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					C M Y K




                                                                                                                                                    LETTER OF OFFER
                                                                                                                                                 Dated February 1, 2008
                                                                                                                                For Equity Shareholders of the Bank only




                                                                     State Bank of India
                                                      (Constituted under State Bank of India Act, 1955)
                               Central Office: State Bank Bhavan, Madame Cama Road, Mumbai 400 021, Maharashtra, India
                                           Tel. no. (91 22) 2288 3888 / 2283 0535; Fax no. (91 22) 2285 5348
                                          Contact Person: Mr. Subrata Maiti, General Manager (Shares & Bonds)
                                               E-mail: gm.snb@sbi.co.in Website: www.statebankofindia.com
                           FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE BANK ONLY
                                                                                    LETTER OF OFFER
  ISSUE OF 105,259,776 EQUITY SHARES OF FACE VALUE RS. 10 EACH AT A PREMIUM OF RS. 1,580 PER EQUITY SHARE
  AGGREGATING TO AN AMOUNT EQUIVALENT TO RS. 167,363.04 MILLION TO THE EQUITY SHAREHOLDERS ON A
  RIGHTS BASIS IN THE RATIO OF ONE EQUITY SHARE FOR EVERY FIVE EQUITY SHARES HELD ON THE RECORD
  DATE i.e. FEBRUARY 4, 2008 (THE “ISSUE”). THE ISSUE PRICE FOR EQUITY SHARES IS 159 TIMES OF THE FACE
  VALUE OF THE EQUITY SHARE.
  THIS BEING A FAST TRACK ISSUE, THE BANK HAS FILED A LETTER OF OFFER WITH THE DESIGNATED STOCK
  EXCHANGE AND THE SECURITIES AND EXCHANGE BOARD OF INDIA.
                                                                                       GENERAL RISKS
 Investments in equity and equity related securities involve a high degree of risk and Investors should not invest any funds in this Issue unless they
 can afford to take the risk of losing their investment. Investors are advised to read the Risk Factors carefully before taking an investment
 decision in relation to this Issue. For taking an investment decision, Investors must rely on their own examination of the Issuer and the Issue
 including the risks involved. The securities have not been recommended or approved by the Securities and Exchange Board of India ("SEBI") nor
 does SEBI guarantee the accuracy or adequacy of this document. Investors are advised to refer to "Risk Factors" on page 9 of this Letter
 of Offer before making an investment in this Issue.
                                                                     ISSUER'S ABSOLUTE RESPONSIBILITY
 The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all information with
 regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in this Letter of Offer is true and
 correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held
 and that there are no other material facts, the omission of which makes this Letter of Offer as a whole or any such information or the
 expression of any such opinions or intentions misleading in any material respect.
                                                                                             LISTING
 The existing Equity Shares of the Bank are listed on the Bombay Stock Exchange Limited ("BSE"), the National Stock Exchange of India
 Limited ("NSE"), the Calcutta Stock Exchange Association Limited ("CSE"), the Madras Stock Exchange Limited ("MSE"), the Delhi Stock
 Exchange Association Limited ("DSE") and the Stock Exchange, Ahmedabad ("ASE"). The Bank has received "in-principle" approvals from the
 BSE and NSE for listing the Equity Shares arising from this Issue vide letters dated January 31, 2008 and January 30, 2008, respectively. For the
 purposes of the Issue, the Designated Stock Exchange shall be the NSE. Global Depository Receipts which represent the underlying Equity Shares
 of the Bank are listed on the London Stock Exchange.

                                                       LEAD MANAGERS TO THE ISSUE                                                                                 REGISTRAR TO THE ISSUE


                                                                                                                                                                         Datamatics Financial Services Ltd.




 Citigroup Global Markets India    CLSA India Limited                Deutsche Equities India Private   DSP Merrill Lynch Limited    Kotak Mahindra Capital        Datamatics Financial
 Private Limited                   8/F Dalamal House                 Limited                           Mafatlal Center,             Company Limited               Services Ltd.
 12th Floor, Bakhtawar,            Nariman Point                     DB House,                         10th Floor,                  3rd Floor, Bakhtawar,         A 16 & 17, MIDC Part B
 Nariman Point,                    Mumbai 400 021                    Hazarimal Somani Marg, Fort,      Nariman Point,               229, Nariman Point,           Crosslane, Andheri (East),
 Mumbai 400 021                    Tel.: (91 22) 6650 5050           Mumbai 400001                     Mumbai 400 021               Mumbai 400 021                Mumbai 400 093
 Tel.: (91 22) 6631 9999           Fax.: (91 22) 2285 6524           Tel.: (91 22) 6658 4600           Tel.: (91 22) 6632 8000      Tel.: (91 22) 6634 1100       Tel.: (91 22) 6671 2151 - 2156
 Fax.: (91 22) 6631 9803           Email: sbi.rights@clsa.com        Fax.: (91 22) 2200 6765           Fax.: (91 22) 2204 8518      Fax.: (91 22) 2283 7517       Fax.: (91 22) 6671 2192
 Email: investors.cgmib@citi.com   Website: www.india.clsa.com       Email: sbi.rights@list.db.com     Email: sbi_rights@ml.com     Email: sbi.rights@kotak.com   Email: sbirights@dfssl.com
 Website: www.citibank.co.in       Contact Person: Mr. Sumit Jalan   Website: www.db.com/India         Website: www.dspml.com       Website: www.kotak.com        Website: www.dfssl.com
 Contact Person: Mr. Amulya        SEBI Regn No: INM000010619        Contact Person: Mr. Vikram        Contact Person: Mr. Pranav   Contact Person:               Contact Person: Mr. Dnyanesh
 Goyal                                                               Gupta                             Mehta                        Mr. Chandrakant Bhole         Gharote
 SEBI Regn No: INM000010718                                          SEBI Regn No: INM000010833        SEBI Regn No: INM000002236   SEBI Regn No: INM000008704    SEBI Regn No: INR000000874

                                                                                 ISSUE PROGRAMME
                ISSUE OPENS ON                                          LAST DATE FOR REQUEST FOR                                                 ISSUE CLOSES ON
                                                                         SPLIT APPLICATION FORMS
                February 18, 2008                                                       March 3, 2008                                                March 18, 2008


                                                                                                                                                                                                      C M Y K
                                                                         TABLE OF CONTENTS

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

RISK FACTORS ............................................................................................................................................................ 9

THE ISSUE .................................................................................................................................................................... 29

SELECTED FINANCIAL AND OPERATING DATA ..................................................................................................... 30

GENERAL INFORMATION .......................................................................................................................................... 35

OVERSEAS SHAREHOLDERS ..................................................................................................................................... 42

CAPITAL STRUCTURE ................................................................................................................................................ 45

OBJECTS OF THE ISSUE .............................................................................................................................................. 55

BASIS FOR ISSUE PRICE ............................................................................................................................................. 57

INDUSTRY OVERVIEW ................................................................................................................................................ 59

BUSINESS ..................................................................................................................................................................... 71

DESCRIPTION OF ASSETS AND LIABILITY MANAGEMENT AND RISK MANAGEMENT OF THE BANK ........ 98

REGULATIONS AND POLICIES ................................................................................................................................... 110

DIVIDENDS ................................................................................................................................................................... 134

MANAGEMENT ........................................................................................................................................................... 135

RELATED PARTY TRANSACTIONS ........................................................................................................................... 155

DESCRIPTION OF CERTAIN DIFFERENCES BETWEEN INDIAN GAAP AND U.S. GAAP ...................................... 156

AUDITORS'S REPORT (UNCONSOLIDATED) ............................................................................................................ 161

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

FINANCIAL STATEMENTS ......................................................................................................................................... 166

STOCK MARKET DATA FOR EQUITY SHARES OF THE BANK .............................................................................. 233

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ......................................................................................................................................... 235

MATERIAL DEVELOPMENTS ..................................................................................................................................... 266

DESCRIPTION OF CERTAIN INDEBTEDNESS ............................................................................................................ 270

OUTSTANDING LITIGATION AND DEFAULTS ......................................................................................................... 271

GOVERNMENT APPROVALS ....................................................................................................................................... 276

STATUTORY AND OTHER INFORMATION ............................................................................................................... 279

TERMS OF THE PRESENT ISSUE ................................................................................................................................ 291

MAIN PROVISIONS OF THE STATE BANK OF INDIA ACT AND STATE BANK OF INDIA REGULATIONS ........ 309

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ........................................................................... 322

DECLARATION ............................................................................................................................................................ 323
                                                                                              State Bank of India

                                          OVERSEAS SHAREHOLDERS

 The distribution of this Letter of Offer and the issue of Equity Shares on a rights basis to persons in certain jurisdictions
outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this
Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this
issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer
and CAF will be dispatched to those shareholders who have an Indian address.
 No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that
purpose, except that this Letter of Offer has been filed with the Stock Exchanges and with SEBI. Accordingly, the Equity
Shares delivered upon exercise of the Rights Entitlements may not be offered or sold, directly or indirectly, and this Letter
of Offer may not be distributed, in any jurisdiction outside of India. Receipt of this Letter of Offer will not constitute an
offer in those jurisdictions in which it would be illegal to make such an offer and, in those circumstances, this Letter of
Offer must be treated as sent for information only and should not be copied or redistributed. No person receiving a copy
of this Letter of Offer in any territory other than in India may treat this Letter of Offer as constituting an invitation or offer
to him, nor should he in any event use the CAF. The Bank will not accept any CAF where the address as indicated by the
applicant is not an Indian address. Accordingly, persons receiving a copy of this Letter of Offer should not, in connection
with the issue of Equity Shares or the Rights Entitlements, distribute or send the same in or into the United States or any
other jurisdiction where to do so would or might contravene local securities laws or regulations. If this Letter of Offer is
received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Equity
Shares or to exercise the Rights Entitlements referred to in this Letter of Offer.
 Neither the delivery of this Letter of Offer nor any sale hereunder shall under any circumstances create any implication
that there has been no change in the Bank's affairs from the date hereof or that the information contained herein is correct
as at any time subsequent to this date.
European Economic Area Restrictions
 In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive at any
relevant time (each, a "Relevant Member State") an offer of the Equity Shares to the public may not be made in that
Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved
by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus
Directive, except that an offer to the public in that Relevant Member State of any Equity Shares may be made at any time
under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member
State:
(a)   to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or
      regulated, whose corporate purpose is solely to invest in securities;
(b)   to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year;
      (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as
      shown in its last annual or consolidated accounts; or
(c)   in any other circumstances falling within Article 3(2) of the Prospectus Directive.
provided that no such offer of Equity Shares shall result in a requirement for the publication by the Bank or any Manager
of a prospectus pursuant to Article 3 of the Prospectus Directive.
 For the purpose of this provision, the expression an "offer of Equity Shares to the public" in relation to any Equity Shares
in any Relevant Member State means the communication in any form and by any means of sufficient information on the
terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for
the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive
in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant
implementing measure in each Relevant Member State.
This European Economic Area selling restriction is in addition to any other selling restriction set out below.


                                                                i
United Kingdom Restrictions
 This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii)
to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom it may lawfully be
communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant
persons"). The Equity Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or
otherwise acquire such Equity Shares will be engaged in only with, relevant persons. Any person who is not a relevant
person should not act or rely on this document or any of its contents.
Republic of Italy Restrictions
The Issue of Equity Shares has not been registered pursuant to Italian securities legislation and, accordingly, no Equity
Shares may be offered, sold or delivered, nor may copies of this document or of any other document relating to the Equity
Shares be distributed in the Republic of Italy, except:
(i)    to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24
       February 1998, as amended (the Financial Services Act) and the relevant implementing CONSOB regulations, as
       amended from time to time, and in Article 2 of Directive No. 2003/71/EC of 4 November 2003; or
(ii)   in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the
       Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as
       amended (Regulation No. 11971).
Any offer, sale or delivery of the Equity Shares or distribution of copies of this document or any other document relating
     to the Equity Shares in the Republic of Italy under (i) or (ii) above must be:
(a)    made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of
       Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 (as amended
       from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the Banking Act); and
(b)    in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian
       authority.
                                           NO OFFER IN THE UNITED STATES
 The Rights Entitlements and the Equity Shares of the Bank have not been and will not be registered under the United
States Securities Act of 1933, as amended (the "Securities Act"), or any U.S. state securities laws and may not be offered,
sold, resold or otherwise transferred within the United States of America or the territories or possessions thereof (the
"United States" or "U.S.") or to, or for the account or benefit of, "U.S. Persons" (as defined in Regulation S under the
Securities Act ("Regulation S")), except in a transaction exempt from the registration requirements of the Securities Act.
The rights referred to in this Letter of Offer are being offered in India, but not in the United States. The Issue to which this
Letter of Offer relates is not, and under no circumstances is to be construed as, an offering of any shares or rights for sale
in the United States or as a solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter
of Offer and the enclosed CAF should not be forwarded to or transmitted in or into the United States at any time.
 Neither the Bank nor any person acting on behalf of the Bank will accept a subscription or renunciation from any person,
or the agent of any person, who appears to be, or who the Bank or any person acting on behalf of the Bank has reason to
believe is, in the United States and to whom an offer, if made, would result in requiring registration of this Letter of Offer
with the United States Securities and Exchange Commission. Envelopes containing a CAF should not be postmarked in the
United States or otherwise dispatched from the United States, and all persons subscribing for Equity Shares and wishing
to hold such shares in registered form must provide an address for registration of the Equity Shares in India. The Bank is
making this issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter
of Offer and CAF shall be dispatched to those Shareholders who have an Indian address. Any person who acquires Rights
Entitlements or Equity Shares will be deemed to have declared, warranted and agreed, by accepting the delivery of this
Letter of Offer, that it is not and that at the time of subscribing for the Equity Shares or the Rights Entitlements, it will not
be, in the United States.


