      Shri Kulwant Rai           Ceased            15 November 2000             Expiry of term of office
      Shri G.P. Gupta            Ceased            31st January, 2001           Expiry of term of office
      Shri R.N. Dhoot            Appointed         30th March, 2001             Nominated by GOI
                                                             th
      Shri Shekhar Datta         Appointed         30 March, 2001               Nominated by GOI
      Shri K.Narasimha Murthy    Appointed         30th March, 2001             Nominated by GOI

(b)   During the period 1st April, 2001 – March 31, 2002.
      Name of Director          Change          Date of Change                 Reason
      Shri Piyush G. Mankad     Ceased          30th June, 2001                Relinquished charge as Govt. nominee
                                                        st
      Shri V.Govindarajan       Appointed       21 July, 2001                  Appointed as Govt. Nominee
                                                        st
      Shri S.K. Chakrabarti     Ceased          31 July, 2001                  Expiry of term of office
      Shri Devi Dayal           Ceased          1st August, 2001               Relinquished charge as Govt. nominee
                                                   st
      Shri S.K. Purkayastha     Appointed       1 August, 2001                 Appointed as Govt. Nominee
      Shri Tarun Das            Resigned        6th August, 2001               Resigned as Director
      Shri S.K. Kapur           Appointed       1st August, 2001               Appointed as Whole time Director
                                                                               (Deputy Managing Director)
      Shri P.P. Vora            Appointed       4th September, 2001 Appointed as Chairman and Managing
                                                                    Director
      Shri S.K. Kapur           Retired         31st October, 2001             Retired as Whole time Director
                                                                               (Deputy Managing Director)
      Shri D. Basu              Ceased          15thNovember, 2001             Expiry of term of office
      Dr. S.K. Gupta            Ceased          15thNovember, 2001             Expiry of term of office
      Shri T.M. Nagarajan       Appointed       18th February, 2002            Appointed as Whole time Director
                                                                               (Deputy Managing Director)




                                                                                                                             47
 IDBI FLEXIBONDS 19

     c)      During the period April 1, 2002 – November 18, 2003
          Name of Director            Change         Date of Change            Reason
          Shri S. K. Purkayastha      Ceased         19th July, 2002           Relinquished charge as Govt. nominee
          Shri D.C. Gupta             Appointed      19th July, 2002           Appointed vice Shri. S. K. Purkayastha
          Shri R.V.Gupta              Appointed      3rd August, 2002          Elected by share-holders at AGM
          Dr. J.J. Irani              Appointed      3rd August, 2002          Elected by share-holders at AGM
          Shri M.G. Bhide             Appointed      3rd August, 2002          Elected by share-holders at AGM
          Shri T.M. Nagarajan         Retired        30th September, 2002      Retired as Whole-time Director
                                                                               (Deputy Managing Director)
          Shri D.C. Gupta             Ceased         31st October, 2002        Relinquished charge as Govt. nominee
          Smt. Vineeta Rai            Appointed      31st October, 2002        Appointed vice Shri D.C. Gupta
          Dr. J. J. Irani             Resigned       20th June, 2003           Resigned as Director
          Shri V. Govindarajan        Ceased         2nd July, 2003            Relinquished charge as Govt. nominee
          Shri Rajeeva Ratna Shah     Appointed      2nd July, 2003            Appointed vice Shri. V. Govindarajan
          Smt. Vineeta Rai            Ceased         10th July, 2003           Relinquished charge as Govt. nominee
          Shri N.S. Sisodia           Appointed      10th July, 2003           Appointed vice Smt. Vineeta Rai
          Shri H.L. Zutshi            Appointed      23rd August, 2003         Elected by Share-holders at AGM
          Shri P. P. Vora             Ceased         30th September, 2003      Expiry of term of office
          Shri M. Damodaran           Appointed      1st October, 2003         Appointed as Chairman & Managing Director

      MANAGEMENT
     Chairman and Managing Director
     Shri     M. Damodaran
     Principal Executive Officers
      Name &                Age     Date of    Qualifications        Details of                    Work           Shares
      Designation           (yrs)   joining                          Previous employment           Experience     held
                                    IDBI                                                           Total   in   in
                                                                                                           IDBI IDBI
      Shri J.N.          58         Dec. 3,    B.Tech                Production In-Charge,         35 y    28 y   200
      Godbole,                      1974       (Chem. Engg.)         Narmada Valley                2 m     11 m
      Executive Director                       (Hons),               Chemical Industries
                                               AMIIE.                Pvt. Ltd.
      Shri A.K.          57         Apr.24,    B.Tech.(Civil)        Asst. Executive               34 y    31 y   320
      Doda,                         1972       (Hons), CAIIB         Engineer, Central Water       11 m    6m
      Executive Director                                             & Power Commission
      Shri R.            56         Sep.29,    B.E. (Mech),          Asst. Superintendent,         33 y    25 y   320
      Jayaraman Iyer,               1978       D.I.E.                WG Forge & Allied             2 m     1 m
      Executive Director                                             Industries Ltd.
      Shri K.            55         Apr. 12,   B.Com, A.C.A,         Superintendent (Credit)       30 y    21 y   320
      Sivaprakasam,                 1982       I.C.W.A, C.S(Inter)   Union Bank of india           9 m     6 m
      Executive Director                       CAIIB, L.L.B
      Shri O.V.          53         Oct. 29,   M.Sc, M.F.M,          Manager                       29 y    22 y   320
      Bundellu,                     1981       CAIIB-I               Indian Bank                   11 m
      Executive Director
      Shri S.               59      Jan. 17,   B.E (Elec.)           Asst. Engineer                33 y    24 y   320
      Gajendran,                    1979                             Tamilnadu Electricity Board   10 m    9 m
      Director- JNIDB
      Shri G.M.             57      July 14,   B.Sc, B.L, CAIIB,     Law Officer                   34 y    25 y   320
      Ramamurthy,                   1978       Praveen, D.L.L,       Canara Bank                   10 m    3 m
      Legal Adviser                            D.C.L, D.T.L, C.S




48
                                                                                IDBI FLEXIBONDS 19

All the Principal Executive Officers shown in above table are on the rolls of IDBI as permanent employees as on the date
of filing.
Changes in Auditors
M/s. V. Sankar Aiyar and Company was the Auditors for IDBI till 1996-97. Subsequently, M/s. G.P. Kapadia and
Company and M/s Ray & Ray were appointed as the Auditors and thereafter M/s Ray & Ray and M/s M.P. Chitale
and Co were the Auditors of IDBI. From FY 2002-03 M/s Sorab S. Engineer & Co. and M/s Suri & Co. are the
Auditors of IDBI.
HUMAN RESOURCES
As on November 1, 2003, IDBI had 2,812 employees (figures excludes staff on deputation - 23, on study leave
- 6, on foregin leave - 3) of whom 1,428 are officers including professionals in accountancy, management,
engineering, law, computers, economics and banking. IDBI has a good and cordial relationship with its employees
and their Association/Union. Since inception in 1964, no major industrial action has been resorted to by IDBI’s
employees. During the last three years and ten months, there were 5 occasions of strike resorted to by a section
of IDBI’s employees.

     PRODUCTS AND SERVICES
IDBI provides project related finance for the establishment of new industrial projects as well as for expansion,
diversification and modernisation of existing industrial enterprises. In view of the changed financial needs of the
industries, IDBI has also designed other products to meet the short term funding, core working capital and treasury
requirements of the industrial clients. IDBI also extends non-fund based assistance, advisory services, forex
services etc,. IDBI has also set up specialised subsidiaries and associates to extend mutual fund products, capital
market services, banking services as also Registrar and transfer agent services.
IDBI currently offers the following major products and services to industrial concerns:
1.     DIRECT FINANCE
       The expression “direct finance” refers to the provision of finance directly to an industrial unit without the
       involvement of an intermediary financial institution. During FY 2002-03, approximately 91% of total sanctions
       and 94% of total disbursements of IDBI were accounted for by direct finance.
       (a)   Project Finance
             Project Finance involves providing credit and other facilities to medium and large scale units for the
             establishment of new projects as well as for expansion, diversification or modernisation of existing
             industrial units. Project finance is granted directly to units established as companies in private, joint and
             public sectors, and to co-operatives.
             As part of Project Finance, IDBI provides term loans in Rupee and in Foreign currency repayable over
             5-10 years depending upon the debt servicing capacity of the borrowing unit, and secured by a charge
             over the immovable/ movable assets. It also provides financial guarantees, usually in foreign currency,
             to cover deferred payments and to enable corporates to raise loans from overseas. IDBI’s guarantees
             are of near sovereign nature and have been an important segment of operations in the recent years.
             Infrastructure financing continues to be the Bank’s thrust area with IDBI financing projects involving large
             financial outlay to power, telecom and port projects. Assistance to infrastructure projects
             during 2002-03 amounted to Rs.440 crore (sanctions) and Rs.813 crore (disbursements).
       (b)   Equipment Finance and Asset Credit
             Under Equipment Finance, rupee and foreign currency loans are given to industrial units conforming to
             certain minimum financial criteria for the purpose of financing acquisition of specific items of machinery
             and equipment. Such loans are secured by charge on specific assets and generally have a maturity of
             upto 6 years including moratorium. Under Asset Credit Facility a line of credit is extended to industrial
             units for financing their normal capital expenditure over a specified period. Such credit is normally
             extended for a period of upto 5-6 years and is secured by a charge on the assets so acquired.
       (c)   Working Capital
             IDBI provides loans to corporates for meeting core working capital requirements. The loan is granted
             in the nature of a term loan either rupee or foreign currency for meeting the core component of the
             working capital requirements of the company assessed for period upto 18 months.



                                                                                                                             49
 IDBI FLEXIBONDS 19

          (e)   Direct Discounting of Bills
                IDBI provides facilities for direct discounting of bills of exchange and promissory notes which arise from
                the sale of indigenous machinery on a deferred payment basis by a seller to a domestic purchaser.
          (f)   Underwriting and Direct Subscription
                As part of Project Finance and Capital Market activities, IDBI underwrites public and rights issues and
                provides direct subscription support in respect of equity as well as debt instruments.
          (g)   Energy Conservation
                IDBI has extended rupee and foreign currency term loans for the acquisition and installation of energy
                conservation equipment, as also to pollution control and prevention projects in highly polluting industrial
                sectors. Further, IDBI also provides finance for implementing Ozone Depleting Substances (ODS)
                Phase-out projects under the Montreal Protocol.
          (h)   Venture Capital
                Venture Capital finance is extended by IDBI for projects involving the development and use of
                indigenous technology and for adaptation and development of imported technology, as well as high-
                risk, high-return ventures. With the development of new economy sectors like technology, media and
                entertainment, bio-technology, etc. the scope of Venture Capital Fund Scheme has been widened
                since January 2000.
          (i)   Equity Participation Scheme
                IDBI has formulated a separate Equity participation scheme for investment in select companies with
                high growth and profitability potential to facilitate early financial closure of projects.
          (j)   Film Financing
                Consequent upon GOI conferring industry status to the “Entertainment Industry including Films” and
                approving the same as an eligible activity for financing under Section 2(c)(xvii) of IDBI Act, 1964, the
                Bank has introduced a scheme for financing the Film Industry.
     2.   INDIRECT FINANCE
          The expression “indirect finance” refers to the provision of finance to industrial concerns through State
          Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs). In indirect finance,
          the responsibility for repayment to IDBI rests with the relevant intermediary institution or bank.
          (a)   Refinancing of Industrial Loans
                IDBI grants refinance facilities to SFCs, SIDCs and Banks against their loans to medium-sized industrial
                concerns throughout India. IDBI has widened the scope of the Refinance Scheme to cover infrastructure/
                Technology Upgradation Fund Scheme projects.
          (b)   Bills Rediscounting
                Bills of exchange discounted by banks arising from the sale of indigenous machinery on deferred
                payment terms are rediscounted by IDBI.
          (c)   Investment in Shares and Bonds of other Financial institutions
                IDBI subscribes to the share capital, bonds and debentures issued by SFCs and other financial
                institutions.
          (d)   Lines of Credit to Institutions
                IDBI provides lines of credit to select SFCs and SIDCs by way of resource support.
     3.   FINANCIAL SERVICES
          (a) Merchant Banking
              IDBI’s Capital Markets Division provides professional advice and services to industry for capital market
              issues, loan and guarantee syndication, project advice/appraisal, capital restructuring and mergers and
              acquisitions.
          (b)   Forex Services
                IDBI opens Letters of Credit (LCs) and effects foreign currency remittances on behalf of its assisted
                companies for import of goods and services. In line with the prevailing guidelines for External
                Commercial Borrowings (ECBs), the Bank also disburses FC loans for project related Rupee



50
                                                                              IDBI FLEXIBONDS 19


           expenditure. A Forex Trader Software has been implemented which enables speedier generation and
           transmission of LCs and amendments through the SWIFT connectivity. To enhance customer service,
           the LC and FC operations have been decentralised to cover more branches. IDBI offers various foreign
           exchange related services, namely spot and forward purchases of currencies for letters of credit and
           debt servicing, as well as forex advisory services through its dealing room.
           IDBI has been awarded ISO 9002 certification for its Treasury Operations for implementation of Quality
           Management System (QMS). This certification assures that the Treasury Operations of IDBI conform
           to international standards.
     (c)   Debenture Trusteeship
           IDBI was registered as a Debenture Trustee with SEBI and had provided these services to holders of
           debentures issued by companies. It also acted as a Mortgage Trustee or Security Agent in respect of
           loans provided by domestic and foreign lenders. Government of India vide its Gazette notification
           dated August 8, 2000 had notified amendments to the SEBI (Debenture Trustees) Rules &
           Regulations. In terms of these amendments there has to be ‘arms length’ relationship between the
           trustees and issuer of the securities. Keeping this in view, IDBI has launched a company known as
           “IDBI Trusteeship Services Ltd.” (ITSL) for carrying out corporate trusteeship and other related
           business.
4.   INSTITUTIONAL DEVELOPMENT AND PROMOTIONAL ACTIVITIES
     IDBI’s developmental activities have included a range of promotional services to build an institutional structure
     for entrepreneurship development, credit delivery and capital market development.
     (a)   Institutional Development
           IDBI has been playing a major role in sponsoring / supporting several institutions for the development
           of an effective institutional structure for financing Indian industry. The major institutions that have been
           sponsored are the SIDBI, Export-Import Bank of India (EXIM Bank), Industrial Investment Bank of India
           Ltd. (IIBI) formerly known as Industrial Reconstruction Bank of India (IRBI), SCICI Ltd (since merged with
           ICICI) and Tourism Finance Corporation of India Ltd (TFCI). In addition, IDBI, as the nodal agency,
           promoted the North Eastern Development Finance Corporation Ltd, (NeDFI) for catering to the finance
           and development needs of the North-Eastern region of India. IDBI is also one of the promoters of
           Infrastructure Development Finance Company Ltd (IDFC) which has special focus on providing finance
           and guarantee products to infrastructure projects.
     (b)   Capital Markets Development
           IDBI is also playing a major role in the development of Indian Capital Markets. It played a key role in
           the formation of Securities and Exchange Board of India (SEBI) for effective regulation of the capital
           markets. It sponsored National Stock Exchange of India Ltd. (NSE), which first introduced electronic
           trading in securities in India. IDBI has sponsored/ supported the formation of Stock Holding Corporation
           of India Ltd (SHCIL), Credit Analysis and Research Ltd. (CARE), Investor Services of India Ltd. (ISIL)
           and OTC Exchange of India Ltd (OTCEI). In order to reduce paperwork and the difficulties associated
           with securities settlements, IDBI has promoted the National Securities Depository Ltd. (NSDL) in
           association with Unit Trust of India (UTI) and NSE.
     (c)   Money Market Institutions
           IDBI is one of the original subscribers to the capital of Discount and Finance House of India Ltd (DFHI)
           and Securities Trading Corporation of India Ltd (STCI), which are contributing significantly to the
           development of money markets. IDBI is one of the main promoters of The Clearing Corporation of India
           Ltd. (CCIL). It has been set up to facilitate clearing and settlement of dealings in all kinds of Securities
           and Money Market instruments including Government Securities, Treasury Bills, Corporate Bonds, inter-
           bank transactions in foreign exchange and dealings in derivatives.
     (d)   Entrepreneurship Development
           IDBI took the lead in setting up the Entrepreneurship Development Institute of India Ltd. (EDII) at
           Ahmedabad as a national institute to foster entrepreneurship development. IDBI has also taken the
           lead in creating similar institutions in some of the industrially less developed states. IDBI supported
           the establishment of the Biotech Consortium of India Ltd., to assist in the promotion of bio-technology
           projects.




                                                                                                                          51
 IDBI FLEXIBONDS 19

                 IDBI sponsored industrial potential surveys in various parts of the country in 1970s which was followed
                 by setting up of a chain of Technical Consultancy Organisations (TCOs) in collaboration with other
                 financial institutions and banks. TCOs provide advisory services to entrepreneurs on product selection,
                 preparation of feasibility studies and technology selection and evaluation. In its role as the premier
                 development bank of India, IDBI undertakes a variety of promotional activities including the
                 sponsorship of quality testing centres, science and technology parks, industrial potential surveys,
                 entrepreneurship development programmes and training programmes for the staff of other
                 development institutions.
                 Shareholding in Institutions
                 IDBI’s shareholding in institutions other than its subsidiaries as on March 31, 2003 is given below.
                     Name of the Institution                             IDBI’s shareholding       % to total equity of
                                                                                  (Rs. Crore)           the institution
                     Small Industries Development Bank of India                         220.00                     49.00
                     IDBI Trusteeship Services Ltd.                                        0.40                    40.00
                     Securities Trading Corporation of India Ltd.                        36.40                      7.30
                     Infrastructure Development Finance Co. Ltd.                         50.00                      5.00
                     Tourism Finance Corporation of India Ltd.                             7.50                    11.12
                     National Stock Exchange of India Ltd.                                 5.84                    12.98
                     Stock Holding Corporation of India Ltd.                               3.57                    16.96
                     Over the Counter Exchange of India Ltd.                               1.70                    17.00
                     Twin Function State Industrial Development Corporations             41.30                     28.89
                     North Eastern Development Finance Corporation Ltd.                  25.00                     25.00
                     Investor Services of India Ltd.                                       3.00                    25.00
                     Credit Analysis and Research Ltd.                                     2.08                    26.00
                     Biotech Consortium Ltd.                                               1.50                    27.90
                     IFCI Ltd.                                                          202.50                     31.70
                     Clearing Corporation of India Ltd.                                    2.75                     5.50
                     State Financial Corporations                                      349.38*                     28.34
                     National Securities Depository Ltd.                                 24.00                     30.00
                     Unit Trust of India                                                 2.50**                    50.00
                 *       the budget for 1998-99 provides for transfer of IDBI’s shareholding in SFCs to SIDBI.
                         IDBI’s shareholding in SFCs is required to be transferred to SIDBI at a mutually agreed prices
                         in terms of Section 4(H) of the SFCs (Amendment) Act 2000.
                 **      contribution to initial unit capital.

          LENDING POLICIES
     1.     LENDING POLICIES FOR DIRECT ASSISTANCE
            a)  Financing Criteria
                 IDBI periodically assesses the composition of its asset portfolio in terms of industry wise exposure,
                 return, overall domestic and global trends in these industries, demand-supply gap, capacity built up as
                 also the future potential. Accordingly, the proposed portfolio composition is directed. Market Research
                 Department (MRD) carries out industry research and provides inputs to Project Appraisal Department/
                 Corporate Finance Department and facilitates appraisal and follow up work. MRD maintains a large
                 updated data base of industry trends built up during the past 10 years.
                 IDBI is presently in the process of updating the present credit risk evaluation system and convert it into
                 a technology driven module.
            b)   Lending Rates
                 Interest on specific loans are fixed within a band (3.5% at present) over the MTLR (12.50% at present)
                 depending upon the risk perception of the project, the track record of the borrower and the industry



52
                                                                           IDBI FLEXIBONDS 19


     outlook. IDBI has also introduced a minimum short term lending rate (MSTLR) (12.0 % at present) which
     is applicable to short term/working capital loan.
c)   Credit Approval Process
     In the context of emerging environment, the crezdit delivery mechanism has been revamped based on
     the recommendation of Booz-Allen & Hamilton, the consultants appointed by IDBI. The customer base
     has been segmented into corporate and mid-corporate divisions, with industry focussed groups in these
     divisions. A dedicated group has been constituted to deal with infrastructure related projects. All
     sanctions and credit related matters are approved by specific Committees. Different committees are
     formed to assess and approve credit proposals depending on the size and complexities of the proposals.
     Major committees constituted are Credit Committee at the Head Office and Zonal Committees at the
     zonal level. Proposals outside the powers of Credit and Zonal Committees are referred to the Executive
     Committee.
     The functions and the composition of various committees involved in the credit approval process are as
     follows:
     (i)    Zonal Committees
            Four Zonal Committees have been constituted at the respective zones viz. Western Zonal
            Committee at Mumbai, Northern Zonal Committee at Delhi, Southern Zonal Committee at Chennai
            and Eastern and North Eastern Zonal Committee at Kolkata. The Zonal Committees comprise of
            the Chief General Manager (CGM) for the respective zone as the Chairman and the General
            Managers (GMs) of the respective branches within that zone as the members of the committee.
            This apart, an official of CGM rank from Head Office also participates in Zonal Committees as a
            member.


             The functions of the Zonal Committees are as follows:
            1.    To screen the proposals from the branches in their respective Zones, with exposure within
                  their delegated authority for taking up detailed appraisal.
            2.     To sanction assistance under the powers delegated to it by the Board of Directors.
            3.     To review the progress and performance of assisted projects periodically and take appropriate
                   action.
            4.     To review the quality of portfolio, asset classification, provisioning etc, at quarterly intervals.
            5.     To review the operational targets, performance, profitability etc. of individual branches.
     (ii)   Credit Committee
            The Credit Committee is empowered to sanction assistance upto specified limits with respect to
            Head Office cases and cases from branches wherever it exceeds the power of Zonal Committee.
            Cases for assistance above the threshold limits of Credit Committee are referred to the Executive
            Committee.
            The Credit Committee comprises of Executive Directors and Chief General Manager from the
            Corporate Finance Department as the members of the Committee. Chief General Managers/
            General Managers of the Treasury & Funding Division, ALM group, General Manager (Legal) and
            General Managers from other operational departments are invited as participants.
             The functions of the Credit Committee includes :
            1.    Screening the proposals for assistance received at the HO for a detailed appraisal
            2.    Sanctioning assistance under the powers delegated to it by the Board of Directors from time
                  to time.
            3.    Reviewing the progress/ performance of assisted projects periodically and take necessary
                  actions.
            4.    Review the quality of the portfolio, asset classification, provisioning etc. at quarterly intervals.
            5.     Review the policies, products, pricing etc. relating to direct finance operations and initiate
                   action, as may be considered necessary.




                                                                                                                         53
 IDBI FLEXIBONDS 19

                 (iii)   Executive Committee:
                         All proposals beyond the threshold limit of Credit Committees are referred to the Executive
                         Committee which is a sub-committee of the Board. The Executive Committee deals with sanctions
                         of assistance and other operational matters.
           d)    Follow-up and Monitoring
                 An elaborate project monitoring system has been set-up by IDBI over the years. Project monitoring is
                 done both during implementation and operating periods through periodical progress reports/annual
                 reports of the borrowing units, follow-up visits and periodic interaction with the Chief Executive/Senior
                 Executives of the companies. The system enables IDBI to monitor the progress of the project, diagnose
                 difficulty if any and work out remedial measures where needed. Where considered necessary on
                 grounds of higher exposure, IDBI also considers nomination of IDBI officers / outside professionals on
                 the Boards of assisted companies. All assisted cases are periodically reviewed at the appropriate credit
                 forum like Zonal/ Credit / Executive committees.
     2.    LENDING POLICIES FOR INDIRECT ASSISTANCE
           IDBI considers the business plans and resource forecasts of State Financial Corporations (SFCs) and State
           Industrial Development Corporations (SIDCs) to evaluate their fund requirements. Limits for refinancing and
           lines of credit are fixed taking into consideration other resources available.
           Under Bills Rediscounting, IDBI extends annual limits to commercial banks, Electricity Boards, State Road
           Transport Organisations and Corporations. The limits are reviewed periodically.
           Since the credit risk in indirect finance is borne by the primary lender, IDBI fixes uniform interest rates for
           refinance assistance to primarly lenders (SFCs / SIDCs), in tune with the movement in prime lending rates
           for such finance.

           OPERATIONS
     IDBI’s portfolio of direct finance comprises over 3,700 companies representing the complete range of industrial
     activities and a well diversified client profile. Its portfolio including loans, investments and guarantees, etc. as on
     March 31, 2003 was Rs.57850 crore.
     Particulars regarding effective sanctions (net of cancellations) and disbursements       for the last 5 years ending
     March 31, 2003 and April-September, 2003 are indicated in the table below:
     SANCTIONS                                                                                  (Rs. crore)
      Year ended March 31                       1999        2000        2001         2002          2003        Half year
      (Effective sanctions net of                                                                                 Ended
      cancellations)                                                                                          Sept. 2003
      Direct Finance
      Rupee Loans                            12904        15604        17121         9722          1377              1806
      Foreign Currency Loans                    2882        3442         2564        2029          1123               640
      Underwriting and direct                    387         512          457         512           105                  0
      subscription to shares,
      bonds and debentures of
      industrial concerns
      Equipment leasing                          233         299          250          12              0                 0
      Sub Total (A)                          16406        19857        20392       12275           2605              2446
      Guarantees for loans and
      deferred payments                         1671         236         1362         403             31                 1
      Total Direct Finance (B)                  18077     20093        21754       12678           2636              2447




54
                                                                              IDBI FLEXIBONDS 19


 Year ended March 31                 1999           2000          2001         2002            2003           Half year
 (Effective sanctions net of                                                                                     Ended
 cancellations)                                                                                              Sept. 2003
 Indirect Finance
 Refinance of Industrial loans          92           242           363          187                  0              12
 Bills finance                         675           723           286          123              87                 13
 Loans to and investments in            95           968           246          291              53                  0
 shares and bonds of financial
 institutions
 Others                                     –         34           529          226             113                  0
 Total Indirect finance (C )           862          1967          1424          827             253                 25
 Total Sanctions (B+C)              18939          22060         23178        13505            2889               2472
 Annual Growth Rate (%)               (6.4)          16.5           5.1       (41.7)          (78.6)                 –
The compounded annual growth rate (CAGR) over the 5-year period ended March 31, 2003 works out to (-)37.5%.
DISBURSEMENTS                                                                                (Rs. crore)
 Year ended March 31                 1999           2000          2001         2002            2003           Half year
 (Effective sanctions net of                                                                                     Ended
 cancellations)                                                                                              Sept. 2003
 Direct Finance
 Rupee Loans                         9858            10719         11182          5812           2011              828
 Foreign Currency Loans              1809             2614          1341          1610           1542              439
 Underwiting and direct              1901             1745         3391           2892            140               35
 subscription to shares,
 bonds and Debentures of
 Industrial concerns
 Equipment leasing                    232                 370       255                12                0           0
 Sub Total (A)                      13800            15448        16169          10326           3693             1302
 Guarantees for loans and
 deferred payments                          0               0             0            0                 0           0
 Total Direct Finance (B)           13800            15448        16169          10326           3693             1302
 Indirect Finance
 Refinance of Industrial loans     102.1          229.5          332          158.8              0                  16
 Bills finance                     475.6          527.9          202           84.9           60.8                   9
 Loans to and investments             95          823.5           287           313           53.8                  64
 in shares and bonds of
 financial institutions
 Others                                0            34           484          267.9          117.1                   0
 Total Indirect Finance ( C)       672.7         1614.9         1305          824.6          231.7                  89
 Total Disbursements (B+C)       14473.4        17062.8         17473         11151         3924.3                1391
 Annual Growth rate (%)             (5.8)          17.9           2.4         (36.2)        (64.8)                   –
The CAGR in disbursements over the 5-year period ended March 31, 2003 works out to (-)27.8%




                                                                                                                          55
 IDBI FLEXIBONDS 19


     Trend in Sanctions and Disbursements March 1999 - March 2003.                                 (Rs. crore)
          25000
                                                        23178
                                      22060


                                                                                            SANCTIO NS
          20000
                    18939
                                                                                            DISBURSEMENTS
                                                                17473
                                              17063


                            14473
          15000
                                                                                13505


                                                                                        11151

          10000




           5000
                                                                                                             3924
                                                                                                     2889




              0
                       1999              2000              2001                    2002                   2003


     OUTSTANDING ASSISTANCE PORTFOLIO
     The following table provides a breakdown of IDBI’s outstanding portfolio of loans, investments and guarantees as
     at March 31, 1999 to March 31, 2003.                                                            (Rs. crore)
      As at March 31                                    1999             2000               2001         2002        2003
      Direct Finance
      Rupee Loans                                      35144            38322             39484       38460         37876
      Foreign Currency Loans                            7585             8426              6618        6522          5677
      Underwriting and direct subscription              5494             5492              6673        7514          6405
      to shares, bonds and debentures of
      Industrial concerns
      Equipment leasing                                 1089             1245              1300        1148           955
      Sub total (A)                                    49312            53485             54075       53644         50913
      Guarantees for loans and                          3830             4005              4617        4011          3369
      deferred payments
      Total Direct Finance (B)                         53142            57490             58692       57655         54282
      Indirect Finance
      Refinance of Industrial loans                     1767            1310               1666          1643        1490
      Bills finance                                     2336            2031               1443           965         612
      Loans to and investments in shares &
      bonds of financial institutions of which
      i)    Shares of FIs                               1320             1465               1341         1010        1066
      ii) Loans to and Bonds of FIs                      313              656                140          249         236
      iii) Consideration receivable form SIDBI1656      1284              755                525          164
      iv) Others                                         355              349                  0            0           0
      Total Indirect Finance (C)                        7747             7095               5346         4392        3568
      Total (B+C)                                      60889            64585             64038      62047          57850
      Annual Growth rate (%)                             11.2             6.1              (0.9)      (3.1)          (6.8)
     The CAGR in outstandings over the 5-year period ended March 31, 2003 works out to 0.5% in respect of direct
     finance and (-)1.3% in respect of total outstandings.



56
                                                                             IDBI FLEXIBONDS 19

Guarantees given by the Issuer to third parties
The Outstanding guarantees for loans and deferred payments amounted to Rs. 3,369 crores as on March 31,
2003. The guarantees extended are solely on account of normal business operations and are subject to prudential
applicable norms. Guarantees extended by IDBI are normally secured by assets/ way of charge over the fixed
assets of the assisted company.
         Trend in Outstanding Loan Portfolio during March 1999 - March 2003                  (Rs. crore)
          66000


                                        64585
                                                          64038
          64000




                                                                            62047
          62000

                      60889


          60000




                                                                                               57850
          58000




          56000




          54000
                      1999              2000              2001              2002                2003


INDUSTRYWISE BREAK-UP
IDBI’s loan portfolio is well diversified among industries. The major outstandings are to the iron and steel, power,
cotton textiles, telecom services and petrochemicals, which together accounted for about 48% of the outstandings
as at March 31, 2003. As a prudential measure, IDBI has recently revised the exposure limit to individual industry
at 10% of its total portfolio or Rs.5000 crore whichever is lower. As on March 31, 2003 only two industries viz.
Iron & Steel (18.31%) and Electricity Generation (12.58%) exceeded the limit. This excess has been largely due
to historical factors wherein IDBI had been extending assistance to core sector projects in line with overall national
objectives. The following table shows the breakdown, by industry category, of direct assistance outstanding as at
March 31, 2003.
  Industry                       Outstanding      O/s amt. as      Outstanding of top 5         Outstanding of top
                                     amount          %of total       companies as a %            10 companies as
                                   (Rs.crore)     outstanding            of total o/s to           a % of total o/s
                                                                           the industry             to the industry
 Iron and steel                       9104.90           18.31%                      56.27%                  73.14%
 Electricity Generation               6257.90           12.58%                      64.34%                  82.25%
 Cotton Textiles                      4414.66            8.88%                      15.49%                  25.65%
 Telecom Services                     2132.63            4.29%                      69.86%                  98.45%
 Petrochemicals                       2045.08            4.11%                      86.58%                  94.45%
 Fertilizers                          1895.71            3.81%                      94.35%                  99.58%
 Cement                               1517.69            3.05%                      62.98%                  77.55%
 Artificial Fibres                    1704.43            3.25%                      53.86%                  68.64%
 Chemical (Others)                    1082.12            2.18%                      28.95%                  41.85%
 Food (others)                        1174.34            2.36%                      23.87%                  34.77%
 Basic Industrial Chemicals           1216.21            2.45%                      61.96%                  80.59%
 Services (Others)                     912.54            1.84%                      52.11%                  64.76%
 Electronics                          1069.87            2.15%                      63.11%                  74.46%
 Drugs & Pharmaceuticals              1080.28            2.06%                      59.40%                  75.08%
 Paper & Paper Products               1250.76            2.52%                      48.39%                  61.85%
 Other Industries*                   12003.98           24.14%                      14.71%                  22.73%
 * Total of all industries excluding top 15



                                                                                                                         57
 IDBI FLEXIBONDS 19


      Industry-Wise Outstandings (%)

                        E le c t r ic ity                                                    Ir o n a n d s te e l
                       G e n e r a tio n                                                            19%
                            13%                                                              B a s ic In d u s tr ia l
                         F o o d ( o th e r s )                                                 C h e m ic a ls
                                   2%                                                                  3%
                      C h e m ic a l                                                          S e r v ic e s
                       ( O th e r s )                                                             2%
                           2%                                                                 E le c t r o n ic s
                        A r t if ic ia l F ib r e s                                                  2%
                                    3%                                                            D ru g s &
                                                                                             P h a r m a c e u t ic a l
                      C em ent
                                                                                                       2%
                         3%
                                                                                             Paper & Paper
                       F e r tiliz e r s                                                         P ro d u c ts
                            4%                                                                        3%
                      P e t r o c h e m ic a ls                                              C o tt o n T e x tile s
                                 4%                                                                   9%
                    O th e r In d u s t r ie s                                                T e le c o m
                            25%                                                               S e r v ic e s
                                                                                                  4%


     Industry-Wise break up of outstandings in respect of top 10 borrowers as a percentage of total Assets as on
     March 31, 2003 is given in the table below.