                                                               ii
                                                                                         State Bank of India

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




                                                            iii
     PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA

 The Bank maintains its financial books and records and prepares its financial statement in Rupees in accordance with
generally accepted accounting principles in the Republic of India ("Indian GAAP") which differ in certain important
respects from generally accepted accounting principles in the United States ("U.S. GAAP"). For a discussion of the
principal differences between Indian GAAP and U.S. GAAP as they relate to the Bank, see "Description of Certain
Differences Between Indian GAAP and U.S. GAAP." Industry and market share data in this Letter of Offer are derived from
data of the RBI or the DGCIS and calculated by the Bank where applicable. Indian economic data in this Letter of Offer is
derived from data of the RBI and the economic surveys of the Government. Certain financial and statistical figures have
been rounded to the nearest tenth of a decimal place.
Unless stated otherwise, the financial information used in this Letter of Offer is derived from the Bank's consolidated
audited financial statements as of March 31 for the years ended 2007, 2006, 2005, 2004 and 2003 and consolidated limited
reviewed financial statements for the six-months ended on September 30, 2007 prepared in accordance with Indian GAAP
and applicable regulations, included in this Letter of Offer.
In this Letter of Offer, any discrepancies in any table between the total and the sum of the amounts listed may be due to
rounding off.
 Market and industry data used in this Letter of Offer, has been obtained from industry publications and governmental
sources. Industry publications generally state that the information contained in those publications has been obtained from
sources believed to be reliable and that their accuracy and completeness are not guaranteed and their reliability cannot be
assured. Although the Bank believes that market data used in this Letter of Offer is reliable, it has not been independently
verified.




                                                            iv
                                                                                       State Bank of India

                                              EXCHANGE RATES

 The following table sets forth, for the periods indicated, information concerning the exchange rates between Indian
rupees and U.S. dollars based on the closing noon buying rate in New York City for cable transfers of Indian rupees as
certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate as on December 31, 2007
was Rs. 39.41 = U.S.$ 1.00. No representation is made that the rupee amounts actually represent such American dollar
amounts or could have been or could be converted into American dollars at the rates indicated, any other rate or at all.
                                    Rupee and American Dollars Exchange Rates
 Year ended March 31,                                             Period End       Average         High           Low
 2003                                                                   47.53         48.43        49.07         47.53
 2004                                                                   43.40         45.96        47.46         43.40
 2005                                                                   43.62         44.86        46.45         43.27
 2006                                                                   44.48         44.17        46.26         43.05
 2007                                                                   43.10         45.12        46.83         42.78

 Month                                                            Period End       Average         High           Low
 January 2007                                                           44.07         44.21        44.49         44.07
 February 2007                                                          44.08         44.02        44.21         43.87
 March 2007                                                             43.10         43.79        44.43         42.78
 April 2007                                                             41.04         42.02        43.05         40.56
 May 2007                                                               40.36         40.57        41.04         40.14
 June 2007                                                              40.58         40.59        40.90         40.27
 July 2007                                                              40.18         40.27        40.42         40.12
 August 2007                                                            40.63         40.68        41.15         40.25
 September 2007                                                         39.75         40.15        40.81         39.50
 October 2007                                                           39.26         39.36        39.72         38.48
 November 2007                                                          39.52         39.33        39.68         39.11
 December 2007                                                          39.41         39.38        39.55         39.29
Source: Bloomberg




                                                           v
                                     FORWARD-LOOKING STATEMENTS

The Bank has included statements in this Letter of Offer which contain words or phrases such as "will", "would", "aim",
"aimed", "will likely result", "is likely", "are likely", "believe", "expect", "expected to", "will continue", "will achieve",
"anticipate", "estimate", "estimating", "intend", "plan", "contemplate", "seek to", "seeking to", "trying to", "target",
"propose to", "future", "objective", "goal", "project", "should", "can", "could", "may", "will pursue", "our judgment"
and similar expressions or variations of such expressions, that are "forward-looking statements". Actual results may differ
materially from those suggested by the forward-looking statements due to certain risks or uncertainties associated with
the Bank's expectations with respect to, but not limited to, the actual growth in demand for banking and other financial
products and services, its ability to successfully implement its strategy, including its use of the Internet and other
technology and its rural expansion, its ability to integrate recent or future mergers or acquisitions into its operations, its
ability to manage the increased complexity of the risks the Bank faces following its rapid international growth, future levels
of impaired loans, its growth and expansion in domestic and overseas markets, the adequacy of its allowance for credit and
investment losses, technological changes, investment income, its ability to market new products, cash flow projections,
the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions the Bank is or will become a
party to, the future impact of new accounting standards, its ability to implement its dividend policy, the impact of changes
in banking regulations and other regulatory changes in India and other jurisdictions on the Bank, including on the assets
and liabilities of SBI, a former financial institution not subject to Indian banking regulations, its ability to roll over its
short-term funding sources and its exposure to credit, market and liquidity risks. By their nature, certain of the market risk
disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual
future gains, losses or impact on net interest income and net income could materially differ from those that have been
estimated.
In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking
statements contained in this Letter of Offer include, but are not limited to, the monetary and interest rate policies of India
and the other markets in which the Bank operates, natural calamities, general economic, financial or political conditions,
instability or uncertainty in India, southeast Asia, or any other country which have a direct or indirect impact on its
business activities or investments, caused by any factor including terrorist attacks in India, the United States or
elsewhere, anti-terrorist or other attacks by the United States, a United States-led coalition or any other country, tensions
between India and Pakistan related to the Kashmir region, military armament or social unrest in any part of India, inflation,
deflation, unanticipated turbulence in interest rates, changes or volatility in the value of the rupee, instability in the sub
prime credit market and liquidity levels in the U.S., foreign exchange rates, equity prices or other market rates or prices, the
performance of the financial markets in general, changes in domestic and foreign laws, regulations and taxes, changes in
the competitive and pricing environment in India, and general or regional changes in asset valuations. For a further
discussion on the factors that could cause actual results to differ, see the discussion under "Risk Factors" included
elsewhere in this Letter of Offer. The forward-looking statements made in this Letter of Offer speak only as of the date of
this Letter of Offer. The Bank does not intend to publicly update or revise these forward-looking statements to reflect
events or circumstances after the date of this Letter of Offer, and the Bank does not assume any responsibility to do so.




                                                              vi
                                                                                         State Bank of India

                              ABBREVIATIONS AND TECHNICAL TERMS

All references in this document to "U.S. dollars", "U.S.$" and "$" refer to United States dollars and to "Rupees" and "Rs."
refer to Indian Rupees. In addition, references to "euro" and " " refer to the currency introduced at the start of the third
stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as
amended. All references in this document to the "Government" and "Central Government" refer to the Government of
India.
Except as otherwise stated in this Letter of Offer, all translations from Indian Rs. to U.S. dollars are based on the noon
buying rate in the City of New York on December 31, 2007, for cable transfers in Indian Rs. as certified for customs
purposes by the Federal Reserve Bank of New York which was Rs. 39.41 per $1.00. No representation is made that the
Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate.
Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.
References to "crores" and "lakhs" are to the following:
 One lakh                                           100,000                     (one hundred thousand)
 One crore                                          10,000,000                  (ten million)
 Ten crores                                         100,000,000                 (one hundred million)
 One hundred crores                                 1,000,000,000               (one thousand million or one billion)

Bank Related Terms
 Act                                The State Bank of India Act, 1955
 Auditors                           The Joint Statutory Auditors of the Bank namely:
                                    1. M.M. Nissim & Co.
                                       Chartered Accountants,
                                       Barodawala Mansion, B-Wing, 3rd Floor,
                                       81, Dr. Annie Besant Road
                                       Worli, Mumbai 400 018.
                                    2. Khandelwal Jain & Co
                                       Chartered Accountants,
                                       12-B Baldota Bhawan, 5th Floor,
                                       117, Maharshi Karve Road, Opp. Churchgate
                                       Mumbai 400 020
                                    3. R.G.N. Price & Co.
                                       Chartered Accountants,
                                       Simpson Buildings,
                                       861, Mount Road,
                                       Chennai 600 002
                                    4. S. K. Mittal & Co.
                                       Chartered Accountants,
                                       Mittal House, E-29,
                                       South Extension Part II,
                                       New Delhi 110 049.
                                    5. Vinay Kumar & Co.
                                       Chartered Accountants,
                                       Chandra Shekar Azad Market Complex,
                                       5 Sardar Patel Marg, Civil Lines,
                                       Allahabad 2110 01 (UP)
                                    6. D.P. Sen & Co.

                                                              1
                                 Chartered Accountants
                                 22, Ashutosh Chowdhury Avenue,
                                 2nd Floor, Flat No. 22,
                                 Kolkata 700 019
                              7. Laxminiwas & Jain
                                 Chartered Accountants,
                                 5-4-726, Station Road, Nampally,
                                 Hyderabad 500 001
                              8. Chaturvedi & Co.
                                 Chartered Accountants,
                                 60, Bentinck Street,
                                 Kolkata - 700 069
                              9. Jain Kapila Associates
                                 3000, Bhagat Singh Street No. 2,
                                 Paharganj,
                                 New Delhi 110 055
                              10. Datta Singla & Co.
                                  Chartered Accountants,
                                  SCO-2935-36(1st floor), Sector 22 C,
                                  Chandigarh 160 022
                              11. M. Choudhury & Co.
                                  Chartered Accountants,
                                  60, Bentinck Street,
                                  Kolkata - 700 069
                              12. G. M. Kapadia & Co.
                                  Chartered Accountants,
                                  36B Tamarind House, Tamarind Lane,
                                  Fort, Mumbai 400 001
                              13. Vardhaman & Co.
                                  Chartered Accountants,
                                  Flat 1C Rear Block, Oakland Apartments
                                  7 Malony Road,
                                  T. Nagar, Chennai 600 017
the Bank                      The State Bank of India, constituted under the State Bank of India Act, 1955, having
                              its registered office at State Bank Bhavan, Madame Cama Road, Mumbai 400 021,
                              Maharashtra, India. Unless otherwise specified, references to "the Bank" are to
                              State Bank of India on an unconsolidated basis.
Central Board                 Central Board of Directors of the Bank
Capital or Share Capital      Issued share capital of the Bank
Equity Share(s) or Share(s)   The equity share of the Bank having a face value of Rs. 10 unless otherwise
                              specified in the context thereof.
Equity Shareholder            A holder of the Equity Shares on the Record Date
the Group                     The State Bank of India and its consolidated Subsidiaries, Associate Banks and
                              other jointly controlled entities. References to specific data applicable to particular
                              subsidiaries, Associate Banks or other jointly controlled entities are made by
                              reference to the name of that particular entity.


                                                      2
                                                                                    State Bank of India

General Terms and Abbreviations
Term                Description
AGM                 Annual General Meeting
AS                  Indian Accounting Standard
AY                  Assessment Year
BSE                 The Bombay Stock Exchange Limited
CDSL                Central Depository Services (India) Limited
Companies Act       Companies Act, 1956
Collecting Branches Designated branches of State Bank of India for collection of CAF and Application Money
Depositories Act    The Depositories Act, 1996, as amended
Depository         A body corporate registered under the SEBI (Depositories and Participant) Regulations, 1996, as
                   amended
DP                  Depository Participant
EGM                 Extraordinary General Meeting
EPS                 Earnings per share
ESPS                Employees Share Purchase Scheme, 2008
FEMA                Foreign Exchange Management Act, 1999
FCNR Account        Foreign Currency Non Resident Account
FDI                 Foreign Direct Investment
FI                  Financial Institutions
FII(s)              Foreign Institutional Investors as defined in and registered with SEBI under the SEBI (Foreign
                   Institutional Investors) Guidelines, 1996
fy / fiscal         Financial Year ending March 31 or December 31, as the case may be
FVCI               Foreign Venture Capital Investors, as defined in and registered with SEBI under the SEBI (Foreign
                   Venture Capital Investor) Regulations, 2000, as amended
GOI/Government/
Central
Government          Government of India
GDP                 Gross Domestic Product
GDR                 Global Depository Receipt
HUF                 Hindu Undivided Family
IT Act              The Income Tax Act, 1961 and amendments thereto
ITAT                Income Tax Appellate Tribunal
MAT                 Minimum Alternate Tax
Mn                  Million
MoU                 Memorandum of Understanding
MoF                 Ministry of Finance, Government of India
NBFC                Non-Banking Finance Company
NCD                 Non-Convertible Debenture


                                                        3
 Term                Description
 NIC                 National Industry Classification
 NR                  Non-Resident
 NRE Account         Non-Resident External Account
 NRI/Non-Resident A Person resident outside India, as defined under FEMA, and who is a citizen of India or a Person
 Indian              of Indian Origin and such term as defined under the Foreign Exchange Management (Transfer or
                     Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended
 NRO Account         Non-Resident Ordinary Account
 NSDL                National Securities Depository Limited
 NSE                 National Stock Exchange of India Limited
 OCB                 Overseas Corporate Bodies. A company, partnership, society or other corporate body owned
                     directly or indirectly to the extent of at least 60% by NRIs, including overseas trusts in which not
                     less than 60% of beneficial interest is irrevocably held by NRIs directly or indirectly as defined
                     under Foreign Exchange Management (Deposit) Regulations, 2000, as amended. OCBs are not
                     permitted to invest in this Issue
 PAT                 Profit After Tax
 RBI                 Reserve Bank of India
 RBI Act             The Reserve Bank of India Act, 1934
 SEBI                Securities and Exchange Board of India
 SEBI Act, 1992      The Securities and Exchange Board of India Act, 1992 and amendments thereto
 SEBI Guidelines     The SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on January 19,
                     2000 read with amendments issued subsequent to that date
 SIA                 Secretariat of Industrial Assistance
 Securities Act      The United States Securities Act of 1933, as amended
 Takeover Code       The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended
 US GAAP             Generally accepted accounting principles in the United States

Issue Related Terms and Abbreviations
 Term                Description
 Banker to the Issue State Bank of India
 CAF                 Composite Application Form
 Designated Stock    NSE
 Exchange
 Fractional          Entitlement of less than one Equity Share, arising as a result of shares held on the Record Date not
 Entitlement         being a multiple of five
 Investor(s)         Holder(s) of Equity Shares of the Bank as on the Record Date of February 4, 2008 and
                     Renouncees
 Issue               Issue of 105,259,776 Equity Shares of Rs. 10 each for cash at a premium of Rs. 1,580 per share on
                     rights basis to existing Equity Shareholders of the Bank in the ratio of one fully paid up Equity
                     Share for every five fully paid Equity Share held on the Record Date being February 4, 2008, for
                     an amount aggregating Rs. 167,363.04 million

                                                            4
                                                                                     State Bank of India


Term                 Description
Issuer               State Bank of India
Issue Closing Date March 18, 2008
Issue Opening Date February 18, 2008
Issue Price          Rs. 1,590 per Equity Share
Lead Managers        Citibank Global Capital Markets India Private Limited, CLSA India Limited, Deutsche Equities
                     India Private Limited, DSP Merrill Lynch Limited and Kotak Mahindra Capital Company Limited,
                     SBI Capital Markets Ltd.
Letter of Offer      Letter of Offer dated February 1, 2008 as filed with the Stock Exchanges
Record Date          February 4, 2008
Registrar to the
Issue or Registrar   Datamatics Financial Services Limited
Renouncees           Persons who have acquired Rights Entitlements from Equity Shareholders as on the Record Date
Rights Entitlement The number of Equity Shares that a shareholder is entitled to in proportion to his/her
                   shareholding in the Bank as on the Record Date excluding Fractional Entitlement
Stock Exchange(s) The NSE, BSE, CSE, DSE, MSE and ASE where the Equity Shares of the Bank are presently listed
SUBSIDIARIES         a)   DOMESTIC BANKING SUBSIDIARIES
                     1.   State Bank of Bikaner & Jaipur
                     2.   State Bank of Hyderabad
                     3.   State Bank of Indore
                     4.   State Bank of Mysore
                     5.   State Bank of Patiala
                     6.   State Bank of Saurashtra
                     7.   State Bank of Travancore
                     8.   SBI Commercial and International Bank Ltd.
                     b)   FOREIGN BANKING SUBSIDIARIES
                     1.   SBI International (Mauritius) Ltd.
                     2.   State Bank of India (Canada)
                     3.   State Bank of India (California)
                     4.   Indian Ocean International Bank Ltd.
                     5.   Commercial Bank of India LLC, Moscow (##)
                     6.   PT Bank Indo Monex
                     c)   DOMESTIC NON-BANKING SUBSIDIARIES
                     1.   SBI Factors & Commercial Services Pvt. Ltd.
                     2.   SBI Capital Markets Limited
                     3.   SBI DFHI Limited
                     4.   SBI Mutual Funds Trustee Company Pvt. Ltd
                     5.   SBI CAP Securities Ltd.



                                                             5
Term         Description
             6.    SBI CAPS Ventures Ltd.
             7.    SBI CAP Trustees Co. Ltd.
             8.    SBI Cards & Payment Services Pvt. Ltd. (##)
             9.    SBI Funds Management Pvt. Ltd. (##)
             10. SBI Life Insurance Company Ltd. (##)
             d) FOREIGN NON-BANKING SUBSIDIARIES
             1. SBICAP (UK) Ltd.
             2. SBI Funds Management (International) Ltd. (##)
             ## These entities are jointly controlled.
JOINTLY      1.    GE Capital Business Process Management Services Pvt. Ltd
CONTROLLED   2.    C-Edge Technologies Ltd.
ENTITIES

ASSOCIATES   a)    Regional Rural Banks
             1.    Andhra Pradesh Grameena Vikas Bank
             2.    Arunachal Pradesh Rural Bank
             3.    Cauvery Kalpatharu Grameena Bank
             4.    Chhattisgarh Gramin Bank
             5.    Deccan Grameena Bank
             6.    Ellaquai Dehati Bank
             7.    Ka Bank Nongkyndong Ri Khasi Jaintia
             8.    Krishna Grameena Bank
             9.    Langpi Dehangi Rural Bank
             10.   Madhya Bharat Gramin Bank
             11.   Malwa Gramin Bank
             12.   Marwar Ganganagar Bikaner Gramin Bank
             13.   Mizoram Rural Bank
             14.   Nagaland Rural Bank
             15.   Parvatiya Gramin Bank
             16.   Purvanchal Kshetriya Gramin Bank
             17.   Samastipur Kshetriya Gramin Bank
             18.   Saurashtra Gramin Bank
             19.   Utkal Gramya Bank
             20.   Uttaranchal Gramin Bank
             21.   Vananchal Gramin Bank
             22.   Vidisha Bhopal Kshetriya Gramin Bank




                                                  6
                                                                                  State Bank of India

 Term               Description

                    b)   Others
                    1.   SBI Home Finance Limited
                    2.   Clearing Corporation of India Ltd.
                    3.   Nepal SBI Bank Ltd.
                    4.   Bank of Bhutan
                    5.   UTI Asset Management Company Pvt. Ltd.
Technical and Industry Terms and Abbreviations
 Term               Description
 AIBEA              All India Bank Employees' Association
 AIBOA              All India Bank Officers' Association
 ALCO               Asset and Liability Management Committee
 ALM                Asset Liability Management
 ARC                Asset Reconstruction Company
 ATMs               Automated Teller Machines
 AY                 Assessment Year
 Bank Acquisition   Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, as amended
 Act
 Banking Division   Government of India, Ministry of Finance, Department of Economic Affairs (Banking Division)
 BEFI               Bank Employees Federation of India
 BIFR               Board for Industrial and Financial Reconstruction
 BPLR               Benchmark Prime Lending Rate
 BR Act             The Banking Regulation Act, 1949, as amended
 CAGR               Compounded Annual Growth Rate
 CARE               Credit Analysis & Research Limited
 CBS                Core Banking Solution
 CDR                Corporate Debt Restructuring
 CISA               Certified Information Systems Auditor
 CPs                Commercial Papers
 CRAR               Capital to Risk Weighted Assets Ratio
 CRR                Cash Reserve Ratio
 CSO                Central Statistical Organisation
 DIN                Director Identification Number
 DRT                Debt Recovery Tribunal(s)
 ECS                Electronic Clearing Services
 EPS                Earnings Per Share
 FIPB               Foreign Investment Promotion Board



                                                           7
Term              Description
GIR Number        General Index Registry Number
IBA               Indian Banks Association
IRDA              Insurance Regulatory and Development Authority
IT                Information Technology
KYC Norms         Know Your Customer norms stipulated by the RBI
LC                Letters of Credit
LFAR              Long Form Audit Report
MICR              Magnetic Ink Character Recognition
NAV               Net Asset Value
NDS-OM            Negotiated Dealing System-Order Matching
NEFT              National Electronic Funds Transfer
NPAs              Non-Performing Assets
NSE               The National Stock Exchange of India Limited
OTS               One Time Settlement
PAN               Permanent Account Number
PAT               Profit after Tax
PBT               Profit before Tax
RTGS              Real Time Gross Settlement
SARFAESI          Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
                  2002, as amended
SCB               Scheduled Commercial Banks
SCRA              The Securities Contract (Regulation) Act, 1956, as amended
SCRR              The Securities Contract (Regulation) Rules, 1957, as amended
SICA              The Sick Industrial Companies (Special Provisions) Act, 1995, as amended
SLR               Statutory Liquidity Ratio
SME               Small and Medium Enterprises
Spread            The difference between the yield on the fortnightly average of interest earning assets and the
                  cost of the fortnightly average of interest bearing liabilities
SSI               Small Scale Industries
Tier I capital    The core capital of a bank, which provides the most permanent and readily available support
                  against unexpected losses. It comprises paid-up capital and reserves consisting of any statutory
                  reserves, free reserves and capital reserves as reduced by equity investments in subsidiaries,
                  intangible assets, and losses in the current period and those brought forward from the previous
                  periods
Tier II capital   The undisclosed reserves and cumulative perpetual preference shares, revaluation reserves (at a
                  discount of 55.0%), general provisions and loss reserves (allowed up to a maximum of 1.25% of
                  risk weighted assets), hybrid debt capital instruments (which combine certain features of both
                  equity and debt securities), investment fluctuation reserves and subordinated debts.



                                                       8
                                                                                           State Bank of India

                                                   RISK FACTORS

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

Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in
this offer unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors
carefully before taking an investment decision in this offering. For taking an investment decision, investors must rely
on their own examination of the issuer and the offer including the risks involved. The securities have not been
recommended or approved by SEBI nor does SEBI guarantee the accuracy or adequacy of this document.
The Bank, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer
contains all information with regard to the Issuer and the Issue, which is material in the context of the Issue, that the
information contained in the offer document is true and correct in all material aspects and is not misleading in any
material respect, that the opinions and intentions expressed herein are honestly held and that there are no other
material facts, the omission of which make this document as a whole or any of such information or the expression of any
such opinions or intentions misleading in any material respect.

Unless the context otherwise requires, references to the "Bank" are to State Bank of India on an unconsolidated basis.
References to the "Group" are to the State Bank of India and its consolidated subsidiaries, Associate Banks (as defined
herein) and other consolidated entities. References to specific data applicable to particular subsidiaries, Associate
Banks or other consolidated entities are made by reference to the name of that particular entity. References to "fiscal
year" are to the year ended March 31. Unless otherwise stated, the financial information of the Bank used in this
section is derived from the Bank's unconsolidated and consolidated financial statements under Indian GAAP, as
regrouped.

Risks Relating to the Bank's Business
The Bank's business is particularly vulnerable to interest rate risk, and volatility in interest rates could adversely
affect its net interest margin, the value of its fixed income portfolio, its income from treasury operations and its
financial performance.

As a result of certain reserve requirements imposed by the RBI, the Bank may be more exposed to interest rate risk than
banks in many other countries. See "Regulations and Policies - Legal Reserve Requirements." These reserve requirements
require the Bank to maintain a relatively large portfolio of fixed income Government securities, and the Bank could be
materially adversely impacted by a rise in interest rates, especially if the rise were sudden or sharp. If such a rise in
interest rates were to occur, the Bank's net interest margin could be adversely affected because the interest paid by the
Bank could increase at a higher rate than the interest received by the Bank. These requirements also have a negative
impact on its net interest income and net interest margin because the Bank earns interest on a portion of its assets at rates
that are generally less favourable than those typically received on its other interest-earning assets. If the yield on its
interest-earning assets does not increase at the same time or to the same extent as its cost of funds, or if its cost of funds
does not decline at the same time or to the same extent as the yield on its interest-earning assets, its net interest income
and net interest margin would be adversely impacted. During the last quarter of fiscal year 2007, the Indian markets
experienced volatility and sharp increases in interest rates and the Bank experienced an increase in its funding costs, which



                                                              9
adversely impacted its net interest income, net interest margin and financial performance during the first quarter of fiscal
year 2008.
The Bank is also exposed to interest rate risk through its treasury operations and one of its subsidiaries, SBI DFHI
Limited, which is a primary dealer in Government securities. A rise in interest rates or greater interest rate volatility could
adversely affect the Bank's income from treasury operations or the value of its fixed income securities trading portfolio.
Sharp and sustained increases in the rates of interest charged on floating rate home loans, which are a material proportion
of its loan portfolio, would result in extension of loan maturities and higher monthly instalments due from borrowers,
which could result in higher rates of default in this portfolio. See "Management's Discussion and Analysis - Factors
Affecting the Bank's Results of Operations and Financial Condition - Interest rates, allocation of funds and costs of
funding."

The Bank has a large portfolio of Government securities and its business is particularly vulnerable to volatility in
interest rates caused by deregulation of the financial sector in India.

As a result of Indian reserve requirements, the Bank is more structurally exposed to interest rate risk than banks in many
other countries. Under the regulation of the RBI, the Bank's liabilities are subject to the statutory liquidity ratio ("SLR")
requirement which requires that a minimum specified percentage, currently 25.0%, of a bank's demand and time liabilities
be invested in approved securities for the purpose of compliance with SLR requirements. See "Regulations and Policies
- RBI Regulations - Legal Reserve Requirements." Such securities represented 83.6% of the Bank's investment portfolio as
on September 30, 2007. Although 83.6% of the Bank's investment portfolio consists of SLR securities, these SLR securities
comprise 28.9% of the Bank's demand and term liabilities as on September 30, 2007. The Bank earns interest on such
Government securities at rates which are less favourable than those which it typically receives in respect of its retail and
corporate loan portfolio. While the SLR portfolio of the Bank has decreased in size during the fiscal year 2007 against a
backdrop of robust growth of credit portfolio and redemption of securities, it continues to be in excess of the regulatory
requirements.
A substantial portion of the Bank's income is derived from its Government operations, a slowdown in which could
adversely affect the Bank's business.

For the six-months ended September 30, 2007, total Government business turnover was Rs. 5,913.5 billion and commission
earned from Government transactions was Rs. 4.9 billion, or 15.3% of the Bank's Other Income. For the year ended March
31, 2007, the Bank handled approximately 52.3% of the Government's aggregate receipts and payments as well as 62.4%
of state governments' payments and receipts. In many instances, the Bank acts as the sole agent for certain Government
transactions. While the Bank has enjoyed a strong working relationship with the Government in the past, there is no
assurance that this relationship will continue in the future. The Government is not obligated to choose the Bank to
conduct any of its transactions. If the Government does choose another bank to perform such tasks, the Bank's business
will be adversely affected.

If the Bank is not able to control or reduce the level of NPAs in its portfolio, its business will be adversely affected.
The Bank's net NPAs as on September 30, 2007, were Rs. 58.3 billion or 1.6% of its net advances. The Bank's NPAs can be
attributed to several factors, including increased competition arising from economic liberalisation in India, variable
industrial growth, a sharp decline in commodity prices, the high level of debt in the financing of projects and capital
structures of companies in India, and the high interest rates in the Indian economy during the period in which a large
number of projects contracted their borrowings, which reduced profitability for certain of the Bank's borrowers. Although
the Bank's loan portfolio contains loans to a wide variety of businesses, financial difficulties could increase the Bank's
level of NPAs and adversely affect its business, future financial performance, shareholders' funds and the price of the
Equity Shares.