      Borrower    Industry                            Outstanding as % to         Total Loan          Quality of            Write off/
                                                        total assets as on     Disbursed till         the asset             Provision
                                                           March 31, 2003    March 31, 2003*
                                                                                 (Rs. crore)
         A        Electricity Generation                              3.91               548.74        Standard                      Nil
         B        Iron & Steel                                        2.48              1008.75        Standard                      Nil
         C        Iron & Steel                                        1.89               865.77        Standard                      Nil
         D        Refineries & Oil Exploration                        1.70               731.46         Standard                     Nil
         E        Iron & Steel                                        1.33               729.03        Standard                      Nil
         F        Iron & Steel                                        1.33               558.58        Standard                      Nil
         G        Petrochemicals                                      1.18              1675.37        Standard                      Nil
         H        Refineries & Oil Exploration                        1.13              2056.99        Standard                      Nil
         I        Iron & steel                                        1.09               500.37        Sub-Standard               74.32
         J        Petrochemicals                                      1.08               535.00        Standard                      Nil
     *Total amount disbursed does not indicate total amount outstanding as on March 31, 2003.
     Credit Exposure as percentage to Capital funds and as percentage to total assets
          As on March 31, 2003                                  As % to Capital funds        As % to Total Assets
          The largest single borrower                                          15.28                                       3.63
          The largest borrower group                                           24.30                                       5.77
          The 10 largest single borrowers                                      87.23                                      20.70
          The 10 largest borrower groups                                      108.33                                      25.71
     Deployment of funds raised by issue of Infrastructure Bonds
     In respect of InfrastructureBonds issued by IDBI, the deployment has been in accordance with the relevant tax
     guidelines. Also the deployment of funds raised under Infrastructure Bonds has been duly certified by the auditors.




58
                                                                             IDBI FLEXIBONDS 19

INVESTMENTS
IDBI’s investment portfolio is predominantly of long term and strategic nature. Temporary diminution in value of
securities arises on account of price volatility due to factors and forces affecting the stock market, interest rates,
etc. IDBI has been classifying its investment portfolio and making appropriate provision for diminution in value
as per RBI guidelines issued from time to time in this regard. The investments are classified under the following
categories (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading. These investments were valued
according to the guidelines in the matter issued by RBI to FIs.
As on March 31, 2003 the portfolio of quoted investments aggregated Rs.2730.22 crore, whose market value
amounted to Rs.2152.54 crore. IDBI had debentures of Rs.4389.16 crore in its portfolio as on March 31, 2003.
All the debentures are secured by hypothecation/mortgage of fixed assets.
Debentures on which final security was yet to be created by way of mortgage amounted to Rs.795 crore as on
March 31, 2003.
Since March 2001, IDBI is active in secondary market transactions in equity. The transactions under Secondary
Market Operations are conducted in accordance with the policy regarding investment in equities, as formulated
by the Board. The valuation of equity investments is done in accordance with the RBI guidelines.
 Provision for Depreciation on Investments
 Opening Balance as on April 1, 2002                                                                Rs.56.96 crore
 Add : (i) Provisions made during the year                                                         Rs.158.79 crore
        (ii) Appropriation, if any, from Investment Fluctuation Reserve Account during the year              –
 Less :(i) Write off during the year                                                            Rs.66.51 crore
       (ii) Transfer, if any, to Investment Fluctuation Reserve Account                                          –
 Closing balance as on March 31, 2003                                                              Rs.149.24 crore
Note : During the year ended March 31, 2002 and 2003, Rs.25 crore each was appropriated from profits to
Investment Fluctuation Reserve Account and as on March 31, 2003, the balance in the Investment Fluctuation
Reserve Account was Rs.50 crore.

 ASSET CLASSIFICATION, INCOME RECOGNITION,
 PROVISIONING FOR NON-PERFORMING LOANS AND NPA STRATEGY
ASSET CLASSIFICATION
IDBI has evolved a comprehensive health code system for assessing the quality of advances so as to be able
to monitor effectively and follow-up each individual advance. All advances are reviewed at regular intervals with
reference to factors like past performance, immediate and future prospects and asset backing. In addition, the
borrower’s balance sheets and profit and loss accounts are critically analysed and information relating to credit
record with other institutions/banks, quality of management, the industrial environment in which the borrower
operates and relevant technological issues is kept up-to-date to enable IDBI to have a complete picture of the risk
profile of its assets.
The quality of portfolio is subjected to continual monitoring, through review by senior executives.
In line with RBI guidelines issued from time to time, the loan portfolio is being classified as performing and non-
performing assets for the purpose of income recognition and provisioning. The criteria for the classification are:
Performing/Standard Assets
Loan Assets in respect of which interest and principal are received regularly and where arrears of interest and/
or of principal, if any, do not exceed 180 days as at the end of the financial year, are classified as performing
assets (standard assets). A general provision of 0.25% on outstanding standard assets has been made.
Non-performing Assets
Loan assets where interest and/or principal installments are in arrears beyond 180 days are classified as non-
performing assets (NPAs). NPAs are further sub-classified into sub-standard, doubtful and loss assets as follows:
Sub-standard assets
Sub-standard assets are those which are non-performing for a period not exceeding eighteen months. In addition,
companies which have been exhibiting signs of weaknesses in their viability or whose viability has been weakened
due to delayed implementation are also classified within the sub-standard category.



                                                                                                                         59
 IDBI FLEXIBONDS 19


     Doubtful assets
     A doubtful asset is one which has remained non-performing for a period exceeding eighteen months and which
     is not considered as a loss asset. A major portion of assets under this category relate to “sick” companies referred
     to the Board for Industrial and Financial Reconstruction (BIFR) and awaiting finalisation of rehabilitation packages.
     Loss assets
     A loss asset is one where loss has been identified but the amount has not been written off, wholly or partly. In
     other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable
     asset is not warranted although there may be some salvage or recovery value.
     INCOME RECOGNITION
     While income in respect of the performing assets is accounted for on an accrual basis, income from non-
     performing assets is recognised only on cash basis ( i.e. treated as income on actual receipt )
     PROVISIONING FOR NON PERFORMING LOANS
     Loan assets (including bonds & debentures acquired in the primary market) and other assistance portfolios are
     classified based on record of recovery as Standard, Sub-standard, Doubtful and Loss. Provision is made for assets
     as per Guidelines issued to term lending institutions by Reserve Bank of India, as under:
     1.     Standard assets                –        A global provision of 0.25% on outstanding standard assets
     2.     Sub-Standard Assets            –        10% of loan/assistance
     3.     Doubtful assets                –        100 % of unsecured portion plus 20%/30 %/50% of secured portion
                                                    depending on the period for which the loan / assistance has
                                                    remained doubtful.
     4.     Loss Assets                    –        The entire loan is written off.
     The following table provides a summary of IDBI’s loan assets in accordance with RBI classification in the
     last five years.
     ASSET CLASSIFICATION AS PER RBI GUIDELINES                                                              (Rs. crore)

                                 Gross         Provisions         Net Assets           % to total      % of provisions
                                Assets      and write-offs         after prov                            and write-offs
                           (before w/o)      (cumulative)            and w/o                           to gross assets
      31st March, 1999
      Standard                   47377                  2               47375                88.0                   0.0
      Sub-standard                4635                450                4185                 7.7                   9.7
      Doubtful                    4030               1725                2305                 4.3                  42.8
      Loss                         857                857                   0                 0.0                 100.0
      Total                      56899               3034               53865               100.0                   5.3
      31st March, 2000
      Standard                   49425                  0               49425                86.6                   0.0
      Sub-standard                4484                429                4055                 7.1                   9.6
      Doubtful                    6017               2397                3620                 6.3                  39.8
      Loss                         926                926                   0                 0.0                 100.0
      Total                      60852               3752               57100               100.0                   6.2
      31st March, 2001
      Standard                   48107                  0               48107                85.2                  0.00
      Sub-standard                3518                504                3014                 5.3                  14.3
      Doubtful                    8686               3330                5356                 9.5                  38.3
      Loss                        1026               1026                   0                 0.0                 100.0
      Total                      61337               4860               56477               100.0                   7.9




60
                                                                              IDBI FLEXIBONDS 19


                                                                                                         (Rs. crore)
                            Gross         Provisions          Net Assets           % to total      % of provisions
                           Assets      and write-offs          after prov                            and write-offs
                      (before w/o)      (cumulative)             and w/o                           to gross assets
 31st March, 2002
 Standard                    49107                  0              49107                 88.3                     0.0
 Sub-standard                 2831                321               2511                  4.5                    11.3
 Doubtful                    10466               6476               3990                  7.2                    61.9
 Loss                         1152               1152                  0                  0.0                   100.0
 Total                       63556               7949              55607                100.0                    12.5

 31st March, 2003
 Standard                    44311                 22              44289                 85.8                     0.1
 Sub Standard                 3353                444               2910                  5.6                    13.2
 Doubtful                    11478               7058               4420                  8.6                    61.5
 Loss                         1175               1175                  0                    0                   100.0
 Total                       60317               8699              51619                100.0                    14.4
*A prudential provision of Rs.123.51 crore ( @ 0.25% on outstanding standard assets ) has been made as per
RBI guidelines.
It may be noted that the above information conforms to classification norms issued by RBI from time to time.
IDBI has made full provisions in respect of all its non-performing assets as per RBI norms. Further, all loan assets
of IDBI are secured and provide recourse to the borrower. Net NPAs, adjusted for the value of collateral, account
only for a marginal proportion of total assets, as in the following table :
Net NPAs - Details of Assets for 5 years                                                         (Rs.crore)
 As on March 31                                                   1999      2000        2001        2002        2003
  No. of cases #                                                  1204        1332       1392        525         630
  Gross Principal Outstanding                                     9523       11428      13230      14449      16007
  Gross interest outstanding (#)                                  5376        5532       7029       8646        5366
  Gross total outstanding                                        14899       16960      20259      23095      21373
  Net NPA (net of write offs and provisions)                      6490        7675       8371       6500        7330
  Total Assets (net)                                             53865       57099      56478      55607      51619
  %of Net NPAs to Total Assets                                   12.05       13.44      14.82       11.69      14.20
  %of Net NPAs (net of collateral) to Total Assets @               0.70        1.09       1.67       1.81        2.27
# Direct Finance
@ Value of collateral represents asset cover available against direct finance assets only.
Write off during the years ended March 31, 2002 and March 31, 2003 aggregated Rs.3142 crore and Rs.907 crore
respectively. However, where a loan is written off partially or fully, it does not necessarily mean that the loan will
not be recoverable by IDBI. Intensive efforts towards the recovery of the outstanding balances continue. As and
when funds are realised in respect of such outstandings, they are credited to the revenue account.
Classification of Assets/ Liabilities based on Interest rate band (March 31, 2003)                    (Rs. crore)
                               Less than 10%              10%-12%              12%-14%          14% & above
 Standard Assets                         12463                 1589                 7295                22964
 Gross NPAs                               1064                  246                 1349                13347
 Rupee Liabilities                       26394                 4936                 7737                 6128
 All FC liabilities are predominantly at floating rate of interest and presently carry rates below 9%.




                                                                                                                         61
 IDBI FLEXIBONDS 19


     Amount of provision/write offs made during the year towards Standard assets, NPAs, investments
     (Other than those in the nature of an advance), income tax:
      March 31, 2003                                                                             (Rs.crore)
     Standard assets                                                                                          –
     NPA                                                                                             950.90
     Accelerated provisioning / write off                                                                     0
     Investments(Other than those in the nature of advance)                                          158.79
     Income Tax                                                                                       92.36
     Total                                                                                          1202.05

     Movement in net NPAs:
       Particulars                                                                       Net NPA (Rs.crore)
      As on April 2002                                                                              6500.18
       Additions                                                                                    2272.27
       Recoveries                                                                                   1442.51
      As on March 2003                                                                              7329.94

     Provision for Non-Performing Assets (comprising loans,bonds and debentures in the nature of advance and
     inter-corporate depoists,excluding provision for standard assets)

      FY 2003                                                                                    (Rs.crore)

      Opening balance at the beginning of the financial year                                        1657.90
      Add : Provisions made during the year                                                         1082.97
      Less : Write-off, write back of excess provision                                              1038.03
      Closing balance at the close of the financial year                                            1702.84

      Restructured Accounts (FY 2003)
     Total amount of loan and debenture assets which have been subjected to               Rs.10346.51 crore
     Restructuring/rescheduling/renegotiation
      (Includes cases restructured under CDR agreegating Rs.3892.44 crore)
     Total substandard assets which have been subjected to restructuring/                  Rs. 349.73 crore
     rescheduling/renegotiation

             Restructured Accounts - Top 5 Industries (FY 2003)          (Rs. crore)
                     Sl.   Industry                        Net Outstanding
                     1     Iron & Steel                              4053
                     2     Electricity Generation                     971
                     3     Petrochemicals                             830
                     4     Cotton Textiles                            792
                     5     Cement                                     639




62
                                                                                 IDBI FLEXIBONDS 19


Top 10 Accounts Restructured (FY 2003)                         (Rs. crore)

                     Sl.   Company Name                Net Outstanding
                      1    Borrower 1                          1332
                      2    Borrower 2                           1117
                      3    Borrower 3                            811
                      4    Borrower 4                            708
                      5    Borrower 5                            681
                      6    Borrower 6                            488
                      7    Borrower 7                            342
                      8    Borrower 8                            335
                      9    Borrower 9                            298
                      10   Borrower 10                           239
Industry-wise classification of NPAs
Industry-wise outstanding NPAs (Gross) for direct finance (excluding investments) as a percentage to total NPAs
for the past 3 years is given in the table below.
 As on March 31,                                2001                         2002                     2003

 Industry                          NPA o/s                %       NPA o/s              %      NPA o/s           %
                                 (Rs. Crore)                    (Rs. Crore)                 (Rs. Crore)
 Iron & Steel                             721           9.89            838         15.54         1393       21.54
 Cotton Textiles                          973          13.34            738         13.68          822       12.70
 Food (Others)                            564           7.73            482          8.93          461        7.12
 Metal Products                           472           6.48            357          6.61          355        5.50
 Vehicles                                   0           0.00                 0       0.00          344        5.33
 Chemical (Others)                        539           7.39            364          6.74          324        5.01
 Plastic & Plastic Goods                  291           4.00            270          5.00          284        4.40
 Drugs & Pharmaceuticals                  378           5.18            266          4.93          235        3.63
 Paper & Paper Products                   255           3.50            197          3.64          193        2.98
 Artificial Fibres                        313           4.29            158          2.93          178        2.76
 Textiles                                 179           2.45            174          3.22          178        2.75
 Electronics                              243           3.34            141          2.62          149        2.30
 Non-Ferrous                              201           2.76             80          1.49          131        2.02
 Electrical Machinery                     202           2.77            130          2.41          118        1.82
 Sugar                                    140           1.92            128          2.37          108        1.67
 Services                                  26           0.35            112          2.07          102        1.58
 Ceramics & Refractories                  155           2.12             96          1.77           99        1.52
 Machinery                                152           2.09             87          1.61           93        1.43
 Services (Others)                         71           0.98             71          1.31           82        1.26
 Basic Industrial Cemicals                151           2.07             85          1.58           80        1.24
 Other Industries                        1266          17.35            623         11.55          738       11.43
 Total                                   7292           100            5397          100          6467        100




                                                                                                                     63
 IDBI FLEXIBONDS 19


     TOP 10 NON PERFORMING ASSETS AS ON 31.3.2003                                                           (Rs. crore)
     Sl.      Name of the                   Gross o/s       Net o/s*     Industry
     No       company
      1      Borrower   1                        743           669      IRON & STEEL
      2      Borrower   2                        383           345      VEHICLES
      3      Borrower   3                        392           274      IRON & STEEL
      4      Borrower   4                        138            96      IRON & STEEL
      5      Borrower   5                        100            80      SERVICES
      6      Borrower   6                        114            80      CHEMICALS
      7      Borrower   7                         82            74      COTTON TEXTILES
      8      Borrower   8                         77            69      NON FERROUS
      9      Borrower   9                         76            69      COTTON TEXTILES
      10     Borrower   10                        76            69      PLASTIC & PLASTIC GOODS
      *Net of write off/provision

     NPA STRATEGY
     Asset Quality
     IDBI is focusing on quality lending. It has developed sophisticated credit analysis and loan monitoring system. IDBI
     has been following a well formulated conservative accounting policy regarding income recognition even before
     RBI guidelines on the above subject were prescribed. IDBI has strictly followed RBI’s guidelines for asset
     classification, income recognition and provisioning. As on March 31, 2003, IDBI’s standard assets constituted
     85.80% of loan portfolio.
     IDBI has initiated several measures for containment of NPAs. The Bank has set up Close Monitoring Cells (CMCs)
     for constantly monitoring the performance of assisted companies to improve recovery and initiate timely remedial
     action. Further Restructuring Committees (RCs) have been set up in various zones to tackle NPAs. The RCs look
     into the long term viability of the projects and recommend restructuring schemes to various delegated authorities.
     For expeditious decision-making Empowered Committee and High Powered Committee have been set up. IDBI
     is also currently in the process of fine-tuning a comprehensive recovery policy, which would help in efficient
     management of its efforts as also standardisation of the systems and procedures across departments and offices.
     The composition and functions of the High Powered Committee and the Empowered Committee are as follows:
     1.   High Powered Committee
          The Board of IDBI has constituted a High Powered Committee headed by CMD and all the Executive
          Directors as members. This committee deals with restructuring and one- time settlement cases of large size.
     2.   Empowered Committee
          The Empowered Committee headed by an Executive Director with Executive Directors and Chief General
          Managers as members has been constituted to approve restructuring and one time settlement of dues from
          clients upto a certain limit.
           In order to improve the credit quality, credit approval and delivery systems have been further strengthened.
           In the case of infrastructure sector a three tier security mechanism – letter of credit, escrow facility and
           government guarantee has been adopted. Under the escrow cover, the escrowable capacity is being assessed
           by independent agencies acceptable to the lenders. A condition for opening Trust and Retention Account
           is also stipulated for large projects for depositing all funds and proceeds to be utilised in a manner and
           priority as agreed to by the Bank and the client. Through this account entire cash flow is monitored during
           the implementation period and operation phase of the projects. The Bank often appoints reputed consultants
           as Lenders’ engineers for monitoring the implementation of the project, as well as various financial and
           technical parameters during the operation of the project. The Bank has also been resorting to stipulation of
           additional security such as pledge of promoters’ equity and other collateral as also conversion of loan to
           equity, etc.




64
                                                                              IDBI FLEXIBONDS 19


THE SECURTISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF
SECURITY INTEREST (SRES) ACT, 2002
NPA containment measures adopted by IDBI as mentioned above have been further strengthened by the
Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SRES) Act, 2002. The
provisions of the Act are applicable to NPAs only. The Act provides legal framework for (i) securitisation of financial
assets by setting up of Securitisation Company (SC) or Reconstruction Company (RC), (ii) Reconstruction of
assets through SC or RC, and (iii) foreclosure of NPA accounts. The Act provides for transfer of financial asset
from banks and FIs to SC or RC on mutually agreed terms and conditions notwithstanding anything contained in
any other law or agreement. Under the Act, the SC and RC can effect change of management, sale or lease the
business, reschedule the dues, enter into settlement of dues, take possession of the secured assets or enforce
the security interest by selling the secured assets.
The Act also gives powers to certain types of secured creditors viz. SC/RC, FIs, banks, Debenture Trustees
appointed by FIs and banks, International Finance Corporation and any other institution or Non Banking Finance
Company (NBFC) as may be notified by Central Government to enforce their security interest in respect of NPA
accounts without going through the long and cumbersome judicial process for recovery of their dues. Salient
features of the provisions relating to enforcement of security interest are summarized below.
Under the Act, action for enforcement of security interest against a borrower can be taken only if there is a default
in payment of dues and the account is classified as NPA in accordance with RBI guidelines. As a first step,
secured creditor has to issue a notice to the borrower in writing calling upon him to make the full payment of the
dues within 60 days. If the borrower fails to make the payment, the secured creditor is entitled to one or more
of the following measures to recover the dues :
Ø   Taking possession of the secured assets including the right to transfer these assets by way of lease,
    assignment or sale for realising the secured loans.
Ø   Taking over the management of secured assets including the right to transfer these assets by way of lease,
    assignment or sale for realising the secured loans.
Ø   Appointing any person to manage the secured assets after taking possession.
Ø   Advising any person who owes money because of acquiring any of the secured assets from the borrower, to
    pay the money directly to the banks and institutions.
If required, the secured creditors may request the Chief Metropolitan Magistrate or District Magistrate to take
possession of part or whole of the secured assets and other related documents and forward the assets/
documents to the secured creditors. The sale proceeds would first be utilized to meet all the expenses incurred
in enforcement of security interest and then for payment of dues of secured creditors. The residual amount would
be paid to others in accordance with their rights and interests. In case the dues are not fully recovered by sale
of secured assets then the secured creditors may file an application to Debt Recovery Tribunal (DRT) for the
remaining dues. The secured creditors are also entitled to proceed against the guarantors and sell the pledged
assets independent of their action for enforcement of security interest.
As per the Act, the borrower cannot make a reference to BIFR after transfer of financial assets to SC or RC.
Similarly, any pending reference before BIFR shall abate if 75% of secured creditors (in terms of amount
outstanding) have taken any action to recover their dues under the Act.
It may, thus, be observed that the Act gives wide-ranging powers to the secured creditors to recover their dues
from NPA accounts by sale of secured assets without intervention of the Court. IDBI has already taken proactive
action to make effective use of SRES Act for speedy recovery of NPA cases.
Notices under the Act have been issued to 49 defaulting borrowers as May 31, 2003 with an aggregate
outstanding assistance of Rs.1588 crore. In many cases the promoters of the defaulting borrowers have
approached IDBI with proposals for settlement of dues/ restructuring the assistance outstanding, which are under
various stages of negotiation. Some companies have also made token payments. In 33 cases IDBI has sought
consent of other secured creditors for taking action under the Act and notices to these defaulting borrowers would
be issued after obtaining the requisite consents and completion of necessary legal formalities. IDBI has also given
consent for initiation of action under the Act against the defaulters to other institutions/banks in 32 cases.
Identification of cases for action under the Act is a continuous process and IDBI is in the process of identifying
more defaulting cases for possible action under the Act to take maximum usage of the Act for recovery of dues
out of NPAs. After the act has come in effect IDBI has initiated action against chronic defaulters resulting in many
defaulter companies willingly coming forward for settlement of their dues, fearing initiation of action under section
13(2) of the act. However, IDBI is adopting a cautious approach in the mater in view of the restrictions passed



                                                                                                                          65
 IDBI FLEXIBONDS 19


     by various courts in the matter. If the pending court cases are decided and clear directions are issued by the
     courts, the institutions and banks will be able to successfully contain the NPAs. IDBI expects a positive result out
     of all these efforts. It is expected that the defaulter companies would come forward to clear their dues, which would
     improve the profitability of the institution. Further, the Act would also deter the presently regular borrowers from
     defaulting in future, thus, preventing accretion of fresh NPAs.
     IDBI, in participation with ICICI Bank, SBI and some other institutions/ banks has taken steps to set up an ARC.
     Some of IDBI’s NPAs would be considered for transferring to the ARC, once it becomes operational.

     CORPORATE DEBT RESTRUCTURING (CDR) MECHANISM
     To improve the quality of its asset portfolio and arrest any deterioration, IDBI has also initiated action under CDR
     mechanism.
     The objective of CDR is (a) to ensure timely and transparent mechanism for restructuring of corporate debts of
     viable entities affected by certain internal and external factors and (b) to minimise the losses to the creditors and
     other stake holders through an orderly and coordinated restructuring programme.
     RBI, in terms of letter dated August 23, 2001 addressed to all the Commercial Banks and Financial Institutions
     communicated the formation of Corporate Debt Restructuring system and its implementation mechanism. The
     scope of CDR frame work was enlarged by RBI vide its circular dated February 5,2003.
     Eligibility Criteria
     Ø     The Scheme is applicable only to multiple banking accounts, syndication accounts with outstanding exposure
           of not less than Rs. 20 crore by Banks /Institutions
     Ø     Corporates declared as willful defaulter or who commit misfeasance will not be considered for restructuring
           under the CDR system
     Ø     Reference to the CDR system could be triggered by one or more of the secured creditors who have minimum
           20 % share in either working capital or term finance or (ii) by the concerned corporate if supported by a bank/
           financial institution having stake as at (i) above.
     CDR mechanism is expected to ensure quicker response and better co-ordination among lender so as to ensure
     smooth operation by the assisted unit after adoption of a restructuring package.
     Schemes Approved
     As on November 12, 2003, FIs/Banks have submitted 89 applications to the CDR Cell. The CDR Empowered
     Group has approved final schemes in 59 cases involving aggregate assistance of Rs.46,580 crore. 21 cases have
     been rejected by the Empowered Group. The remaining 9 cases are in various stages of processing.
      RESOURCE MANAGEMENT
     IDBI’s principal sources of outstanding funds are (i) borrowings from the Government and RBI, (ii) borrowings by
     way of Government guaranteed bonds (iii) private placement and public issue of unsecured bonds (iv) market
     related borrowings including certificates of deposit and fixed deposits, (v) foreign currency borrowings and (vi)
     internal generation.
     (a)    Borrowings from the Government
            The outstanding borrowings from the Government of India mostly represent loans from the International
            Bank for Reconstruction and Development (IBRD) routed through the Government to IDBI. The loans drawn
            by IDBI were repayable within 15 years from the date of agreement. As mentioned below, the outstandings
            under the IBRD line has been converted into a 20 year liability.
     (b)    Borrowings from Reserve Bank of India
             RBI provided resource support to certain institutions, including IDBI, out of the National Industrial Credit
            (Long-Term Operations) Fund [NIC (LTO) Fund] which was set up by RBI in July 1964. The assistance under
            the NIC(LTO) fund was provided by subscribing to bonds and debentures of the institutions as well as by
            granting loans. The loans drawn by IDBI are repayable within 15 years from the date of agreement. This
            facility has been discontinued from April 1990.
            As provided for in the Union Budget, GOI has since taken over IDBI’s liabilities under NIC(LTO) fund
            and converted the same along with outstanding borrowings under IBRD lines of credit into a 20 year
            liability. In consideration thereof IDBI has issued unsecured bonds of Rs.2130 crore with an initial



66
                                                                              IDBI FLEXIBONDS 19

      maturity period of 20 years i.e. upto March 30, 2022. The amount comprises Rs.1150 crore and Rs.973
      crore towards the outstandings under NIC(LTO) and IBRD line of credit carrying an interest rate of
      8% and 11.88% respectively. The bonds carry a provision for conversion into equity or roll-over for
      another 20 year period after the initial maturity as may be requested by IDBI. The Govt would favourably
      consider foregoing interest payable on these bonds in the years when IDBI’s profit is not enough to
      cover the interest. The bonds qualify for treatment as Tier I Capital.
(c)   Government Guaranteed Rupee Bonds
      IDBI’s Government guaranteed bonds enjoy the status of trustee securities and are also approved securities
      under the Banking Regulation Act, 1949. The bonds are largely taken up by commercial banks and form part
      of their statutory liquid assets. Total outstanding as at March 31, 2003 stood at Rs.5672 crore representing
      11.02% of total debt. IDBI’s access to this source of finance has been gradually phased out.
(d)   Public Issues and Private Placements of Unsecured Bonds
      In January 1992, IDBI floated its first public issue of unsecured bonds in India. The issue was successful
      and attracted subscriptions in excess of the target amount from over 11 lakh investors. IDBI launched its
      second public issue of bonds in March 1993 which also elicited subscription in excess of the target amount.
      IDBI has also made eighteen more public issue of bonds under Flexi series (Flexi –1 to Flexi –18) during
      Feb 96 to March 2003 collecting Rs.14922 crore. In addition to public issues of Bonds which are targeted
      mainly at retail investors, IDBI also raises funds from Banks, Institutions and wholesale investors such as,
      Provident Funds, Charitable Trusts etc. through private placement of bonds.
      As of March 31, 2003, the outstanding amount against unsecured bonds (raised through public issues and
      through private placements) stood at Rs.34946 crore representing 67.87% of total debt.
(e)   Deposits and Borrowings
      Total outstandings of CDs, fixed deposits, term money bonds and other borrowings as at March 31, 2003
      amounted to Rs.4565 crore representing 8.87% of total debt.
(f)   Foreign Currency Bonds
      Since 1986, IDBI has issued foreign currency bonds (denominated in Deutsche Mark, US Dollar, Japanese
      Yen and Swiss Francs) in the international debt markets. Total outstanding as at March 31, 2003 amounted
      to Rs.1180 crore representing 2.29% of total debt.
(g)   Multilateral and Bilateral Credits, Syndicated Loans and other foreign currency borrowings
      IDBI has been borrowing in foreign currency from multilateral agencies and international banks on a regular
      basis since 1982. It has obtained funding from International Development Agency (IDA)/IBRD for financing
      various sectors viz. small scale industries, cement, fertilisers, electronics etc. and for specific end uses like
      Pollution Control. With the exception of the Electronics Line and the Pollution Control Line, all IDA/IBRD
      credits have been routed through the Government of India where IDBI’s liability has been rupee denominated
      and the exchange risk is borne by the Government.
      As part of the Financial Sector Development Project Loan (USD 700 million) for the Indian Banking sector,
      IBRD has routed the Modernisation and Institutional Development Loan component (USD 150 million) through
      IDBI for on lending to eligible banks. ADB has extended three lines of credit to IDBI, one in 1987 for on
      lending to small and medium industries (USD 100 million), for Industrial Energy Efficiency Projects (USD 150
      million) in 1995 and for Infrastructure Projects in private sector (USD 100 million) in 2003.
      Over the years IDBI has also raised funds by means of syndicated loans, bilateral credits and private
      placements. Total outstandings under these heads as at March 31, 2003 stood at Rs.4951 crore representing
      9.62% of total debt.
(h)   Internal Generation
      Internally generated funds by way of repayment of loans by borrowing companies, receipt of interest,
      guarantee commissions and sale of investments in shares and bonds of companies constitute an important
      source of funds for IDBI.
(i)   Equity Issue
      In July 1995, IDBI made its first public Issue of Equity Shares. 16.8 crore equity shares of Rs 10 each were
      offered to the public at a premium of Rs.120 per share for an aggregate amount of Rs 2184 crore. In addition,
      1.44 crore shares were offered by the Government of India for sale at the same price, raising the total amount
      of the Public Issue to Rs.2371.5 crore.



                                                                                                                          67
 IDBI FLEXIBONDS 19


     RESTRUCTURING OF LIABILITIES
     In view of the difficulties faced by the certain industries viz. steel, textile, etc. IDBI has been extending relief to
     select corporates in these sectors and after examining the viability, by way of reschedulement of principal,
     reduction in interest rates/ stepping-up of interest payments in line with the revised cash-flow projections. Since
     there is no corresponding change in the terms of liabilities raised for financing these assets, it creates asset-
     liability mismatch. Declining interest rate scenario also is an added problem, as the liabilities to finance these
     assets have been raised at higher cost in the range of about 11%-16%. While, wherever call options on the
     liabilities are available, IDBI has been exercising the same, in case of other liabilities, IDBI has been discussing
     the issue with some of the large investors for accepting prepayment at par or at lower premium. While some
     investors have accepted, many are reluctant to accept prepayments.
     In this backdrop, the issue was taken up with the Govt. of India (GOI), to help in reducing interest cost in respect
     of IDBI’s liabilities. After a series of discussions with GOI in the matter, a proposal was formulated and the same
     was discussed at the meeting of select Banks/ Institutions convened by the Ministry of Finance, GOI on November
     26 and December 2, 2002. It was agreed in the meeting that the liabilities of IDBI to public sector Banks/
     Institutions/ UTI/ Army Group Insurance Fund will be restructured from the appointed date as under:
     (i) The interest rate on the liabilities will be reset to 8% p.a. and the difference between the document rate & 8%
     p.a. would be paid by GOI by way of bonds payable on March 31st of each financial year
     (ii) All select banks & institutions would on maturity of the existing investment, re-invest the amount in IDBI Bonds
     for the same tenor as the initial investment at the then prevailing market rates. Army Group Insurance Fund (AGIF)
     would, however, have an option to decide whether to reinvest.
     (iii) The characteristics of the bonds on reinvestment viz. SLR/ non-SLR would remain the same as that of original
     investment.
     The appointed date for restructuring was subsequently conveyed by GOI as March 1, 2003. In order to implement
     the restructuring proposal & make it administratively simpler, IDBI, after discussion with GOI, has decided to
     continue paying interest at the document rate to the select Banks/Institutions, with the difference to be claimed
     by IDBI directly from GOI. Thus, the essence of the proposal now is only reinvestment of amount on maturity at
     the then prevailing market rates for the period of original maturity, with no loss to the banks/ institutions.
     All the 35 banks/ institutions, except AGIF and UTI, have approved the scheme. AGIF has opted to keep out of
     the scheme due to the nature of the fund and as requested by them, their entire outstanding liabilities (Rs. 710.9
     cr as on March 1, 2003) have been repaid/ prepaid, at par. The matter regarding UTI’s participation is being
     discussed separately with GOI.
     The total liabilities, which will be reinvested in IDBI Bonds on maturity in terms of the scheme, aggregate to
     Rs.14753 cr. These are falling due over the next 10 years’ period. The total liabilities which will be reinvested in
     FY 2003-04 aggregate to Rs.2354 cr.
     As mentioned earlier, IDBI would pay interest at the document rate to the select banks/institutions and claim the
     interest differential between the document rate and 8% p.a. from GOI. This would have the effect of reduction in
     interest cost debited to the P&L Account of IDBI. The total reduction in the interest cost for FY 2002-03 amounts
     to Rs.354.37 cr representing the interest differential accrued/ reimbursable by GOI. The total interest differential
     to be received from GOI over the next 5 years period works out to about Rs.2500 crore. On the liquidity front, the
     restructuring has resulted in elongating the maturity profile of the liabilities.