There is no assurance that there will not be a deterioration in provisions for loan losses as a percentage of NPAs or
otherwise, or that the percentage of NPAs that the Bank will be able to recover will be similar to the Bank's past experience



                                                              10
                                                                                            State Bank of India

in recovery of NPAs. Any deterioration in the Bank's asset portfolio could have an adverse impact on its business, future
financial performance, shareholders' funds and the price of the Equity Shares.
Further deterioration of the Bank's NPA portfolio and an inability to improve its provisioning coverage as a
percentage of gross NPA could adversely affect the price of the Equity Shares.
Although the Bank believes that its total provisions made in accordance with RBI guidelines will be adequate to cover all
known losses in its asset portfolio, there can be no assurance that there will not be a further deterioration in the
provisioning coverage as a percentage of gross NPAs or otherwise or that the percentage of NPAs that the Bank will be
able to recover will be similar to its past experience of recoveries of NPAs. Any further deterioration in its non-performing
asset portfolio could adversely affect its business, its future financial performance and the trading price of the Equity
Shares.
The Bank's loan portfolio contains significant advances to the agricultural sector.
 The Bank's loan portfolio contains significant advances to the agricultural sector, amounting to Rs. 381.4 billion, or 15.9
%, of net bank credit as on September 30, 2007. The Government's proposed agricultural lending plans may contemplate
state-owned banks, including the Bank, lending at below market rates in the agricultural sector. RBI guidelines stipulate
that the Bank's agricultural advances be 18.0% of adjusted net bank credit. In addition, the market may perceive the
exposure of state-owned banks to the agricultural sector to involve higher risks, whether or not the Government
mandates lending. This may negatively affect the risk-adjusted returns of state-owned banks and may adversely affect the
Bank's business, future financial performance and the trading price of the Equity Shares.
The Bank may experience delays in enforcing its collateral when borrowers default on their obligations to the Bank,
which may result in failure to recover the expected value of collateral security, exposing it to a potential loss.
A substantial portion of the Bank's loans to corporate customers are secured by real assets, including property, plant and
equipment. The Bank's loans to corporate customers also include working capital credit facilities that are typically secured
by a first lien on inventory, receivables and other current assets. In some cases, the Bank may have taken further security
of a first or second lien on fixed assets and a pledge of financial assets like marketable securities, corporate guarantees and
personal guarantees. A substantial portion of the Bank's loans to retail customers is also secured by the assets financed,
predominantly property and vehicles. Although in general the Bank's loans are over-collateralized, an economic downturn
could result in a fall in relevant collateral values for the Bank.
In India, foreclosure on collateral generally requires a written petition to an Indian court or tribunal. An application, when
made, may be subject to delays and administrative requirements that may result, or be accompanied by, a decrease in the
value of the collateral. In the event a corporate borrower makes a reference to a specialised quasi-judicial authority called
the Board for Industrial and Financial Reconstruction ("BIFR"), foreclosure and enforceability of collateral is stayed. The
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the "SARFAESI
Act"), has strengthened the ability of lenders to resolve NPAs by granting them greater rights as to enforcement of
security and recovery of dues from corporate borrowers. There can be no assurance that the legislation will have a
favourable impact on the Bank's efforts to resolve NPAs. There can be no assurance that it will be able to realize the full
value on its collateral, as a result of, among other factors, delays in bankruptcy and foreclosure proceedings, defects in
the perfection of collateral and fraudulent transfers by borrowers. A failure to recover the expected value of collateral
security could expose the Bank to a potential loss. Any unexpected losses could adversely affect the Bank's business, its
future financial performance, and the trading price of the Equity Shares.
The Indian banking industry is very competitive and the Bank's growth strategy depends on its ability to compete
effectively.
The Bank faces competition from Indian and foreign commercial banks in all its products and services. Over the last
several years, several Indian banks have increased their focus on retail loans. The Bank will face competition from Indian
and foreign commercial banks and non-bank finance companies in its retail products and services. In addition, since the
Bank raises funds from market sources and individual depositors, it will face increasing competition for such funds.
Additionally, the Indian financial sector may experience further consolidation, resulting in fewer banks and financial


                                                              11
institutions. The Government has also announced measures that would permit foreign banks to establish wholly-owned
subsidiaries in India and invest up to 74.0% in Indian private sector banks. The Government is also actively encouraging
banks and other financial institutions to significantly increase their lending to the agricultural sector, which will make this
segment more competitive. Due to competitive pressures, the Bank may be unable to successfully execute its growth
strategy and offer products and services at reasonable returns and this may adversely impact its business, future financial
performance and the trading price of the Equity Shares. See "Business - Competition."
Further, the Bank faces intense competition in its international operations from the full range of competitors in the financial
services industry, including Indian and foreign banks and non-banking entities. With the exception of certain countries,
such as the Maldives, the Bank remains a small to mid-size operator in the international markets and many of its
competitors have much greater resources.

The Bank is subject to credit, market and liquidity risk which may have an adverse effect on its credit ratings and its
cost of funds.

 To the extent any of the instruments and strategies the Bank uses to hedge or otherwise manage its exposure to market
or credit risk are not effective, the Bank may not be able to mitigate effectively its risk exposures in particular to market
environments or against particular types of risk. The Bank's balance sheet growth will be dependent upon economic
conditions, as well as upon its determination to securitize, sell, purchase or syndicate particular loans or loan portfolios.
The Bank's trading revenues and interest rate risk exposure are dependent upon its ability to properly identify, and mark
to market, changes in the value of financial instruments caused by changes in market prices or rates. The Bank's earnings
are dependent upon the effectiveness of its management of migrations in credit quality and risk concentrations, the
accuracy of its valuation models and its critical accounting estimates and the adequacy of its allowances for loan losses.
To the extent its assessments, assumptions or estimates prove inaccurate or not predictive of actual results, the Bank
could suffer higher than anticipated losses. The successful management of credit, market and operational risk is an
important consideration in managing its liquidity risk because it affects the evaluation of its credit ratings by rating
agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time. See also "- Any
downgrading of India's debt rating by an international rating agency could adversely affect its business and the price of
its Equity Shares." The rating agencies can also decide to withdraw their ratings altogether, which may have the same
effect as a reduction in its ratings. Any reduction in the Bank's ratings (or withdrawal of ratings) may increase its borrowing
costs, limit its access to capital markets and adversely affect its ability to sell or market its products, engage in business
transactions, particularly longer-term and derivatives transactions, or retain their customers. This, in turn, could reduce its
liquidity and negatively impact its operating results and financial condition.
The Bank has high concentrations of loans to certain customers and to certain sectors and if a substantial portion of
these loans were to become non-performing, the quality of its loan portfolio could be adversely affected.

As on September 30, 2007, the Bank's total exposure to borrowers (fund-based and non-fund based, including
guarantees) was Rs. 5,003.5 billion (including principal outstanding, interest and 100.0% of the nominal amount of non-
fund based outstanding, excluding derivative products). The ten largest individual borrowers in aggregate accounted for
approximately 11.1% of the Bank's total exposure and its ten largest borrower groups in aggregate accounted for
approximately 18.3% of its total exposure. The largest borrower as on September 30, 2007 accounted for approximately
1.74% of the Bank's total exposure and 16.3% of the Bank's total capital funds. The largest borrower group as on
September 30, 2007, accounted for approximately 5.3% of the Bank's total exposure and for 50.1% of the Bank's total
capital funds. Credit losses on these large single borrower and group exposures could adversely affect the Bank's
financial performance and the trading price of the Equity Shares.




                                                              12
                                                                                          State Bank of India

The Bank has extended loans to several industrial sectors in India. The table below sets out the Bank's five largest
industry exposures (fund-based, excluding retail) as on September 30, 2007.
Rank        Industry                                 Fund based
                                                 (Rs. in millions)
1           Services sector                               532,560
2           Iron and Steel                                146,307
3           Infrastructure                                143,467
4           Cotton Textile                                102,984
5           Engineering                                   101,737
            Total                                     1,027,055
These exposures, totalling Rs. 1,027.1 billion, constituted 32.8% of the Bank's domestic advances and 28.2 % of its total
advances. The global and domestic trends in these industrial sectors may have a bearing on the Bank's financial position.
Although the Bank's portfolio contains loans to a wide variety of businesses, financial difficulties in these industrial
sectors could increase the level of non-performing assets ("NPAs") and restructured assets, and adversely affect the
Bank's business, its future financial performance, shareholders' funds and the price of the Equity Shares.
The Bank faces greater credit risks than banks in developed countries.
The Bank's principal business is providing financing to its clients, most of which are based in India. The Bank's loans to
middle market companies can be expected to be more severely affected by adverse developments in the Indian economy
than loans to large corporations. The Bank is subject to the credit risk that its borrowers may not pay in a timely fashion
or may not pay at all. The credit risk of all its borrowers is higher than in more developed countries due to the higher
uncertainty in the Indian regulatory, political, economic and industrial environment as well as difficulties that many of the
Bank's borrowers face in adapting to instability in world markets and technological advances taking place across the
world. Unlike developed countries, India does not have a fully operational nationwide credit information bureau. This may
affect the quality of information available to the Bank about the credit history of its borrowers, especially individuals and
small businesses. See "Description of Assets and Liability Management and Risk Management of the Bank - Risk
Management Structure - Credit Risk Management." Increased competition arising from economic liberalisation in India,
variable industrial growth, a sharp decline in commodity prices, the high level of debt in the financing of projects and
capital structures of companies in India, and the high interest rates in the Indian economy during the period in which a
large number of the projects were entered into, may have reduced the profitability of some of the Bank's borrowers.
A substantial portion of the Bank's loans have a tenure exceeding one year, exposing the Bank to risks associated with
economic cycles.
 As on September 28, 2007 (the last reporting Friday in September), loans with a contractual tenure exceeding one year
constituted 44.2% of the Bank's domestic advances. The long tenure of these loans may expose the Bank to risks arising
out of economic cycles. In addition, some of these loans are project finance loans. There can be no assurance that these
projects will perform as anticipated or that such projects will be able to generate cash flows to service commitments under
the loans. The Bank is also exposed to infrastructure projects which are still under development and are open to risks
arising out of delay in execution, failure of borrowers to execute projects on time, delay in getting approvals from
necessary authorities, and breach of contractual obligations by counterparties, all of which may adversely impact the
projected cash flows. There can be no assurance that these projects will perform as anticipated. Risks arising out of a
recession in the economy and a delay in project implementation or commissioning could lead to rise in delinquency rates
and in turn, adversely impact the Bank's future financial performance and the trading price of the Equity Shares.




                                                             13
The Bank's funding is primarily short-term and if depositors do not roll over deposited funds upon maturity the
Bank's business could be adversely affected.
The maturity profile of the Bank's assets and liabilities shows a negative gap in the short term. The negative gap has
arisen mainly because the Bank's deposits and other liabilities are of shorter average maturity than its loans and
investments. Most of the Bank's incremental funding requirements are met through short-term funding sources, primarily
in the form of deposits. However, a large portion of the Bank's assets have medium or long-term maturities, creating a
potential for funding mismatches. The Bank's customer deposits are both demand deposits and time deposits, with
approximately 24.8% (as on September 28, 2007) having maturities of less than one year. If a substantial number of the
Bank's depositors do not roll over deposited funds upon maturity, its liquidity position could be adversely affected. The
failure to obtain rollover of customer deposits upon maturity or to replace them with fresh deposits could have a material
adverse effect on the Bank's business, future financial performance and the trading price of the Equity Shares.
The Bank is exposed to fluctuations in foreign exchange rates.
As a financial organisation with operations in various countries, the Bank is exposed to exchange rate risk. The Bank
complies with regulatory limits upon its unhedged foreign currency exposure by making foreign currency loans on terms
that are generally similar to its foreign currency borrowings and thereby transferring the foreign exchange risk to the
borrower or through active use of cross-currency swaps and forwards to generally match the currencies of its assets and
liabilities.
However, the Bank is exposed to fluctuations in foreign currency rates for its unhedged exposure. Adverse movements in
foreign exchange rates may also impact the Bank's borrowers adversely, which may in turn impact the quality of its
exposure to these borrowers. Volatility in foreign exchange rates could adversely affect the Bank's business, future
financial performance and the price of the Equity Shares.
The Bank's risk management policies and procedures may leave the Bank exposed to unidentified or unanticipated
risks, which could negatively affect its business or result in losses.

 The Bank's hedging strategies and other risk management techniques may not be fully effective in mitigating its risk
exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. Some
methods of managing risk are based upon observed historical market behaviour. As a result, these methods may not predict
future risk exposures, which could be greater than the historical measures indicated. Other risk management methods
depend upon an evaluation of information regarding markets, clients or other matters. This information may not in all cases
be accurate, complete, up to date or properly evaluated. Management of operational, legal or regulatory risk requires,
among other things, policies and procedures to properly record and verify a large number of transactions and events.
Although the Bank has established these policies and procedures, they may not be fully effective. See also "Description
of Assets and Liability Management and Risk Management of the Bank - Risk Management Structure."
There is operational risk associated with the Banking industry which, when realized, may have an adverse impact on
its business of the Bank.

 The Bank, like all financial institutions, is exposed to many types of operational risk, including the risk of fraud or other
misconduct by employees or outsiders, unauthorised transactions by employees and third parties (including violation of
regulations for prevention of corrupt practices, and other regulations governing its business activities), or operational
errors, including clerical or record keeping errors or errors resulting from faulty computer or telecommunications systems.
The Bank outsources some functions to other agencies. Given its high volume of transactions, certain errors may be
repeated or compounded before they are discovered and successfully rectified. In addition, its dependence upon
automated systems to record and process transactions may further increase the risk that technical system flaws or
employee tampering or manipulation of those systems will result in losses that are difficult to detect. The Bank may also
be subject to disruptions of its operating systems, arising from events that are wholly or partially beyond its control
(including, for example, computer viruses or electrical or telecommunication outages), which may give rise to a
deterioration in customer service and to loss or liability to the Bank. The Bank is further exposed to the risk that external



                                                             14
                                                                                            State Bank of India

vendors may be unable to fulfil their contractual obligations to the Bank (or will be subject to the same risk of fraud or
operational errors by their respective employees as the Bank is), and to the risk that its (or its vendors') business
continuity and data security systems prove not to be sufficiently adequate. The Bank also faces the risk that the design
of its controls and procedures prove inadequate, or are circumvented, thereby causing delays in detection or errors in
information. Although the Bank maintains a system of controls designed to keep operational risk at appropriate levels, like
all banks, the Bank has suffered losses from operational risk and there can be no assurance that the Bank will not suffer
losses from operational risks in the future that may be material in amount, and its reputation could be adversely affected
by the occurrence of any such events involving its employees, customers or third parties. For a discussion of how
operational risk is managed, see "Description of Assets and Liability Management of the Bank - Operational Risk."
Significant security breaches could adversely impact the Bank's business.