68
                                                                        IDBI FLEXIBONDS 19

DEBT OUTSTANDING
Set forth below is a summary of IDBI’s outstanding debt as at March 31, 1999 to March 31, 2003
                                                                              (Rs. crore)
 As at March 31,                       1999        2000        2001       2002            2003
 1. Bonds and Debentures
    a.   Issued in India              35525       41509       42047      41762           40618
    b.   Issued outside India          3466        2467        1771       1857            1180
 2. Deposits                           2092        1753        2639       3384            4330
 3. Borrowings
    a.   From RBI                      2000        1740        1440           0              0
    b.   From GOI                      1456        1366        1269         198            174
    c.   from other sources
         (i)  Inside India              675          75           0        120            235
         (ii) Outside India            7754        8268        7253       6561           4951

 Total                                52968       57178       56419      53882           51488
Top 25 Borrowings of IDBI under various schemes as on March 31, 2003
 Scheme            Amount (Rs.Cr)        Interest rate (%)*               Maturity@         Date of borrowing
 Borrowing   1                 1521            12.40-13.00                  5-15   Yrs             11-09-1999
 Borrowing   2                 1500            12.10-12.30                   5-7   Yrs             06-01-2000
 Borrowing   3                 1492            13.90-14.00                  7-17   Yrs             16-11-1998
 Borrowing   4                 1233            12.50-14.00                  3-14   Yrs             27-03-1999
 Borrowing   5                 1221             Libor+0.34                    13   Yrs             21-01-1996
 Borrowing   6                 1215            12.50-14.00                   3-7   Yrs             11-02-1999
 Borrowing   7                 1174            14.75-16.00                  4-10   Yrs             31-01-1997
 Borrowing   8                 1000                  13.10                     5   Yrs              8-09-1998
 Borrowing   9                  871            13.75-14.00                   5-7   Yrs             12-12-1998
 Borrowing   10                 853            13.75-14.00                   5-7   Yrs             07-08-1998
 Borrowing   11                 788            13.75-14.00                   5-7   Yrs             05-10-1998
 Borrowing   12                 763                  13.42                     7   Yrs             06-10-1997
 Borrowing   13                 712             Libor+0.60                     7   Yrs             07-04-1997
 Borrowing   14                 659            11.75-12.00                   3-5   Yrs             04-10-2000
 Borrowing   15                 613            10.50-11.10                   3-7   Yrs             30-03-2001
 Borrowing   16                 588            10.50-11.50                   3-6   Yrs             05-01-2001
 Borrowing   17                 538            10.25-10.50                     3   Yrs             02-07-2001
 Borrowing   18                 537                   6.31                    14   Yrs             30-03-1995
 Borrowing   19                 536              8.00-8.30                   3-7   Yrs             17-01-2003
 Borrowing   20                 531              8.25-9.70                   3-9   Yrs             25-11-2002
 Borrowing   21                 516              7.20-8.00                  3-10   Yrs             04-03-2003
 Borrowing   22                 485              7.00-7.60                  3-10   Yrs             25-04-2003
 Borrowing   23                 475             Libor+0.85                     4   Yrs             17-05-2000
 Borrowing   24                 475             Libor+0.68                     5   Yrs             19-01-2001
 Borrowing   25                 380             Libor+1.30                     5   Yrs             20-03-2003
* In case of issues offering more than one structure / instrument, interest rate band is indicated
@ In case of issues offering more than one structure / instrument, maturity band is indicated.
Notes
•    All borrowings of IDBI are unsecured in nature.
•    The promoters/ directors have not given any personal guarantees for collaterally securing any borrowings.



                                                                                                                 69
 IDBI FLEXIBONDS 19


     •      IDBI has not defaulted on any of its previous borrowings including the above-mentioned borrowings and has
            neither sought any roll over facility on the same.
     Call Option to IDBI on previous Flexibonds Public Issues/ Private Placements (March 31, 2003)
                                         Instrument                              Date                 Amount (Rs. crore)
         Flexibonds-4                    Deep Discount Bonds                     11.11.2005                          59.72
         Flexibonds-7                    Deep Discount Bonds                     11.09.2004                         102.27
         Flexibonds-11                   Regular Income Bonds(Option C)          05.02.2009                          47.68
                                         Regular Income Bonds(Option D)          05.02.2009                           0.46
         Flexibonds-15                   Growing Interest Bonds                  25.11.2004                           1.21
         Flexibonds-17                   Growing Interest Bonds                  04.03.2005                           2.70
         Omni I 2001 A                   RRB I                                   02.07.2003@                        255.30
         Omni I                          FII C                                   03.10.2003@                        250.00
                                                                                              @
         Omni 2002 A                     RRB I                                   14.06.2003                          68.07
         Omni 2002 B                     RRB III                                 26.09.2007                           0.77
     @ Call option exercised on the respective dates.
     DEBT SERVICING TRACK RECORD
     IDBI has a consistent record of paying principal installments and interest on all loans, bonds and deposits on due
     dates.

      RISK MANAGEMENT
     IDBI in the course of its operations is exposed to various risks like Credit Risk (mainly on account of the borrowers
     and other counter-parties’ inability to meet their repayment commitments), Market Risk (arising out of movement
     of market values/interest rates impacting earning potential, fair valuation or realisable value of the portfolio),
     Liquidity Risk     (impacts capacity to raise necessary funds to meet debt servicing requirements and
     disbursements), Exchange Risk (arising from movement of exchange rates of foreign currency) and Operational
     Risk (includes risks arising from operational processes including technology, manpower, procedures etc,.). The
     risk philosophy of the Bank is guided by the twin objectives of enhancement of shareholder value and optimum
     allocation of capital.
     RISK MANAGEMENT PROCESS
     (a) Credit Risk
     The credit risk is assessed as a part of project appraisal, which considers various parameters. Management, track
     record of the promoters and the company, technology, overall capacity, demand and supply scenario, competitors,
     industry environment etc are assessed to evaluate the credit risk which will in turn decide the assistance level and
     the spread chargeable (credit spread) over the bench mark interest rate. While the appraisal system assesses the
     Credit Risk quality, exposure limits set for individual companies, groups and industries facilitate limiting credit risk
     quantity. IDBI also has a 10 point grading system of Health codes for its borrowers. Further, IDBI has a data base
     of its borrowers which is updated regularly.
     Credit risk management both at the transaction level as well as at the portfolio level, aims at building up sound
     asset quality and long-term profitability of the institution and encompasses activities like risk identification, risk
     measurement, risk mitigation and risk-based pricing.
     The IDBI Board, in August 2000, approved the proposed implementation of a Credit Risk Management System
     (CRMS) in IDBI within a period of three years. Pursuant to the above decision, to manage the credit risk pro-
     actively, a Risk Management Committee (RMC) was set up in the Bank. The RMC, comprising senior executives
     of the Bank, enunciates the overall risk philosophy of the Bank, lays down strategies and policies in accordance
     with the former and reviews progress of implementation of the risk management framework. A Credit Risk
     Management Group (CRMG) has also been set up to establish a credit rating system suited to the business of
     IDBI and the Bank’s specific requirements and eventually to put a Credit Risk Management System in place.
     Risk identification and evaluation is done at the credit sanctioning stage itself. IDBI has in house experience and
     expertise in appraisal of projects. The appraisal techniques are continuously reviewed and upgraded to take into




70
                                                                               IDBI FLEXIBONDS 19

account the knowledge acquired and experience of project implementation as also the changing complexities of
the economic scenario. All sanctions are committee based to ensure better discussion / evaluation. A senior officer
from Risk Management Group attends Credit Committee meetings to provide independent risk evaluation inputs,
to facilitate appropriate credit decisions. As risk mitigation measures, exposure limits are set for individual
corporates, corporate groups and industries. The exposure norms have recently been revised. The new norms
have been designed to have an in built check against exposure to companies / groups / industries. Besides,
project specific risk mitigation covenants are incorporated in the terms and conditions of loans. The risk perception
also gets reflected in pricing, within the constraints of competition.
(b) Market Risk
Interest Rate Risk
The market risk arises from movement in market values including interest rate levels which in turn may be
impacted by various economic and political factors, change in policies/regulatory framework etc. Movement in
market rates will have an impact on the fair valuation/realisability of adequate returns on the portfolio including
investments in Government securities, corporate bonds, equities, etc. IDBI addresses this risk through the
continuous evaluation of movement in market rates, analysis of past trends, stress test through rate shocks,
scenario analysis etc. IDBI has a separate group for assessment of interest rate risk on a continuous basis.
Further, the interest rate on lending is fixed on the date of each disbursement which to a great extent limits the
risk as compared to earlier practice of fixing the lending rate at the time of sanction.
Liquidity Risk
IDBI will be exposed to the liquidity risk in case of low market liquidity which may in turn result in IDBI not being
able to raise necessary funds from the market to meet its operational/debt servicing requirements. As IDBI’s asset
portfolio matures faster than the liability portfolio (while assets have periodic repayment of principal, major portion
of liabilities have bullet repayments) the cash flows are relatively favourable. The borrowing is also timed
considering the overall market liquidity apart from requirement of funds. IDBI maintains a reasonable level of
investment in liquid securities which could be encashed at short notice.
Exchange Risk
IDBI has a portion of its assets and liabilities contracted in foreign currencies. As a matter of policy, IDBI maintains
a currency wise matching of assets and liabilities. IDBI makes foreign currency loans on terms that are similar
to its foreign currency borrowings thereby transferring the foreign exchange risk to the borrower. In case of certain
foreign currency borrowings that were on lent, in the past, in rupee equivalents under the Exchange Risk
Administration Scheme (ERAS), the Government of India bearing foreign exchange risk on these borrowings
pursuant to certain agreements between IDBI and Government of India. The scheme has been foreclosed as on
January 31, 2003. IDBI’s foreign currency cash balances are generally maintained abroad in currencies matching
with the underlying borrowings. IDBI also operates a USD denominated Single Currency Pool (SCP) and the
interest rate risks under SCP are hedged through basis swaps. Therefore IDBI is not exposed to any risk of
foreign exchange fluctuations.
(c) Operational Risk
Internal Audit Department of IDBI conducts periodic operational audit and suggests procedures for improving the
systems, procedures, documentation, etc. so as to mitigate operational risk. IDBI periodically reviews its systems
and procedures through internal groups or with the help of outside consultants. IDBI Treasury Operations have
been certified under ISO 9002.
Asset & Liability Management (ALM)
With progressive financial deregulation, especially after the financial sector reforms of 1991, there has been a
gradual enlargement of the Bank’s exposure to market risks. IDBI recognizes that these market risks, mainly
interest rate, liquidity and foreign exchange need to be measured, monitored and managed. IDBI has an Asset
Liability Management Committee (ALCO) to manage market risks in a coordinated manner. With a view to further
refine the market risk management systems, IDBI has with the approval of its Board defined the ALM policies,
charter and procedures, taking into account the best practices followed internationally. The Bank has also defined
its market risk philosophy and has specified ALM policies and charter, tolerance levels, monitoring and reporting
systems etc. in terms of the operational guidelines issued by RBI in December 1999. IDBI has been preparing
Liquidity Gap Reports for liquidity risk management and Interest Rate Sensitivity Reports as also Duration and
Modified Duration to control the impact on Net Interest Income (NII) and Economic Value of Equity (EVE).




                                                                                                                           71
 IDBI FLEXIBONDS 19

     Maturity profile of assets and liabilities of IDBI as on March 31, 2003 is as follows :           (Rs. crore)
                                         Outstanding          Upto      Over 1 yr     Over 3 yrs         Over        Total
                                             Amount            1 yr      to 3 yrs       to 5 yrs         5 yrs
      Liabilities
      1. Capital                                   654           0              0               0         654          654
      2. Reserves and Surplus                     6325           0              0               0        6325         6325
      3. Notes,Bonds & Debentures                40594        4906          12475            3955       19259        40594
      4. Deposits                                 4329        2446            832             835         216         4329
      5. Borrowings                               6564        1674           2851            1290         748         6564
      6. Current Liabilities & Provisions         4650        3259            448              93         850         4650
         A. Total                                63116       12284          16606            6173       28052        63116
      Assets
      1. Balances with RBI                      5                4              1               0           0            5
      2. Balances with other banks           1372             1372              0               0           0         1372
      3. Investments                         9467             2072           1517            1161        4718         9467
      4. Loans & Advances                   47584             8195          12737            9687       16965        47584
      5. Fixed Assets (excl. Assets on lease) 330                0              0               0         330          330
      6. Other Assets                        4356             1944            711             128        1574         4356
         B. Total                           63116            13587          14966           10975       23587        63116
      Gap (B-A)                                               1303          (1640)           4802       (4465)
      Cumulative gap                                          1303           (337)           4465            0
     As can be observed from the Table on Maturity profile of Assets and Liabilities given above there are negative gaps
     of Rs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years time bucket. However, the
     maturity buckets upto 1 year and over 3 years to 5 years have positive gaps of Rs.1303 crore and Rs.4801 crore.
     On cumulative basis, there is negative gap in only over 1 to 3 years time bucket amounting to Rs.337 crore. This
     situation has arisen because the balance sheet of IDBI is Assets sensitive and the assets are maturing faster than
     liabilities. The statement does not take into account the effect of relending of these repayments from clients and fresh
     borrowings in future. Any gap resulting in any of the maturity buckets at any future date will be managed dynamically
     through suitable structuring of maturity profile of investment products and the asset portfolio.
     Maturity profile of assets and liabilities of IDBI as on March 31, 2002 was as follows :                 (Rs. crore)
                                         Outstanding          Upto      Over 1 yr     Over 3 yrs         Over        Total
                                             Amount            1 yr      to 3 yrs       to 5 yrs         5 yrs
      Liabilities
      1. Capital                                   653           0              0               0         653          653
      2. Reserves and Surplus                     6042           0              0               0        6042         6042
      3. Notes,Bonds & Debentures                41762        6227          13170           11361       11004        41762
      4. Deposits                                 3383        2630            308             165         280         3383
      5. Borrowings                               8903        3047           2971            1612        1272         8903
      6. Current Liabilities & Provisions         5899        4547            509              11         832         5899
         A. Total                                66643       16452          16959           13149       20083        66643
      Assets
      1.   Balances with RBI                     28             28              0               0           0           28
      2.   Balances with other banks           1948           1948              0               0           0         1948
      3.   Investments                        10137           1868           2167            1024        5078        10137
      4.   Loans & Advances                   49898          10162          15631           11355       12751        49898
      5.   Fixed Assets (excl. Assets on lease) 340              0              0               0         340          340
      6.   Other Assets                        4292           2538            698              44        1012         4292
           B. Total                           66643          16544          18496           12423       19180        66643
      Gap (B-A)                                                  92           1537           (726)       (903)
      Cumulative gap                                             92           1629            903            0



72
                                                                           IDBI FLEXIBONDS 19


Maturity profile of assets and liabilities of IDBI as on March 31, 2001 was as follows :       (Rs. crore)
                                  Outstanding         Upto     Over 1 yr     Over 3 yrs    Over        Total
                                      Amount           1 yr     to 3 yrs       to 5 yrs    5 yrs
 Outflows
 1. Capital                              653             0             0              0      653        653
 2. Reserves and Surplus                8509             0             0              0     8509       8509
 3. Notes,Bonds & Debentures           42047          7078         10367          15146     9456      42047
 4. Deposits                            2639          2080           348             65      146       2639
 5. Borrowings                         11733           941          5319           3205     2268      11733
 6. Current Liabilities & Provisions    6202          5727           308              2      165       6202
     A. Total                          71783         15826         16342          18418    21197      71783
 Inflows
 1. Balances with RBI                     10            10             0               0        0        10
 2. Balances with other banks           3028          3012            16               0        0      3028
 3. Investments                         8761          1740          1885            1030     4106      8761
 4. Advances                           52183         11189         15548          12061    13385      52183
 5. Fixed Assets (excl. Assets on lease) 351             0             0               0      351       351
 6. Other Assets                        7450          4951          1128             317     1054      7450
     B. Total                          71783         20902         18577          13408    18896      71783
 Gap (B-A)                                            5076          2235          (5010)   (2301)
 Cumulative gap                                       5076          7311            2301        0




                                                                                                               73
 IDBI FLEXIBONDS 19


      FINANCIALS


     CASH FLOW STATEMENT
     The Cash Flow Statement of IDBI for the last two years is set out below:                (Rs. Crore)

     Year ended March 31,                                                       2002               2003
     Cash flow from Operating Activities
      Net Profit before tax and extraordinary items                               414.91           455.61
      Adjustments for:
      (Profit)/Loss on sale of investments (Net)                                 (277.98)         (419.45)
      Depreciation                                                                 223.03           198.59
      Discount/Expenses on Bond Issues written off                                 459.89           203.53
      Provisions/write-offs of Loans/Investments & other provisions               3272.87          1109.70
      Withdrawn from Reserve u/s 36(1)(viii) of IT Act                          (2500.26)             0.00
      Deferred Tax credit                                                           19.38            38.16
      Interest credited to Staff Welfare Fund/other Funds                            3.40             3.43
      Operating profit before Working Capital changes                             1615.25         1589.57
      Adjustments for:
      Other Assets                                                                (17.19)         (132.63)
      Current Liabilities                                                          931.47        (1059.32)
      Net Deferred Tax Liabilities withdrawn from Reserves                       (293.35)             0.00
      Cash generated from operations                                             2236.18            397.62
      Payment of Income Tax/ Interest Tax                                        (159.08)         (242.07)
      Net Cash Flow from Operating Activities                                    2077.10            155.55
      B. Cash Flow from Investing Activities
      Purchase of/Advance towards Fixed Assets                                    (84.84)          (32.31)
      Addition to Investments [adjusted for application money]                   (311.67)          703.83
      (Net of Sale /Redemption of Investments)
      Net Cash (used in)/raised from Investing Activities                        (396.51)          671.52
      C. Cash Flow from Financing Activities
      Reduction in share capital                                                         0               0
      Decrease in share premium                                                          0               0
      Reduction in premium on bond issue                                                 0               0
      Loans borrowed (net of repayments made)                                   (2931.63)        (2524.65)
      Application money in respect of Flexibonds/unsecured bonds                    (4.47)           29.19
      Loans lent, Bills discounted and rediscounted                                952.05          1372.58
      (net of repayments received)
      Receipts from borrowers pending appropriation                               (60.07)          (21.84)
      Purchase of / advance towards assets for leasing                              60.33            38.39
      Dividend paid on Equity Shares & tax on dividend                           (323.91)          (97.92)
      Expenditure out of Staff Welfare Fund                                        (2.87)          (11.42)
      Increase in reserve fund - capital reserve on account of forfeiture               0                  0
      Transfer from Reserve Fund to Provision/TDB                                       0                  0
          Sub-total                                                             (2310.57)        (1215.67)




74
                                                                         IDBI FLEXIBONDS 19

                                                                                                   (Rs. crore)
 Year ended March 31,                                                                       2002                 2003
 Sub-total                                                                           (2310.57)           (1215.67)
 Adjustments for:
 ADB and ERAS exchange fluctuation                                                         83.97             42.27
 Difference in exchange on sale of foreign currency to RBI                                     0                    0
 (to be adjusted on repurchase)
 Write back to Investment Equalisation Reserve                                                 0                    0
 Receipts from borrowers in advance                                                      (502.87)         (105.33)
 Swap Adjustment account                                                                    6.60          (167.56)
 Net cash (used in)/raised from Financing Activities                                 (2722.87)           (1446.29)
 Net increase in Cash and Cash Equivalents                                           (1042.27)            (619.22)
 Opening Cash and Cash Equivalents                                                       3038.81           1996.54
 Closing Cash and Cash Equivalents @                                                     1996.54           1377.32
@ Includes balance in call lending account Rs. 214.35 crore (previous year Rs.135.91 crore) and short term funds
under BRS Rs.NIL crore(previous year Rs.20.00 crores).
Figures for the previous period have been regrouped wherever considered necessary.
BALANCE SHEET
    The Table below presents the summarized Balance Sheet of IDBI as at March 31, 1999 - March 31, 2003
and as at September 30, 2003
                                                                                             (Rs. Crore)
 As at March 31,                          1999         2000          2001        2002          2003      Sept 30,
                                                                                                            2003
 Cash and Bank Balances                   4193         1608          2365        1841          1163          1251
 Investments                              7853         9617         9709        10607         10180        14766
 Loans and Advances                      47339        50763        51606        47429         45569        42973
 Bills of Exchange and                    2336         2111         1443          985           613          467
 Promissory Notes
 Premises                                  296          310          302          295           292          296
 Other Fixed Assets                       1143         1283         1349         1193           993          860
 Other Assets                             5983         6594         5009         4293          4306         4207
 Total Assets                            69143        72285        71783        66643         63116        64820
 Current Liabilities and Provisions       7210         5889         6202         6066          4650         4537
 Borrowings                              11885        11449         9963         6879          5360         5200
 Deposits                                 2092         1753         2639         3384          4330         4094
 Bonds and Debentures                    38990        43976        43817        43619         41798        43834
 Total Liabilities                       60177        63067        62621        59948         56138        57665
 (Excluding Capital & Reserve)
 Equity Capital                            660          660          653          653           653          653
 Reserves, Funds and Surplus              8306         8558         8509         6042          6325         6502
 Total Capital and Reserves               8966         9218         9162         6695          6978         7155
 Total Liabilities, Capital & Reserves   69143        72285        71783        66643         63116        64820
 Book Value per Equity Share (Rs)         129.2        134.1        139.8        101.9        106.4         109.1




                                                                                                                        75
 IDBI FLEXIBONDS 19


     PROFIT AND LOSS ACCOUNTS
     The Table below presents the Profit and Loss Account of IDBI for the years ended March 31, 1999 to
     March 31, 2003 and for the half year ended September 30, 2003.                         (Rs. crore)
      Year ended March 31                             1999       2000        2001        2002         2003        April-Sept
                                                                                                                        2003
      A. INCOME FROM OPERATIONS*
      Interest and Discount Income                    6359       6225        6191        5862         5219               2103
      Income from investments                           694        818         757        761           516               337
      Commission and Brokerage etc                      176        194         188        130            73                28
      Net profit on sale of investments                  62        382         535        278           419               291
      Other income                                      173        240         164        145           144                46
      Total Income                                    7464       7859        7835        7176         6371               2805
      B. EXPENDITURE
      Interest on deposits,                           5725       6370        6595        6250         5434               2381
      borrowings, etc.
      Establishment Expenses                             76         74          84         117           95                54
      Accelerated write-off of Bad
      and Doubtful Debts                                                                 2500
      Less : Withdrawn from Special                                                    (2500)
      Reserve u/s 36(1)(viii) of IT Act
      Depreciation                                     200         213        230         223           199                89
      Other Expenditure                                162         175        192         171           188                84
      Total Expenditure                               6163        6833       7101        6761          5916              2608
      Net Profit (NP) before Tax                      1301        1027        734         415           455               197
      and Extraordinary items
      Less : Provision for Tax                          75          80          43        (10)          (92)              (39)
      Add : Deferred Tax Credit                          –           –           –          19            38                18
      NP before Extraordinary items                   1226         947         691        424           401               176
      Extra-ordinary items **                           33           –           –           –             –                 -
      Net Profit as per                               1259         947         691        424           401               176
      Audited Accounts
      Prior period items                                 4          (3)         (3)       (13)            –                (7)
      Diminution in value of investments                 –            –         68           –            –                  -
      Adjusted Profit After Tax                       1263         944         756         411          401               169

     The above figures have been rounded off to the nearest crore.
     * after meeting of bad debts and making provisions for bad and doubtful debts and other necessary and expedient provisions.
     ** write back of excess income/interest tax provision/lease equalisation adj.
     Notes to Adjustments (as stated in the Auditors Report)
     1.   We have taken the view that adjustments to profits in respect of the following:
     •    material amounts relating to previous years although events triggering off the profit/loss accrued in a
          subsequent year
     •    extraordinary items and
     •    changes in accounting policies
     •    prior period items are required to be done as per the SEBI guidelines in respect of only those items which
          are disclosed in the audited financial statements of the five financial years.
     The significant accounting policies followed by IDBI are given in the Auditors’ Report reproduced later in the Offer
     Document.




76
                                                                       IDBI FLEXIBONDS 19


      ACTIVITYWISE BREAKUP OF REVENUE – FY 2003


                                                                               In c o m e fro m
                                                                                in v e s tm e n ts
                                                                                       8%


              In te re s t a n d D is c o u n t                               C o m m is s io n a n d
                         In c o m e                                            B ro k e ra g e e tc
                           82%                                                         1%
                                                                              N e t p ro fit o n s a le o f
                                                                                    in v e s tm e n ts
                                                                                           7%

                                                                               O th e r in c o m e
                                                                                       2%




CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2003
The consolidated Balance Sheet of IDBI and its subsidiaries is given below     (Rs. Crore)
   LIABILITIES
 1.   Share Capital
      Authorised
      Equity Shares                                                          1500.00
      Redeemable Preference Shares                                             500.00                    2000.00
      Issued and paid up
      65 28 30 400 Equity Shares of Rs.10 each                                                                652.83
 2.   Reserves, Funds and Surplus                                                                        6796.02
 3.   Bonds and Debentures
                                      Tier I Bonds                           2130.50
                                      Tier II Bonds                          3651.13
                                      Other Bonds and Debentures             36181.33                   41962.96
 4.   Deposits                                                                                          10362.21
 5.   Borrowings                                                                                         8461.42
 6.   Current Liabilities and Provisions                                                                 5147.63
 7.   Minority Interest                                                                                       152.96
      TOTAL                                                                                             73536.03
      ASSETS
 1.   Cash and Bank Balances                                                                             1881.89
 2.   Investments                                                                                       12296.16
 3.   Loans and Advances                                                                                48868.84
 4.   Bills of Exchange and Promissory
      Notes Discounted/Rediscounted                                                                      1477.64
 5.   Premises
      (At cost less depreciation)                                                                             316.63
 6.   Other Fixed Assets
      (At cost less depreciation)                                                                        1138.93
 7.   Other Assets                                                                                       7555.94
      TOTAL                                                                                             73536.03




                                                                                                                       77
 IDBI FLEXIBONDS 19


      CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2003
      The consolidated Profit & Loss a/c of IDBI for the year ended March 31, 2003 and its subsidiaries is given
      below
                                                                                                    (Rs. Crore)
      INCOME (Less provisions made during the year for bad and doubtful
              debts and other necessary and expedient provisions)
       1. Interest and Discount etc.                                                                    5534.66
       2. Income from Investments                                                                       1068.08
       3. Commission, Brokerage,etc.                                                                     156.90
       4. Net Gain on sale of investments (not credited to Reserves or
          any particular fund or account)                                                                464.77
       5. Other Income                                                                                   200.63
           TOTAL INCOME                                                                                 7425.04
       EXPENDITURE
       1 Interest paid on Deposits,Borrowings,etc.,                                                     5947.51
       2   Establishment Expenses                                                                        156.38
       3   Directors’ & Executive Committee Members’ Fees and Expenses                                     0.22
       4   Auditors’ Fees                                                                                  0.32
       5   Rent,Taxes,Insurance,Lighting, etc.                                                            53.77
       6   Law Charges                                                                                     7.22
       7   Postage,Telegrams & Stamps                                                                     16.62
       8   Stationery,Printing,Advertisement,etc.                                                         28.31
      9    Accelerated write-off of bad and doubtful debts                          2500.26
           Less : Withdrawn from Special Reserve u/s 36(1)                        (2500.26)
           (viii) of IT Act, 1961
      10 Depreciation / Amortisation                                                                       42.48
      11 Depreciation on Leased assets                                                                    184.51
      12 Other Expenditure                                                                                210.43
              TOTAL                                                                                      6647.77
           Profit before Tax and Extraordinary Items                                                       777.27
           Less : Provision for Income Tax                                                               (275.09)
           Add : Deferred Tax Credit                                                                        41.30
           NET PROFIT                                                                                      543.48
     The significant accounting policies and schedules to consolidated balance sheet and profit & loss account are
     given in the Auditor’s Report reproduced later in the Offer Document.
     Key Ratios
      Sr     Year ended March 31,                              1999       2000       2001        2002       2003
      No
             Profitability and Efficiency Ratios
      1      Average cost of funds (%)                          9.0         9.2        9.3        9.2         8.5
      2      Average cost of loan funds (%)                    11.8        11.8       11.8       11.5        10.5
      3      Return on average assets (%)                      11.6        11.1      10.9        10.4         9.8
      4      Return on average net worth (%)                   15.1       10.7         7.3        5.4         5.9
      5      Standard assets to total assets (%)               88.0        86.6       85.2      88.36        85.8
      6      Average income earning assets (Rs.Cr)            58611      64071      64657      62996       60244
      7      Average interest earning assets (Rs.Cr)          51170      55691      57285      55969       52170



78
                                                                             IDBI FLEXIBONDS 19


 Sr    Year ended March 31,                                   1999        2000         2001        2002        2003
 No
       Profitability and Efficiency Ratios
 8     Average interest bearing liabilities (Rs.Cr)          49244       55073       56799       55151        52685
 9     Gross Interest Income (Rs.Cr)                          7162        7439         7775        7174        6640
 10    Net Interest Income (Rs.Cr)                            6851        6665         6782        6401        5531
 11    Net Profit Margin (%)                                    2.0         1.3          1.0         0.6         0.6
 12    Margin (%) (3-1)                                         2.6         1.9         1.6          1.2         1.3
 13    % of avg. int. earning assets to avg.                  103.9       101.1      100.86      101.48       99.02
       int. bearing liabilities (7/8 %)
 14    Interest expense apportioned to                        6042        6555         6782        6441        5489
       interest earning assets ( Rs. crore)
 15    Net Interest income based on apportioned               1120          884         993         733        1151
       interest expense   ( Rs.crore) (9-14)
 16    Net interest margin ( 15/ 7 %)                           2.2         1.6          1.7         1.3         2.2
 17    Gross yield (9/7 %)                                     14.0        13.4        13.6        12.8         12.7
 18    Yield spread ( 17-2)%                                    2.2         1.6          1.7         1.3         2.2
 19    Average share capital and reserves to
       average total assets(%)                                 12.9        12.5        12.6         11.4        10.4
       Capital Ratios
 20    Average shareholders’ equity to
       average assets (%)                                      12.9        12.5        12.6        12.9         13.7
 21    Debt to Equity                                           6.5         6.8         6.7        8.7#         7.9#
 22    Capital Adequacy Ratio (%)                              12.7        14.5        15.8        17.9         18.7
 23    Debt Service Coverage ratio(%) @                         1.2         1.3         1.6         1.6          1.2
 24    Notional Debt Service Coverage ratio(%) * @              1.2         1.2         1.5         1.6          1.2
       Growth Ratios
 25    Total assets (%)                                          15           4        (0.7)       (7.2)       (5.3)
 26    Direct Assistance Portfolio (%)                           15           8          8.4       (0.8)       (5.1)
 27    Net worth (%)                                              9           4          1.1      (27.9)      (20.9)
 28    Earnings per Equity Share                               18.7        14.1          9.4         6.5         6.2
       (based on Net Profit as per Audited Accounts)
 29    Earnings per Equity Share
       (calculated based on Adjusted Profit after tax)         18.8          14        10.3          6.3         6.2
 # As per SEBI guidelines, in case of bonds convertible at the option of investors 50% of the amount is t o be treated
 as Debt (and the balance 50% as equity). The DER on that basis would be 6.3. However, these bonds are convertible
 at the request of IDBI (issuer) and not only at the option of GOI (investor).
 @ DSCR and NDSCR has been calculated after excluding prepayments made by IDBI during the year by
 exercising call option.
 * Notional Debt Service Coverage Ratio (NDSCR) is computed as follows :
                    Net Profit after tax+ interest & principal instalment on loans+non-cash profits
                    ———————————————————————— ——— —————
                     ———————————————————————— ——- —————
           NDSCR = — — — — — — — — — — — — — — — — — — — — — — — — --— — —-— — — — —
                   Interest on borrowings+ principal instalments on loans+
                   apportioned principal instalment during the year on bonds
                 Rs.401 cr + Rs.14407 cr + Rs.481 cr      Rs.15289 cr
              =  ————————————————
                  ———————————————                         —————
                                                           ————
                 — — — — — — — — — — — — — — — — = — — — — — = 1.2
                 Rs.5863 cr + Rs.6637 cr + Rs.36 cr       Rs.12536 cr
Average balances are the average of outstandings at the end of the year and at the end of the previous year.




                                                                                                                         79
 IDBI FLEXIBONDS 19


     All ratios are computed after making adjustments towards items reflected in the part titled “Adjustments resulting
     from audit qualifications, material amounts relating to adjustments for previous years and changes in accounting
     policies”, of the Auditors Report and this does not take into account consequential adjustments to the Balance
     Sheet.
     All ratios are rounded off to a single decimal place.
     Notes to ratios above alongwith reference serial no.
     (1)    Average Cost of Funds is interest and financial cost as a percentage of the average of total liabilities.
     (2)    Average cost of loan funds is ratio of interest and financial expenses to average borrowings.
     (3)    Return on Average Assets is total income net of provisions and write offs, as a percentage of the average
            of total assets.
     (4)    Return on average net worth is Adjusted Profit after tax less dividend on Preference Shares as a percentage
            of average net worth (excluding earmarked reserves).
     (5)    Standard assets are assets in respect of which no interest payment/ principal repayment is overdue beyond
            180 days.
     (6)    Average Income Earning Assets represent average of total assets less non-income earning assets.
     (7)    Average interest earning assets consist of average loan assets + bill finance + debentures + equipment leasing.
     (9)    Interest income before write-offs and provisions.
     (10) Interest income consists of income from interest earning assets
     (11) Net Profit Margin is Adjusted Profit after tax as a percentage of average Assets
     (14) Interest expense include financial expenses on borrowings
     (21) Debt Equity Ratio is total borrowings plus contingent liability on account of guarantees issued as a proportion
          of net worth less earmarked reserves.
     (22) Capital Adequacy Ratio is as per RBI’s circular dated March 29, 1994 and related subsequent guidelines.
     Desired v/s Actual Ratios                                                                    (As on March 31, 2003)
      Ratios                                                                          Desired                     Actual
      Notional Debt Service Coverage Ratio@                                                 1.2                      1.2
      Debt Equity Ratio                                                                    12:1                    7.9:1#
      Capital Adequacy Ratio                                                                9                       18.7
      All ratios are rounded off to a single decimal place.
     # As per SEBI guidelines, in case of bonds convertible at the option of investors 50% of the amount is to be
        treated as Debt (and the balance 50% as equity). The DER on that basis would be 6.3:1. However, these bonds
        are convertible at the request of IDBI (issuer) and not only at the option of GOI (investor).
     @ NDSCR has been calculated after excluding prepayments made by IDBI during the year by exercising call
       option.