 The Bank seeks to protect its computer systems and network infrastructure from physical break-ins as well as security
breaches and other disruptive problems caused by the Bank's increased use of the internet. Computer break-ins and
power disruptions could affect the security of information stored in and transmitted through these computer systems and
network infrastructure. There are areas in the system that have not been properly protected from security breaches and
other attacks. The Bank employs security systems, including firewalls and password encryption, designed to minimise
the risk of security breaches. Although the Bank intends to continue to implement security technology and establish
operational procedures to prevent break-ins, damage and failures, there can be no assurance that these security measures
will be adequate or successful. Failed security measures could have a material adverse effect on the Bank's business, its
future financial performance and the trading price of the Equity Shares. The Bank's business operations are based on a
high volume of transactions. Although the Bank takes adequate measures to safeguard against system related and other
fraud, there can be no assurance that it would be able to prevent fraud. The Bank's reputation could be adversely affected
by significant fraud committed by employees, customers or outsiders.

System failures could adversely impact the Bank.
 Given the increasing share of retail products and services and transaction banking services in the Bank's overall business,
the importance of systems technology to the Bank's business has increased significantly. The Bank's principal delivery
channels include automated teller machines ("ATMs"), call centres and the internet. See "Business - Delivery Channels."
Any failure in the Bank's systems, particularly for retail products and services and transaction banking, could significantly
affect the Bank's operations and the quality of its customer service and could result in business and financial losses and
adversely affect the trading price of the Equity Shares. However, a disaster recovery and business continuity plan is in
place to cater for system failures in all channels.

Banking is a heavily regulated industry and material changes in the regulations which govern the Bank could cause
its business to suffer and the price of the Equity Shares to decline.

 Banks in India are subject to detailed supervision and regulation by the RBI. In addition, banks are generally subject to
changes in Indian law, as well as to changes in regulations, government policies and accounting principles. The laws and
regulations governing the banking sector could change in the future. Any such changes may adversely affect the Bank's
business, future financial performance and the price of the Equity Shares by, for example, requiring a restructuring of the
Bank's activities or increasing its operating costs. See "Regulations and Policies."
 The lending norms of the RBI require that every scheduled commercial bank should extend 40.0% of its net bank credit to
certain eligible sectors, such as agriculture, small-scale industries and individual housing finance up to Rs. 2 million (which
are categorised as "priority sectors"). Economic difficulties are likely to affect those borrowers in priority sectors more
severely. As on September 30, 2007, the Bank's lending to priority sectors accounted for 39.5% of net bank credit, with
15.9% (lower than the requirement of 18.0%) of net credit going to the agriculture sector. As with some other commercial
banks in India, the Bank has generally not met these guidelines. See "Industry Overview - RBI."




                                                              15
Regulatory changes in India or other jurisdictions in which the Bank operates could adversely affect its business.
 The laws and regulations or the regulatory or enforcement environment in any of those jurisdictions in which the Bank
operates may change at any time and may have an adverse effect on the products or services the Bank offers, the value
of its assets or its business in general. In its mid-term review of the annual policy statement for fiscal year 2005, the RBI
increased the risk weight for the computation of capital adequacy from 50% to 75% in the case of housing loans and from
100% to 125% in the case of consumer credit (including personal loans and credit cards) as a temporary counter-cyclical
measure. In July 2005, the RBI increased the risk weight for capital market exposure and exposure to commercial real estate
from 100.0% to 125.0%. In October 2005, in its mid-term review of the annual policy statement for fiscal year 2005, the RBI
increased the requirement of general provisioning for standard advances from 0.25% to 0.40% except direct advances to
agriculture and small and medium enterprise sectors. In February 2006, the RBI issued its final guidelines on securitisation
of standard assets under which the Bank is, in respect of transactions after February 1, 2006, required to maintain higher
capital for credit enhancement and also to amortise the profit on securitisation over the life of the related loans. In April
2006, the RBI increased the requirement of general provisioning for certain categories of advances from 0.40% to 1.00%
and also increased the risk weight on exposures to commercial real estate from 125.0% to 150.0%. In its mid-term review of
the monetary policy statement announced in October 2006, the RBI increased the repo rate by 25 basis points from 7.0%
to 7.25%. Subsequently, in the quarterly review of the monetary policy statement on January 31, 2007, the repo rate was
raised further to 7.5% and again on March 31, 2007 to 7.75%. In March 2007, the RBI increased the CRR by 50 basis points
to 6.5%. The CRR was again increased to 7.5% in November 2007. Similar changes in the future could have an adverse
impact on its capital adequacy and profitability. Pursuant to the recent amendment to the Reserve Bank of India Act, no
interest is payable on cash reserve ratio balances, on which interest was hitherto paid by the RBI. Any change by the RBI
in the directed lending norms may result in its inability to meet the priority sector lending requirements as well as require
the Bank to increase its lending to relatively riskier segments and may result in an increase in NPAs in the directed lending
portfolio. See "Industry Overview - RBI."

New accounting directives, such as those related to the Accounting Standard 15 ("AS-15") relating to employee
benefits, may adversely affect the Bank's financial position.

New accounting directives or new interpretations of current directives may impose additional requirements on the Bank.
For example, a decision by the RBI and the Institute of Chartered Accountants of India to implement AS-15 Revised is
expected to negatively impact the Bank. AS-15 Revised requires actuarial liability on account of pensions to be calculated
on a projected unit method. As most of the Bank's employees are covered under the defined benefit scheme, such a
requirement could significantly impact the calculation of the Bank's net worth, despite a lack of substantive change in the
underlying financial position of the Bank. The Bank is currently evaluating the most appropriate means of implementation,
but has not yet made any increase in provisions for fiscal year 2008. In addition, had the Bank applied AS-15 its
unaudited unconsolidated and consolidated financial results for the six-months ended September 30, 2007 and nine-
months ended December 31, 2007, its financial results would likely have been different from what is shown in this Letter
of Offer. Such changes in accounting policies, among others, which may arise in the future, could have a material adverse
effect on the financial position of the Bank. See "Financial Statements - Note on the likely impact of Accounting Standard
15 (Revised 2005)".
The Bank is required to maintain its capital adequacy ratio at the minimum level required by the RBI for domestic
banks. There can be no assurance that the Bank will be able to access capital as and when it needs it for growth.

The RBI requires Indian banks to maintain a minimum Tier I capital adequacy ratio of 4.5% and a minimum risk weighted
capital adequacy ratio of 9.0%. The Bank's Tier I and total capital adequacy ratio as of September 30, 2007 was 7.78% and
12.85%, respectively. The Bank is exposed to the risk of the RBI increasing the applicable risk weight for different asset
classes from time to time. In April 2007, the RBI issued final guidelines on implementation of the new capital adequacy
framework pursuant to Basel II, which are effective in fiscal year 2008 for the Bank and require maintenance of higher
capital and an increase in minimum Tier I ratio from 4.5% to 6.0%. See "Industry Overview - New Initiatives in the Banking
Sector - Risk Management and Basel-II." Although the Bank's current capitalisation levels are in line with these
requirements, depending on market conditions, the Bank may choose to raise additional capital from time to time.


                                                             16
                                                                                          State Bank of India

However, unless the Bank is able to access the necessary amount of additional capital, when required, any incremental
capital requirement may adversely impact the Bank's ability to grow its business and may even require the Bank to
withdraw from or to curtail some of its current business operations. There can also be no assurance that the Bank will be
able to raise adequate additional capital in the future at all or on terms favourable to it.
As the Bank's majority shareholder, the Government controls the Bank and may cause the Bank to take actions which
are not in the interests of the Bank or of the holders of the Equity Shares.

 In accordance with the State Bank of India Act, 1955, ("the Act"), the Government, in consultation with the RBI, has the
power to appoint and/or nominate the Chairman, two Managing Directors and a majority of the directors of the Central
Board, which determines the outcome of the actions relating to the general direction of the affairs of the Bank, including
payment of dividends. See "Business - Relationship with the Government and the Reserve Bank of India." Furthermore,
under the Act, the Government, after consultation with the RBI and the Chairman of the Bank, may issue directives on
matters of policy involving public interest which may affect the conduct of the business affairs of the Bank. Further, under
the Act, the Bank is required to obtain approval from the Government for any increase in its authorised share capital.
Further proposed amendments to the Act may also enable the Bank to issue preference shares. There can be no assurance
that the Act will not be repealed or significantly amended in the future. In addition, there can be no assurance that the RBI
or the Government will not take action or implement policies that are adverse to investors in the Equity Shares. Further, in
terms of the Act no provision of law relating winding-up shall apply to the Bank and it may be placed in liquidation only
by an order of the Government and in such manner it may direct. See "Regulations and Policies - The State Bank of India
Act."

The legal requirement that the Government maintain a majority shareholding interest in the Bank of at least 55% may
limit the ability of the Bank to raise appropriate levels of capital financing.
The Act restricts the Government's shareholding interests in the Bank from falling below 55.0%. This requirement could
result in restrictions in the equity capital raising efforts of the Bank as the Government may not be able to fund any
further investments that would allow it simultaneously to maintain its stake at a minimum of 55.0% and seek funding from
the capital markets. As the Indian economy grows, more businesses and individuals will require capital financing. In order
to meet and sustain increasing levels of growth in capital demand, the Bank will need to accrete its capital base, whether
through organic growth or (more likely) capital market financing schemes. If the Bank is unable to grow its capital base in
step with demand, its business, financial prospects and profitability may be materially and adversely affected.

The Bank's financial results for the six months ended September 30, 2007 are unaudited.
Pursuant to SEBI Guidelines, the audited statements contained in an offer document for a rights issue shall not be older
than six months from the Issue Opening Date. While issuers must generally comply with this requirement, the Bank has
only provided financial statements with limited review carried out by its auditors for the six months ended September 30,
2007. Further, the financial disclosures pertaining to the period ended December 31, 2007 were in compliance with RBI
requirements but were less detailed than the disclosures pertaining to the September 30, 2007 results. To the extent these
reviewed financial statements are not audited, investors will have less information than they generally would for a typical
rights issue in India.

If the Bank does not effectively manage its foreign operations, these operations may incur losses or otherwise
adversely affect the Bank's business and results of operations.
 As of December 31, 2007, the Bank had a network of 84 overseas offices in 32 countries. Because the Bank has such a
large number of foreign subsidiaries, joint ventures and associates, it is subject to additional risks related to complying
with a wide variety of national and local laws, restrictions on the import and export of certain intermediates, technologies
and multiple and possibly overlapping tax structures. In addition, the Bank may face competition from banks in other
countries that may have more experience in operations in those countries or in international operations generally. The
Bank may also face difficulties integrating new facilities in different countries into its existing operations, as well as
integrating employees that the Bank hires in different countries into its existing corporate culture. If the Bank does not
effectively manage its foreign operations, it may lose money in these countries, which could adversely affect the Bank's

                                                             17
business and results of operations.
If the Bank's international expansion is unsuccessful, it may not be able to meet its projected earnings and growth
targets.
The Bank is seeking to expand its operations internationally by leveraging on its domestic relationships and technology
competencies in financial services. The expansion in international business is expected to require substantial capital in the
initial period and is expected to include acquisitions of foreign businesses. Acquisitions involve various risks that are
difficult for the Bank to control and the Bank cannot be certain that any acquired or new businesses will perform as
anticipated. The Bank's inability to grow or succeed in new business areas may adversely affect its business, future
financial performance and the price of the Equity Shares.
If the Bank is not able to integrate any future acquisitions, the Bank's business could be disrupted.
 The Bank may seek opportunities for growth through acquisitions or be required to undertake mergers mandated by RBI.
Any future acquisitions or mergers may involve a number of risks, including deterioration of asset quality, diversion of its
management's attention required to integrate the acquired business and failure to retain key acquired personnel and clients,
leverage synergies, rationalise operations, or develop the skills required for new businesses and markets, or unknown and
known liabilities, some or all of which could have an adverse effect on its business.
The proposed merger of the Associate Banks with the Bank may engender opposition against the Bank and lead to
business disruptions, such as labour strikes, and adversely affect the Bank's operations.
 The Bank is considering the consolidation of its Associate Banks with its business, but has faced and may continue to
face opposition by the employees of the Associate Banks to such consolidation. In September 2007, the State Sector Bank
Employees Association ("SSBEA"), an umbrella organisation of six of the Associate Banks, called for a strike to oppose
the proposed merger. In addition, strikes in December 2007 and January 2008 have caused branch closures at all seven
Associates Bank's. On January 25, 2008, the United Forum of Bank Unions ("UFBU") called for a strike opposing the
proposed merger which led to a total closure of all branches of the Bank and the Associate Banks. Further, the UFBU has
threatened to impose an ongoing strike for an indefinite length of time. Although neither strike materially impacted the
Bank's or the Associate Banks' operations, union and popular opposition to any merger of the Associate Banks into the
Bank may harm the Bank's reputation and disrupt business operations and the delivery of banking services to customers.
If the Bank is unable to adapt to rapid technological changes, its business could suffer.
 The Bank's future success will depend in part on its ability to respond to technological advances and to emerging
banking industry standards and practices on a cost-effective and timely basis. The development and implementation of
such technology entails significant technical and business risks. There can be no assurance that the Bank will
successfully implement new technologies effectively or adapt its transaction processing systems to meet customer
requirements or emerging industry standards. If the Bank is unable, for technical, legal, financial or other reasons, to adapt
in a timely manner to changing market conditions, customer requirements or technological changes, its business, the future
financial performance of the Bank and the trading price of the Equity Shares could be materially affected.
The Bank is moving towards more innovative information technology systems as it expands and may experience early
implementation technical difficulties.
 The Bank has begun implementing new information technology systems to facilitate and complement its growth. As
additional IT platforms are introduced and become integral to the Bank's product offering, unforeseen technical difficulties
may cause disruption in the Bank's operations. These disruptions may affect customer services, internal operations and
data management. The Bank is also implementing a Business Process Reengineering ("BPR") initiative to replace its
existing systems. Until the BPR system is adequately tested in compliance with RBI norms and fully introduced into the
Bank's operations, the Bank may experience temporary setbacks and delays in its streamlining processes. As the Bank's
risk management systems evolve and as its operations become more reliant upon technology to manage and monitor its
risk, any failure or disruption could materially and adversely affect its operations and financial position.
The Bank depends on the accuracy and completeness of information about customers and counterparties.

                                                             18
                                                                                             State Bank of India

 In deciding whether to extend credit or to enter into other transactions with customers and counterparties, the Bank may
rely on information furnished to the Bank by or on behalf of customers and counterparties, including financial statements
and other financial information. The Bank may also rely on certain representations as to the accuracy and completeness
of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding
whether to extend credit, the Bank may assume that a customer's audited financial statements conform to generally
accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and
cash flows of the customer. The Bank's financial condition and results of operations could be negatively affected by relying
on financial statements that do not comply with generally accepted accounting principles or with other information that
is materially misleading.
The Bank may not be able to properly manage its number of employees, which would negatively impact its business.
 As of September 30, 2007, the total number of the Bank's employees reduced to 179,188 employees from 192,250 as of
September 30, 2006. The Bank has implemented exit option schemes for officers and clerical cadres, which ended on
November 1, 2006 and April 1, 2007, respectively. See "Business - Employees." Taking into consideration approximately
25,000 normal retirements in the next three years, the Bank's staff strength will be further reduced and, it is expected, so will
staff costs. There can be no assurances, however, that the Bank will be able to continue the implementation of its plan to
reduce its number of employees successfully in the future to the targeted levels. If the Bank is not successful in reducing
its staffing costs this may have a material adverse effect on the future financial performance of the Bank.
Any inability to attract and retain talented professionals may negatively affect the Bank.
 The Bank employs some officers on a contract basis for various purposes. The salaries offered are market competitive.
However, the number of officers on market competitive salaries is minimal. An inability to attract and retain such talented
professionals or the resignation or loss of key management personnel may have an adverse impact on the Bank's
business, future financial performance and trading price of the Equity Shares.
The Bank's remuneration scheme may not be as attractive as other banks with which it competes and may hurt the
Bank's ability to attract and maintain a skilled and committed workforce.
 The Bank's employee remuneration scheme is guided by industry level negotiations between bank management
represented by the Indian Banks' Association, and bank workers represented by their respective associations. All
negotiations are subject to final approval by the Government, which limits the Bank's flexibility in implementing
performance linked pay. If the general banking industry increasingly moves toward incentive-based pay schemes, the Bank
may not be as competitive as other banks. This may increase the possibility that the Bank's skilled personnel may go
elsewhere for more attractive employment packages. In addition, the Bank may at some point be required to, or choose to,
provide an ESOP (or other benefits and compensation) to its employees which may increase the operational costs of the
Bank. Added employment pressures may result in diminished profitability, especially if rates of return do not experience a
commensurate rise.
The Bank's employees are highly unionised and any union action may adversely affect the Bank's business.
 Approximately 98% of the Bank's employees belong to a single union. While the Bank believes it has a strong working
relationship with that union, there can be no assurance that the Bank will continue to have such a relationship in the
future. If the employees' union was to call for a work stoppage or other similar action, the Bank may be forced to suspend
all or part of its operations until the dispute is resolved. If such a work stoppage was to occur, the Bank's business would
be adversely affected.
There are outstanding litigations against the Bank and its subsidiaries which may adversely affect the Bank's
shareholders.
 There are outstanding litigations against the Bank and its subsidiaries. It is a defendant in legal proceedings incidental to
its business and operations. These legal proceedings are pending at different levels of adjudication before various courts
and tribunals. Should any new developments arise, such as a change in Indian law or rulings against the Bank by
appellate courts or tribunals, the Bank may need to make provisions in its financial statements, which could adversely


                                                               19
impact its financial results. Furthermore, if significant claims are determined against the Bank and it is required to pay all
or a portion of the disputed amounts, there could be a material adverse effect on the Bank's business and profitability. The
details of litigation which have been disclosed in this Letter of Offer are set out below:
Litigation against the Bank
      There are five civil cases against the Bank before various courts and authorities for an amount aggregating to Rs.
      1,472.3 million.
      There are two consumer cases against the Bank before the National Consumer Disputes Redressal Commission for
      an amount aggregating to Rs. 689.6 million.
Litigation against the Subsidiaries
      There is one criminal case against the State Bank of Patiala before the Judicial Magistrate, Patna.
      There is one civil recovery case against the State Bank of Hyderabad before the Debt Recovery Tribunal, Kolkata for
      an amount of approximately Rs. 274 million.
      There are three tax appeals against the State Bank of Hyderabad before the Income Tax Appellate Tribunal,
      Hyderabad for an amount aggregating approximately Rs. 3,726.5 million.
Litigation by the Bank
      The Bank has filed twenty civil recovery cases before various courts and authorities for an amount aggregating to
      approximately Rs. 20,536 million.
Litigation by the Subsidiaries
      The State Bank of Hyderabad has filed two tax appeals before the Commissioner of Income Tax (Appeals) for an
      amount aggregating to Rs. 4,679.3 million.
      The State Bank of Patiala has filed seven civil recovery cases before various courts and authorities for an amount
      aggregating to approximately Rs. 3,668 million.

The Group has contingent liabilities aggregating to R.s. 10,731,207 million on a consolidated basis.

 As on September 30, 2007, the Group had contingent liabilities of approximately Rs. 10,731,207 million on a consolidated
basis. In the year ended March 31, 2007, the Group saw a significant rise in its contingent liabilities on account of an
increase in the number of derivative transactions for both customers as well as its proprietary account. If the Group's
contingent liabilities crystallise, this may have an adverse effect on the Group's future financial performance and the
trading price of the Equity Shares. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Off Balance Sheet Items." Details of the Group's contingent liabilities as on September 30, 2007 are set out
below:
                                                                                                          (Rs. in million)
 Contingent Liability                                                                                              Amount

 Claims against the bank not acknowledged asdebts                                                                     7,449
 Liability for partly paid investments                                                                                1,123
 Liability on account of outstanding forward exchange contracts                                                   2,565,777
 Guarantees given on behalf of constituents
 (a) In India                                                                                                       558,898
 (b) Outside India                                                                                                    1,780
 Acceptances, endorsements, and other obligations                                                                   771,230
 Other items for which the bank is contingently liable                                                            6,824,950
 Total                                                                                                         10,731,207



                                                             20
                                                                                           State Bank of India

The Bank's business growth, both in terms of its new businesses and financial services, may add complexities to its
current operations, which, if not managed properly, may result in operational volatility whether within or across its
branches and business units.
The Bank's expansion into new businesses and financial services product offerings will require proper oversight and
management. The new businesses will need to be set up and run profitably and the formation of new strategic business
units will need to be streamlined into the Bank's existing operations. These new businesses and business units will be
formed across India, as well as internationally. Integrating the operations, not only domestically throughout India, but
also throughout the international offices, will increase the need for high level management. In addition, not only are the
financial prospects of the new businesses uncertain, but they may also shift the financial and managerial resources away
from other areas of its operations. In such a case, the Bank's other operations may suffer and the Bank's performance as
a whole may also decline. If the Bank is unable to manage this growth process properly, its business prospects, financial
position and profitability may be materially adversely affected.

Risks Relating to India

A slowdown in economic growth, increased volatility of commodity prices or a rise in interest rates in India could
adversely affect the Bank's business.
Any slowdown in the Indian economy or increased volatility of global commodity prices, in particular oil and steel prices,
could adversely affect the Bank's borrowers and contractual counterparties. Because of the importance of its commercial
banking operations for retail customers and the importance of its agricultural loan portfolio to its business, any slowdown
in the growth of the housing, automobile and agricultural sectors could adversely impact the Bank's business. Since 2004,
interest rates in the Indian economy have increased significantly. See "Management's Discussion and Analysis - Factors
Affecting the Bank's Results of Operations and Financial Condition - Interest rates, allocation of funds and costs of
funding." Slowdown in the demand for loans from corporate customers, retail customers and customers in the agricultural
sector, due to higher interest rates, could adversely impact its business.

A significant increase in the price of crude oil could adversely affect the Indian economy and the Bank's business.

India imports approximately 70.0% of its requirements of crude oil, which comprised approximately 29.9% of total imports
in fiscal year 2007; accordingly, a significant increase in the price of crude oil could adversely affect the Indian economy.
For example, the sharp increase in global crude oil prices during fiscal year 2001 adversely affected the Indian economy in
terms of increased volatility in interest and exchange rates, as well as the overall state of liquidity in the banking system,
leading to intervention by the RBI. Since 2004, there has been a sharp increase in global crude oil prices due to both
increased demand and pressure on production and refinery capacity, and to political and military tensions in key oil-
producing regions. The full burden of the oil price increase has not been passed to Indian consumers and has been
substantially absorbed by the Government and Government-owned oil marketing companies. While global crude prices
have risen again, and been sustained at high levels, a further increase or volatility of oil prices and the pass-through of an
increase to Indian consumers could have a material adverse impact on the Indian economy and on the Indian banking and
financial system in particular, including through a rise in inflation and market interest rates and a higher trade deficit.
A significant change in the Government's economic liberalisation and deregulation policies could adversely affect the
Bank's business and the price of the Equity Shares.

The Bank's assets and customers are predominantly located in India. The Government has traditionally exercised and
continues to exercise a dominant influence over many aspects of the economy. The Government's economic policies have
had and could continue to have a significant effect on public sector entities, including the Bank, and on market conditions
and prices of Indian securities, including securities issued by the Bank. See "Business - Relationship with the Government
and the Reserve Bank of India."

The most recent parliamentary elections were completed in May 2004. A coalition government led by the Congress Party
has been formed with Dr. Manmohan Singh as the Prime Minister of India. Although there has been no significant change


                                                             21
in the Government's policies since May 2004, any significant change in the Government's economic liberalisation and
deregulation policies could adversely affect business and economic conditions in India and could also adversely affect the
Bank's business, its future financial performance and the trading price of the Equity Shares.
Financial instability in other countries, particularly emerging market countries and countries where the Bank has
established operations, could adversely affect the Bank's business and the price of the Equity Shares.

The Indian economy is influenced by economic and market conditions in other countries, particularly emerging market
countries in Asia. The Bank has also established operations in several other countries. A loss of investor confidence in
the financial systems of other emerging markets and countries where the Bank has established operations or any
worldwide financial instability may cause increased volatility in the Indian financial markets and, directly or indirectly,
adversely affect the Indian economy and financial sector and its business.

If regional hostilities, terrorist attacks or social unrest in some parts of the country increase, the Bank's business and
the price of the Equity Shares could be adversely affected.
India has from time to time experienced social and civil unrest and hostilities both internally and with neighbouring
countries. Present relations between India and Pakistan continue to be fragile on the issues of terrorism, armament and
Kashmir. India had also experienced terrorist attacks in some parts of the country. These hostilities and tensions could
lead to political or economic instability in India and a possible adverse effect on the Bank's business, its future financial
performance and the trading price of the Equity Shares. Further, India has also experienced social unrest in some parts of
the country. If such tensions spread and lead to overall political and economic instability in India, it may adversely affect
the Bank's business, future financial performance and the trading price of the Equity Shares.

Natural calamities could adversely affect the Indian economy, the Bank's business and the price of the Equity Shares.

India has experienced natural calamities such as earthquakes, floods and drought in recent years. The extent and severity
of these natural disasters determine their impact on the Indian economy. For example, in fiscal year 2003, many parts of
India received significantly less than normal rainfall. As a result of the drought conditions during fiscal year 2003, the
agricultural sector recorded a negative growth of 7.0%. Also, the erratic progress of the monsoon season in fiscal year
2005 adversely affected sowing operations for certain crops and resulted in a decline in the growth rate of the agricultural
sector from 10.0% in fiscal year 2004 to negligible growth in fiscal year 2005. The agricultural sector grew by 6.0% in fiscal
year 2006 and by 2.7% in fiscal year 2007. Further prolonged spells of below or above normal rainfall or other natural
calamities could adversely affect the Indian economy and the Bank's business, especially in view of the Bank's strategy
of increasing its exposure to rural India.
Financial difficulties and other problems in certain financial institutions in India could adversely affect the Bank's
business and the price of the Equity Shares.

The Bank is exposed to the risks inherent with the Indian financial system. These risks are driven by the financial
difficulties faced by certain Indian financial institutions, whose commercial soundness may be closely interrelated as a
result of credit, trading, clearing or other relationships amongst them. This risk, which is sometimes referred to as
"systemic risk," may adversely affect financial intermediaries, such as clearing agencies, banks, securities firms and
exchanges with whom the Bank interacts on a daily basis. Any such difficulties or instability of the Indian financial
system in general could create an adverse market perception about Indian financial institutions and banks and adversely
affect the Bank's business and the trading price of the Equity Shares. As the Indian financial system operates within an
emerging market, the Bank faces risks of a nature and extent not typically faced in more developed economies, including
the risk of deposit runs notwithstanding the existence of a national deposit insurance scheme. See "Industry Overview."