      Capital Adequacy Ratio as on March 31, 2003
      (a)     Capital to Risk weighted Asset Ratio (CRAR)                                               18.72%
              Core CRAR                                                                                 14.08%
              Supplementary CRAR                                                                         4.64%
      (b)     The amount of subordinated debt raised and outstanding as Tier II capital             Rs.3481.13 crore
      (c)     Risk weighted assets
              Balance sheet items                                                                   Rs.57559.95 crore
              Off-Balance sheet items                                                               Rs. 3406.62 crore




80
                                                                                 IDBI FLEXIBONDS 19


AVERAGE BALANCES AND AVERAGE INTEREST RATES
The average Balances and average interest rates for the last three years is given in the table below.
                                  March 31, 2001                     March 31, 2002            March 31, 2003
                           Avg      Interest    Avg           Avg       Interest   Avg       Avg   Interest    Avg
                            Bal     (Rs.Cr)    Rate            Bal      (Rs.Cr)   Rate        Bal   (Rs.Cr)   Rate
                        (Rs.Cr)                 (%)        (Rs.Cr)                 (%)    (Rs.Cr)              (%)
 ASSETS
 Rupee loans              48253        6001     12.44      49396          6017   12.18     46070        5196        11.28
 FC loans                  9032         781      8.64       6573           384    5.85      6099        334.7        5.49
 Total assets             57285       6782      11.84      55969          6401   11.44     52170     5530.82        10.60
 LIABILITIES
 Re borrowings            46920        5968     12.72       46429         5955   12.82 45410.5           5314       11.70
 GOI                       1318         196     11.06         734          137   18.66   186.1          14.08        7.57
 SLR & other Govt.
 guaranteed bonds          7715         907     11.76       7005           837   11.94  6118.6        669.41        10.94
 Other Borrowings         37886        4915     12.97      38690          4981   12.87 39105.8          4631        11.84
 FC borrowings             9879         756      7.65       8721           392    4.50   727.4         228.6         3.14
 Total liabilities        56799        6724     11.84      55151          6347   11.51 52684.9       5542.69        10.52
• Average balances are the average of outstandings at the end of the year and at the end of the previous year.
DETAILS OF FIXED AND FLOATING RATE ASSETS AND LIABILITIES                                                       (Rs.Crore)
 As on March 31, 2003                                         Assets*                            Liabilities#
                                                   Fixed      Floating        Total      Fixed     Floating          Total
 Rupee                                            47504           464       47968        45342          16         45357
 Foreign Currency                                   348          5763        6112          592        5538          6130
 Total                                            47853          6227       54080        45934        5554         51488
* Total assets less Fixed assets, investments in equity & MF units, Cash and Current a/c balances.
# Total outstanding debt.
 MANAGEMENT DISCUSSION
The following discussion and analysis should be read in conjunction with the IDBI’s financial statements and
related notes which appear on the foregoing pages and under the Auditors Report on page 99.
Result of Operations for the half year ended September 30, 2003 compared with the half year ended
September 30, 2002
IDBI’s total income during April-September 2003 was Rs.2,805 crore as against Rs.3,315 crore during April-
September 2002. Total expenditure before depreciation and tax decreased to Rs.2,519 crore from Rs.3,066 crore
during the same period in the previous year. Gross Profit (after interest but before depreciation and tax) amounted
to Rs.286 crore as against Rs.249 crore during April-September 2002. After making provisions for depreciation
and tax( net of deferred tax) of Rs.89 crore and Rs.21 crore respectively, Profit after Tax for the half year ended
September 30, 2003 stood at Rs.176 crore as against Rs.152 crore during the corresponding period of the
previous fiscal year. Aggregate assets of the Bank as on September 30, 2003 decreased by 0.9% to Rs.64,820
crore over Rs.65,417 crore as on September 30, 2002.
Result of Operations for the year ended March 31, 2003 compared to the year ended March 31, 2002
IDBI’s total income during April-March 2003 was Rs.6371 crore as against Rs.7176 crore during April-March 2002.
Total expenditure before depreciation and tax decreased to Rs.5717 crore from Rs.6538 crore during the same
period in the previous year i.e. by Rs.821 crores mainly due to interest cost on loan funds. Gross Profit (after interest
but before depreciation and tax) amounted to Rs.654 crore as against Rs.638 crore during April-March 2002. After
making provisions for depreciation and tax of Rs.199 crore and Rs.92 crore respectively and also after taking into
account deferred tax credit of Rs.38 crore, Profit after Tax for the year ended March 31, 2003 stood at Rs.401 crore
as against Rs.424 crore during the corresponding period of the previous fiscal year. Aggregate assets of the Bank
as on March 31, 2003 decreased by 5.3% to Rs.63116 crore over Rs.66643 crore as on March 31, 2002.



                                                                                                                             81
 IDBI FLEXIBONDS 19

     Result of Operations for the year ended March 31, 2002 compared to the year ended March 31, 2001
     IDBI’s total income during April-Mar 2002 was Rs.7176 crore as against Rs.7835 crore during April-Mar 2001.
     Total expenditure before depreciation and tax decreased to Rs.6538 crore from Rs.6871 crore during the same
     period in the previous year i.e. by Rs.333 crore mainly due to interest cost on loan funds. Gross Profit (after
     interest but before depreciation and tax) amounted to Rs.638 crore as against Rs.964 crore during April-Mar 2001.
     After making provisions for depreciation and tax of Rs.223 crore and Rs.10 crore respectively and also after taking
     into account deferred tax credit of Rs.19 crore, Profit after Tax for the year ended March 31, 2002 stood at Rs.424
     crore as against Rs.691 crore during the corresponding period of the previous fiscal. Aggregate assets of the Bank
     as on March 31, 2002 decreased by 7.2% to Rs.66643 crore over Rs.71783 crore as on March 31, 2001.
     Result of Operations for the year ended March 31, 2001 compared with year ended March 31, 2000
     Interest and discount income during the year ended March 31, 2001 amounted to Rs.6191 crore compared with
     Rs.6225 crore for the previous year (a decrease of 0.5%) IDBI’s portfolio of loans and advances, bills of exchange
     and promissory notes discounted or rediscounted decreased at a rate of 3.96% (from Rs.52874 crore to Rs 50779
     crore) Income from investments amounted to Rs.757 crore compared to Rs.818 crore in the previous year, a
     decrease of 7.5%. Commision and brokerage income during the year ended March 31, 2001 was Rs. 188 crore
     compared to Rs.194 crore earned during the year ended March 31, 2000 (a decrease of 3.1%). Net gain on sale
     of investments at Rs.535 crore was higher by 40% compared to Rs.382 crore realised in the previous year. Other
     income was Rs.164 crore compared to Rs.241 crore in the previous year, a decrease of 32%. Interest paid on
     deposits and other borrowings during the year ended March 31, 2001 aggregating Rs.6595 crore compared to
     Rs.6370 crore spent during the previous year (an increase of 3.5%). The higher rate of growth in interest expense
     is mainly on account of rise in rupee borrowings to the extent of Rs.954 crore and repayment of low cost borrowings
     on maturity. Miscellaneous other expenditure (including establishment expenses, rent, taxes, insurance and
     depreciation) increased by 9.3% from Rs.463 crore to Rs.506 crore.
     The resultant profit before tax was Rs.734 crore compared with Rs.1027 crore recorded during the year ended March
     31, 2000 (decrease of 28.5%) The provision for tax during the year ended March 31,2001 amounted to Rs.43 crore
     (an effective rate of 5.9%) compared with Rs.80 crore for the year ended March 31, 2000 (an effective rate of 7.8%),
     Total assets as at March 31, 2001 were Rs.71783 crore, a decrease of 0.7% from Rs.72285 crore as at March 31, 2000.
     IDBI confirms that
     1. There have been no unusual or infrequent events or transactions, since the date of the Auditors Report
        (November 18, 2003) contained herein.
     2. There are no significant economic changes that materially affected or are likely to materially affect income from
        continued operations.
     3. There are no known trends or uncertainties that have had or are likely to have a material adverse impact on the
        revenue or income from continuing operations.
     4. There have been no changes in the activity of the Issuer which may have had a material effect on the statement
        of profit/ loss for the last five years.

       TAXATION
     IDBI was exempted from income tax by virtue of specific exemption granted under Sec 35 of the IDBI Act, 1964.
     IDBI became liable to pay income tax from the assessment year 1992-93 onwards, after Sec. 35 of the IDBI Act
     was repealed by Finance (No.2) Act, 1991.
     The status of IDBI’s pending tax assessments and appeals as on October 31, 2003 is as follows:
     INCOME TAX
       Assessment Year                  Status
      1992-93                           Appeal againt re-assessment is pending before CIT (A). Penalty proceedings u/
                                        s 271(1)/(c) has been initiated. The demand outstanding Rs.38.91 crores.
      1993-94                           Appeal against the orginal assessment order and the reassessment order are
                                        pending before the CIT(A). Penalty proceedings u/s 271(1)/(c) is also
                                        pending. The demand outstanding is Rs.39.37 crores.
      1994-95, 1995-96, 1996-97         Appeals are pending before the CIT(A) against the original assessment
                                        orders and also the reassessment. Penalty proceeding u/s 271(1)(c) has ben
                                        inititated by the AO. The demand outstanding is Rs.47.86 crores, Rs.197.2
                                        crores and Rs.54.24 crores respectively.


82
                                                                             IDBI FLEXIBONDS 19


 Assessment Year                    Status
 1997-98                            Appeal is pending before the Income Tax appellate Tribunal against the order
                                    of the CIT(A) on certain issues. There is no outstanding demand. The
                                    assessment has been reopened.
 1998-99,99-2000,2000-01           Appeals are pending before the CIT(A) against the Assessment order passed
                                   by the AO. There is outstanding demand of Rs.210.95 crores, Rs.191.16
                                   crores and Rs.373.14 crores respectively.
 2001-02 & 2002-03                  Return of income have been filed. Adequate provisions have been made to
                                    cover the income tax liability. The Assessment has not completed so far.
 WEALTH TAX
 Assessment Year                    Status
 2001-2002 to 2002-03               Returns of wealth have been filed. Adequate provisions have been made to
                                    cover the wealth tax liability. The assessment have been completed so far.
 INTEREST TAX
 Assessment Year                    Status
 1994-95 to 1996-97                 Appeals are pending before the CIT(A) against the Assessment Orders.
                                    There is no outstanding demand. Assessment for these assessment years
                                    have also been reopened.
 1997-98                              Appeal filed before ITAT against the order of CIT (A). There is no
                                    outstanding demand. Assessment for these assessment years have been
                                    reopened
 1998-99 to 2000-01                 Appeals are pending before the CIT (A) against the assessment orders. There
                                    is no outstanding demand.
Tax provision as per books : As on October 31, 2003, the gross demand raised by the Income Tax Department
on account of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision made is
Rs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which IDBI has favourable
decisions in its own case in the earlier years. Thus the amount of contingent liability on account of Tax in dispute
is Rs.700.33 crore.
STATEMENT OF TAX COMPUTATION                                                                          (Rs. crore)
 For the year ended March 31,                                       2001                 2002                 2003
 Tax at notional rate (A)                                            208                   133                  121
 Tax Shelters
 Permanent nature
 –    Deduction under Sec.36(1)(viii)                                  14                   11                      0
 –    Income exempt from tax                                           95                   99                      0
 –    Indexation Benefit                                                –                   39                   30
 –    Reinvestment                                                    110                    0                   15
 Timing Difference
 Difference between tax depreciation and book depreciation             (1)                (19)                 (26)
 –     Other adjustments                                                9                   (9)                  10
 Total Tax Shelters (B)                                              228                   121                   29
 Provision for Tax (A – B)                                           (20)                 (12)                   92
      * Tax provision for year ended 31.3.2001, 31.3.2002 has been under Section 115JA/115JB of the Income
      Tax Act, at Rs.43 crores and Rs.10 crore respectively.




                                                                                                                        83
 IDBI FLEXIBONDS 19


       SUBSIDIARIES
     IDBI CAPITAL MARKET SERVICES LTD.
     IDBI Capital Market Services Ltd (IDBI Capital), a wholly owned subsidiary of IDBI, was established in December
     1993 to offer a broad range of financial services. The Company’s business activities include Bond Trading, Equity
     Broking, Client Asset Management and Depository Services.
     IDBI Capital is one of the Primary Dealers accredited by the Reserve Bank of India to act as a market maker in
     Government Securities. The Company, during 2002-03, achieved an outright secondary market turnover in excess
     of Rs. 100000 crore in Government Securities for the second time in succession. The Company also achieved a
     repo turnover in excess of Rs 125000 crore during 2002-2003. The Company participated in the Securities
     auctions conducted by RBI and achieved a success ratio of 45% in Government Securities and 40% in Treasury
     Bills (as against the requirement of 40%). The Company is also at the forefront in building a retail debt market
     in India. IDBI Capital is also an active institutional equity broker having memberships of both BSE and NSE. The
     company has also acquired Trading and Clearing Memberships on the recently started Derivatives segment of
     BSE and NSE. The Company is also one of the largest portfolio manager for pension and provident funds with
     assets under management presently being more than Rs 26,000 crore. The Company also acts as an arranger
     in the private placement market for institutional and corporate debt and also markets products like equity, debt,
     mutual fund instruments, RBI relief bonds etc. through its nation-wide network of sub-agents. As a Depository
     Participant, the Company offers its institutional and individual clients the facility to maintain their investments in
     securities in electronic form.
     The abridged Balance Sheet and Profit and Loss Account of IDBI Capital is given below:
      ABRIDGED BALANCE SHEET                                                                                  (Rs. crore)
      As on March 31,                                                     2001                 2002                 2003
      Paid-up capital                                                    100.0                150.0                200.0
      Reserves & Surplus                                                  41.5                238.2                315.4
      Current liabilities & provisions (including loans)                1008.1               1606.8               2531.1
      TOTAL LIABILITIES                                                 1149.6               1995.0               3046.5
      TOTAL ASSETS                                                      1149.6               1995.0               3046.4

      PROFIT AND LOSS ACCOUNT                                                                                 (Rs. crore)
      For the year ended March 31,                                        2001                 2002                 2003
      Total Income                                                       141.2                469.9                503.9
      Total Expenditure                                                   63.6                 99.8                136.5
      Profit before tax                                                   77.5                370.1                367.4
      Profit after tax                                                    45.0                234.0                228.1
      EPS (Rs per share)                                                   4.5                 15.6                  11.4
      Book Value (Rs per share)                                           14.1                 26.3                25.77

     IDBI BANK LTD.
     IDBI Bank Ltd., a new generation private sector bank, incorporated in September 1994, was set up by IDBI to offer
     complete range of commercial banking products and services to corporate and retail customers. With globally
     skilled management team, focus on technology driven retail banking and emphasis on superior credit quality, IDBI
     Bank has been able to build a customer-centric banking franchise on the principles of profitability, growth and
     quality.
     For the year ended March 31, 2003, IDBI Bank recorded 36% growth in Net Profits to reach Rs.71.1 crores.
     Significant growth in Net Interest Income (over 40%) and Core Fees (over 75%) were the key drivers of profitability
     delivering return on equity of 21.8%.
     IDBI Bank’s distribution now extends to 68 cities across 97 banking outlets and 264 ATMs serving 800,000
     customers. IDBI Bank’s Total Deposits grew by 15.2% in FY03 to reach Rs.6032 crore while Savings Deposits
     grew by 53% at Rs.853 crores. IDBI Bank’s Customer Assets grew by 26% to cross Rs.5000 crores while Retail
     Assets grew 4 times to reach Rs.1608 crores.



84
                                                                            IDBI FLEXIBONDS 19

With focus on Retail Deposits (58% of Total Deposits) and Low Cost Deposits (35% of Total Deposits), IDBI Bank
was able to reduce its Average Cost of Deposits to 5.2% in Q4FY03 – one of the lowest in the banking industry.
IDBI Bank now has net NPA/ Net Customer Assets of 0.9% and Provision Cover of 76%. With net NPA/ Net Worth
of about 13%, IDBI Bank’s Credit Quality is now amongst the best across banks in India.
The current market price of equity shares of IDBI Bank (as on April 30, 2003 was Rs.23.65). The highest & lowest
price of shares of IDBI Bank during previous 52 weeks was Rs.36 and Rs.18 respectively of National Stock
Exchange.
The abridged Balance Sheet and Profit & Loss Account of IDBI Bank Ltd. are as follows.
BALANCE SHEET                                                                                      (Rs. crore)
 As on March 31,                                                    2001               2002              2003
 Liabilities
 Capital                                                           140.0              140.0              140.1
 Reserves & Surplus                                                128.1              160.9              212.4
 Deposits                                                         3567.5             5234.5            6032.3
 Borrowings                                                        783.6              771.4            1041.5
 Other Liabilities & Provisions                                    299.5              334.3              502.5
 TOTAL LIABILITIES                                                4918.7             6641.1            7928.7
 ASSETS
 Cash and Bank Balance with RBI                                    266.6              363.1              600.8
 Balances with Banks and Money at call and short notice            124.5              355.5              101.6
 Investments                                                      2524.6             2417.8            2410.9
 Advances                                                         1725.0             3099.3            4325.2
 Fixed Assets                                                       115.5             158.2              164.5
 Deferred Tax Asset                                                     –               1.3                4.5
 Other Assets                                                      162.5              245.9              321.3
 TOTAL ASSETS                                                     4918.7             6641.1            7928.8

PROFIT AND LOSS ACCOUNT                                                                            (Rs. crore)
 For the year ended March 31,                                       2001               2002              2003
 Income
 Interest                                                          539.1              508.8              598.1
 Other Income                                                        69.6             122.5              165.1
 TOTAL                                                             608.7              631.3              763.1
 Expenditure
 Interest expenses                                                 437.5              365.2              396.5
 Operating Expenses                                                102.6              143.0              206.6
 Provisions & Contingencies                                          49.2              70.7               89.0
 Total                                                             589.3              578.9              692.0
 Profit after Tax                                                    19.4              52.4               71.1
 EPS (Rs per share)                                                  1.38              3.74               5.08
 Book Value (Rs per share)                                         19.51              21.49              25.17



                                                                                                                   85
 IDBI FLEXIBONDS 19

     IDBI INTECH LTD.
     Business Operations :
     a) IDBI Intech Ltd. (INTECH) was set up as a wholly owned subsidiary of IDBI in March, 2000 to undertake
        Information Technology (IT) related activities. It is registered with Software Technology Parks of India (STPI).
        The authorised capital of INTECH is Rs.100 crore comprising equity share capital of Rs.75 crore and
        preference share capital of Rs.25 crore. IDBI subscribed an amount of Rs.8.10 crore towards the equity share
        capital of INTECH. IDBI has also contributed Rs.3.50 crore as advance towards share capital.
     b)   INTECH continued to service IT needs of IDBI both in terms of Facilities Management Services (FMS) and
          software maintenance till September 2002 and January 2003 respectively. INTECH has developed and partly
          delivered integrated software for the HR and various administration activities of IDBI as well as for Fixed Deposit
          in single man branches. It is proposed to integrate a new payroll module with HR and Admin. software which
          is expected to be completed by June 2003.
     c)   INTECH managed to achieve the breakthroughs in obtaining software development orders from NABARD for
          Financial Accounting and from Kerala Finance Corporation for Loan Accounting, Financial Accounting and
          Administration and HR. INTECH was awarded contract by Punjab National Bank for conducting acceptance test
          for ATMs, Telebanking Software, Branch Automation Software, Servers, and PCs etc. on an all India basis.
     d)   During the year INTECH has set up a 100 seats Contact Center which would commence commercial production
          in May, 2003. Initially the operations would start with 25 seats which would be increased to 100 seats by July
          2003. It is proposed to leverage the contact center operations after it is stabilised for procuring BPO
          assignments. INTECH has tied up with an USA based Company for providing prospect lists and telemarketing
          services on mutually agreed terms and conditions.
     Technology Partners : INTECH has entered into Microsoft Certified Partner program and was also appointed as
     CISCO reseller during the year.
     Empanelment : INTECH was also empanelled by the following government organisations as the service provider/
     IT Vendor.
          ·   National Institute of Agricultural Marketing, Rajasthan
          ·   Government of Maharashtra
     Quality Certification : INTECH was awarded the ISO 9001-2002 quality certification by BVQi. INTECH has also
     initiated activities in quality process for CMM Level 3 and the certification is expected to be received by September,
     2003. The Company has initiated activities for ISO certification for contact center operations which is expected to
     be completed by August, 2003.
     Future plans : Based on a review of its existing strengths and opportunities, INTECH has business plans to focus
     on financial sector, provide value added services through Contact Center, target international development
     institutions for financial/loan accounting system, explore opportunities in setting up WAN and related services,
     explore International BPO opportunities through Contact Center operations etc.
     Summarised financial results for the year 2002-2003 : The year 2002-2003 was the second full year of effective
     operations of the Company. During the year under review, the aggregate revenue from Sales and Services and
     other income was Rs. 613 lakh as against Rs. 785 lakh for the previous year. Substantial part of the revenue
     was generated from the IT services provided to IDBI. The income had come down during the year under
     consideration as maintenance services to IDBI were only for part of the year. Pending orders to the extent of
     Rs.110 lakh remained to be executed, the income against which would be booked based on deliverables in the
     financial year 2003-2004. The Company also provided services to Delhi Financial Corporation, IREDA, SIDBI, IDBI
     Bank Ltd. IDBI Principal, ISIL, NABARD, Punjab National Bank, etc. The Company earned Profit before tax of Rs.
     39 lakh for the year ended March 31, 2003 as against Rs. 42 lakh for the year ended March 31, 2002.




86
                                                                      IDBI FLEXIBONDS 19


The abridged Balance Sheet and Profit and Loss Account of IDBI Intech Ltd. is given below:
 BALANCE SHEET                                                                    (Rs crore)
  As on March 31,                                           2001          2002        2003
  Paid up Equity Capital                                     1.60         1.60         8.10
  Adv Towards Share Capital                                  6.50         6.50         3.50
  Reserves & Surplus                                         0.10         0.32         0.48
  Current Liabilities & Provisions                           1.33         3.61         5.21
  Deferred Tax Liabilities                                      –         0.05         0.05
  Total Liabilities                                          9.53        12.08        17.34
  Total Assets                                               9.53        12.08        17.34

 PROFIT & LOSS ACCOUNT                                                           (Rs crore)
  For the year ended March 31,                              2001          2002       2003
  Total Income                                               2.17         7.85        6.13
  Total Expenditure                                          2.02         7.43        5.74
  Profit Before Tax                                          0.15         0.42        0.39
  Profit After Tax                                           0.11         0.26        0.20
  Basic EPS (Rs per share)                                   0.66         1.63        0.21
  Book Value (Rs per share)                                  6.13        11.95       10.59




                                                                                               87
 IDBI FLEXIBONDS 19


     OTHER STATUTORY INFORMATION
     Capitalisation Statement
     The following table sets out the audited capitalisation of Industrial Development Bank of India as at September 30,
     2003 and also adjusted to give effect to the present issue of bonds aggregating to Rs.600 crore pertaining to the
     present issue.                                                                                            (Rs.crore)
      Particulars                                                 September 30, 2003              As adjusted for the
                                                                                                       present issue
      Short Term Debt (Rupee) (a)                                                  1687                           1687
      Long Term Debt :
      Long Term Debt (Rupee)                                                     41612                           42212
      Long Term Debt (Foreign currency)                                           5735                            5735
      Total Long Term Debts (b)                                                  47347                           47947
      Total Debts (c) = (a+b)                                                    49034                           49634
      SHARE CAPITAL
      Issued, Subscribed and paid-up
      65,28,30,400 Equity Shares of Rs 10/- each
      Total Equity Capital (d)                                                      653                            653
      RESERVES FUNDS AND SURPLUS
      Reserve Fund                                                                 3808                           3808
      Share Premium                                                                1624                           1624
      Special Reserve under Section 36(1)(viii)
      of the Income Tax Act 1961                                                     111                           111
      Surplus                                                                       652                            652
      Other Reserves                                                                307                            307
      Total Reserves & Funds (e)                                                   6502                           6502
      Total Shareholders’ Funds (f) = (e+d)                                        7155                           7155
      Long Term Debt (b)/Equity(f)                                                  6.62                          6.70


     Notes:
     (1) Debts having a maturity period of one year or more than one year from the date of borrowing have been
          treated as Long Term Debts and those having maturity period within a year are treated as Short Term Debts.
     (2) Amounts in Foreign currencies have been translated into rupees at the FEDAI rates prevailing as on
          September 30, 2003.
     Outstanding Litigation and material developments
     The outstanding litigations as on March 31, 2003 aggregate Rs.382.65 crore with respect to 226 cases. There are
     no outstanding litigations involving IDBI pertaining to matters which are likely to adversely affect the operations
     and finances of IDBI. Category wise breakup of the cases is given below:
                                                                                                              (Rs.Crore)
      Category                                                       Number of Cases                Amount involved
      Suits filed by borrowers                                                        13                        320.47
      Suits filed by other parties                                                     4                         48.40
      Property disputes                                                                3                         13.57
      Miscellaneous cases                                                              4                          0.21
      Misc consumer court cases                                                      202                             *
      Total                                                                          226                        382.65
     *not quantifiable.
     The claim made in these cases are being contested by IDBI and in our view, they will not have any material
     adverse effect on IDBI. There are no outstanding litigations involving any of the directors of IDBI who are elected
     by the public shareholders under the IDBI Act.



88
                                                                                  IDBI FLEXIBONDS 19


Save as otherwise disclosed in the Offer Document, since the date of the last audited Balance Sheet, no
circumstances have arisen which adversely affected or are likely to adversely affect IDBI’s operations or
profitability, or the value of its assets, or its ability to pay its liabilities within the next twelve months.
There are 30 litigation pending as on June 15, 2003 against IDBI Bank Ltd. (a subsidiary of IDBI) involving
an amount of Rs.91.53 crore.
Interest of Present Industrialist Director of IDBI
The industrialist Director of IDBI is interested to the extent of shares held by them and/ or by their friends and relatives
or which may be subscribed by them and/ or allotted to them by IDBI.
The Industrialist Director of IDBI is interested to the extent of fees, if any, payable to them for attending meetings of
the Board or Committee and reimbursement of traveling and other incidental expenses, if any, for such attendance as
per IDBI Act.
The Industrialist Director of IDBI is not interested in the appointment of or acting as Underwriters, Registrars and
Bankers to the Issue or any such intermediary registered with SEBI.
The Industrialist Director of IDBI is not interested in any property acquired by the Bank within two years of the date of
Offer Document or proposed to be acquired by it.
Save as stated above, no amount or benefit has been paid or given to the IDBI’s Directors or Officers since its
incorporation nor is intended to be paid or given to any Directors or Officers of IDBI except the normal remuneration
and/or disbursement for services as Directors, Officers or Employees of IDBI.
Stock Market Data
(i)      IDBI’s Equity Shares were listed on The Stock Exchange, Mumbai (BSE) and National Stock Exchange of
         India Ltd. (NSE) in September 1995. The following is the movement in the Share Price of IDBI on The Stock
         Exchange, Mumbai and the National Stock Exchange of India Ltd.
      Period                                BSE                                                NSE
                       High (Rs)          Low(Rs)       Average(Rs)*       High (Rs)         Low(Rs)        Average(Rs)*
    2002                 26.50             14.00           20.25      26.65          14.00           20.33
    2001                 52.25             15.20           33.73      51.05          45.05           48.05
    2000                 75.10             30.30           52.70      78.95          30.05           54.50
    October 2003         53.25             41.05           47.15      53.05          40.60           46.82
    September 2003       41.45             34.00           37.73      41.40          33.90           37.65
    August 2003          49.00             36.05           42.53      48.55          36.10           42.33
    July 2003            45.35             33.40           39.38      45.25          33.55           39.40
    June 2003            36.65             31.15           33.90      36.75          31.25           34.00
    May 2003             34.20             17.05           25.63      34.80          18.00           26.40
    * The average price is calculated as (High price + low price)/ 2
(ii)    The following table shows number of shares traded on the day High and Low prices of IDBI’s shares were
        recorded on BSE & NSE for the period May 2003 to October 2003 :
      Month                        BSE                   NSE                          BSE                      NSE
                                   High                  High                         Low                      Low
                            Date       No. of        Date        No. of        Date        No. of       Date       No. of
                                      Shares                    Shares                   Shares                   Shares
                                      traded                    traded                    traded                  traded
 October 2003           31.10.03      329846     31.10.03       881662    01.10.03      235933      01.10.03      494659
 September 2003         29.09.03 26601000        29.09.03 71149900        05.09.03 58977600         05.09.03 91039700
 August 2003             11.08.03 49071700       11.08.03 124956000        25.08.03 40146000        25.08.03 85216400
 July 2003              14.07.03 79471900        14.07.03 162386500       01.07.03 30369900         01.07.03 76312400
 June 2003              24.06.03 124527500       24.06.03 315286800       18.06.03 11337400         18.06.03 22209800
 May 2003               30.05.03 138399000       30.05.03 273080600       07.05.03     7863900      07.05.03     6675000




                                                                                                                               89
 IDBI FLEXIBONDS 19

     (iii)    The total volume of shares traded in each month during the six months preceding the date of filing with the
              Stock Exchange is as follows:
                                                                                                        No. of shares traded
       Period                                                                                             BSE                      NSE
       October 2003                                                                                  25262582              51959460
       September 2003                                                                               549539600            1215694500
       August 2003                                                                                 1171246700             139755800
       July 2003                                                                                    950180500            2122206000
       June 2003                                                                                    897691500            2054333900
       May 2003                                                                                     694117200            1385090000
     (iv)     As on October 31, 2003, there were 3,01,699 shareholders of IDBI.
     Details of listing of IDBI and its Subsidiaries
       Company                                                                               Instrument                     Listed on
       IDBI                                                                                         Equity                  BSE, NSE
                                                                                              Flexibonds                    BSE, NSE
       IDBI Bank                                                                                    Equity       BSE, NSE, MPSE
     PUBLIC ISSUES
     Details of all outstanding public bond issues made in the Indian capital market is furnished in the following table:
      Year of Issue     Type of Issue             Amount        Amount      Amount     Deemed        Date of          Rede      Rating at
                                                  of Issue      retained     outsta      Date of     closure         mption      the time
                                                (Rs. crore)   (Rs. crore)    nding    Allotment                        date     of Issue
      January 1997      Super Deposit Bond             750          1500       1174      January      January     31/1/2005
      Flexi-2           Monthly Income Bond                                             31, 1997     23, 1997     31/1/2005
                        Double Money Bond                                                                          31/8/2006

      January 1998      Infrastructure Bond            750           985       234        March      February      16/3/2005
      Flexi-3                                                                           16, 1998     18, 1998

      September 1998    Regular Income Bond            750          1343      1492    November        October     16/11/2005
      Flexi-4           Growing Interest Bond                                          16, 1998      17, 1998     16/11/2005
                        Deep Discount Bond                                                                        16/05/2016    ‘CARE
                        Education Bond                                                                          16/11/2007-12   AAA’ by

      December 1998     Infrastructure Bond            750          1500      1215     February       January     11/2/2006     CARE &
      Flexi-5           Growing Interest Bond                                          11, 1999      15, 1999      11/2/2006    ‘AAA’ by
                        Multi Option Bond                                                                          11/2/2006    CRISIL
                        Regular Income Bond                                                                        11/2/2006

      February 1999     Regular Income Bond            750          1500      1233       April 5       March        5/4/2006
      Flexi-6           Growing Interest Bond                                              and       15, 1999       5/4/2006
                        Retirement Bond                                               March 27,                  5/4/2008-13
                        Infrastructure Bond                                               1999                     27/3/2006

      July 1999         Regular Income Bond            750          1500      1521    September       August      11/9/2004
      Flexi-7           Growing Interest Bond                                           11, 1999     19, 1999      11/9/2004
                        Deep Discount Bond                                                                        11/9/2014
                        Retirement Bond                                                                           11/9/2004

      February 2000     Regular Income Bond            300           573       366       March        March        27/3/2005    ‘AAA’ by
      Flexi-8           Growing Interest Bond                                          27, 2000      10,2000       27/3/2005    CRISIL &
                        Infrastructure                                                                                          ‘IndAAA’
                        (Tax Saving) Bond                                                                          27/4/2007    by DCR




90
                                                                                                  IDBI FLEXIBONDS 19


Year of Issue   Type of Issue                         Amount         Amount     Amount     Deemed       Date of           Redemption      Rating at
                                                      of Issue      Retained     Outsta      Date of    Closure                Date        the time
                                                    (Rs. crore)   (Rs. crore)    -nding   Allotment                                       of Issue

November 2000   Regular Income Bond                        300           561       588      January    December                5/1/2006   ‘AAA’
Flexi-9         Growing Interest Bond                                                       5, 2001     16, 2000               5/1/2006   by
                Money Multiplier Bond                                                                                          5/5/2007   CRISIL
                Infrastructure                                                                                                 5/1/2004   “LAAA” by
                (Tax Saving) Bond                                                                                           or 5/5/2004   ICRA
February 2001   Regular Income Bond                        300           599       613        March        March             30/3/2006    and
Flexi-10        Growing Interest Bond                                                      30, 2001      2, 2001             30/3/2006    ‘Ind AAA’
                Money Multiplier Bond                                                                                       30/10/2007     by
                Infrastructure                                                                                              30/3/2004     FITCH
                (Tax Saving) Bond                                                                                         or 30/7/2004
December 2001   Regular Income Bond                        250           321       324     February     January          5/2/2009 or 12   ‘AA+’ by
Flexi-11        Growing Interest Bond                                                       5, 2002    15, 2002                5/2/2007   CRISIL &
                Money Multiplier Bond                                                                              5/4/2007 or 5/5/2009    ‘LAA+’
                Infrastructure                                                                                          5/2/2005-07-09    by ICRA
                (Tax Saving) Bond                                                                                           or 5/8/2005
February 2002   Regular Income Bond                        250           334       334        March    February        15/3/2009 or 12    ‘AA+’ by
Flexi-12        Growing Interest Bond                                                      15, 2002    25, 2002              15/3/2007    CRISIL &
                Retirement Bond                                                                                        15/3/2009 or 12     ‘LAA+’
                Infrastructure                                                                                         15/3/2005 or 09    by ICRA
                (Tax Saving) Bond                                                                                         or 15/9/2005    & ‘IndAA+’
March 2002      Regular Income Bond                        250           319       332         April        April      30/4/2009 or 12     by FITCH
Flexi-13        Money Multiplier Bond                                                      30, 2002     10, 2002 30/9/2009 or 30/11/11
                Retirement Bond                                                                                       30/4/2009 or 12
                Infrastructure                                                                                       30/4/2005 or 07
                (Tax Saving) Bond                                                                                       or 30/11/2005
July 2002       Regular Income Bond                        200           294       317    September       August       12/9/2007 or 09    ‘AA+’ by
Flexi-14        Money Multiplier Bond                                                      12, 2002     16, 2002 12/11/2007 or 12/2/10    CRISIL &
                                                                                                                          or 12/4/2012    ‘IndAA+’
                Retirement Bond                                                                                         12/9/09 or 12     by FITCH
                Growing Interest Bond                                                                                          12/9/07    & ‘LAA’
                                                                                                                                          by ICRA
October 2002    Infrastructure                             300           520       531    November     November         25/11/05 or 08
Flexi-15        (tax saving) Bond                                                          25, 2002      2, 2002       or 25/5/06 or 09
                Growing Interest Bond                                                                                          25/11/07
                Money Multiplier Bond                                                                                25/7/07 or 25/5/10   ‘AA+’ by
                                                                                                                             or 25/9/12   CRISIL &
                Regular Income Bond                                                                                     25/11/07 or 09    ‘AA+(ind)’
November 2002   Infrastructure                             250           536       536      January    December           17/1/06 or 08   by FITCH
Flexi-16        (tax saving) Bond                                                          17, 2003     23, 2002             or 17/7/06   & ‘LAA’
                Floating Rate Bond                                                                                        17/1/06 or 08   by ICRA
                Retirement Bond                                                                                           17/1/10 or 13
                Regular Income Bond                                                                                       17/1/10 or 13
January 2003    Infrastructure                             300           515       516     January     December            4/3/06 or 08
Flexi-17        (tax saving) Bond                                                          17, 2003     23, 2002        or 4/9/06 or 08
                Money Multiplier Bond                                                                                  4/4/10 or 4/5/12
                GrowingInterest Bond                                                                                             4/3/08
                Regular Income Bond                                                                                        4/3/10 or 13
March 2003      Infrastructure                             350           485       485         April      March           25/4/06 or 08
Flexi-18        (tax saving) Bond                                                          25, 2003     31, 2003      or 25/10/06 or 08
                Money Multiplier Bond                                                                                    25/10/10 or 12
                Fixed Option Floating Option Bond                                                                               25/4/08
                Regular Income Bond                                                                                       25/4/10 or 13




                                                                                                                                                       91
 IDBI FLEXIBONDS 19

     a.    On annual review of rating CRISIL has revised the rating of all the outstanding borrowings and bonds from ‘AAA’
           assigned at the time of issue to ‘AA+’ in 2001. ICRA has revised the rating from ‘LAAA’ to ‘LAA+’ and further
           to ‘LAA’. FITCH has revised the rating from ‘IndAAA’ to ‘IndAA+’. CARE has revised the rating from ‘CARE AAA’
           to ‘CARE AA+’. The ratings in respect of Public Issue instruments of IDBI were carried out by CARE
           (promoted by IDBI) along with CRISIL, an independent Credit Rating Agency, prior to commencement of
           SEBI (Credit Rating Agencies) Regulation, 1999. CARE will monitor the rating till the securities rated by it
           are outstanding.
     b.    State Bank of India, Mumbai Main branch, Mumbai Samachar Marg, Fort, Mumbai -400 023 is the debenture
           trustee for Flexibonds series 4–7 and Bank of Maharashtra, Lokmangal, 1501, Shivajinagar, Pune – 411 005
           is the debenture trustee for Flexibonds series 3, 8, 9 and 10. IL&FS Trust Co. Ltd. is the debenture trustee
           for Flexibonds-11-18. Flexibonds 2 –18 are listed on the BSE and NSE.
     c.    IDBI has maintained Interest coverage ratio, NDSC ratio covenanted in the Trust Agreement in the past and
           as on the date of filing.
           The total amount of liabilities as on March 31, 2003 on account of redemption of Flexibonds over the next
           10 years will be as follows                                              (Rs Crore)
                                Years                                  Redemption Amount
                                FY   2003-04                                              1149
                                FY   2004-05                                              4032
                                FY   2005-06                                              3657
                                FY   2006-07                                              1415
                                FY   2007-08                                               404
                                FY   2008-09                                               146
                                FY   2009-10                                               357
                                FY   2010-11                                                12
                                FY   2011-12                                               109
                                FY   2002-03                                                89
     PRIVATE PLACEMENTS
     Details of private placements made during the last 3 years are furnished in the following table:        (Rs. Crore)
      Year of Issue Type of Issue                   Amount               Month of       Rating at the time of
                                                   mobilised            Allotment       Issue
      2000              OMNI 2000A                         660       October 2000       “CARE AAA” by CARE, “AAA”
      2001              OMNI 2001A                         720            July 2001     by CRISIL & “Ind AAA” by FITCH
      2001              FII/D                              100            July 2001
      2001              OMNI 2001 B                          48      October 2001       ‘IndAAA’ by FITCH & ‘AA+’ by
                                                                                           CRISIL
      2002              OMNI 2002 A                        212           June 2002      ‘AA+’ by CRISIL, ‘IndAA+’ by FITCH
                                                                                        & ‘LAA+’ by ICRA
      2002              OMNI 2002 B                          71   September 2002        ‘AA+’ by CRISIL, ‘AA+(ind)’ by FITCH
      2003              OMNI 2003 A                          68     February 2003       & ‘LAA’ by ICRA
      2003              OMNI 2003 B                           5        March 2003
      2003              OMNI 2003 C                        239            July 2003
     On annual review of rating CRISIL has revised the rating of all the outstanding borrowings and bonds from ‘AAA’
     assigned at the time of issue to ‘AA+’ in 2001. ICRA has revised the rating from ‘LAAA’ to ‘LAA+’ and further
     to ‘LAA’. FITCH has revised the rating from ‘IndAAA’ to ‘IndAA+’. CARE has revised the rating from ‘CARE AAA’
     to ‘CARE AA+’. The ratings in respect of Public Issue instruments of IDBI were carried out by CARE (promoted
     by IDBI) along with CRISIL, an independent Credit Rating Agency, prior to commencement of SEBI (Credit Rating
     Agencies) Regulation, 1999. CARE will monitor the rating till the securities rated by it are outstanding.




92
                                                                                IDBI FLEXIBONDS 19

Investor Grievances
The status report for the total number of grievances received and pending for redressal as on October 31, 2003,
is given in the following table:
 No.      Nature of complaint                                                                                  Pending
 1        Letters from SEBI                                                                                         0
 2        Letters from Stock Exchanges                                                                              0
 3        Non-receipt of Allotment Advice/ Bond Certificate/
          Share Certificate/ Duplicate Certificate                                                                  0
 4        Correction in Bond certificate/ other document                                                           81
 5        Change of address/ bank details etc.                                                                     63
 6        Non-receipt of Brokerage /incentive                                                                       5
 7        Non-receipt of Interest /dividend Warrants                                                                0
 8        Transfer related queries                                                                                  0
 9        Miscellaneous/ Other queries                                                                              1
          Total                                                                                                   150
As per IGG Cell of SEBI there were 32 complaints pending as on October 31, 2003. Out of these, 28
complaints have been pending for more than 30 days.
Investor grievance redressal system
To ensure that the Investor grievances are handled expeditiously and satisfactorily IDBI has put up an IGG cell under
the overall supervision of the Compliance Officer to handle all investor grievances. IDBI has appointed a Registrar
and Transfer Agent to effectively deal with Investor grievances. The agreement between IDBI and the Registrars to
the Issue provides for the retention of issue records with the Registrars for a period of at least twelve months from the
last date of dispatch of Letters of Allotment / Bond Certificates / Refund Orders to enable the investors to approach
the Registrars for redressal of their grievances.
Compliance Officer
K P Ramakrishnan
General Manager
Domestic Resources Department
22nd Floor, IDBI Tower, WTC Complex
Cuffe Parade, Mumbai - 400005
Tel : (022) 22189117, 22180479 Fax : (022) 22188137, 22181155
e-mail : kp.ramakrishnan@idbi.co.in
The investors can also contact the Registrars to the Issue Datamatics Financial Software & Services Ltd at their office
at Plot No. A 16 & 17, MIDC, Part B, Crosslane, Marol, Andheri (East), Mumbai - 400 093, Tel : (022) 2837 5519, Fax:
(022) 2835 0217, in case of queries/ grievances, if any, regarding this issue.
As far as possible, IDBI endeavors to resolve the investors’ grievances within 60 days of its receipt.
Registrar & Transfer Agent for the issue will be Investor Services of India Ltd, IDBI Building, Plot No. 39-41, Sector 11,
CBD Belapur, Navi Mumbai - 400 614, Tel : (022) 2757 9645, Fax : (022) 2757 9650.
Promises Vs Performance
The Offer Document in respect of the previous bond Issues of IDBI did not contain any statement on projected
financial or operational performance.




                                                                                                                             93
 IDBI FLEXIBONDS 19

                                                        RISK FACTORS
     Internal Factors
     (a) Redemption Reserve: Creation of Redemption Reserve is not envisaged for the proposed issue of Bonds.
           IDBI being a public financial institution has been raising resources both from domestic market and overseas
           market in the form of unsecured borrowings. In respect of the monies borrowed from overseas markets, IDBI
           has agreed to create pari passu charge if any other lender is offered security on the assets of IDBI. Since
           the resources raised by IDBI are being utilised for the purpose of its business i.e. providing credit and other
           facilities to the industry, the assets of IDBI are mostly in form of loans and advances. Hence it is proposed
           that the Bonds shall be unsecured in nature in that they shall not be secured against any asset of IDBI. IDBI
           has appointed a trustee to protect the interest of the investors. In the event of default, the bondholders may
           proceed against IDBI in terms of the mechanism given under para ‘Trustees to the bondholders’ on page
           27.
     (b)   Credit Risk: The business of lending carries the risk of default by borrowers.
           Any term lending activity is exposed to credit risk arising from the risk of default by the borrowers. IDBI has put
           up a systematic credit evaluation process in place. Necessary control measures like maintaining a diversified
           portfolio with industry-wise, promoter group-wise and specific client-wise exposure limits are set to avoid con-
           centration of lending to any specific industry segment/ promoter group/ company. These limits help minimise
           credit risk. With a view to derisk the portfolio the exposure limits have been reviewed and exposure by way of
           Project Finance assistance to greenfield projects have been reduced as a matter of deliberate strategy. A
           Credit Risk Monitoring Group (CRMG) has been set up at the Head Office to monitor the risk associated with
           lending to individual projects, business groups and industries. IDBI monitors the performance of its asset port-
           folio on a regular basis and also constantly evaluates the changes and developments in industries to which it
           has substantial exposure.
     (c)   Market Risk: Increased interest rate volatility exposes IDBI to market rate risk arising out of maturity/rate
           mismatches.
           Risk arising from interest rate volatility is inherent to the business of financial intermediation and term
           lending. This risk is minimised by linking the interest rates on term lending to a base rate (PLR / MTPLR
           etc), which varies in accordance with overall movement in market rates. Further, the rate applicable to each
           tranche of disbursement varies in accordance with the prevailing base rate. In case of lending pegged to
           floating rates, they are generally matched by floating rate liability (both rupee and foreign currency). IDBI
           manages market risks through active Asset Liability Management (ALM), viz. liquidity, interest rate and
           foreign exchange risk by way of Gap/Duration Analysis so as to optimize matching of the Assets and
           Liabilities. Active Asset Liability Management with efforts to match Duration of Assets and Liabilities as also
           availability of hedging mechanisms help moderate the market risk.
     (d)   Asset Liability mismatch : The maturity profile of assets and liabilities as on March 31, 2003 shows
           negative gaps in over 1 to 3 years bucket and Over 5 years bucket.
           As can be observed from the Table on Maturity profile of Assets and Liabilities given on page 72 there are
           negative gaps of Rs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years time
           bucket. However, the maturity buckets upto 1 year and over 3 years to 5 years have positive gaps of
           Rs.1303 crore and Rs.4801 crore. On cumulative basis, there is negative gap in only over 1 to 3 years
           time bucket amounting to Rs.337 crore. This situation has arisen because the balance sheet of IDBI is
           Assets sensitive and the assets are maturing faster than liabilities. The statement does not take into account
           the effect of relending of these repayments from clients and fresh borrowings in future. Any gap resulting
           in any of the maturity buckets at any future date will be managed dynamically through suitable structuring
           of maturity profile of investment products, asset portfolio and liability products.
     (e)   Credit Rating: The credit rating of outstanding bond issues of IDBI has been revised from “AAA” to “AA+”
           by CRISIL, from “LAAA to “LAA” by ICRA and from “Ind AAA” to “Ind AA+” by FITCH.
           The revision in ratings reflects the perception of the rating agencies. While CRISIL has reaffirmed its ratings
           assigned to Fixed Deposit program of IDBI at “FAAA” and assigned the highest rating “P1+” to the Term Money
           Bonds, Commercial Papers and Corporate Deposits of IDBI, it has revised its rating assigned to the outstand-
           ing bond issues and Certificate of Deposit program of IDBI from “AAA” to “AA+”. ICRA has assigned the highest
           rating “A1+” to Commercial Paper, Term Money Bonds, Inter Corporate Deposits and Certificate of Deposits of
           IDBI. The ratings for Fixed Deposit Programme has been reaffirmed at “MAA+”. ICRA has revised its rating
           from “LAAA” to “LAA” for bonds. FITCH has revised its rating from “IndAAA” to “IndAA+” for bonds and Fixed



94
                                                                              IDBI FLEXIBONDS 19


      Deposits program. While “AAA” denotes highest safety in terms of timely payment of interest and principal,
      “AA+” denotes high safety of timely payment of interest and principal. “LAA” indicates high safety. Risk Factors
      are modest and may vary slightly. The protective factors are strong and the prospect of timely payment of
      principal and interest as per terms under adverse circumstances, as may be visualized, differs from LAAA only
      marginally.
(f)   Contingent Liabilities: As on March 31, 2003, IDBI had contingent liabilities of about Rs.4494 crore on
      account of Guarantees, Letters of credit, Underwriting Commitments, uncalled monies on partly paid shares/
      debentures, claims against IDBI not acknowledged as debt and Disputed Tax claims. As on September 30,
      2003 the contingent liabilities aggregated to Rs.4141 crore.
      The contingent liabilities are solely on account of normal operations and are subject to the prudential norms
      applicable to lending and investment operations.
(g)   Pending Grievances
      As on October 31, 2003 there were 17 references pending pertaining to Flexibonds-6, 12 pertaining to
      Flexibonds–8, 15 pertaining to Flexibonds-9, 52 pertaining to Flexibonds-10, 7 pertaining to Flexibonds-11,
      20 pertaining to Flexibonds-12, 21 pertaining to Flexibonds-13, 5 pertaining to Flexibonds-14 and 1 pertaining
      to Equity shares. Further no complaint was pending for more than 60 days.
(h)   Tax Liabilities: As on October 31, 2003, the gross demand raised by the Income Tax Department on
      account of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision made is
      Rs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which IDBI has favourable
      decisions in its own case in the earlier years. Thus the amount of contingent liability on account of Tax in
      dispute is Rs.700.33 crore.
      Appeals have been filed on matters covered by the disputed amount.
      (Please refer to page 82 of this document).
(i)   Non Performing Assets (NPA) : The total NPAs of IDBI in amount terms has been increasing over the past
      5 years. Movement of Net NPAs over the past 5 years is detailed in the Table on page 82. Net NPAs (percent
      of total assets) has increased from Rs.6490 crore (12.05%) as on March 31, 1999 to Rs.7330 crore as on
      March 31, 2003 (14.20%).
      IDBI has initiated measures for NPA containment by setting up Close Monitoring Cells and Restructuring Com-
      mittees. IDBI actively monitors all assisted companies for timely recovery of dues. With respect to defaulting
      accounts, IDBI places emphasis on recovery, settlement and containment of NPAs. The Close Monitoring Cells
      constantly monitor performance of assisted companies to improve recovery and initiate pro-active remedial
      actions. Efforts of Close Monitoring Cells are reinforced by Empowered Committee and High Power Committee
      at Head Office. These committees assess and advise necessary restructuring and one-time settlement pro-
      cess. Wherever the long-term viability of assisted companies is in question, legal measures are initiated and
      securities are enforced. In cases where financial restructuring is under consideration, discussions are held with
      other term lenders as also with working capital bankers to have a co-ordinated approach to ensure quicker
      recovery. A Corporate Debt Restructuring (CDR) mechanism has been set up to facilitate this. Further, there
      has been substantial changes in the legislative and operating environment enabling FIs and banks to aggres-
      sively pursue recovery of overdues. Besides the Debt Recovery Tribunal (DRT) set up for faster settlement of
      recovery litigation, GOI has recently promulgated ‘The Securitisation and Reconstruction of Financial Assets
      and Enforcement of Security Interest (SRES) Act, 2002’, enabling FIs and banks to securitise and reconstruct
      the financial assets and enforce security of FIs and banks without pursuing the available legal route. As on May
      31, 2003 IDBI has issued notices to 49 defaulting borrowers with an outstanding assistance of Rs.1588 crore by
      invoking provisions under the said Act. Further in 33 cases IDBI has sought consent of other secured creditors
      for initiating action under the Act. After the SRES Act has come into effect IDBI has initiated action against
      chronic defaulters resulting in many defaulters willinglly coming forward for settlement of their dues. IDBI has
      been taking recourse to all available methods for recovery of overdues including reporting to RBI the name of
      wilful defaulters simultaneous with initiation of necessary steps for recovery. IDBI has also initiated aggressive
      One Time Settlement (OTS) measures to recover overdues. Aggregate of provisions / write offs as a percent-
      age of Gross NPAs stood at 54% as on March 31, 2003. To facilitate recovery of overdues and reconstruction of
      weaker assets, IDBI in participation with SBI, ICICI Bank and a few other institutions and Banks have set-up an
      Asset Reconstruction Company viz. Asset Reconstruction Company of India Ltd (ARCIL). With the changes in
      operating and legislative environment including formation of the ARC coupled with the NPA management mea-
      sures initiated the NPA levels are expected to be contained/ reduced.



                                                                                                                           95
 IDBI FLEXIBONDS 19


     (j)   Overdues : The overdues of Videocon Group Companies, in which Shri R.N. Dhoot (industrialist director in the
           Board of IDBI) was associated, as on September 30, 2003 amounted to Rs. 31.06 crore including principal
           instalment of Rs. 7.50 crore. As against these the group has submitted post-dated cheques of Rs. 22.05 crore
           and has requested for deferment of principal instalment of Rs. 7.50 crore.
     (k)   Asset concentration to few industries : The top 5 industries account for 48.17% of the total outstanding
           assistance as on March 31, 2003. Large exposures to specific industries will be impacted by global trends
           in these industries.
           IDBI’s loan portfolio is well diversified among industries. The major outstandings are to the iron and steel,
           power, cotton textiles, telecom services and petrochemicals, which together accounted for about 48% of the
           outstandings as at March 31, 2003. As a prudential measure, IDBI has recently revised the exposure limit to
           individual industry at 10% of its total portfolio or Rs.5000 crore whichever is lower. As on March 31, 2003 only
           two industries viz. Iron & Steel (18.31%) and Electricity Generation (12.58%) exceeded the limit. This excess
           has been largely due to historical factors wherein IDBI had been extending assistance to core sector projects in
           line with overall national objectives. IDBI particularly monitors both domestic and global trends and develop-
           ments in industries accounting for higher exposure within its portfolio and takes necessary actions and reme-
           dial measures to maintain its portfolio quality and reduce any possible adverse impact on its financials.
     (l)   Change In Balance Sheet size : IDBI’s total asset and liabilities have decreased from Rs.66,643 crore to
           Rs.63,116 crore during FY 2003.
           To improve the asset quality, IDBI has restricted new assistance and extends assistance only on very
           selective basis. On the liability side, IDBI has exercised call option on its high cost borrowings during the
           year. Change in the Balance Sheet size is a part of the deliberate strategy of IDBI to pursue quality asset
           growth and profitability in operations.
     (m)   Nature of Bonds : Bonds are in the nature of promissory notes transferable by endorsement and delivery.
           The bonds are valuable documents and should be kept safely. Duplicate bonds will be issued only in
           accordance with the procedure specified later in the Offer Document. The bonds are also offered in demat
           mode.
     (n)   Decrease in profit : The profit after tax of IDBI is Rs.401 crore for FY 2003 as against Rs.424 crore for
           FY 2002 and Rs.691 crore for FY 2001. IDBI’s profit after tax for the half year ended September 30, 2003
           stood at Rs.176 crore as against Rs.152 crore in the corresponding half year ended September 30, 2002.
           General economic slowdown in the recent past has led to lower industrial activity. During the last couple of
           years credit off-take has been low due to lower industrial growth in spite of fall in interest rates and other
           steps taken by the Government to boost the industrial performance. Foray of commercial banks into term
           lending has also resulted in increased competition to extend assistance to creditworthy clients at very
           competitive rates. Resultant lowering of interest income and overall squeezing of margin has impacted the
           profit after tax. However with the expected economic upturn the position is expected to improve. Further
           recovery out of written off cases will directly add to the profit of IDBI.
     (o)   Return on Assets : The return on average assets has declined from 10.4% in FY 2002 to 9.8% in FY 2003
           while the average cost of funds has also gone down from 9.2% to 8.5% over the same period .
           The major factor impacting the returns and costs is the sharp drop in interest rates during the last few years.
           This has resulted in prepayment of borrowing by high credit clients which in turn has, to some extent
           impacted credit composition of the portfolio. This coupled with NPAs adversely affected return on assets. On
           the cost front, impact of drop in incremental cost of rupee borrowing (12.08% in FY 2000 to 11.21% in FY
           2001, to 9.81% in FY 2002 and further down to 8.35% in FY 2003) and exercising of call option on high
           cost borrowings by IDBI has resulted in decline in cost of borrowing. The average cost of loan funds has
           reduced from 11.5% in FY 2002 to 10.5% in FY 2003. As may be observed from above, the decline in
           average cost of funds has been more than the decline in average return on assets. Further as mentioned
           on page 68 of this Offer Document under the auspicies of GOI, the liabilities of IDBI to Public Sector Banks,
           Institutions etc. has been restructured, which will bring down the average cost of funds of IDBI significantly.
     (p)   Quoted Investments : IDBI has in its portfolio quoted investments aggregating Rs.2730.22 crore as on
           March 31, 2003 which are booked at cost whose market value amounted to Rs.2152.54 crore. As on
           September 30, 2003 its portfolio quoted investments aggregating Rs.5993.78 crore, which are booked at
           cost whose market value amounted to Rs.6392.20 crore.
           As on March 31, 2003, IDBI had debentures of Rs.4389.16 crore in its portfolio. All the debentures are
           secured by hypothecation/mortgage of fixed assets. However, in case of debentures amounting to Rs.795
           crore, the final security by way of mortgage was yet to be created as on March 31, 2003.




96
                                                                               IDBI FLEXIBONDS 19


      IDBI’s investment portfolio is predominantly of long term and strategic nature. Temporary diminution in value
      of securities arises on account of price volatility due to factors and forces affecting the stock market, interest
      rates, etc. IDBI has been classifying its investment portfolio and making appropriate provision for diminution
      in value as per RBI guidelines issued from time to time in this regard. The investments are classified under
      the following categories (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading. These investments
      were valued according to the prevailing valuation norms.
(q)   Foreign Exchange Risk : IDBI may be exposed to foreign exchange risk on account of changes in foreign
      exchange rates.
      IDBI maintains a currency-wise matching of assets and liabilities. IDBI makes foreign currency loans on
      terms that are similar to its foreign currency borrowings thereby transferring the foreign exchange risk to the
      borrower. In case of certain foreign currency borrowings that are re-lent in rupees, the Govt. of India bears
      the foreign exchange risk on these borrowings pursuant to certain agreements between IDBI and GOI. IDBI’s
      foreign currency cash balances are generally maintained abroad in currencies matching with the underlying
      borrowings. IDBI also operates a USD denominated single currency pool (SCP) and interest rate risks under
      the SCPs are hedged through basic SWAPs. IDBI is therefore not exposed to any significant risk on account
      of foreign exchange fluctuations.
External Factors
(a) Changes in Government policies may impact the performance of the industrial sector, which may in
     turn affect IDBI
     Indian industry has demonstrated remarkable resilience in adjusting to the changed environment and
     competition in the wake of the economic reforms initiated by the Government. Further, IDBI’s diversified
     portfolio provides a sufficient cushion against any downtrend in a particular industry or sector.
(b) Risk of Competition : Competition in the financial sector has increased and is likely to increase further with
     the entry of commercial banks and other new players in term lending. IDBI faces competition both in
     corporate lending and in raising resources.
     While focusing attention on its core business of project financing and infrastructure financing in particular,
     IDBI has taken steps to diversify its operations in various other areas like working capital financing, merchant
     banking, corporate advisory services, forex services, venture capital, non-fund based activities etc. IDBI,
     through its subsidiary/ associate companies also addresses the needs of its clients for commercial banking
     requirements, depository services, capital market related services, mutual fund products, information technology
     services etc.
     On the resource-raising front, avenues like Mutual Funds,Charitable and Religious Trusts, Private insurance
     companies, Pension Funds, etc. hold good potential. IDBI has over the years strengthened its reach to retail
     segment through its public issues of retail bonds and Fixed Deposits marketed through its 35 branch offices,
     large agent network, broking outfits and debt market intermediaries.
(c) Development of the capital markets may lead to disintermediation by borrowers.
     With the development and maturing of the capital markets, there has been a distinct shift in the pattern of
     industrial financing. However, it will be noteworthy that while a part of the financial requirement of the
     industrial projects may be met by direct borrowing from the investors, a major portion will still need to be
     serviced by financial intermediaries. Consequent to the opening up of the economy, large projects in
     infrastructure, power, petroleum, telecom, etc. with huge financial outlays are being set up. Their large fund
     requirements are unlikely to be met by private investments alone. Accordingly, the requirement of funds both
     from lending institutions/banks and the capital market is likely to increase substantially. Also, the
     disintermediation brings with it the opportunity for IDBI to expand its fee based activities.
General Risks
     Investors are advised to read the risk factors carefully before taking an investment decision in this offering.
     For taking an investment decision, the investor must rely on his/her own examination of the issuer and the
     issue including the risks involved. The Bonds have not been recommended or approved by SEBI nor does
     SEBI guarantee the accuracy or adequacy of this document.
Notes
1.   Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond (2004 A) will be made
     on a full and firm allotment basis, upto the issue size Rs.300 crore plus the amount of over subscription
     retained by IDBI. Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 A) will have priority over
     subscribers to other bonds for allotment. Therefore, only after all eligible applicants for IDBI Infrastructure
     (Tax Saving) Bond (2004 A) have been allotted, applications for other bonds will be considered for allotment
     on proportionate basis.




                                                                                                                           97
 IDBI FLEXIBONDS 19

     2.    IDBI would like to clarify that inspection by RBI is a regular exercise and is carried out periodically by RBI
           for all Banks and Financial Institutions. IDBI is in dialogue with RBI in respect of observation made by RBI
           in their report for previous year. The reports of RBI are strictly confidential. RBI does not allow disclosure
           of its inspection report and that all the disclosures in the Offer Document are on the basis of Management
           and Audit Reports of the Issuer.
     3.    The Networth of IDBI as on March 31, 2003 was Rs.6945 crore. The present issue size is Rs.300 crore with
           an option to retain oversubscription upto Rs.300 crore.
     4.    The Book Value per share of IDBI as on March 31, 2003 was Rs.106.4. Cost per share to the promoter of
           IDBI i.e. GOI is Rs.10 (i.e. at par).
     5.    Shri R. N. Dhoot, a director on the board of IDBI, nominated by the Government of India, was on the board
           of some of the Videocon group companies during the last 5 years. SEBI had taken action against one of
           the Videocon group companies viz. Videocon International Ltd. and 3 of its officials. On an appeal filed by
           Videocon International Ltd, the SAT vide its order dated June 20, 2002 has set aside SEBI’s order directing
           Videocon International Ltd. in so far as not to raise money from the public in the capital market for a period
           of 3 years. SEBI has filed an appeal against the said SAT order in the Hon’ble High Court of Mumbai and
           the appeal is pending. Shri R.N. Dhoot is, however, not a Director on the Board of Videocon International
           Ltd., nor does he figure in the list of 3 officials mentioned above.
     6.    As on March 31, 2003, loan outstanding to companies with which industrialist director presently on the Board
           of IDBI was associated in the past, amounted to Rs. 908.64 crore, comprising of loans to (i) 8 companies
           engaged in the electronics and electronics appliances industry (Rs.567.44 crore), and (ii) a company in
           petroleum industry (Rs.341.20 crore). These loans constituted 1.76% of the total loan outstanding and
           13.08% of IDBI’s Net Worth as on March 31, 2003. There was no default in respect of loans given by IDBI
           to such companies as on the said date.
     7.    The bonds may have various features/options. Such features need specific attention of the investor. For
           better understanding of such common features, investors are requested to refer to the discussion on ‘Glossary
           of common terms used in Bond structures’ on page 132 of this Offer Document.
     8.   Summary of transactions of IDBI with its subsidiaries for three years ended                      (Rs. crore)

                                                              March 31, 2001      March 31, 2002     March 31, 2003

           Interest income                                              145.42                5.81               2.91
           Dividend, fees, commission and other revenue                  93.09               51.51             152.00
           Interest expense                                               5.86                2.57               0.17
           Administrative and other expenses                               1.75               8.37               7.73
           Outstanding Balances
           Loans                                                        809.76                1.20              58.00
           Investments                                                  648.10             388.10              296.60
           Current assets                                                 0.27               19.47             105.73
           Long term debt                                               112.58              50.00                4.61
           Current Liabilities                                            2.20                7.67               8.63
     9.   The financial information as contained in the Auditor’s Report, including the notes to accounts, significant
          accounting policies as well as Auditor’s qualifications have been duly certified by the Auditors of IDBI. As
          far as possible, the Audited numbers have been used for computation of or arriving at the other financial
          information contained in the Offer Document. However, such other financial information contained in the
          Offer Document except as contained in the Auditor’s Report has been certified by the management of IDBI.




98
                                                                              IDBI FLEXIBONDS 19


AUDITOR’S REPORT
The Board of Directors,
Industrial Development Bank Of India,
IDBI Tower, World Trade Complex,
Cuffe Parade, Mumbai 400 005.
Dear Sirs,
We have examined the accounts of Industrial Development Bank of India (IDBI) for the 4 financial years ended
31st March 2002. These accounts have been audited by other firms of chartered accountants and for the purpose
of preparing this report, we have relied on their audit reports. We have also examined the accounts for the year
ended 31st March, 2003 as well as the accounts for the six months ended 30th September, 2003. We report as
follows,
1.    The profits of IDBI for the 5 financial years ended 31st March 2003 and for the half-year ended September
      30, 2003 and Assets and Liabilities as at that date are extracted from the aforesaid accounts which were
      drawn-up in accordance with Regulation 14 of the Industrial Development Bank of India Regulations, 1994.
2.    The profits read together with the notes appearing hereunder and the Significant Accounting Policies as also
      the notes appearing under the head “Adjustments resulting from audit qualifications, material amounts
      relating to adjustments for previous years and changes in accounting policies”, have been arrived at after
      charging all expenses and after making such adjustments and regroupings as are, in our opinion, considered
      appropriate and are set out as follows.
3.     There is no significant deviation from accounting standards applicable to listed companies. There are no
      material notes/qualification in the Auditors’ Report which has a significant impact on the financials or bearing
      on the financial status of the company. Attention is invited to Note 3 to the Profit and Loss A/c. in this report
      regarding reimbursement from Government of India on account of interest differential.
      We have also examined the attached consolidated Balance Sheet of IDBI and its subsidiaries as at March
      31, 2003 and the consolidated Profit and Loss A/c. for the year then ended and report that the said financial
      statements have been prepared by IDBI in accordance with the requirements of Accounting Standard (AS)
      21, Consolidated Financial Statements, (AS) 23 Accounting for Investments in Associates in Consolidated
      Financial Statements and (AS) 27 Financial reporting of Interests in Joint Ventures, issued by the Institute
      of Chartered Accountants of India, except to the extent that (a) Statement of calculation of minority interest
      and, (b) Consolidated Cash flow Statement, have not been furnished.
 I.   PROFITS                                                                                       ( Rs.crore)
 Year ended March 31                      1999        2000          2001         2002         2003      April -Sept.
                                                                                                               2003
 INCOME
 From operations (After writing off bad debts and/or making provisions for Bad & Doubtful Debts and other
 necessary and expedient provisions)
 A) Interest & Discount                6359        6225        6191        5862     5219            2103
 B) Income from investments             694         818         757         761       516            337
 C) Commission & Brokerage, etc.        176         194         188         130        73              28
 D) Net Profit on Sale
     of Investments                      62         382         535         278       419            291
 E) Other Income                        173         240         164         145       144              46
     TOTAL INCOME                      7464        7859        7835        7176     6371            2805
 EXPENDITURE
 A) Interest paid on deposits,
     borrowings, etc. (see Note 3)     5725        6370        6595        6250     5434            2381
 B) Accelerated write-off of bad and     ––          – –          ––       2500         ––             ---
     doubtful debts
 Less : Withdrawn from special reserve –  –           ––          ––     (2500)         ––             ---
    u/s36(1)(viii) of IT Act, 1961
 C) Establishment expenses               76          74          84         117        95              54
 D) Depreciation                        200         213         230         223       199              89
 E) Other Expenditure                   162         175         192         171       188              84
     GROSS EXPENDITURE                 6163        6832        7101        6761     5916            2608
     PROFIT BEFORE TAXATION            1301        1027         734         415       455            197



                                                                                                                          99
 IDBI FLEXIBONDS 19


                                                                                                        (Rs.crore)
          Year ended March 31                      1999           2000          2001          2002      2003 Apr-Sept
                                                                                                                 2003
          PROFIT BEFORE TAXATION                   1301           1027          734           415           455        197
          Less : Provision for Taxation            (75)           (80)          (43)          (10)          (92)       (39)
          Add : Deferred Tax Income                  ––             ––            ––           19            38         18
          PROFIT AFTER TAXATION                    1226            947           691           424          401        176
          Excess Income tax/Interest
          tax provision of earlier years
          written back                               33             —             —             —              -          -
          BALANCE OF PROFIT                        1259            947           691          424           401        176
          Balance of profit b/f
          from last year                            239           289           201            62           316        476
          Profit available for
          appropriation                            1498           1236           892           486          717        652
          Transfers to :
          Reserve Fund                              400           400           300             —            —           --
          Investment Equalisation Reserve            50           125            —             ––            —           --
          Investment Fluctuation Reserve             —             ––            ––            25            25          --
          Special Reserve u/s 36(1)
          (viii) of I.T. Act, 1961                  190           142           120            30            75          --
          Venture Capital Fund                       30            30            50             —            —           --
          IDBI EXIM(J) Special Fund                  —              —             —             —            —           --
          Staff Welfare Fund                          2             2             5             5            —           --
          Contingency Reserve                       200             —             —             —            —           --
          Capital Reserve                            —              —             —            12            31          --
          Proposed dividend on
          Redeemable Preference Shares               —              —            25             —            —           --
          Proposed dividend on
          equity shares                             303            303          294             98           98          --
          Tax on Dividend                            34             33           36             —            12          --
          Surplus                                   289           201            62           316           476        652
          TOTAL                                    1498           1236          892           486           717        652

      The above figures have been rounded off to the nearest crore. Wherever the actual figure is less than Rs 50 lakhs,
      they have been reflected as 0.
      Adjustments resulting from audit qualifications, material amounts relating to adjustments for previous
      years and changes in accounting policies                                                    (Rs.crore)
       Year ended March 31                  1999          2000           2001          2002          2003          Apr-Sept
                                                                                                                       2003
       Profit after tax and after extra -
       Ordinary items                       1259           947            691           424           401              176
       Prior period items                      4            (3)           (3)          (13)            —                (7)
       Diminution in value of investments     —             —             68             —             —                 —
       Adjusted Profit after tax            1263           944           756            411          401               169

      The above figures have been rounded off to the nearest crore.