                                                             22
                                                                                           State Bank of India

The price of the Equity Shares may be adversely affected by the recent financial instability in the United States
resulting from sub prime mortgages.
The recent credit market instability in the United States resulting from concerns with increased defaults of higher risk
mortgages to lower income households, or the so-called sub prime mortgages, may adversely affect the Bank's loan and
investment portfolios, although the Bank has no direct exposure to U.S. sub prime loans. For example, some of the Bank's
investment securities may need to be marked to market at a significantly lower price because a market for those securities
is not sufficiently liquid or prices are not properly quoted. Some of the Bank's borrowers may be exposed to companies
which are adversely affected by the instability stemming from the collapse of sub prime mortgages. The availability of
credit may become limited due to an overall deterioration of the credit markets, increasing the risk that some of the Bank's
counterparties may default. Moreover, the negative developments in U.S. credit markets may cause significant fluctuations
in stock markets globally and foreign currency exchange rates which in turn may affect the Bank's financial results. If credit
market conditions continue to deteriorate, the Bank's capital funding structure may need to be adjusted, and its funding
costs may increase.
Any downgrading of India's debt rating by an international rating agency could adversely affect the Bank's business
and its liquidity.
Because the Bank's foreign currency ratings are pegged to India's sovereign ceiling, any adverse revision to India's credit
rating for international debt will have a corresponding effect on the Bank's ratings. Any adverse change in the Bank's
ratings may limit its access to capital markets and decrease its liquidity.
An outbreak of avian influenza or other contagious diseases may adversely affect the Indian economy and the Bank's
business.
Since late 2003, a number of countries in Asia, including India, as well as countries in other parts of the world, have had
confirmed cases of the highly pathogenic H5N1 strain of avian influenza in birds. Certain countries in Southeast Asia
have reported cases of bird to human transmission of avian influenza resulting in numerous human deaths. The World
Health Organisation and other agencies have issued warnings on a potential avian influenza pandemic if there is sustained
human to human transmission. Future outbreaks of avian influenza or a similar contagious disease could adversely affect
the Indian economy and economic activity in the region. As a result, any present or future outbreak of avian influenza or
other contagious diseases could have a material adverse effect on the Bank's business.
Investors in the Equity Shares may not be able to enforce a judgment of a foreign court against the Bank, its directors
or executive officers.
The Bank was constituted under the Act, as amended from time to time. Substantially all of the Bank's Directors and
executive officers and some of the experts named herein are residents of India and a substantial portion of the assets of
the Bank and such persons are located in India. As a result, it may not be possible for investors to affect service of
process upon the Bank, or such persons outside India, or to enforce judgments obtained against such parties outside
India.
Recognition and enforcement of foreign judgments are provided for by section 13 of the Code of Civil Procedure, 1908 of
India (the "Civil Code"). Section 13 provides that foreign judgments shall be conclusive regarding any matter directly
adjudicated upon except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where
the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings that the
judgment is founded on an incorrect view of international law or a refusal to recognise the law of India in cases to which
such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice;
(v) where the judgment has been obtained by fraud; and (vi) where the judgment sustains a claim founded on a breach of
any law then in force in India. Under the Civil Code, a court in India shall, upon the production of any document purporting
to be a certified copy of a foreign judgment, presume that the judgment was pronounced by a court of competent
jurisdiction, unless the contrary appears on the record




                                                             23
India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Section
44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court, within the meaning
of that section, in any country or territory outside India which the Government has by notification declared to be in a
reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the
relevant court in India. However, section 44A of the Civil Code is applicable only to monetary decrees not being in the
same nature of amounts payable in respect of taxes, other charges of a like nature or in respect of a fine or other penalties.
The United States has not been declared by the Government to be a "reciprocating territory" for the purposes of section
44A of the Civil Code. A judgment of a court of a country which is not a reciprocating territory may be enforced only by
a fresh suit upon the judgment and not by proceedings in execution. Such a suit has to be filed in India within three years
from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. Execution of a
judgment or repatriation outside of India of any amounts received is subject to the approval of the RBI. It is unlikely that
a court in India would award damages on the same basis as a foreign court if an action were to be brought in India.
Furthermore, it is unlikely that an Indian court would enforce foreign judgments if that court was of the view that the
amount of damages awarded was excessive or inconsistent with public policy, and is uncertain whether an Indian court
would enforce foreign judgments that would contravene or violate Indian law.

Indian accounting principles and audit standards differ from those which prospective investors may be familiar with
in other countries.

As stated in the report of the Bank's independent auditors included in this Letter of Offer, the Bank's financial statements
are prepared in conformity with Indian GAAP, consistently applied during the periods stated, except as provided in such
report, and no attempt has been made to reconcile any of the information given in this Letter of Offer to any other
accounting principles or to base it on any other auditing standards. Indian GAAP differs from standards in the United
States. See "Description of Certain Differences between Indian GAAP and U.S. GAAP."
There may be less company information available in the Indian securities markets than securities markets in
developed countries.

There may be differences between the level of regulation and monitoring of the Indian securities markets and the activities
of investors, brokers and other participants and that of the markets in the United States and other developed countries.
The Securities and Exchange Board of India ("SEBI") is responsible for approving and improving disclosure and other
regulatory standards for the Indian securities markets. SEBI has issued regulations and guidelines on disclosure
requirements, insider trading and other matters. There may, however, be less publicly available information about Indian
companies than is regularly made available by public companies in developed countries.

A decline in India's foreign exchange reserves may affect liquidity and interest rates in the Indian economy which
could have an adverse impact on the Bank.
India's foreign exchange reserves increased by U.S.$ 28.5 billion (25.2%) in fiscal year 2005, by U.S.$ 10.1 billion (7.1%) in
fiscal year 2006 and by U.S.$ 47.6 billion (31.4%) in fiscal year 2007. As on March 31, 2007, India's foreign exchange
reserves stood at U.S.$ 199.2 billion and U.S.$ 247.8 billion as on September 28, 2007. A sharp decline in these reserves
could result in reduced liquidity and higher interest rates in the Indian economy, which in turn, could adversely affect the
Bank's business, its future financial performance and the trading price of the Equity Shares.

Trade deficits could adversely affect the Bank's business and the price of the Equity Shares.

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




                                                               24
                                                                                          State Bank of India

Risks Relating to the Equity Shares
You may not receive the Equity Shares and other instruments that you subscribe for in this Issue until 42 days after the
date on which this Issue closes, which will subject you to market risk.

The Equity Shares you purchase in this Issue will not be credited to your demat account with depository participants until
approximately 42 days from the Issue Closing Date. You can start trading on such Equity Shares only after receipt of listing
and trading approvals in respect of these shares. Since the Equity Shares are already listed on stock exchanges, you will
be subject to market risk from the date you pay for the Equity Shares to the date they are listed. Further, there can be no
assurance that the Equity Shares allocated to you will be credited to your demat account, or that trading in the Equity
Shares will commence within the time periods specified above.

There may not be an active or liquid market for the Equity Shares, which may cause the price of the Equity Shares to
fall and may limit your ability to sell the Equity Shares.
The price at which the Equity Shares will trade after this Issue will be determined by the marketplace and may be
influenced by many factors, including:

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

      the history of, and the prospects for, the Bank's business and the sectors and industries in which it competes;
      the valuation of publicly traded companies that are engaged in business activities similar to the Bank's; and

      significant developments in India's economic liberalisation and deregulation policies.

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

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

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

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



                                                             25
Foreign investment in the Bank is subject to limits specified by the Government.
The permissible foreign investment (including GDRs, investment by FIIs and NRIs) as prescribed by the RBI is 20% of the
Bank's total paid up capital. Currently, the Bank's total foreign holdings are 19.8%. Accordingly, unless the current foreign
investment limit applicable to the Bank is changed, the amount of additional foreign investment in the Bank is limited. Once
the aggregate foreign investment in the Bank reaches 20% of the Bank's total paid up capital, the RBI instructs non-
resident investors and authorised dealers not to further transact in the Equity Shares of the Bank without prior approval
of the RBI. These restrictions may adversely affect the liquidity and market price of the Bank's Equity Shares to the extent
international investors are not permitted to purchase shares in normal secondary transactions.

Shareholders will experience additional dilution as a result of the Bank's planned Employee Share Purchase Scheme.

The Bank plans to offer certain of its employees the right to purchase additional shares of the Bank. The Central
Government has by its letter F.No.11/7/2007-BOA dated January 25, 2008, approved the allotment of up to 8,617,500 Equity
Shares to certain employees of the Bank under its planned employee share purchase scheme ("ESPS"). The Central Board
approved the ESPS at its meeting held on February 1, 2008 for the grant Equity Shares as per the approval by the Central
Government as described above. The issue of Equity Shares pursuant to the Scheme will result in an immediate dilution of
your shareholding and may have a negative effect on the trading price of the Equity Shares.
Non-resident shareholders may not be allowed to apply for additional shares.

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

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

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

Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian company are
generally taxable in India. Any gain realised on the sale of listed equity shares on a stock exchange held for more than
twelve (12) months will not be subject to capital gains tax in India if Securities Transaction Tax ("STT") has been paid on
the transaction. STT will be levied on and collected by a domestic stock exchange on which the equity shares are sold.
Any gain realised on the sale of equity shares held for more than twelve (12) months to an Indian resident, which are sold
other than on a recognised stock exchange and on which no STT has been paid, will be subject to long term capital gains
tax in India. Further, any gain realised on the sale of listed equity shares held for a period of twelve (12) months or less will
be subject to short term capital gains tax in India.
Significant differences exist between Indian GAAP and other accounting principles, such as US GAAP, which may be
material to investors' assessments of the Bank's financial condition.

The Bank has prepared its financial statements and the financial information contained in this Letter of Offer in accordance
with Indian GAAP. Indian GAAP requirements differ in certain respects from those of US GAAP. The Bank has not
presented a reconciliation of its financial statements to US GAAP in this Letter of Offer. Furthermore, the Bank has not
quantified or identified the impact of the differences between Indian GAAP and US GAAP as applied to its financial
statements. As there are differences between Indian GAAP and US GAAP, there may be substantial differences in the
Bank's results of operations, cash flows and financial position if it were to prepare financial statements in accordance with


                                                               26
                                                                                          State Bank of India

US GAAP instead of Indian GAAP. See "Summary of Significant Differences Between Indian GAAP and US GAAP."
Prospective investors should consult their own professional advisors for an understanding of the differences between
Indian GAAP and US GAAP and how they might affect the financial information contained in this Letter of Offer.
There is no guarantee that the Equity Shares will be listed on the BSE, the NSE and the other stock exchanges in a
timely manner or at all, and any trading closures at the BSE and the NSE may adversely affect the trading price of the
Equity Shares.
In accordance with Indian law and practice, permission for listing of the Equity Shares will not be granted until after those
Equity Shares have been issued and allotted. Approval will require all other relevant documents authorizing the issuing of
Equity Shares to be submitted. There could be a failure or a delay in listing the Equity Shares on the BSE and the NSE.
Any failure or delay in obtaining the approval would restrict your ability to dispose of your Equity Shares.
The regulation and monitoring of Indian securities markets and the activities of investors, brokers and other participants
differ, in some cases significantly, from those in Europe and the U.S. The BSE and the NSE have in the past experienced
problems, including temporary exchange closures, broker defaults, settlements delays and strikes by brokerage firm
employees, which, if continuing or recurring, could affect the market price and liquidity of the securities of Indian
companies, including the Equity Shares, in both domestic and international markets. A closure of, or trading stoppage on,
either of the BSE and the NSE could adversely affect the trading price of the Equity Shares. Historical trading prices,
therefore, may not be indicative of the prices at which the Equity Shares will trade in the future.
Notes to Risk Factors:
1.    The RBI conducts regular inspections of banking companies under the provisions of the Banking Regulation Act.
      The reports of the RBI are strictly confidential. The RBI does not permit disclosure of its inspection report.
2.    This Issue is of 105,259,776 Equity Shares for cash (excepting the Government's portion representing 62,867,840
      Equity Shares) at a premium of Rs. 1,580 per Equity Share on rights basis to the existing Equity Shareholders of the
      Bank in the ratio of 1 fully paid up Equity Share for every 5 fully paid up Equity Shares held on the Record Date of
      February 4, 2008 in terms of this Letter of Offer.
3.    Net worth of the Bank on a stand alone basis as on March 31, 2007 is Rs. 313 billion. The Issue is of an amount
      aggregating Rs. 167,363.04 million.
4.    The book value per Equity Share of the Bank as on March 31, 2007 was Rs. 595 per Equity Share.
5.    The Bank has entered into certain related party transactions as disclosed in the section titled "Related Party
      Transactions" on page 155.
6.    Before making an investment decision in respect of this Issue, you are advised to refer to the section entitled "Basis
      for Issue Price" on page 57.
7.    The Promoter of the Bank is the Government of India. The average cost of acquisition of Equity Shares by the
      Promoter is Rs. 1,130.35 per Equity Share.
8.    The Bank is proposing an employee share purchase scheme (the "ESPS"). The Central Government has, by its letter
      no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to Government
      authorisation, the Central Board has, at its meeting held on February 1, 2008, approved the ESPS. The Bank may
      issue a maximum of 8,617,500 Equity Shares to its Eligible Employees (as defined therein). The ESPS shall remain
      open for a period commencing from March 28, 2008 to April 15, 2008. The issue price will be Rs. 1,590 per Equity
      Share. The terms and conditions of the ESPS, will be in accordance with the provisions of the SEBI (Employee Stock
      Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and all the issuances of shares will be done
      in compliance with the guidelines/regulations/circulars at that time.
9.    Trading in the Equity Shares, through the stock exchanges, for all investors shall be in dematerialised form only.



                                                             27
10.   For transactions in Equity Shares by Directors of the Bank in the last six months, please refer to the section entitled
      "Capital Structure" on page 45.
11.   Other than as stated in this Letter of Offer, the Directors/Key Management personnel have no interest other than
      reimbursement of expenses incurred or normal remuneration or benefits.

12.   The Bank and the Lead Managers are obliged to keep this Letter of Offer updated and inform the public of any
      material change/development.
13.   The Lead Managers and the Bank shall make any clarification or any information relating to the Issue available to the
      investors at large and no selective or additional information would be available for a section of the investors in any
      manner whatsoever.