100
                                                                                IDBI FLEXIBONDS 19


Notes to Adjustments
1.   We have taken the view that adjustments to profits in respect of the following:
     a)    material amounts relating to previous years although events triggering off the profit/loss occured in a
           subsequent year.
     b)    extraordinary items
     c)    changes in accounting policies, and
     d)    prior period items,
           are required to be done as per the SEBI guidelines in respect of only those items which are disclosed
           in the audited financial statements of the five financial years.
2.   Prior Period Items : These represent the net difference between prior period incomes and prior period
     expenses charged to the Profit and Loss account of the relevant years.
3.   Diminution in value of Investments : From the year 2000 – 2001 net appreciation / depreciation in
     investments is credited / charged to the Profit and Loss account as against the earlier policy of charging /
     adjusting the permanent diminution if any in the value of shares, bonds and debentures to the Investment
     Equalization Reserve.


Notes to the Profit and Loss Account for the half year ended September 30, 2003.
1.   Other expenditure for the half year ended September 30, 2003 includes                             (Rs. Crore)
     Management fees, commitment charges etc. on FC Borrowings                                                3.12
     Unsecured Bond Issue Expenses written off                                                              35.69
     Repairs & Maintenance & Telephone expenses                                                               4.65
     Guarantee Fees on Bonds & FC lines of credit                                                             6.73
     Prior period expenditure/ (Income) - Net                                                               (4.79)
     Miscellaneous expenditure                                                                                4.57
     Brokerage/Incentives on Bonds and Deposits                                                               4.98
     Others                                                                                                 12.58
     Total                                                                                                  67.53

2.   Other Income for the half year ended September 30, 2003 includes :                                 (Rs.crore)
     Interest on Bank deposits                                                                                5.95
     Fees for Financial Services                                                                              9.24
     Profit (net) on Dealing room activities                                                                  1.15
     Prior period income                                                                                      2.01
     Management Fees for assistance under DPG/Guarantee                                                          --
     Miscellaneous Receipts                                                                                   3.07
     Rupee Interest Rate Swap (Hedge) - Gain/(Loss)                                                          13.07
     Others                                                                                                  11.67
     Total                                                                                                   46.16

3.   GOI reimburses the amount representing difference between the document rate of interest and 8% p.a. on IDBI’s
     liabilities towards select Banks/Institutions. The interest expenditure debited to Profit and Loss A/c.is after taking
     into account such credit of Rs.341 crore for the half year ended September 30, 2003 on paid/accrued basis.




                                                                                                                              101
 IDBI FLEXIBONDS 19

      II.     ASSETS AND LIABILITIES
      The assets and liabilities as at September 30, 2003 read together with the notes appearing hereunder and the
      significant accounting policies adopted, are as set out below:
                                                                                                       (Rs.crore)
       Assets as at September 30, 2003                                                   Amount         Amount
       Cash and Bank Balances
       a]     Cash in hand and balances with RBI                                              16
       b]     Balances with other Banks in India
              a)    On current account                                                       151
              b)    On deposit account                                                        57
       c]     Balances with other Banks outside India
              a)    On current account                                                        66
              b)    On deposit account                                                       961           1251
       Investments (See Note No. 4)
       a)     Securities of Central and State Govt.                                         4271
       b)     In stocks, shares, bonds and debentures of financial institutions             4279
       c)     In stocks, shares, bonds and debentures of industrial concerns                6216          14766
       Loans and advances
       a]     To Scheduled Banks, State Co-operative Banks and other                        1569
              Financial Institutions
       b]     To industrial concerns                                                       41404          42973
              Bills of Exchange and Promissory Notes Discounted or Rediscounted                             467
              Premises (at cost less depreciation) (See Note Nos. 5)                                        296
              Other Fixed Assets (at cost less depreciation) (See Note No. 6)                                860
              Other Assets (See Note No.7)                                                                 4207
              TOTAL ASSETS                                                                                64820
              LIABILITIES
              Bonds and Debentures (See Note No. 2)                                                       43834
              Deposits                                                                                     4094
              Borrowings
       i]     From RBI
              a]    Secured against stocks, funds and other trustee securities                  –              -
              b]    Secured against Bills of exchange or promissory notes                       –              -
              c]    Out of the National Industrial Credit (LTO) Fund                            –              -
       ii]    From Govt. of India
              a]    Interest free loan                                                          –              -
              b]    Against IDA Line of Credit/World Bank Loan                                  5
              c]    Other Loans                                                                 3
       iii]   From other sources                                                             603
       iv]    In Foreign Currency                                                           4589           5200
              Current liabilities & provisions (See Note No. 3)                                            4537
              TOTAL                                                                                       57665




102
                                                                            IDBI FLEXIBONDS 19

                                                                                                              (Rs.crore)
September 30, 2003                                                                       Amount               Amount
NET ASSETS                                                                                                           7155
Represented by
Share Capital
Issued, subscribed and paid-up:
65,28,30,400 Equity shares of Rs. 10 each, fully paid up                                    653
Less: Allotment money in arrears                                                                   0                 653
Reserves Funds and Surplus (see note 1)
i)     Reserve fund                                                                        3808
ii)    Other funds
       a]   Staff Welfare Fund                                                                32
       b]   Venture Capital Fund                                                             179
       c]   Exchange Risk Administration Fund                                                      0
       d]   IDBI EXIM(j) Fund                                                                      2
iii)   Reserves
       a]   Investment Fluctuation Reserve                                                    50
       b]   Foreign Currency Fluctuation Reserve                                                   0
       c]   Premium on bond issue                                                                  0
       d]   Special Reserve under Section 36(1)(viii) of the Income Tax Act, 1961            111
       e]   Share Premium Account                                                          1624
       f]    Capital Reserve                                                                  44
iv)    Surplus                                                                               652                     6502
       TOTAL                                                                                                         7155
The above figures have been rounded off to the nearest crore.
Notes to the Balance Sheet as at September 30, 2003
1.     Reserves, Funds and Surplus                                                                     (Rs. crore)
 Particulars                                  Balance as at        Additions/       Deductions/         Balance as at
                                                   1.4.2003         Transfers         Transfers             30.9.2003
                                                                   during the        during the
                                                                       period            period
 Reserve Fund                                       3808.04                 ––               ––                3808.04
 Venture Capital Fund                                 178.99                ––               ––                 178.99
 Staff Welfare Fund                                    31.33              1.54             0.51                  32.36
 IDBI-EXIM(J) Special Fund                                 1.69             ---              ––                      1.69
 Share Premium Account                              1624.46                 ––               ––                1624.46
 Special Reserve under Section 36(1) (viii)
   of the Income Tax Act, 1961                        111.35                ---              ––                 111.35
 Investment Fluctuation Reserve                        50.00                ---              ––                  50.00
 Capital Reserve                                       43.43                ––               ---                 43.43
 Profit & Loss (Surplus) Account                      475.97           176.47                ---                652.44
 Total                                              6325.26            178.01              0.51                6502.76




                                                                                                                            103
 IDBI FLEXIBONDS 19

      2.   Bonds and Debentures                                                                          (Rs.crore)
                                                                                          As on September 30, 2003
           (i)     Issued in rupees
                   (a) Bonds and Debentures guaranteed by the GOI                                             5544.79
                   (b) Discount/ Zero coupon bonds                                                              566.33
                        less: discount not w/off                                                              (137.24)
                                                                                                             ————
                                                                                                            ————-
                                                                                                              5973.88
                   (c)     Other bonds and debentures                                                        36713.44
                                                                                                             ————
                                                                                                            ————-
                                                                                                             42687.32
           (ii)     Issued in foreign currency
                   US dollar denominated FRN’s                                                                1146.62
                   less : discount paid in advance on FRN issue                                                 (0.34)
                                                                                                             ————
                                                                                                            ————-
                                                                                                              1146.28
                   Total                                                                                     43833.60
      3.   Current Liabilities & Provisions include                                                          (Rs.crore)
                                                                                          As on September 30, 2003
           Prudential provisions against standard assets                                                        123.51
           Provision for Taxation                                                                               233.04
           Provision for Deferred Taxation                                                                      217.50
           Receipts from borrowers pending appropriation                                                         68.78
           Receipts from borrowers in advance                                                                   349.28
           Income received in advance on Bills etc.                                                              70.33
           Interest/ premium payable on Bonds and Deposits                                                      413.03
           Application money received on bonds                                                                   31.95
           Provision for outstanding liabilities (including
           Interest accrued but not due)                                                                       1878.86
           Others                                                                                              1150.94
           Total                                                                                               4537.22

      4.   Investments                                                                    (Rs.crore)
                                                                                        Book Value       Market Value
           a)      Quoted                                                                  5993.78            6392.20
           b)      Unquoted
           i)      In Financial Institutions / Technical consultancy organizations *        2624.45
           ii)     In Industrial Concerns                                                   6147.71
           The above investments at (a) and (b) have been classified as under as required by RBI guidelines:
           Held To Maturity Rs.7526.91 crore
           Available For Sale Rs. 6367.80 crore
           Held For Trading Rs. 871.23 crore
           * Includes investments in units of MFs, the book value of which was Rs.2002.96 crore and the NAV / Assured
           redemption value stood at Rs.2066.36 crores.
      5.   Premises include Leasehold Land of Rs.135.03 crore and Capital work-in-progress of Rs.5.69 crore. Work-
           in-progress of Rs. 4.22 crore is in respect of a residential building which is under construction on land sub-
           leased to the bank. The sub-lease has not yet been ordered for registration in favour of the bank and
           disputes having arisen, the matter is sub-judice.
      6.   The Other Fixed Assets include Assets given on lease amounting to Rs.824.39 crore at cost less depreciation
           and after adding the debit balance in Lease adjustment account Rs. 200.25 crore.



104
                                                                             IDBI FLEXIBONDS 19


7.    Other Assets include                                                                               (Rs.crore)
                                                                                      As on September 30, 2003
      Amount recoverable form associate institutions                                                           2.51
      Accrued Income                                                                                       1252.69
      Deposits towards lease rentals for premises                                                            33.71
      Pre-paid taxes including TDS paid                                                                    1345.93
      Advances & Housing Loan to staff                                                                       91.17


      Loans disbursed on behalf of other institutions                                                        40.84
      Exchange Fluctuation recoverable under ERAS                                                            19.53
      Minimum guaranteed Dividend receivable on shares of SFCs (up to 31.03.1995)                            43.02
      Application money in respect of Shares/Debentures of Jt.St. Cos./FIs                                   81.27
      Advance towards leased assets                                                                          69.46
      Unsecured Bond issue exp. not written off                                                             133.54
      Others                                                                                               1093.56
                                                                                                           4207.23
8.    Foreign currency balances have been translated at the FEDAI rates prevailing as on September 30, 2003.

9.    Contingent Liabilities:                                                                            (Rs.crore)
      i)     Claims against the Bank not acknowledged as debts                                              397.95
      ii)    On account of Guarantees/Letters of Credit issued*                                            3040.99
      iii)   On account of underwriting commitment                                                                0
      iv)    On account of uncalled monies on partly paid shares, debentures etc.                                 0
      v)     On account of disputed income tax, interest tax, penalty and interest
             demands                                                                                      **700.33
      vi)    Monies for which the Bank is contingently liable                                                  1.31
      * includes guarantees/letters of credit in foreign currency converted at FEDAI rates prevailing as on September
      30, 2003.
      ** The gross demand raised by the Income Tax Department on account of Income Tax, Wealth Tax, Interest
      Tax, Penalty and Interest demands is Rs.5029.25 crore against which the provision made is Rs.2866.70
      crore. The demands include Rs.1462.22 crore in respect of which IDBI has favourable appellate decisions
      in its own cases in the earlier years.
10.   Estimated amount of contracts remaining to be executed on capital account not provided for (net of advance
      paid) is Rs.0.45 crore.
11.   Provision for taxation for the year ended September 30, 2003 has been made after considering
      a)     Deduction under Sec.36(1)(viii) of Income Tax Act, 1961, in respect of which transfer to Special Reserve
             would be made at the end of accounting year and
      b)     Amount provided towards sub-standard, doubtful assets and loss assets indicated at note No.E on
             Significant Accounting Policies below.
12.   Interest and discount etc. includes Rs.125.91crore of Lease Rental Income (net of lease equilisation)
13.   Current Liabilities and Provisions include a sum of Rs. 123.51 crore for provision against standard assets.
14.   The figures of the Previous year/period have been regrouped whereever required.




                                                                                                                        105
 IDBI FLEXIBONDS 19

      Significant Accounting Policies
      A.   Income Recognition
           1.   Income is shown in the Profit & Loss Account net of provisions/ write off / write back during the year
                for bad and doubtful debts and also other necessary and expedient provisions.
           2.   Interest income, lease rentals and other dues are reckoned as accrued, in accordance with the directives
                issued by RBI from time to time regarding income recognition.
           3.   Underwriting/guarantee commissions are reckoned on accrual basis.
           4.   Front-end fees, loan syndication charges, appraisal fees, fees for merchant banking, debenture
                trusteeship and other financial services are accounted on cash basis.
           5.   Discount received in respect of Bills discounted/rediscounted, Commercial paper and Certificate of
                Deposits is apportioned over the period of usance of the instruments.
           6.   The amount of Lease Equalisation representing the difference between the annual lease charge and the
                depreciation provided on leased assets in the books is adjusted in the Profit & Loss a/c with
                corresponding adjustment to the value of leased assets through a separate lease adjustment account.
           7.   The minimum dividend guaranteed by State Governments on shares held in the State Financial
                Corporations under section 6 of the State Financial Corporations Act, 1951 is recognised on realisation
                basis.
           8.   Final dividend on shares held in Industrial Concerns and Financial Institutions is recognised as income
                on dates of declaration and interim dividend is recognised as income when received.
      B.   Investments
           1.   In terms of extant Guidelines of the Reserve Bank of India, the entire investment portfolio is categorised
                as “Held to Maturity” “Available for sale” and “Held for trading”. The investments under each category
                are further classified as i) Government securities ii) other approved securities iii) Shares iv) Debentures
                & Bonds v) Subsidiaries / joint ventures vi) Others (CP, Mutual Fund Units, etc).
           2.   The debentures/bonds/equity and preference shares deemed to be in the nature of advance, are subject
                to the usual prudential norms.
           3.   Investments acquired with the intention to hold till maturity are categorised under Held to Maturity. Such
                investments are carried at acquisition cost unless it is more than the face value, in which case the
                premium is amoritised over the period remaining to maturity. Diminution, other than temporary, in the
                value of investments in subsidiaries / joint ventures under this category is provided for each investment
                individually. Profit on sale of investments in this category are appropriated to the capital reserve account
                at the end of financial year.
           4.   Investments acquired with the intention to trade by taking advantage of the short-term price/ interest rate
                movements are categorised under Held for Trading. The investments in this category are revalued as
                a whole and net appreciation/ depreciation is recognised in the profit & loss account, with corresponding
                change in the book value of the individual scrips.
           5.   Investments which do not fall within the above two categories, are categorised under Available for Sale.
                The individual scrips under this category are revalued at yearly intervals and net depreciation under any
                of the six classifications mentioned above, is recognised in the profit & loss account. Net appreciation
                under any classification is ignored. The book value of individual scrips is not changed.
           6.   The basis for periodical valuation of investments categorised as Held for Trading and Available for Sale
                are as follows:
                 •    Treasury bills are valued at carrying cost;
                •     In respect of traded /quoted investments, the market price is taken as available from the trades
                      / quotes on the stock exchanges, price of SGL Account transactions, price list of RBI and prices
                      declared by PDAI / FIMMDA periodically; and
                •     The unquoted shares / units are valued at break-up value / repurchase price & Net Asset Value.
                      The unquoted fixed income securities are valued on YTM basis with appropriate mark-up over the
                      YTM rates for Central Government securities of equivalent maturity.
           7.   Investments are shown net of provisions.



106
                                                                                IDBI FLEXIBONDS 19


     8.    Profit/Loss on sale of investments are booked on accrual basis.
C.   Fixed Assets and depreciation
     1.   Fixed Assets are shown at cost less depreciation.
     2.    Depreciation on assets acquired during the course of leasing business is provided on straight-line
           method pro-rata from the month in which lease rentals commence over the primary period of lease.
     3.    (a)    Depreciation is provided on :
                 i)    Motor vehicles on Straight Line Method.
                 ii)   Other Fixed Assets on Written Down Value Method.
           (b)    No depreciation is provided on assets sold/or discarded during the year.
     4.    Leasehold land is amortised over the period of lease.
D.   Foreign Currency Transactions
     1. Income and Expenditure is accounted at the actual exchange rates of remittance. Amounts pending
         remittance are accounted at the closing FEDAI rates. Foreign Currency assets and liabilities are translated
         at closing FEDAI rates.
     2.   Forward Exchange Contracts and the net-income/expenditure thereon are accounted for on the settlement
          date.
E.   Provisions For Assets
     As per RBI Guidelines, loan assets and other assistance portfolios (including debentures in the nature of
     advances) are to be classified as Standard, Sub-standard, Doubtful and Loss subject to provision / write
     off on an annual basis, as under:
     1.    Standard Assets                                   0.25% of loan/assistance
     2.    Sub-Standard assets                               10% of loan/assistance.
     3.    Doubtful assets                                   100 % of unsecured portion plus 20% /30% /50%
                                                             of secured portion depending on the period for
                                                             which the loan/assistance have remained doubtful
     4.    Loss Assets                                       The entire assistance is to be provided/written off.
           On the above basis and keeping in view the record of recovery and other relevant factors the
           requirements of provisions/write-off are being determined.
           Loan Assets are shown net of provision/write-offs for sub-standard/doubtful/loss assets.
F.   Retirement Benefits
     The Gratuity, Leave encashment and Pension Liability determined based on actuarial valuation at the year-
     end, is fully provided for.
G.   Interest Expenditure on Borrowings
     The Interest Expenditure on Borrowings is accounted for on accrual basis.
H.   Expenditure / Discount On Bond Issues
     The expenses relating to issue of bonds and discount, if any, on the issue are amortized equitably over the
     tenure of the bonds/over the period upto which the earliest redemption expires.
I.   Securitisation Transation:
     Financial assets securitised are derecognised in the books and the gains/loss on securitisation are recognised
     in the year of securitisation. Expenditure incurred for securitisation are charged off in the year of securitisation.
J    Accounting Standards
     Mandatory Accounting Standards as applicable to the Bank in accordance with RBI Guidelines issued from
     time to time are followed.




                                                                                                                             107
 IDBI FLEXIBONDS 19

      IV.   SIGNIFICANT CHANGES IN ACCOUNTING POLICIES BETWEEN 1st April 1997 AND
            March 31, 2003
            1.   Foreign Exchange Fluctuation:
                 Gains / losses on account of the differences in the exchange rates applied for such transactions upto
                 March 31, 1997 were reflected in the Foreign Currency Exchange Fluctuation Account. It has been
                 decided to account such gains/losses from April 1, 1997 to the Profit & Loss A/c.
            2.   The balance in investment equalisation reserve was being maintained to cover the permanent
                 deminution, if any, in the value of shares, bonds and debentures. It has been decided from the year
                 2000-01 onwards that net appreciation/depreciation in investment be credited/charged to profit & loss
                 account.
            3.   Investments : Change in categorisation / method of valuation
                 Up to 31st March 2000                                    From the year 2000 – 2001
            1.   Categorisation                                           1.    Categorisation
                 a.   Government Securities                                     a. Held to Maturity
                 b.   Treasury Bills                                            b. Available for Sale
                 c.   Shares Debentures and Bonds                               c. Held for Trading
                 d.   Commercial Paper                                    Investments under each of the above
                                                                          category are further classified as :
                 e.    Certificate of Deposit                                  a. Government securities
                 f.    Units of Mutual Funds                                    b. Other approved securities
                 g.    Subscription to Venture Capital Funds                    c. Shares
                                                                                d. Debentures and Bonds
                                                                                e. Subsidiaries / Joint ventures
                                                                                f. Other (CP, Mutual Fund Units,
                                                                                   etc.)
            2.   Valuation                                                2.    Valuation
                 a.    Government Securities                                    a. Held to Maturity
                       Permanent investments at cost. Current                      At cost of acquisition unless the
                       investments at lower of cost or Market value                same is more than the face value,
                       or at YTM advised by RBI                                    in which case the premium
                 b.    Treasury Bills                                              is amortised over the period
                       At carrying cost                                            remaining to maturity. Permanent
                 c.    Shares, Debentures and Bonds                                diminution in the value of
                       At cost, after adjusting for diminution                     investments in subsidiaries / joint
                       as per RBI norms                                            ventures is provided for each
                 d.    Commercial Paper                                            investment individually.
                       At face value                                            b. Available for Sale
                 e.    Certificate of Deposit                                      Individual scripts under this
                       At face value                                               category are revalued and net
                 f.    Units of Mutual Funds                                       depreciation under each of the six
                       At cost                                                     classifications mentioned above is
                 g.    Subscription to Venture Capital Funds                       recognised in the Profit and Loss
                       At cost                                                     account, net appreciation under
                                                                                   any classification is ignored and
                                                                                   the book value of individual
                                                                                   scripts is not changed.
                                                                                c. Held for Trading
                                                                                   Investments under this category
                                                                                   are revalued as a whole and net
                                                                                   appreciation/depreciation         is
                                                                                   recognised in the Profit and Loss
                                                                                   account, with a corresponding
                                                                                   change being made in the book
                                                                                   value of the individual scripts.
      4.    Provisioning against Standard Loan Assets and other assistance portfolios :
            From the year 1999 – 2000 a provision of 0.25 % is made against standard loan assets and other assistance
            portfolios as required by the revised Prudential Norms of RBI.



108
                                                                          IDBI FLEXIBONDS 19


CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2003

The consolidated Balance Sheet of IDBI and its subsidiaries as on March 31, 2003 is given below
                                                                                  (Rs. crore)

   LIABILITIES                                                 Schedule              March 31, 2003
                                                                  No
1. SHARE CAPITAL
   Authorised
   150 00 00 000 Equity Shares of Rs.10 each                               1500.00
        50 00 00 000 Redeemable Preference Shares                           500.00
        of Rs.10 each                                                                  2000.00
   Issued and paid up
   65 28 30 400 Equity Shares of Rs.10 each                                             652.83
2. RESERVES, FUNDS AND SURPLUS                                    I
   i)     Reserve Fund                                                     3946.08
   ii) Statutory Reserves                                                    36.42
   iii) Reserve u/s 45 IC of RBI Act                                        118.17
   iv) Other Funds
          a) Staff Welfare Fund                                              31.33
          b) Venture Capital Fund                                           178.99
          c) Exchange Risk Admn. Fund                             II
          d) IDBI EXIM(J) Special Fund                                        1.69
    v) Reserves
          a) Share Premium                                                 1642.81
          b) Special Reserve under Section 36(1)(viii)                        6.35
             of IT Act, 1961
          c) Sp. Res. created and maintained u/s 36(1)(viii)                105.00
             of IT Act, 1961
          d) Capital Reserve                                                 51.82
          e) Investment Fluctuation Reserve                                  64.28
    vi) Surplus                                                             613.08     6796.02
3. GIFTS,GRANTS,DONATIONS AND BENEFACTIONS
   i)     From Government
   ii) From Other Sources                                                                   ––
4. BONDS AND DEBENTURES                                           III
          Tier I Bonds                                                     2130.50
          Tier II Bonds                                                    3651.13
           Other Bonds and Debentures                                     36181.33    41962.96
5. DEPOSITS                                                                           10362.21




                                                                                                      109
 IDBI FLEXIBONDS 19


                                                                                           (Rs. crore)
      LIABILITIES                                              Schedule                    March 31, 2003
                                                                  No
      6. BORROWINGS
         i) From Reserve Bank of India
              a) Secured against stocks,funds and other                         1000.00
                 trustee securities
              b) Secured against bills of exchange or
                 promissory notes
              c) Out of National Industrial Credit(Long Term
                 Operations) Fund
              d) Others
         ii) From Government of India
              a) Interest-free loan
              b) Other Loans
                 1. Against IDA /World Bank Loan                                    5.37
                 2. Others                                                       168.37
         iii) From Other Sources                                                2336.98
         iv) In Foreign Currency                               IV               4950.70              8461.42
      7. CURRENT LIABILITIES AND PROVISIONS                    V
              Deferred Tax Liab                                                  237.06
              Other Liabilities and Provisions                                  4910.57              5147.63

         MINORITY INTEREST                                                                            152.96
            TOTAL                                                                                  73536.03
         CONTINGENT LIABILITIES                                     VI

                                                                                           (Rs. Crore)
           ASSETS                                                Schedule                  March 31, 2003
                                                                     No.
      1. CASH AND BANK BALANCES
         i) Cash in hand and balances with Reserve Bank                          605.78
              of India
         ii) Balances with other Banks in India
              a) On Current Account                                              514.27
              b) On Deposit Account                                              259.63
         iii) Balances with other Banks outside India
              a) On Current Account                                               67.46
              b) On Deposit Account                                              434.75            1881.89
      2. INVESTMENTS                                                     VII
         i) In securities of Central and State Governments                      2739.81
          ii) In stocks,shares,bonds & debentures of                            2766.57
               financial institutions
          iii) In Stocks,shares,bonds & debentures of                           6789.78           12296.16
               industrial concerns
      3. LOANS AND ADVANCES
           i) To Scheduled banks, State Co-operative Banks
               and other Financial institutions                                 1801.81
          ii) To industrial concerns                                           47012.63
          iii) Call money                                                         54.40           48868.84




110
                                                                      IDBI FLEXIBONDS 19


                                                                                           (Rs. crore)
ASSETS                                                 Schedule No.                   March 31,2003
 4.   BILLS OF EXCHANGE AND PROMISSORY
      NOTES DISCOUNTED/REDISCOUNTED                                                         1477.64
 5.   PREMISES
      (At cost less depreciation)                                                            316.63
 6.   OTHER FIXED ASSETS
      (At cost less depreciation)                                                           1138.93
 7.   OTHER ASSETS                                             VIII
         Deferred Tax Asset                                              4.46
         Other Assets                                                 7551.48               7555.94
              TOTAL                                                                       73536.03
      Notes forming part of Accounts                           XII
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2003                           (Rs. crore)
 INCOME (Less provisions made during the year for bad and                       Schedule No
 doubtful debts and other necessary and expedient provisions)
1.    Interest and Discount etc.                                                                      5534.66
2.    Income from Investments                                                                         1068.08
3.    Commission, Brokerage,etc.                                                  IX                   156.90
4.    Net Gain on sale of investments (not credited to Reserves or
      any particular fund or account)                                                                  464.77
5.    Other Income                                                                X                    200.63
      TOTAL                                                                                           7425.04
   EXPENDITURE
1  Interest paid on Deposits,Borrowings,etc.,                                                         5947.51
2  Establishment Expenses                                                                              156.38
3  Directors’ & Executive Committee Members’                                                             0.22
   fees and Expenses
4 Auditors’ Fees                                                                                          0.32
5 Rent,Taxes,Insurance,Lighting, etc.                                                                    53.77
6 Law Charges                                                                                             7.22
7 Postage,Telegrams & Stamps                                                                             16.62
8 Stationery,Printing,Advertisement,etc.                                                                 28.31
9 Accelerated write-off of bad and doubtful debts                                                            –
   Less : Withdrawn from Special Reserve u/s 36(1)                                                           –
   (viii) of IT Act, 1961
10 Depreciation / Amortisation                                                                         42.48
11 Depreciation on Leased assets                                                                      184.51
12 Other Expenditure                                                              X                   210.43
                 TOTAL                                                                             6647.77
      Balance of Profit carried down                                                                 777.27
      Provision for Income Tax                                                                     (275.09)
      Deferred Tax Income                                                                             41.30
      Balance of profit transferred to Appropriation Account                                         543.48




                                                                                                                 111
 IDBI FLEXIBONDS 19


             Year ended March 31, 2003                                                                           (Rs. crore)

      Balance of profit transferred from Profit & Loss Account                                                      543.48
        Balance of Profit brought forward from last year                                                            478.90
                  TOTAL                                                                                            1022.38
             APPROPRIATIONS
        1    Transferred to Statutory/ General Reserves                                                             107.97
        2    Transferred to Special Reserve created & maintained                                                     75.00
             u/s.36(1)(viii) of IT Act, 1961
        3    Transferred to Capital Reserve                                                                          33.38
        4    Transferred to IDBI EXIM(J) Special Fund                                                                 0.12
        5    Transferred to Staff Welfare Fund                                                                        0.00
        6    Transferred to Investment Fluctuation Reserve                                                           40.00
        7    Proposed Dividend / Interim Dividend on Equity shares                                                  106.40
        8    Tax on Proposed Dividend                                                                                13.51
        9    Deferred tax adjustment of earlier years                                                                       -
       10 Balance of profit                                                                                         646.00
                 TOTAL                                                                                             1022.38
             Minority interest                                                                                       32.92
             Balance of profit carried to Balance Sheet                                                             613.08


             SCHEDULES FORMING PART OF ACCOUNTS
       I Reserves, Funds and Surplus (Net of Minority Interest)                                               (Rs. crore)
                                                 Balance on      Additions/Transfers   Deductions/transfers     Balance on
                                                   1-Apr-02        during the period      during the period      31-Mar-03
       i)    Reserve Fund                                 3916                  30                       0             3946
      ii)    Statutory Reserves                             26                   10                      0                  36
      iii)   Reserve u/s 45 IC of RBI Act                  58                    60                      0              118
      iv)    Capital Reserve                               20                    32                      0                  52
      v)     Investment Fluctuation Reserve                 31                   34                      0                  65
      vi)    Venture Capital Fund                          179                    0                      0              179
      vii) Staff Welfare Fund                              39                     4                     12                  31
      viii) IDBI Exim (J) Special Fund                      2                     0                      0                  2
      ix)    Share Premium Account                        1643                    0                      0            1643
      x)     Special Reserve under Section                  6                     0                      0                  6
             36(1)(viii) of the Income Tax
             Act,1961
      xi)    Special Reserve created &                      30                   75                      0              105
             maintained u/s 36(1)(viii) of the
             Inc Tax Act,1961
      xii) Profit & Loss (surplus) account                 438                  670                    495              613
              Total                                     6388                    915                    507             6796




112
                                                                                      IDBI FLEXIBONDS 19


                                         (Rs. crore)

   II    Exchange Risk                                  IDBI
         Administration Fund
         Initial Contribution                                5
         Interest/Other Income                             54
         Premium                                         218
         Settlement with ERAF                          (526)
         Amount recd. from /paid toGOI                    111
                                                       (138)
         Less: Exchange Fluctuation                         (-)
         (Deficit)                                     (138)
         Receivable from/(payable to )                    138
                                                       ---------
         Government of India
Under the Exchange Risk Administration Scheme(ERAS), the Government of India has agreed to extend support to the
Fund when it is in deficit and recoup its contribution in the event of surplus. The IDBI has a claim on Exchange Risk
Administration Fund (ERAF) to the extent of deficit represented by the Exchange Fluctuation on ERAS Account pro-
vided there is positive balance in the ERAF Account. If the balance is insufficient, the claim will be on Government of
India.
As per decision of Government of India the above scheme has been foreclosed w.e.f. January 31, 2003. A part of the
balance outstanding has been received subsequent to the date of the balance sheet and for the balance amount a
claim is to be filed on Government of India. Also refer Schedule VIII on other assets
 III Bonds and Debentures (March 31, 2003)                            (Rs.crore)
(i) Issued in Rupees
        a. Bonds and Debentures guaranteed by Govt. of India                5672
        b. Discount/Zero Coupon Bonds                                       597
    Less Discount not written off                                          (162)
        c. Other Bonds and Debentures                                     34677
(ii) Issued in Foreign Currency
    US Dollar denominated FRNs                                              1187
    Less Discount paid in advance on FRN issue                                  (8)
Total                                                                   41963

IV Borrowings in Foreign Currency (March 31, 2003)                 (Rs.crore)

        Lines of credit
          a.Multilateral                                                1306
          b.Bilateral                                                   2050
        Bank Loans
          a.Syndicated                                                  1329
          b.Bilateral                                                    237
        Others                                                             29
        Total                                                           4951




                                                                                                                          113
 IDBI FLEXIBONDS 19


      V     Current Liabilities & Provisions (March 31, 2003)                                       (Rs. crore)
            Prudential provisions against standard assets                                           149
            Provision for Taxation                                                                  468
            Provision for Deferred Taxation                                                         237
            Receipts from borrowers pending appropriation                                             89
            Receipts from borrowers in advance                                                      597
            Income received in advance on Bills etc.                                                  94
            Interest/premium payable on Bonds and Deposits                                           313
            Dividend payable on equity shares                                                       106
            Provision for tax on dividend                                                             14
            Application money received on Bonds                                                       31
            Provision for outstanding liabilities (incl. interest accrued but not due)              1867
            Others                                                                                  1183
            Total                                                                                   5148

      VI    Contingent Liabilities (March 31, 2003)                                                 (Rs. crore)
      (i)   Claims against the Bank not acknowledged as debts                                         399
      ii)   On account of Guarantees/Letters of Credit issued *                                     4258
      iii) On account of underwriting commitment                                                        0
      iv) On account of uncalled monies on partly paid shares, debentures etc.                         2
      v)    On account of disputed income tax, interest tax, penalty
              and interest demands pending in appeal not provided for                                 723**
      vi)   Monies for which the Bank is contingently liable                                          772
            Total                                                                                     6154

      *     includes guarantees/LCs in Foreign currency converted at FEDAI rates prevailing as on March 31,2003

      **    The gross demand raised by Income Tax Dept. on account of Income Tax, wealth Tax, Interest Tax, Penalty and
            Interest demands on IDBI is Rs.4969 crore against which the provision made is Rs.2814 crore. The demands
            include Rs.1462 crore in respect of which IDBI has favourable appellate decisions in its own cases in the earlier
            years.




114
                                                                             IDBI FLEXIBONDS 19


                                                                                               (Rs.crore)
VII   Investments (March 31, 2003)                                            Book Value       Market Value


a)    Quoted                                                                  4471             3937
b)    Unquoted
      i) Investment in GOI Securities
      ii) In Financial Institutions/Technical Consultancy Organisations*      1815
      iii) In Industrial Concerns                                             6010


      The above investments at (a) and (b) have been classifed as under as required by RBI guidelines


      Held to Maturity                                                        5995
      Available for sale                                                      5713
      Held for trading                                                        588
* Includes Investments of IDBI in units of MFs, the book value of which was Rs.809 crore and the NAV/assured
redemption value stood at Rs.812 crore.


VIII Other Assets (March 31, 2003)                                                    (Rs. crore)


      Amount recoverable from associate institutions                                                77
      Accrued Income                                                                           1289
      Deposits towards lease rentals for premises                                                   34
      Pre-paid taxes including TDS                                                             1633
      Advances & Housing Loan to staff                                                              88
      Loans disbursed on behalf of other institutions                                               41
      Exchange Fluctuation recoverable under ERAS                                               138
      Minimum guaranteed Dividend receivable on shares of SFCs                                      43
      Application money in respect of Shares/Debentures of Jt.St. Cos./FIs                          81
      Advance towards leased assets                                                                 70
      Unsecured Bond issue exp. not written off                                                 147
      Preliminary expenses not written off                                                           5
      Deferred tax asset                                                                             5
      Others                                                                                   3905

      Total                                                                                    7556




                                                                                                               115
 IDBI FLEXIBONDS 19


                                                                  (Rs. crore)

      IX Details of Commission , Brokerage etc.                      2002-03


        Up-front fee on loans sanctioned                                  9
        Guarantee commission                                             62
        Underwriting commission and Front end fees                        1
        Others                                                           85

        Total                                                           157


      X Other Income                                               2002-03


        Interest on Bank deposits                                        43
        Fees for Financial services                                      22
        Profit(net) on Dealing room activities                            2
        Management fees for assistance under DPG/Guarantee                1
        Miscellaneous receipts                                           22
        Prior Period income
        Others                                                          111

        Total                                                           201



      XI Other Expenditure                                         2002-03


        Management fees,commitment charges etc.on FC borrowings           4
        Guarantee Fees on Bonds & FC lines of credit                     15
        Unsecured Bond Issue Expenses written off                        72
        Repairs , Maintenance & Telephone expenses                       23
        Prior Period Expenditure(Net)
        Brokerage/incentives paid on Bonds and Deposits                  10
        Miscellaneous expenditure                                        12
        Preliminary expenses written off                                   -
        Others                                                           74

        Total                                                           210




116
                                                                                   IDBI FLEXIBONDS 19


XII Notes forming part of the Accounts
1. Basis of accounting :
    The financial statements are prepared as per historical cost convention in accordance with the statutory provisions
    and accounting principles generally accepted in India
2. Principles of consolidation :
    a) The consolidated financial statements include the accounts of Industrial Development Bank of India (parent
        company) and all of its majority owned subsidiary companies.
    b) The financial statements of the Bank and its subsidiary companies have been combined on a line by line basis
        by adding together the book-values of like items of assets, liabilities, income & expenses.
    c) All significant inter company accounts and transactions resulting in unrealised profits or losses are eliminated
        on consolidation.
    d) The subsidiary companies considered in the consolidated financial statements are :

                      Name of the company                                             % equity capital held as at
                                                                                      March 31, 2003
                      IDBI Bank Ltd. (IBL)                                            57.11%
                      IDBI Capital Market Services Ltd. (ICMS)                        100%
                      IDBI Intech Ltd. (IIL)                                          100%

     e) Though the bank holds more than 20% of voting power in certain entities, the same are not treated as invest-
        ment in an Associate under AS 23, mainly either due to lack of significant influence or such investments are
        not considered as material investments requiring consolidation as an Associate under AS 23.
     f)  IDBI does not presently have any joint ventures requiring proportionate consolidation as defined under AS 27.

3.   Significant Accounting Policies
A.   Income Recognition
     i.     Income is shown in the Profit & Loss Account net of provisions/write off / write back during the year for bad and
            doubtful debts and also other necessary and expedient provisions.
     ii.    Interest income, lease rentals and other dues are reckoned as accrued, in accordance with the directives
            issued by RBI from time to time regarding Income Recognition.
     iii.   Underwriting/guarantee commissions are reckoned on accrual basis.
     iv.    Front-end fees, loan syndication charges, appraisal fees, fees for merchant banking, debenture trusteeship
            and other financial services are accounted on cash basis.
     v.     Discount received in respect of Bills discounted/rediscounted, Commercial paper and Certificate of Deposits
            is apportioned over the period of usance of the instruments.
     vi.    The amount of Lease Equalisation representing the difference between the annual lease charge and the
            depreciation provided on leased assets in the books is adjusted in the Profit & Loss a/c. with corresponding
            adjustment to the value of leased assets through a separate lease adjustment account
     vii. The minimum dividend guaranteed by State Governments on shares held in the State Financial Corporations
          under section 6 of the State Financial Corporations Act, 1951 is recognised on realisation basis.
     viii. Final dividend on shares held in Industrial Concerns and Financial Institutions is recognised as income on
           dates of declaration and interim dividend is recognised as income when received.
     ix.    Revenue from software contracts is recognised on achievement of milestone basis. Sale of products is
            recognised on transfer of property of goods as per agreed terms. Annual Technical Services is recognised
            proportionately over the period in which the services are rendered.
     x.     In case of IDBI’s stockbroking subsidiary, the difference between the acquisition cost and redemption value of
            discounted debt securities, held as on the Balance Sheet date, is apportioned on time basis and recognised
            as accrued income.
            In respect of discounted debt securities, discount earned represents the excess of sales and redemption
            proceeds and the value of closing stock over purchases and the value of opening stock of such securities.




                                                                                                                                117
 IDBI FLEXIBONDS 19


                  Total consideration paid or received on purchase or sale, on outright basis, of coupon-bearing debt securities
                  is identified separately as principal consideration and accrued interest. Amount paid as accrued interest on
                  purchase, and received on sale, of such securities is netted and reckoned as expense or income by way of
                  interest.
                  Interest on fixed coupon debt securities, held as on the Balance Sheet date, is accrued for the expired period
                  at the coupon rate. Interest on floating rate securities is accrued at rates determined as per the terms of the
                  issue.
                  Profit or loss on sale of securities represents the excess of sales and redemption proceeds and the value of
                  closing stock over purchases and the value of opening stock of such securities and is recognised on the basis
                  of settlement dates.
                  Where, in a primary floatation of securities, the value of securities devolved or allotted exceeds or is equal to
                  the value of securities underwritten, the whole of the underwriting fee received is reduced from the cost of the
                  security. Where the value of securities devolved or allotted is less than the value of securities underwritten,
                  that proportion of the underwriting fee received is reduced from the cost as the value of securities devolved or
                  allotted bears to the value of securities underwritten and the balance fee received is considered as income.
      B.   Investments
           i.     In terms of extant Guidelines of the Reserve Bank of India, the entire investment portfolio is categorised as
                  “Held to Maturity”, “Available for Sale” and “Held for Trading”. The investments under each category are
                  further classified as (i) Government securities; (ii) Other approved securities; (iii) Shares; (iv) Debentures &
                  bonds; (v) Subsidiaries / Joint Ventures; (vi) Others (CP, Mutual Fund Units, etc.)
           ii.    The debentures/bonds/equity and preference shares deemed to be in the nature of advance are subject to the
                  usual prudential norms.
           iii.   Investments acquired with the intention to hold till maturity are categorised under “Held to Maturity”. Such
                  investments are carried at acquisition cost unless it is more than the face value, in which case the premium is
                  amortised over the period remaining to maturity. Diminution, other than temporary, in the value of investments
                  in subsidiaries/joint ventures under this category is provided for each investment individually. Profit on sale of
                  investments in this category are appropriated to the Capital Reserve Account at the end of financial year.
           iv.    Investments acquired with the intention to trade by taking advantage of the short term price/interest rate
                  movements are categorised under “Held for Trading”. The investments in this category are revalued as a
                  whole and net appreciation/depreciation is recognised in the Profit & Loss Account, with corresponding change
                  in the book value of the individual scrips.
           v.     Investments which do not fall within the above two categories, are categorised under “Available for Sale”. The
                  individual scrips under this category are revalued at yearly intervals and net depreciation under any of the six
                  classifications mentioned above, is recognised in the Profit & Loss Account. Net appreciation under any
                  classification is ignored. The book value of individual scrips is not changed.
           vi.    The basis for periodical valuation of investments categorised as “Held for Trading” and “Available for Sale” are
                  as follows :

                  •   Treasury bills are valued at carrying cost;

                  •   In respect of traded/quoted investments, the market price is taken as available from the trades/quotes on
                      the Stock Exchanges, price of SGL Account transactions, price list of RBI and prices declared by PDAI/
                      FIMMDA periodically; and

                  •   The unquoted shares/units are valued at break-up value/repurchase price and Net Asset Value. The
                      unquoted fixed income securities are valued on YTM basis with appropriate mark-up over the YTM rates
                      for Central Government securities of equivalent maturity.
           vii. Investments are shown net of provisions.
           viii. Profit/Loss on sale of investments are booked on accrual basis.
           ix.    In case of IDBI’s stockbroking subsidiary, securities and other financial assets acquired and held for earning
                  income by way of dividend and interest and for the purpose of capital appreciation are classified as long term



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                                                                                    IDBI FLEXIBONDS 19


            investments and are valued at their cost of acquisition. Decline in their value, if any, other than temporary, is
            recognised.
            Securities acquired with the intention of short-term holding and trading are considered as stock-in-trade and
            regarded as current assets.
            Securities held as stock-in-trade category wise are valued at lower of cost or market/fair value. Cost is derived
            by following the FIFO method considering only outright transactions. Market value is determined based on
            market quotes for actual trades and where such quotes are not available, fair value is determined, in the case
            of debt securities, with reference to yields on securities of similar maturity and credit standing, and in the case
            of equities, with reference to the break-up value as per the last balance sheet. Each type of security is regarded
            as a separate category and depreciation or appreciation is aggregated under each category. Net depreciation,
            if any, for each category is provided and net appreciation, if any, is ignored.
C.   Repo Transactions in case of IDBI’s stockbroking subsidiary:
     i. The difference between total consideration paid on purchase, and received on sale, is treated as interest and
        shown as interest expense on Repo Transactions and interest income on Reverse Repo transactions. Interest
        on transactions outstanding, as on the Balance Sheet date, is accrued for the expired period at the contract
        rate.
     ii.    Securities held as stock-in-trade, as on the Balance Sheet date, include securities purchased in Reverse
            Repo transactions and exclude securities sold in Repo transactions. Securities purchased in Reverse Repo
            transactions are valued at lower of cost or market value.
     iii.   Accrued interest paid on purchase, on Reverse Repo transactions outstanding as on the Balance Sheet date,
            is shown under current assets as Reverse Repo Interest Adjustment Account. Accrued interest received on
            sale, on Repo transactions outstanding as on the Balance Sheet date, is shown under current liabilities as
            Repo Interest Adjustment Account. The difference between holding rate and the repo rate, in respect of Repo
            transactions outstanding as on the Balance Sheet, is shown as Repo Price Adjustment Account.
D.   Derivatives in case of IDBI’s stock broking subsidiary
     i. In case of IDBI’s stockbroking subsidiary, Initial Margin payable at the time of entering into futures contract is
         adjusted against the deposits with the exchanges in the form of fixed deposits and cash deposits.
     ii.    The difference in the settlement price or exchange closing price of the previous day and exchange closing
            price of the subsequent day, paid to or received from the exchange is treated as Mark to Market Margin. The
            balance in the Mark to Market Margin Account represents the net amount paid or received on the basis of
            movement in the prices of open interest in futures contracts till the balance sheet date. Net debit balance in the
            Mark to Market Margin Account is charged off to revenue whereas net credit balance is shown under current
            liabilities.
     iii.   Premium paid or received on purchase and sale of options and the difference paid or received on exercise of
            options is accounted as Purchases or Sales. In case of open interest in options sold as on the balance sheet
            date, the premium received is shown under current liabilities.
E.   Fixed Assets and Depreciation
     i. Fixed Assets are shown at cost less depreciation. All costs relating to the acquisition and installation of fixed
         assets are capitalised.
     ii.    Depreciation on assets acquired during the course of leasing business is provided on straight line method pro-
            rata from the month in which lease rentals commence over the primary period of lease.
     iii.   (a)   Depreciation is provided on
                  i)   Motor Vehicles on Straight Line Method.
                  ii) Other Fixed Assets on Written down Value Method.
            (b)   No depreciation is provided on assets sold/or discarded during the year.
     iv.    Leasehold land is amortised over the period of lease.
F.   Foreign Currency Transactions
     i) Income and Expenditure is accounted at the actual exchange rates of remittance. Amounts pending remittance
         are accounted at the closing FEDAI rates. Foreign Currency assets and liabilities are translated at closing
         FEDAI rates.



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             ii)    Forward Exchange Contracts and the net income/expenditure thereon are accounted for on the settlement
                    date.
      G. Provisions For Assets
             As per RBI guidelines, loan assets and other assistance portfolios (including debentures in the nature of
             advances) are to be classified as Standard, Sub-standard, Doubtful and Loss subject to provisions/write-off on
             an annual basis, as under :
              1.     Standard Assets           -    0.25% of loan/assistance
              2.     Sub-standard assets       -    10% of loan/assistance.
              3.     Doubtful assets           -    100 % of unsecured portion plus 20% /30%
                                                    /50% of secured portion depending on the
                                                    period for which the loan/assistance have
                                                    remained doubtful.
              4.     Loss Assets               -    The entire assistance is to be provided/ written off.
                    On the above basis and keeping in view the record of recovery and other relevant factors, the requirements of
                    provisions/write-off are being determined.
                  Loan Assets are shown net of provision/write-off for sub-standard/doubtful/loss assets.
      H.     Securitisation Transaction
             Financial assets securitised are derecognised in the books and the gains/loss on securitisation are recognised in
             the year of securitisation. Expenditure incurred for securitisation are charged off in the year of securitisation.
      I      Retirement Benefits
             The Gratuity, Leave encashment and Pension Liability determined based on actuarial valuation at the year end, is
             fully provided for.
      J.     Interest Expenditure on Borrowings
             The Interest Expenditure on borrowings is accounted for on accrual basis.
      K.     Expenditure / Discount On Bond Issue
             The expenses relating to issue of bonds and discount, if any, on the issue are amortized equitably over the tenure
             of the bonds/over the period upto which the earliest redemption expires.
      L.     Accounting Standards
             Mandatory accounting standards as applicable to the bank in accordance with the RBI guidelines issued from time
             to time are followed
          4. Contingent Liability (March 31, 2003)                                                              (Rs. crore)
               a.     Claims against the Bank not acknowledged as debt                                                 399
               b.     On account of Guarantees/Letters of Credit issued *                                            4258
               c.     On account of underwriting commitment                                                              0
               d.     On account of uncalled monies on partly paid shares, debentures etc.                               2
               e.     On account of disputed income tax, interest tax, penalty and interest                         ** 723
                      demands pending in appeal not provided for
               f.     Monies for which the Bank is contingently liable                                                 772
      * Includes Guarantees/LCs in foreign currency converted at FEDAI rate prevailing as on March 31, 2003
      ** The gross demand raised by the Income Tax Dept. on account of Income Tax, Wealth Tax, Interest Tax, Penalty and
      Interest Demands on IDBI is Rs.4968.56 crore against which the provision made is Rs.2814.36 crore. The demands
      include Rs.1462.22 crore in respect of which IDBI has favourable appellate decisions in its own cases in the earlier
      years.
      5.     Estimated amount of contracts remaining to be executed on capital account not provided for (net of advance paid)
             is Rs.16 crore.
      6.     Forward Exchange Contracts amounting to Rs.11698 crore have not been included in Contingent Liabilities.



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                                                                                IDBI FLEXIBONDS 19


7.   In compliance with the accounting standard AS- 22 relating to “Accounting for Taxes on Income” issued by The
     Institute of Chartered Accountants of India, the bank has recognised Rs.41 crore as deferred tax credit in the Profit
     & Loss Account for the year ending March 31, 2003.
8.       During the year 2002-03, Financial Assets having an aggregate outstanding of Rs.583 crores have been
         securitised for a consideration of Rs.630 crore resulting in a gain of Rs.47 crore. The net gain is included
         under the head Interest and Discount Income in the Profit and Loss A/c.
9.       IDBI’s stock broking subsidiary has been raising Demand Loan from the Reserve Bank of India from time to
         time against the pledge of Dated Govt. Securities and Treasury Bills, under the Scheme of Liquidity Support to
         Primary Dealers. The Company has also been availing Liquidity Adjustment Facility from the Reserve Bank of
         India, against the pledge of Dated Govt. Securities and Treasury Bills. The outstanding Demand Loan and
         Liquidity Adjustment Facility as on 31.3.2003 is Rs. NIL and Rs.1000 crore against the pledge of Dated Govt.
         Securities/Treasury Bills for face value of Rs.NlL and Rs.1050 crore respectively.




                                                                                    For Sorab S. Engineer & Co.
                                                                                    Chartered Accountants

                                                                                    sd/-

         Mumbai                                                                     N.D.Anklesaria
         November 17, 2003                                                                  Partner




                                                                                                                             121
 IDBI FLEXIBONDS 19

                                                               PART C
      Extracts of relevant provisions of The Industrial Development Bank of India Act, 1964
      Preamble
      An Act to establish the Industrial Development Bank of India as the principal financial institution for co-ordinating,
      in conformity with national priorities, the working of institutions engaged in financing, promoting or developing
      industry, for assisting the development of such institutions for providing credit and other facilities for the
      development of industry and for matters connected therewith and further to amend certain enactments.
      Definitions
      Section 2
      In this Act, unless the context otherwise requires, -
      (a)   “Board” means the Board of Directors of the Development Bank.
      (b)   “Development Bank” means the Industrial Development Bank of India established under
            Section 3.
      Corporate Status
      Section 3(2)
      The Development Bank shall be a body corporate with the name aforesaid having perpetual succession and a
      common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property and to
      contract and may, by that name, sue or be sued.
      Capital
      Section 4
      (1)   The authorised capital of the Development Bank shall be two thousand crores of rupees divided into one
            hundred and fifty crores fully paid-up equity shares of rupees ten each and, subject to the provisions of
            section 4E, fifty crores of fully paid-up redeemable Preference shares of rupees ten each.
      (2)     The Development Bank may, from time to time, by a resolution in general meeting, increase the authorised
            capital to an amount not exceeding five thousand crores of rupees consisting of such number of equity
            shares and redeemable preference shares as it deems fit.
      Section 4C
      (1)   The issued capital of the Development Bank of seven hundred and fifty three crores of rupees which stands
            fully vested in and subscribed by the Central Government immediately before the commencement of the
            Industrial Development Bank of India (Amendment) Act, 1995 shall, on such commencement, stand divided
            into seventy five crores and thirty lakhs equity shares of rupees ten each.
      (2)   The Board may, from time to time, increase the issued equity share capital of the Development Bank by
            allotment of shares to such persons and on such terms and conditions as the Board may determine:
            Provided that no increase in the issued equity capital shall be made in such a manner that the Central
            Government holds at any time less than fifty-one percent of the issued equity capital of the Development
            Bank.
      Section 4D
      (1)   The Development Bank may, by a resolution passed in a general meeting of the shareholders, reduce its
            share capital in any way.
      (2)   Without prejudice to the generality of the foregoing power, the share capital may be reduced
            by -
            (a)     extinguishing or reducing the liability on any of its equity shares in respect of share capital not paid up;
            (b)     either with or without extinguishing or reducing liability on any of its equity shares, cancelling any paid
                    -up share capital which is lost, or is unrepresented by available assets; or




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      (c)   either with or without extinguishing or reducing liability on any of its equity shares, paying off any paid
            -up share capital which is in excess of the wants of the Development Bank.
(3)   In any general meeting referred to in sub-section (1), the resolution for reduction of share capital shall be
      passed by shareholders entitled to vote, voting in person, or where proxies are allowed, by proxy, and the
      votes cast in favour of the resolution are not less than three times the number of the votes, if any, cast
      against the resolution by shareholders so entitled and voting.
Conversion of equity shares into redeemable preference shares
Section 4E
(1)   The Central Government may, at any time after the commencement of the Industrial Development Bank of
      India (Amendment) Act, 1995 by notification in the Official Gazette, convert such number of equity shares
      held by it not exceeding fifty crores as it may decide into redeemable preference shares.
(2)   The redeemable preference shares referred to in sub-section (1) shall -
      (a)   carry such fixed rate of dividend as Central Government may specify at the time of such conversion, and
      (b)   neither be transferable nor carry any voting rights.
(3)   The redeemable preference shares referred to in sub-section(1) shall be redeemed by the Development
      Bank within three years from the date of such conversion in such instalments and in such manner as the
      Board may determine.
Management of the Development Bank
Section 5
(1)   The general superintendence, direction and management of the affairs and business of the Development
      Bank shall vest in a Board of directors which may exercise all powers and do all such acts and things, as
      may be exercised or done by the Development Bank and are not by this Act expressly directed or required
      to be done by the Development Bank in general meeting.
(2)   The Board may direct that any power exercisable by it under this Act shall also be exercisable in such cases
      and subject to such conditions, if any, as may be specified by it, by the chairman, managing director or the
      whole-time director.
(3)   Subject to the provisions of this Act, the Board in discharging its functions shall act on business principles
      with due regard to public interest.
Constitution of the Board
Section 6
(1)   The Board shall consist of the following, namely :-
      (a)   a chairman and a managing director appointed by the Central Government:
            Provided that the same person may be appointed to function both as chairman and as managing
            director;
      (b)   one whole-time director appointed by the Central Government on the recommendation of the Board;
      (c)   two directors who shall be officials of the Central Government nominated by the Central Government;
      (d)   three directors from amongst persons having special knowledge of, and professional experience in,
            science, technology, economics, industry, banking, industrial co-operatives, law, industrial finance,
            investment, accountancy, marketing or any other matter, the special knowledge of, and professional
            experience in, which would, in the opinion of the Central Government, be useful to the Development
            Bank, nominated by the Central Government; and
      (e)   such number of directors elected, in the prescribed manner, by shareholders other than the Central
            Government, whose names are entered on the register of shareholders of the Development Bank ninety
            days before the date of the meeting in which such election takes place on the following basis, namely:-
            (i)   where the total amount of equity share capital issued to such shareholders is ten per cent or less
                  of the total issued equity capital, two directors;



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 IDBI FLEXIBONDS 19

                  (ii)    where the total amount of equity share capital issued to such shareholders is more than ten per
                          cent but less than twenty-five per cent of the total issued equity capital, three directors;
                  (iii)   where the total equity share capital issued to such shareholders is twenty five per cent, or more
                          of the total issued equity capital, four directors:
                  Provided that until the assumption of charge by the elected directors under this clause, the Central
                  Government may at any time nominate such number of directors, not exceeding four, from amongst
                  persons having special knowledge of and professional experience in, science, technology, economics,
                  industry, banking, industrial co-operatives, law, industrial finance, investment, accountancy, marketing or
                  any other matter, the special knowledge of, and professional experience in, which would, in the opinion
                  of the Central Government, be useful to the Development Bank for carrying out its functions.
      (2)   The chairman, managing director and the whole-time director shall hold office for such term not exceeding
            five years as the Central Government may specify in this behalf and any person so appointed shall be
            eligible for re-appointment.
      (2A) Notwithstanding anything contained in sub-section (1), the Central Government shall have the right to
           terminate the term of office of the chairman, managing director or the whole-time director, as the case may
           be, at any time before the expiry of the term specified under sub-section (2) by giving him notice of not less
           than three months in writing or three months’ salary and allowances in lieu of such notice; and the chairman,
           the managing director or the whole-time director , as the case may be, shall also have the right to relinquish
           his office at any time before the expiry of the term specified under sub-section (2) by giving to the Central
           Government notice of not less than three months in writing.
      (3)   The chairman, the managing director or the whole-time director shall receive such salary and allowances as
            may be determined by the Central Government.
      (3A) The Central Government may, at any time, remove the chairman, the managing director or the whole-time
           director, as the case may be, from office.
            Provided that no person shall be removed from his office, under this sub-section, unless he has been given
            an opportunity of showing cause against his removal.
      (4)   A nominated director shall hold office during the pleasure of the authority nominating him.
      (4A) Subject to the provisions of sub-section (4), -
            (a)   every director nominated under clause (d) of sub-section (1) shall hold office for such term not exceeding
                  three years as the Central Government may specify in this behalf and thereafter until his successor
                  assumes office, and shall be eligible for re-nomination:
                  Provided that no such director shall hold office continuously for a period exceeding six years; and
            (b)   every director elected under clause (e) of sub-section (1) shall hold office for three years and thereafter
                  until his successor assumes office, and shall be eligible for re-election:
            Provided that no such director shall hold office continuously for a period exceeding six years.
      (4B) The shareholders, other than the Central Government, may, after giving to the director a reasonable opportunity
           of being heard in the manner as may be prescribed, by resolution passed by majority of the votes of such
           shareholders holding in the aggregate not less than one-half of the share capital held by such shareholders,
           remove any director elected under clause (e) of sub-section (1) and elect another director in his place to
           fill the vacancy so caused;
      Disqualification of directors
      Section 6B
      (1)   A person shall not be eligible for being elected director under clause (e) of sub-section (1) of section 6, if
            he
            (a)   has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;
            (b)   is an undischarged insolvent;
            (c)   has applied to be adjudicated as an insolvent and his application is pending;



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      (d)   has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof
            to imprisonment for not less than six months and a period of five years has not elapsed from the date
            of expiry of the sentence; or
      (e)   has not paid any call in respect of shares of the Development Bank held by him, whether alone or jointly
            with others, and six months have elapsed from the last day fixed for the payment of the call.
Vacation of office by director
Section 6C
(1)   The office of a director shall become vacant if he
      (a)   becomes subject to any of the disqualifications mentioned in section 6B; or
      (b)   resigns his office by giving notice in writing under his hand and the resignation is accepted; or
      (c)   absents himself from three consecutive meetings of the Board without obtaining leave of absence from
            the Board.
(2)   Notwithstanding anything in clause (a) of sub-section (1), the disqualifications referred to in that clause shall
      not take effect _
      (a)   for thirty days from the date of the adjudication, sentence or order;
      (b)   where any appeal or petition is preferred within thirty days aforesaid against the adjudication, sentence
            or conviction resulting in the sentence or order until the expiry of seven days from the date on which
            such appeal or petition is disposed of; or
      (c)   where within the seven days aforesaid, any further appeal or petition is preferred in respect of the
            adjudication, sentence, conviction or order and the appeal or petition, if allowed, would result in the
            removal of the disqualification, until such further appeal or petition is disposed of.
Borrowings and acceptance of deposits by Development Bank
Section 11 (1) (a)
The Development Bank may, for the purpose of carrying out its functions under this Act issue and sell bonds and
debentures with or without the guarantee of the Central Government
Extracts of relevant provisions of Industrial Development Bank of India (Issue and Management of Bonds)
Regulations, 1972
3.    Form of the Bond and the mode of transfer thereof, etc.
      (1)   A Bond may be issued in the form of -
            (a)   A promissory note payable to, or to the order of, a certain person; or
      (1A) Not withstanding anything contained in sub-regulation (1) and subject to the provisions of the
           Depositories Act,1996, every person subscribing to or holding the Bond under these regulations shall
           have the option to hold the same with a depository.
      (2)   (a)   A Bond issued in the form of a promissory note shall be transferable by endorsement and delivery
                  like a promissory note payable to order.
            (b)   No writing on a Bond issued in the form of a promissory note shall be valid for the purpose of
                  negotiation if such writing purports to transfer only a part of the amount denominated by the Bond.
      (5)   No endorsement of a Bond in the form of promissory note or no instrument of transfer in the case of
            a Bond in the form of a Stock Certificate shall be valid unless made by the signature of the holder or
            his duly constituted attorney or representative inscribed in the case of a Bond in the form of a promissory
            note on the back of the Bond itself.
4     Trust not recognised
      (1)   The Development Bank shall not be bound or compelled to recognize in any way, even when having
            notice thereof, any trust or any right in respect of a Bond other than an absolute right thereto in the
            holder.



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 IDBI FLEXIBONDS 19

                 Provided that nothing in this regulation shall apply to a depository in respect of Bonds held by it as a
                 registered owner on behalf of the beneficial owner.
      5A   Provision for holding of bonds issued in the form of promissory notes by trust/trustee(s)
           (1)   Without prejudice to the provisions of sub-regulation (1) of regulation 4, the Development Bank may, at
                 the request of the applicant and without liability to the Development Bank, issue a Bond in the form of
                 promissory note in the name of a specified trust or trustee(s) of that trust, or, as the case may be, in
                 the personal name of the applicant, describing him as a trustee, whether as a trustee of the trust
                 specified in his application or as a trustee without such specifications.
      8    Procedure where Bond in the form of a promissory note is Lost, etc.
           (1)   Every application for the issue of a duplicate Bond in place of a Bond which is alleged to have been
                 Lost, Stolen, Destroyed, Mutilated or Defaced, either wholly or in part shall be addressed to the Office
                 of Issue, and shall contain the following particulars, namely:
                 a)    Bond No. ____ for Rs _____ of the ____ percent Industrial Development Bank of India Bonds,
                       --------[year];
                 b)    Last half-year for which interest has been paid;
                 c)    The person to whom such interest was paid;
                 d)    The person in whose name Bond was issued (if known);
                 e)    The circumstances attending the Loss, Theft, Destruction, Mutilation or Defacement; and
                 f)    Whether the Loss or Theft was reported to the police
           (2)   Such application shall be accompanied by:
                 a)    where the Bond was lost in course of transmission by registered post, the Post Office registration
                       receipt for the letter containing the Bond;
                 b)    a copy of the police report, if the loss or theft was reported to the police;
                 c)    if the applicant is not a registered holder, an affidavit sworn before a magistrate testifying that the
                       applicant was the last legal holder of the Bond, and all documentary evidence necessary to trace
                       back the title to the registered holder; and
                 d)    any portion or fragments which may remain of the Lost, Stolen, Destroyed, Mutilated or Defaced
                       Bond.
      9.   Publication of notice of loss, theft, etc. in newspaper
           (1)The loss, theft, destruction (mutilation or defacement) of a Bond in the form of a promissory note shall
              be published on behalf of the applicant in a leading newspaper of the area.
      10   Issue of duplicate bond and taking of indemnity
           (1)   If the Prescribed Officer is satisfied of the loss, theft, destruction or defacement of the Bond in the form
                 of a promissory note, he may order issue of a duplicate Bond in the form of a promissory note on
                 applicant’s furnishing an indemnity bond with one or more sureties;
                 Provided that if at any time before the issue of the duplicate Bond in the form of a promissory note, the
                 original Bond is discovered or it appears to the Office of the Issue for other reasons that the order should
                 be rescinded, the matter shall be referred to the Board for further consideration, and in the meantime,
                 all action on the order shall be suspended. An order passed under this sub-rule shall, on expiry of the
                 three months referred to therein become final unless it is in the meantime rescinded or otherwise
                 modified; and
                 Provided that where a Bond in the form of a promissory note lost, stolen, destroyed, mutilated or defaced
                 is of denomination not exceeding of rupees fifty thousand, a duplicate Bond in the form of Promissory
                 note may be issued on applicant furnishing an indemnity bond without any such surety;
                 Provided further that where such application is made with respect to a Bond in the form of a Promissory
                 note mutilated or defaced, of whatever face value, a duplicate Bond in the form of a Promissory note



126
                                                                              IDBI FLEXIBONDS 19


           may be issued without any such indemnity with or without surety if the Bond in the form of Promissory
           note is capable of being identified as the one originally issued;
     (2)   the Development Bank shall not incur any liability for issuing such Bond in good faith under this
           regulation.
     (3)   A duplicate certificate issued under sub-rule (1) shall be treated as equivalent to the original certificate
           for all the purposes of these rules except that it shall not be encashable at an office of Issue other than
           the office of Issue at which such certificate is registered without previous verification.
12   Publication of list of duplicate Bonds
     (1)   The Development Bank shall publish half yearly in two leading newspapers or in one leading newspaper
           and in the Gazette of India in the months of January and July a list of duplicate Bonds issued by the
           Development Bank.
     (2)   The list shall contain the following particulars regarding the duplicate Bonds issued by the Development
           Bank:
           (a)     the name of the Issue
           (b)     the number of the Bond, its value
           (c)     the name of the person to whom it was issued
           (d)     the date from which it bears interest
           (e)     the name of the applicant for a duplicate
           (f)     the number and date of order passed by the Prescribed Officer for payment of interest or issue
                   of a duplicate.
15   Person whose title to a Bond of deceased sole holder may be recognised.
     (1)   The executors or administrators of a deceased sole holder of a Bond (whether a Hindu, Mohammedan,
           Parsi or otherwise), or the holder of a succession certificate issued under Part X of the Indian
           Succession Act, 1925 (39 of 1925) in respect of the Bond shall be the only persons who may be
           recognised by the Office of Issue (subject to any general or special instructions of the Prescribed Officer)
           as having any title to the Bond.
21   Discharge of a Bond
     (a)   When a Bond held in the form of a promissory note becomes due for payment of principal, it shall be
           presented at the office of the Development Bank at which interest thereon is payable or at the Office
           of Issue duly signed by the holder on its reverse;
           Provided that the Development Bank may having regard to interest of the holder of the Bonds and other
           relevant factors, make the payment of the amount due on the Bond without requiring its presentment
           at the office of the Development Bank invoking call option as per the terms of its issue or on maturity.
     (b)   When a Bond in the form of an entry in the account or held with a depository becomes due for payment
           of principal, a duly signed receipt shall be furnished by the holder or beneficial owner, as the case may
           be, to the Office of Issue.
     Extracts of Relevant Provisions of The Industrial Development Bank Of India Bonds And Deposits
     (Nomination) Regulations, 1997
3.   Nomination in respect of bonds or deposits:-
     (1)   A nomination made by a holder or as the case may be, all the holders jointly, shall be recognised by
           the Development Bank in the circumstances and to the extent specified in these regulations.
     (2)   A sole holder or all the holders jointly or the surviving holder or holders not being persons (s):-
           (i)     holding the bond or deposit as holder of an office; or -
           (ii)    acting for a trust; or
           (iii)   acting in any other capacity for any other person with a beneficial interest in the bond or deposit,




                                                                                                                          127
 IDBI FLEXIBONDS 19

                 may nominate one or more persons not exceeding four including a minor, who shall in the event of his
                 or their death be entitled to the amounts payable by the Development Bank in respect of the bond or
                 deposit:
                 Provided that where the nominee is a minor, the holder (s) shall at the time of making the nomination
                 also appoint any person to receive the amounts due in respect of the bond or deposit in the event of
                 death of the holder(s) during the minority of the nominee.
      Explanation:
      Nomination may also be made in favour of Central or State Government, a local authority, any person designated
      by virtue of his office or a religious or charitable trust.
      4.   Substitution or cancellation of nomination:-
           (1) A nomination made under sub-regulation (2) of regulation 3 may subsequently be substituted or
                cancelled.
           (2)   For a nomination, substitution of nomination or cancellation of nomination to be valid, it shall be made
                 to the Development Bank in such form containing necessary information as may be approved by the
                 Development Bank accompanied with the relevant bond or deposit receipt.
           (3)   A valid nomination, substitution of nomination or cancellation of nomination shall be deemed to be
                 effective on the date on which it was received by the Development Bank. The nomination, substitution
                 of nomination or cancellation of nomination shall be registered in the relevant records of the
                 Development Bank and a suitable endorsement shall be made by the Development Bank on the bond
                 or deposit receipt.
           (4)   The substitution of nomination or cancellation of nomination shall not be valid in the case of a bond or
                 deposit held jointly by more than one holders, unless such substitution or cancellation is made by all
                 the surviving holder(s).
      5.   Nomination not affected due to issue of new bond or deposit receipt:
           The nomination made under these regulations shall not be affected by the issue of a new bond or deposit
           receipt in lieu of the existing one.
      6.   Nominee’s right to receive the amount:-
           (1) A nomination shall cease to be in force from the date of death of the sole nominee during the lifetime
               of the holder.
           (2)   Where the nomination is in favour of more than one person, the nominee first named shall alone have
                 the right to receive the amount due in respect of the bond or deposit, in the event of the death of the
                 holder(s).
                 Where the nominee first named has pre-deceased the holder and the holder has not cancelled the
                 nomination or substituted the nomination, the nominee second named shall be entitled to receive the
                 amount in respect of the bond or deposit of the deceased holder and in the same manner, on death of
                 a successive nominee, the nominee next named shall be entitled to receive the amount in respect of
                 such bond or deposit.
      7.   Deemed cancellation of nomination:-
           On the transfer by the holder or the redemption by the Development Bank of any bond, the nomination shall,
           in respect of such bond, be deemed to have been cancelled and shall cease to be in force from the date
           of such transfer or redemption, unless the transferee, in the case of transfer, advises the Development Bank
           in writing that he does not desire such bond to be transferred to his name.
      8.   Discharge on payment to the nominee:-
           Payment by the Development Bank to the nominee in accordance with the provisions of these regulations
           in respect of bond or deposit to which the nomination relates shall constitute a full discharge to the Development
           Bank of its liability.
           Provided that nothing contained in this regulation shall affect the right or claim which any person may have
           against the nominee to whom any payment is made under these regulations.



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                                                                             IDBI FLEXIBONDS 19


                                                      PART D
                        MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION
Copies of the contracts and documents, referred to below, all of which have been attached to a copy of this Offer
Document, which has been delivered to The Stock Exchange, Mumbai and National Stock Exchange of India Ltd.,
may be inspected at the Head Office of IDBI between 10.00 a.m. and 12.00 noon on any working day between
the date of the Offer Document and the date of closing of the Issue.
Material Contracts and Documents
1.    IDBI Act, 1964 (as amended) & IDBI General Regulations, 1994.
2.    IDBI (Issue and Management of Bonds) Regulations, 1972 and the IDBI Bonds and Deposits (Nomination)
      Regulations, 1997.
3.    IDBI’s letters of appointment dated November 14, 2003 to the Lead Managers, Co-Managers, Registrar, Trustees
      to the bondholders and Principal Marketing Co-ordinator.
4.    Copies of MOU entered into by IDBI with the Lead Managers dated November 17, 2003 and Registrar dated
      November 17, 2003.
5.    Tripartite Agreement between IDBI, NSDL and Registrar to Issue dated September 18, 2000.
6.    Tripartite Agreement between IDBI, CDSL and Registrar to Issue dated November 3, 2000.
7.    Notification F.No.7/10/2000-B.O.I dated September 4, 2001 appointing Shri M. Damodaran as Chairman and
      Managing Director.
8.    Resolutions of the Board of Directors of IDBI passed at the Meeting held on June 20, 2003 approving the
      Umbrella Offer Document for 2003-2004 for raising Rs.1500 crore with an option to retain additional subscription
      upto Rs.1500 crore and authorising the Chairman & Managing Director to exercise powers in relation to the
      Public Issue.
9.    Chairman & Managing Director’s authorisation dated November 17, 2003 to Shri O.V.Bundellu/Shri K.
      Sivaprakasam, Executive Directors, severally, to sign the offer document of Flexibonds-19 on his behalf.
10.   Copy of release from S&P dated December 10, 2002 assigning a rating of “BB” (with negative outlook) for
      IDBI’s long term foreign currency debt, copy of release dated February 5, 2003 from Moody’s Investors
      Service assigning a rating of “Ba1” and copy of release from Fitch dated February 2003 assigning a rating
      of “BB” (with negative outlook) for IDBI’s long term foreign currency debt.
11.   Letter from CRISIL dated July 15, 2003 assigning a “AA+” rating for the unsecured bonds under the umbrella
      series 2003-2004 for an amount of Rs.3000 crore and letter dated November 14, 2003 assigning a rating
      of “AA+” for the present issue.
12.   Letter from ICRA dated June 28,2002 and July 14, 2003 assigning a “LAA” rating for the unsecured bonds
      under the umbrella series 2003-2004 for an amount of Rs.3000 crore and letter dated November 14, 2003
      assigning a rating of “LAA” for the present issue.
13.   Letter from Fitch Ratings India Pvt. Ltd. dated July 14, 2003 assigning a rating of “AA+(ind)” for the
      unsecured bonds under the umbrella series 2003-2004 for an amount of Rs.3000 crore and letter dated
      November 14, 2003 assigning a rating of “AA+(ind)” for the present issue.
14.   Consent of the auditors Sorab S. Engineer & Co., Chartered Accountants, dated November 17, 2003 for
      inclusion of their report on Accounts in the form and context in which they appear and inclusion of their name
      as Tax Consultants and Auditors in this Offer Document.
15.   The reports of Auditors, Sorab S. Engineer & Co., Chartered Accountants, dated November 17, 2003
      containing the audited Balance Sheets and Profit and Loss Accounts for the five years ended March 31,
      1999, 2000, 2001, 2002, 2003 and the half year ended September 30, 2003.
16.   Report on Tax Benefits from Sorab S. Engineer & Co., Chartered Accountants dated November 17, 2003.
17.   Copies of the audited Balance Sheets and Profit and Loss Accounts for five years ended March 31, 1999,
      2000, 2001, 2002, 2003.
18.   Consents of the Lead Managers, Principal Marketing Co-ordinator, Co-Managers, Registrars, Trustees and
      Bankers to act in their respective capacities.




                                                                                                                         129
 IDBI FLEXIBONDS 19

      19.   Copies of the Initial Listing Applications made to The Stock Exchange, Mumbai and National Stock Exchange
            of India Ltd., dated September 17, 2003 for listing of the Bonds.
      20.   Copy of G.O.Rt. No 292 dated 23.02.1996 issued by the Government of Andhra Pradesh approving investment
            of surplus funds of the Endowment Institutions/ Trusts in the Bonds of IDBI.
      21.   Copy of Notification No. F-11(3)-PD/98, dated June 12, 1998 issued by Government of India, Ministry of Finance
            authorising Provident Funds etc to invest in bonds and securities issued by Public Financial Institutions.
      22.   Copy of the order of Madhya Pradesh Government dated January 15,1996 declaring Bonds issued by IDBI
            as Public Securities under Section 13 of M.P. Public Trust Act, 1951.
      23.   Copy of Notification No.PR-15018/14/96-PG dated 23.12.1997 from Government of India, Ministry of Surface
            Transport declaring the Bonds as ‘public securities’ under Section 88(2) of the Major Port Trusts Act, 1963.
      24.   Copy of letter from Government of Gujarat, Agriculture and Co-operation Department dated June 22, 1998
            confirming their permission to Co-operative Societies to invest their surplus money in Flexibonds of IDBI
            under Section 71(1)(g) of Gujarat State Co-operative Societies Act, 1964 vide its notification dated 19.12.97
            No. GHKH/67-97-SMB-2097-4249-CH.
      25.   Copy of application vide letter no.970/DRD/Flexi-19 dated November 17, 2003 to the Government of India,
            Ministry of Finance for declaring IDBI Flexibonds-19 as Public Securities under Section 20(f) of the Indian
            Trust Act, 1882.
      26.   Copy of application vide letter no.966/DRD/Flexi-19 dated November 17, 2003 to Government of Rajasthan
            for declaring the Bonds issued under the IDBI Flexibonds-19 as public securities under section 2(10)(c) of
            the Rajasthan Public Trusts Act, 1959.
      27.   Copy of application vide letter No.967/DRD/Flexi-19 dated November 17, 2003 to Government of Gujarat for
            declaration of the Bonds as Public Securities under Section 2 (12)(d) of the Bombay Public Trusts Act, 1950.
      28.   Copy of application vide letter No.968/DRD/Flexi-19 dated November 17, 2003 to Government of Maharashtra
            for declaration of the Bonds as Public Securities under Section 2(12)(d) of the Bombay Public Trusts Act,
            1950.
      29.   Copy of letter No.969/DRD/Flexi-19 dated November 17, 2003 to CBDT seeking deduction for the interest
            on IDBI Flexibonds-19 under section 80L of the Income-tax Act 1961.
      30.   SEBI Observations vide letter No.CFD/DIL/SNB/21606/2003 dated November 7, 2003.
      31.   Observations of The Stock Exchange, Mumbai vide letter No.DCS/sg/ak/ps/2003 dated October 29, 2003
            and of National Stock Exchange of India Ltd. vide letter No.NSE/LIST/55367 dated November 3, 2003.
      32.   Copy of notification dated September 12, 2003 issued by Govt. of India, Ministry of Finance, Department of
            Revenue,CBDT according approval to the Infrastructure Bonds for FY 2003-04 issued by IDBI bonds u/s
            88(2)(xvi) of the IT Act, 1961.




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                                                                          IDBI FLEXIBONDS 19


                                                DECLARATION

All relevant provisions of the IDBI Act 1964, IDBI (Issue and Management of Bonds) Regulations, 1972, IDBI
General Regulations, 1994, Industrial Development Bank of India Bonds and Deposits (Nomination) Regulations,
1997 and the relevant guidelines issued by SEBI have been complied with and no statement made in this Offer
Document is contrary to the provisions of the said Act/Regulations/Guidelines.

IDBI accepts no responsibility for statements made otherwise than in this Offer Document or in the advertisement
or any other material issued by or at the instance of IDBI and that anyone placing reliance on any other source
of information would be doing so at his own risk.

SIGNED PURSUANT TO THE AUTHORITY GRANTED BY BOARD OF DIRECTORS OF IDBI AT ITS
MEETING HELD ON THE 20 TH DAY OF JUNE, 2003 AND CHAIRMAN & MANAGING DIRECTOR’S
APPROVAL ON THE 17TH DAY OF NOVEMBER, 2003.




                                                                                        O.V.BUNDELLU
                                                                                   EXECUTIVE DIRECTOR
Place : Mumbai
Date : November 20, 2003.




                                                                                                                   131
 IDBI FLEXIBONDS 19

                             GLOSSARY OF COMMON TERMS USED IN BOND STRUCTURES.
      The debt instruments are being increasingly structured to suit investor preferences with respect to his return
      requirements, periodicity of return, investment period etc. With increasingly complex instruments being offered, the
      general retail investors are required to understand the implications of various structures in order to choose the
      right product best suited to him/her and also to make a well informed decision. To make understanding of these
      structures easy, some of the commonly used terms relating to a bond structure are explained below. The
      discussion below is not exhaustive and investors are requested to consult their investment / tax consultants from
      time to time for specific features offered under bonds issued.
      1.   Debt Instruments These are the instruments used for borrowing money. Some of the generally used
           instruments are Bonds and Deposits.
           (i)     Bonds are debt instruments, which are transferable and tradeable. Bonds can be in the form of
                   Promissory Notes or Debentures. While the two forms are the same in basic essence, they differ in
                   terms of legal format, treatment for incidence of tax, stamp duty on issue and transfer etc.
           (ii)    Deposits are debt instruments, which are non-transferable and non-negotiable. Deposits are in the form
                   of a receipt.]
      2.   Structures used in Debt Instruments.
           (i)     Premium / discount / par :
                   One often hears that an instrument is issued at par or at a premium or at a discount. This indicates the
                   value to be paid for acquiring an instrument with a given face value. For example:
                   (a)   If a bond of Rs. 100 can be bought for Rs.100, the value is at par.
                   (b)   If Rs.105 is to be paid for a Rs.100 bond, the bond is said to be sold at a premium of Rs.5.
                   (c)   Purchasing a Rs.100 bond for Rs.98 is equivalent to saying that it is bought at a discount of
                         Rs. 2.
                         Therefore premium or discount indicates the difference between the par value and the acquisition
                         value. It may be noted that irrespective of the amount at which the bond is acquired, the interest
                         will be calculated on the par value of the instrument. However, deep discount bonds are issued
                         at a discount to the face value. On maturity the bonds are redeemed at par/ face value.
                         Similarly, if an issuer undertakes to redeem the Rs.100 bond at a premium of say Rs.3, on
                         redemption date the investor will receive Rs.103 towards principal On the same analogy,
                         redemption at discount will mean that the investor will receive less than the par value on
                         redemption.
           (ii)    Redeemable / Irredeemable :
                   A redeemable instrument implies that the principal amount is returned after a specified time period. For
                   example, a 3 year bond is said to be redeemable after 3 years. Irredeemable means that the principal
                   is held by the borrower perpetually on terms of offer. However no irredeemable bonds can be issued
                   in India as per the current provisions of law. An example of irredeemable instrument is Equity Shares.
           (iii)   Secured / Unsecured :
                   A secured instrument is one for which the borrower offers specific security (in the form of assets) to
                   support meeting of repayment of principal and payment of interest in the event of default. In case of any
                   such default, the lender may enforce the security through necessary legal procedures. An unsecured
                   instrument indicates that the investors have to depend solely on the performance capabilities of the
                   issuer / borrower for principal / interest payments.
           (iv)    Senior / Subordinate Debt :
                   These two words indicate the order in which the lenders will be paid in case of liquidation of the issuer
                   / borrower. In case of liquidation, the assets of the company will be sold and the creditors / lenders will
                   be paid as per the order subject to various legal provisions. In such an eventuality, an investor in a sub-
                   ordinate debt will be paid only after meeting the payments to investors in senior debt.




132
                                                                         IDBI FLEXIBONDS 19


(v)   Fixed / Floating interest :
      A fixed interest indicates that interest will be paid at an accepted rate expressed as a percentage of the
      principal amount. However, if the interest payable on the bond is linked to some other variable rate
      (called benchmark) then the rate is said to be floating.
      For example, if interest on a Rs.100 bond with 3 year maturity is fixed at 10% p.a. payable annually the
      interest payable is Rs.10 each at the end of first, second and third year.
      Assume the rate on the above instrument is linked to one year Government Security rate on the first
      day of each year (resetting dates). If the interest rate on the first day of first, second and third year
      happens to be 10%, 11% and 9%, interest for the three years will be Rs. 10 (Rs.100 x 10%), Rs. 11
      (Rs.100 x 11%) and Rs.9 (Rs. 100 x 9%) respectively. This is an example of a floating rate instrument
      wherein the rate of interest payable every year will change as per the underlying benchmark. The
      benchmark for a floating rate instrument can be linked to rates offered on G-sec, G-sec traded rates,
      Treasury bills, stock index, commodity prices, inflation rate etc.
      The actual interest amount received every year may not be uniform in the case of a floating rate. Further
      the actual amount of interest to be received every year in case of floating rate instrument cannot be
      determined at the time of investment.
vi)   Return :
      The amount of interest paid on an investment is said to be the return. This compensation is paid in
      different forms depending on the bond structure an investor opts for. Some common terms are given
      below: -
      (a)   Interest / coupon rate : This is the rate expressed as a percentage of the par value. For example
            (1). 10% per annum (2). 9% per annum payable quarterly etc.
      (b)   Periodicity of payment: This refers to the intervals at which interest is paid by the borrower. For
            example 9% per annum payable quarterly means an investment in a Rs.100 bond will get Rs.2.25
            (100 x 9% x 1/4) at the end of every quarter. Similarly the periodicity of interest payment can also
            be monthly, half-yearly etc.
      (c)   Yield to Maturity: Yield to maturity is the effective annual return an investor will get at the end of
            each year considering that all intermittent payments (interest payments) received are reinvested
            at the rate mentioned. Yield also refers to the effective rate of interest per annum. For example.
            1.    9% per annum payable annually will result in YTM of 9%
            2.    9% per annum payable or compounded quarterly will result in yield of 9.31% and
            3.    9% per annum payable or compounded monthly will result in yield of 9.38%.
      (d)   Yield to put/call : This refers to the yield calculated for the period upto the date of put/call
            considering all intermittent cash flows to be reinvested at the same rate as the original investment
      (e)   Discount: When an investment giving a specified maturity amount is offered for a lower issue price
            (for example Rs.10,000 to be received at the end of 6 years by investing
            Rs. 5,000) the instrument is said to be at a discount. The difference between the issue price and
            the maturity value (also called as face value) will be the amount of discount. Discount rate and
            the yield to maturity will be the same and there will not be any payment of interest between the
            date of investment and the maturity date
(vii) Repayment – Bullet and staggered
      Bullet repayment :Principal amount will be repaid on the date of maturity
      Staggered payment: Principal amount will be repaid in two or more instalments (For example, payment
      of 25% each of the principal at the end of 6th, 7th, 8th and 9th year in a 9 year bond)
(viii) Options – Put / Call / Early redemption
      Increasingly borrowers/issuers of debt are providing facilities like put/call options or early redemption
      provision in the structures offered by them.



                                                                                                                     133
 IDBI FLEXIBONDS 19

             (a)   Put option : This is the right given to the investor to return the bond and take back the money on
                   specific dates between the date of investment and maturity date. This feature imparts liquidity to
                   the instrument and also permits the investor to take advantage of any favorable interest rate
                   movement during option period.
                   (For example- Consider a 9% 5 year bond with put option at the end of 3 years. An investor invests
                   in the bond taking it as 5 year investment. If the interest after 3 years for a two year bond is 12%
                   p.a., the investor can exercise put option and reinvest for 2 years at 12% thereby increasing his
                   overall return).
             (b)   Call option : This is the right retained by the borrower/issuer to call back the bond and return the
                   money to the investor on specific dates between the date of investment and the maturity date.
                   Whenever such option is available, the investor should rather look at the returns and investment
                   period upto the date of first call option.
                   For example- Consider a 10 year bond with call option at the end of 5 years. An investor invests
                   in the bond taking it as a 10 year investment. If the issuer exercises option at the end of 5 years,
                   the investor may or may not be able to get same returns for the balance 5 years by investing in
                   other securities. This uncertainty is called reinvestment risk.
             (c)   Early redemption
                   This nomenclature is generally used when the put/call option is not on any specific dates, but can
                   be exercised over a period before the date of maturity.
             (d)   Option date and Option notice
                   As mentioned above, option dates can be anytime between the date of investment and maturity
                   date. Issuer/investor desirous of exercising the option will have to give specific notice of the same
                   in advance to the investor /issuer respectively. The exact notice period will be mentioned in the
                   bond terms.
      (ix)   Other related terms:
             1.    Interest payment date
                   In case of interest bearing instruments the date(s) on which interest will be paid represents interest
                   payment dates. (For example, If interest is payable for the calendar quarter on the first of the
                   succeeding month, interest will be paid on April 1 for the period January to March, on July 1 for
                   the period April to June etc.).
             2.    Record date
                   Interest/redemption proceeds are paid to the investors whose names appear on the records of the
                   issuer as on a particular date which is referred to as Record Date. Investors are required to ensure
                   that the bonds purchased by them are transferred in their names before the record date, failing
                   which the issuer will send the payment to the person whose name appears in the register of bond
                   holders.
             3.    Deemed Date of allotment
                   Deemed Date of allotment will be the date on which the investment proposed by the applicant is
                   considered to have been accepted by the issuer. The terms of the bond will come into effect from
                   this date even though the actual date of allotment could differ from the deemed date of allotment.
             4.    Listing
                   Bonds can be listed on the Stock Exchanges. Generally major issuers list securities in the leading
                   Stock Exchanges. Listing facilitates trading of the securities by the holders thereby imparting
                   liquidity.
             5.    Ranking of various instruments
                   In case of liquidation of the issuer, the amount due to various types of bond holders will be settled
                   in the following order.




134
                                                                IDBI FLEXIBONDS 19


     Secured debt.
     Unsecured Senior debt (includes Bonds, Fixed Deposits etc.)
     Unsecured Sub-ordinate debt
     This in essence will mean that an investor in unsecured sub-ordinate debt will be paid only after
     meeting the payments due to the investors in secured debt and unsecured senior debt.
6.   Market Making
     This is a facility whereby market makers will give two way quotes (Buy / Sell) in the secondary
     market. This is done with the intention of creating liquidity to the instrument in the secondary
     market. Presence of the market maker for specific securities helps the investors in those securities
     to have additional liquidity
7.   Depository Arrangement
     Bonds can be dematerialised through a depository. Dematerialisation creates paperless security
     thereby reducing the risk of forged documents, does away with consequences of loss of security,
     reduces transaction time and brokerage. Also the trading in dematerialised securities in the
     secondary market does not attract stamp duty.




                                                                                                            135
 IDBI FLEXIBONDS 19


                                                  HEAD OFFICE:
                           IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005.
                   Tel: (022) 22182026/221989117/22161746. Fax: (022) 22188137, 22181155.
                                  Grams: INDBANKIND. Website : www.idbi.com

                                                 ZONAL OFFICES
      IDBI, Chennai                      IDBI, Guwahati                       IDBI, Kolkata
      115, Anna Salai                    G.S.Road,                            44, Shakespeare Sarani,
                  .
      Saidapet, P B. No. 1306,           Guwahati 781005                      P.B.No.16102,
      Chennai 600015                     Assam.                               Kolkata 700017,
      Tamil Nadu                         Tel.: (0361) 2529520-24              West Bengal.
      Tel.: (044) 22355201-16            Fax : 2452136                        Tel.: (033) 22476818-20
      Fax : 22355226/3346                                                     Fax : 22473593

      IDBI, Mumbai                       IDBI, New Delhi
      IDBI Tower, 5th Floor,             Indian Red Cross Society Bldg.1,
      WTC Complex,                       Red Cross Road,
      Cuffe Parade,                      P.B.No. 231,
      Mumbai 400005                      New Delhi 110001
      Maharashtra                        Tel.: (011) 23716181-84
      Tel.: (022) 22160696-98            23711733, 23725480 - 81
      Fax : 22160785                     Fax : 23711664 / 23718074

                                                BRANCH OFFICES

      IDBI, Agartala             IDBI, Bangalore            IDBI, Chandigarh            IDBI, Dimapur
      Chapala Villa              IDBI House,                S.C.O. 72-73,               Leirauki, 1st Floor,
      Near Circuit House,        58, Mission Road,                        .B.
                                                            Sector 17-B, P No. 27,      Khermahal Junction,
      Airport Road,              Bangalore 560027,          Chandigarh 160017           P.B.No.173,
      Kunjaban P  .O.,           Karnataka.                 Tel.: (0172)                Dimapur 797112.
      Agartala 799006,           Tel.: (080) 22245047/8     2709689/2702781             Nagaland.
      Tripura.(0381)             22275442/22225442/2272     Fax.: 2703409               Tel. & Fax : (03862) 225715
      Tel. & Fax : 2324986       869/22274840/22211335
                                 Fax. : 22215194/22213166
      IDBI, Ahmedabad            IDBI, Bhopal               IDBI, Chennai               IDBI, Hyderabad
      IDBI Complex,              6, Malviya Nagar,          115, Anna Salai Saidapet,   D.No. 5-9-89/1&2,
      Nr. Lal Bungalow,          Opp.Raj Bhavan,             .
                                                            P B. No. 1306,              Chapel Road, P  .B.No.370,
      Off CG Road.               Adj. to LIC,               Chennai 600015.             Hyderabad 500001.
      Ahmedabad 380006,          Bhopal 462003,             Tamil Nadu.                 Andhra Pradesh.
      Gujarat.(079)              Madhya Pradesh.            Tel.: (044) 22355201-16     Tel.: (040) 23236846/
      Tel: 26563911/4994/4149    Tel. : (0755) 2558415/     Fax : 22355226/3346         5466/6145/4610/3240841
      26565301/822/849/896       2555008/ 2762399                                       Fax : 23230613
      Fax : 26400814             Fax : 2554921/ 2220563
      IDBI, Aizwal               IDBI, Bhubaneshwar         IDBI, Coimbatore            IDBI, Indore
      P Vaivenga Bldg.,
       .U.                       IDBI House, Janapath,      Stock Exchange Bldg.,       2nd Floor, Chaturvedi
      Tuikhuahlang,              P B. No.190,
                                  .                         683-686, Trichy Road,       Mansion, 26/4, Old Palasia,
      Aizwal 796001,             Bhubaneswar 751022,        Coimbatore 641005.          Agra-Mumbai Road,
      Mizoram (0389)             Orissa.                    Tamil Nadu.                 Indore 452001
      Tel. & Fax No. 2325791     Tel: (0674) 2542196/       Tel. : (0422) 2310262/67    Madhya Pradesh.
                                 2542572, 2543243           Fax.: 2310257               Tel. (0731) 2563496/2561898
                                 Fax : 2543442                                          Fax: 2563496




136
                                                                            IDBI FLEXIBONDS 19


IDBI, Itanagar                IDBI, Ludhiana               IDBI, Panaji                 IDBI, Shimla
VIP Road, Bank Tinali,        B-19-110/4, 2nd floor,       EDC House,                   Jeevan Jyoti, Lala Lajpat
Itanagar 791111               203, Carnival Shopping       6th Floor,                   Rai Chowk, The Mall,
Arunachal Pradesh.             Centre, Mall Road,          Dr. Atmaram Borkar Road,      .B.
                                                                                        P No.52,
Tel & Fax : (0360) 2211436    Ludhiana 141001.             Panaji, 403 001.             Shimla 171001
                              Punjab.                      Goa                          Himachal Pradesh
                              Tel : (0161) 2407436/6541    Tel.: (0832) 2223112/1453.   Tel.: (0177) 2258999
                              Fax: 2406541                 Fax : 2223401                Fax : 2254169
IDBI, Jaipur                  IDBI, Mangalore              IDBI, Patna                  IDBI, Surat
Anand Bhavan,                 3rd Floor, Siddarth Bldg.,   Maurya Centre,               302, Meridian Tower,
1st Floor,                    Bal Matta Road,              1 Fraser Road, P.B.No.183,   3rd Floor, Nr.Rajkumar
Sansar Chandra Road,          Mangalore 575001.            Patna 800001.                Theatre, Udhna Darwaja,
P.B.No.22,                    Karnataka.                   Bihar                        Ring Road, Surat 395003
Jaipur 302001                 Tel.: (0824) 2444952.        Tel.Nos: (0612) 2223797/     Gujarat
Rajasthan.                    Fax: 2447029                 2225676/5535/2230450         Tel: (0261) 28342890/
Tel.: (0141) 2360581-82/83                                 Fax: 2220758                 28348040
Fax : 2372830                                                                           Fax : 28342890
IDBI, Jammu                   IDBI, Meerut                 IDBI, Pune                   IDBI, Varanasi
Office Block No. O.B. 26,     222-225, Citi Centre,        IDBI House, F.C. Road,       1st floor
Grid Bhavan,                  2nd floor, Begum Bridge      Dnyaneshwar Paduka           D-64/132-K
1st Floor,                    Road, Meerut 250001.         Chowk, Shivajinagar,         Anant Complex, Sigra,
rail Head Complex,            Uttar Pradesh.               Pune: 411004                 Varanasi 221010
Jammu - 180012. J&K           Tel. & Fax (0121)2528970     Maharashtra                  Uttar Pradesh
Tel.: (0191) 2474337                                       Tel. (020)25677481-5         Tel : (0542) 2224023/4083
Fax : 2474338                                              Fax. : 25676132              Fax : 2224023

IDBI, Kanpur                  IDBI, Mumbai                 IDBI, Rajkot
                                            th                                          IDBI, Vijayawada
Virendra Smriti,              IDBI Tower, 5 Floor,         201, 235, 236, Star          3A, Alankar Complex,
2nd Floor, 15/54-B            WTC Complex,                 Chamber, IInd Floor,
                                                                                        3rd Floor, Gandhi Nagar,
Civil Lines,                  Cuffe Parade,                Dr. Rajendra Prasad Road,    Vijaywada 520003.
Kanpur 208001.                Mumbai 400005.               Rajkot 360001.               Andhra Pradesh.
Uttar Pradesh.                Maharashtra                  Gujarat                      Tel. & Fax : (0866)
Tel.:(0512) 2304232/2304380   Tel.: (022) 22160696-98      Tel.: (0281) 2234904         2571025.
2306866, 2306915              Fax : 221660785              Fax : 2233453
Fax : 2304286
IDBI, Kochi                   IDBI, Nagpur                 IDBI, Ranchi                 IDBI, Visakhapatnam
Panampilly Nagar,             F-1, 1st floor,              Arjan Place, 1st Floor,      13-26-2, 1st Floor,
P.B.No. 4253,                 Vasant Vihar Complex, 6,     5 Main Road,                 Apuroopa Arcade,
Kochi 682036                  Shankar Nagar,               Ranchi 834001.               Jagadamba Centre,
Kerala.                       West High Court Road,        Bihar.                       Visakhapatnam 530002.
Tel.: (0484) 2318889,         Nagpur 440 010.              Tel. (0651) 2300357/         Andhra Pradesh
23221571 / 168, 2312964       Maharashtra                  2208655                      Tel. (0891): 2565067
Fax : 2319042                 Tel : (0712) 2536505         Fax: (0651) 2300357          Fax : 2565267
                              Fax : 2547668
IDBI, Kolkata                 IDBI, New Delhi              IDBI, Shillong
44, Shakespeare Sarani,       Indian Red Cross             Sapphire House,
P.B.No.16102,                 Soc.Bldg. 1,Red Cross        Don Bosco Road,
Kolkata 700017.               Road,                        Laitumkrah, P .B.No.31,
West Bengal.                  P.B.No. 231,                 Shillong 793003
Tel.. (033) 22807924,         New Delhi 110001             Meghalaya.
22478834                      Tel. : (011) 23716181-84     Tel. & Fax: (0364) 2224632
Fax : 2475094                 23711733, 23725 480-81
                              Fax : 23711664/80474




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