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




                                                             28
                                                                                        State Bank of India

                                                     THE ISSUE

  Equity Shares proposed to be issued by the Bank                105,259,776 Shares
  Rights Entitlement                                             One Equity Share for every five Equity shares held as
                                                                 on the Record Date.
  Record Date                                                    February 4, 2008.
  Issue Price per Equity Share                                   Rs. 1,590 per Equity Share (including a premium of
                                                                 Rs. 1,580 per Equity Share)
  Equity Shares outstanding prior to the Issue                   526,298,878
  Equity Shares proposed to be issued under ESPS                 8,617,500
  Equity Shares outstanding after the Issue and the ESPS         640,176,154
  Terms of the Issue                                             For more information, see "Terms of the Present Issue"
                                                                 on page 291

Terms of Payment
The Issue price of the full number of Equity Shares being applied for, i.e. an amount of Rs. 1,590 per share including the
share premium of Rs. 1,580 per Equity Share being applied for, is to be paid at the time of application.
Objects of the Issue:
      To improve the Bank's capital adequacy ratio by augmenting Tier I capital;
      Ensure compliance with regulatory requirements; and
      Other general corporate purposes including meeting expenses related to the Issue.
      For details on the Objects of the Issue, refer to "Objects of the Issue" on page 155.




                                                            29
                            SELECTED FINANCIAL AND OPERATING DATA

The Bank's financial and other data for fiscal year 2005 through fiscal year 2007 and the six-months ended September 30,
2006 and 2007 included in this Letter of Offer have been derived from its consolidated and unconsolidated financial
statements prepared in accordance with generally accepted accounting principles in India, or Indian GAAP, guidelines
issued by the RBI from time to time and practices generally prevailing in the banking industry in India. These financial
statements do not include the results of operations of its subsidiaries and other consolidating entities.
The financial statements are prepared in accordance with Indian GAAP according to which the financial statements
contain figures for two years (current year and previous year) for the purpose of comparison. The financial statements of
the Bank for the years ended March 31, 2007, 2006 and 2005, as presented hereunder have been reformatted to contain the
figures for these years. As there has been a change in accounting policies during fiscal year 2007, certain line items relating
to fiscal year 2006 as extracted from the 2007 annual financial statements in respect of figures relating to the previous year
have been regrouped to reflect the change. The data relating to the year 2005 has been extracted from the 2006 annual
financial statements in respect of figures relating to the previous year and therefore certain line items relating to fiscal year
2005 are not strictly comparable with those relating to fiscal year 2007 or the regrouped data for fiscal year 2006 as
appearing herein. See "Note on Reformatting and Regrouping" in the Financial Statements at the conclusion of the Letter
of Offer for further discussion.
Potential investors should read the following data together with the more detailed information contained in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this Letter of Offer. The following data is qualified in its entirety by reference to
all of that information.
Unconsolidated Data
Selected Income Statement Data
                                                                            Year ended March 31,             Six month
                                                                                                            period ended
                                                                                                           September 30,
                                                                         2005         2006       2007        2006      2007
                                                                                           (Rs. in millions)
 INCOME
 Interest earned
 Interest/discount on advance/bills                                    130,435      176,963     248,392     113,691     163,536
 Income on investments                                                 160,277      139,775     114,930      50,753      54,613
 Interest on balances with RBI and other inter-bank funds               17,870       21,217      27,196       8,301       8,887
 Others                                                                 15,698       21,840       4,392          37          32
 Other income
 Commission, exchange and brokerage                                     35,447       39,962       48,045      16,063     20,525
 Profit/(loss) on sale of investments (Net)                             17,753        5,872        5,678       2,212      7,125
 Profit/(loss) on revaluation of investments (Net)                            -           -     (16,775)     (6,728)    (7,403)
 Profit on sale of land, buildings and other assets including               (8)          19          121           -          -
 leased assets (Net)
 Profit on exchange transactions (Net)                                   5,282       10,013        3,734       2,107      1,407
 Income earned from dividends from subsidiaries/companies                3,932        3,172        5,970       3,617      1,723
 and/or joint ventures in India and abroad
 Income from financial leases                                           1,392         1,178         836         693     308
 Miscellaneous income                                                   7,401        14,137      10,084       7,295   8,120
 Total income                                                        395,479       434,148     452,603     198,041 258,873


                                                               30
                                                                                 State Bank of India


                                                                 Year ended March 31,           Six month
                                                                                               period ended
                                                                                              September 30,
                                                              2005       2006       2007        2006      2007
                                                                              (Rs. in millions)
EXPENDITURE
Interest expended
Interest on deposits                                        171,865    181,322     190,836    90,072    125,470
Interest on RBI/inter-bank borrowings                         4,087     13,215      21,415     7,433     14,412
Others                                                        8,882      9,367      22,117     4,554      7,543
Operating expenses
Payments to and provisions for employees                     69,073     81,230      79,326     38,790  40,216
Rent, taxes and lighting                                      7,231      7,964       8,965      4,079   4,474
Printing and stationery                                       1,625      1,756       1,739        916   1,033
Depreciation                                                  7,522      7,291       6,024      3,628   3,113
Directors' fees, allowances and expenses                         10         12          11          6       5
Auditors' fees and expenses                                     543        636         623        347     595
Law charges                                                     498        495         573        266     266
Postage, telegrams, telephones, etc                             744      1,022       1,182        422     812
Repairs and maintenance                                       1,340      1,703       1,892        928     995
Insurance                                                     2,400      3,408       3,553      1,811   2,024
Other expenditures                                            9,756     11,734      14,348      5,607   7,168
Provisions and contingencies                                 66,858     68,926      54,586     19,351  20,375
Total expenditure                                          352,434    390,081     407,190    178,210 228,501
PROFIT
Net profit for the year                                      43,045     44,067      45,413    19,831     30,372
Profit brought forward                                            3          3           3         3          3
Transfer from general reserve                                     -          -          29         -          -
Total profit                                                 43,048     44,070      45,445    19,834     30,375
APPROPRIATIONS
Transfer to statutory reserves                               24,821     29,338      33,581          -         -
Transfer to capital reserve, Investment Fluctuation          10,708      6,327       3,241          -         -
Reserves & Revenue and other reserves
Dividend                                                      6,579      7,368       7,368          -         -
Tax on dividend                                                 937      1,034       1,252          -         -
Balance carried over to balance sheet                             3          3           3     19,834    30,375
Total appropriations                                        43,048     44,070      45,445     19,834    30,375




                                                      31
Per Equity Share Data
The following table sets forth the basic and diluted earnings per share of the Bank in accordance with Indian GAAP. Basic
earnings per share is computed by dividing net profit after tax by the weighted average number of Equity Shares
outstanding during the year. There are no diluted potential Equity Shares outstanding during the year.
                                                                      Year ended March 31,              Six month
                                                                                                      period ended
                                                                                                     September 30,
                                                          2005          2006           2007         2006         2007
                                                               (Rs. in millions, except per share data)
 Basic and diluted
 Weighted average no. of Equity Shares             526,298,878      526,298,878    526,298,878 526,298,878 526,298,878
 outstanding
 Net profit                                              43,045           44,067          45,413          19,831      30,372
 Basic and diluted earnings per share                     81.79            83.73           86.29          75.36*     115.42*
 Nominal value per share                                  10.00            10.00           10.00           10.00       10.00
* Annualised
Balance Sheet Data
                                                                            As on March 31,                        As on
                                                                                                              September 30,
                                                                2005          2006           2007           2006      2007
                                                                                      (Rs. in millions)
 CAPITALAND LIABILITIES
 Capital                                                          5,263       5,263          5,263          5,263       5,263
 Reserves and Surplus
 Statutory reserves                                          140,871        170,209       203,790         170,209    203,790
 Capital reserves                                              3,029          4,181         4,181           4,181      4,181
 Share premium                                                35,106         35,106        35,106          35,106     35,106
 Investment fluctuation reserve                               52,539              -             -               -          -
 Revenue and other reserves                                    1,030         58,745        61,956          58,744     61,956
 Foreign currency translation reserve                          2,880          2,934         2,686           3,944        457
 Balance of profit and loss account                                3              3             3          19,834     30,375
 Deposits
 Demand deposits                                             566,123        679,956       819,980       627,408       711,427
 Savings bank deposits                                       949,072      1,127,239     1,291,365     1,244,589     1,392,656
 Term deposits                                             2,155,281      1,993,265     2,243,866     2,133,093     2,766,460
 Borrowings
 Borrowings in India                                          12,421         66,424        58,197          41,170     62,511
 Borrowings outside of India                                 179,423        239,989       338,836         281,674    386,868
 Other liabilities and provisions
 Other Liabilities and Provisions                            461,140   507,118   456,116                734,791   460,365
 Subordinate Debts                                            34,648    49,858   144,307                105,308   229,976
 Total capital and liabilities                            4,598,829 4,940,290 5,665,652              5,465,314 6,351,391


                                                           32
                                                                                           State Bank of India


                                                                           As on March 31,                         As on
                                                                                                              September 30,
                                                               2005          2006           2007            2006       2007
                                                                                    (Rs. in millions)
 ASSETS
 Cash and balances with the RBI
 Cash in hand (incl. foreign currency and gold)             14,362          20,802          25,301       28,930      23,760
 Balance with RBI                                          153,742         195,725         265,463      287,490     438,258
 Balances with banks & money at call & short notice
 In India                                                  155,394          86,836          75,000       90,504      66,211
 Outside India                                              69,723         142,237         153,923      142,562      61,759
 Investments
 In India                                                1,924,564        1,572,862      1,433,363    1,405,830    1,746,489
 Outside India                                              46,415           52,480         58,126       59,065       55,109
 Advances
 Bills purchased and discounted                            214,708       248,537           307,871   262,893   328,495
 Cash credits, overdrafts and loans repayable on demand    739,152       958,568         1,254,762   968,664 1,307,254
 Term loans                                              1,069,885     1,410,904         1,810,732 1,598,973 1,950,400
 Fixed assets                                               26,977        27,529            28,189    26,701    31,815
 Other assets                                              183,907       223,810           252,922   593,702   341,841
 Total assets                                           4,598,829     4,940,290         5,665,652 5,465,314 6,351,391

Consolidated Data
The consolidated operating results data for the fiscal years 2005, 2006, and 2007 and the six-months ended September 30,
2006 and 2007 are presented in the table below.
                                                                      Year ended March 31,                    Six month
                                                                                                             period ended
                                                                                                            September 30,
                                                                 2005           2006           2007         2006       2007
                                                                                        (Rs. in millions)
 INCOME
 Interest earned                                                444,991       498,921       572,377      251,176    333,583
 Other income                                                   100,366       111,740       111,391       45,152     69,485
 Total income                                                   545,357       610,661       683,768      296,328    403,068
 EXPENDITURE
 Interest expended                                              248,918       281,029       339,827      150,167    222,306
 Operating expenses                                             144,436       176,013       200,018       89,628    108,813
 Provisions and contingencies                                    96,023        97,004        77,725       28,251     30,667
 Total expenditure                                             489,377       554,046       617,570      268,046 361,786




                                                          33
                                                                     Year ended March 31,                Six month
                                                                                                        period ended
                                                                                                       September 30,
                                                               2005         2006          2007         2006       2007
                                                                                   (Rs. in millions)
 PROFIT
 Net profit for the year                                       55,980      56,615        66,198        28,282    41,282
 Less: Minority Interest                                        1,341       1,316         2,555         1,307     1,158
 Group profit                                                  54,639      55,299        63,643        26,975    40,124
 Add: Brought forward profit attributable to the group          2,341         134         3,864         3,864     1,190
 Transfer from general reserve                                      -           -            29          N/A       N/A
 Total profit                                                 56,980      55,433        67,536           N/A    41,314
 APPROPRIATIONS
 Transfer to statutory reserves                                29,250      34,537        40,063         N/A       N/A
 Transfer to other reserves                                    20,080       8,631        17,663         N/A       N/A
 Dividend                                                       6,579       7,368         7,368         N/A       N/A
 Corporate tax on dividend                                        937       1,033         1,252         N/A       N/A
 Balance carried over to balance sheet                            134       3,864         1,190         N/A       N/A
 Total appropriations                                         56,980      55,433        67,536          N/A       N/A

Balance Sheet Data
                                                                     As on March 31,                       As on
                                                                                                       September 30,
                                                              2005        2006           2007          2006      2007
                                                                                 (Rs. in millions,)
 CAPITALAND LIABILITIES
 Capital                                                      5,263     5,263     5,263     5,263     5,263
 Reserves & surplus                                         320,255   366,804   420,094   394,389   457,724
 Minority interest                                           13,041    14,303    16,899    15,517    18,418
 Deposits                                                 5,061,053 5,440,243 6,362,729 5,784,943 7,024,773
 Borrowings                                                 229,295   369,749   486,618   399,951   568,595
 Other liabilities & provisions                             656,869   773,556   860,141 1,013,148   993,706
 Total capital and liabilities                           6,285,776 6,969,918 8,151,744 7,613,211 9,068,479
 ASSETS
 Cash & balances with the RBI                               256,158   311,288   450,661   415,321   656,516
 Balances with banks & money at call & short notice         253,412   262,077   274,108   265,490   161,715
 Investments                                              2,619,620 2,279,311 2,165,210 2,119,268 2,554,373
 Advances                                                 2,869,866 3,744,762 4,872,860 4,101,620 5,197,454
 Fixed assets                                                35,736    39,563    39,994    39,917    44,826
 Other assets                                               250,984   332,917   348,911   671,595   453,595
 Total assets                                            6,285,776 6,969,918 8,151,744 7,613,211 9,068,479



                                                         34
                                                                                         State Bank of India

                                          GENERAL INFORMATION

Dear Equity Shareholder(s),
The Government has, by its letter (no. F.No.11/16/2005-BOA) dated January 2, 2008, authorised the increase in the issued
capital of the Bank and pursuant to the resolutions passed by the Central Board of Directors of the Bank at its meeting
held on January 14, 2008, the following offer will be made to the Equity Shareholders of the Bank, with a right to renounce:
ISSUE OF 105,259,776 EQUITY SHARES OF FACE VALUE RS. 10 EACH AT A PREMIUM OF RS. 1,580 PER EQUITY
SHARE AGGREGATING TO AN AMOUNT EQUIVALENT TO RS. 167,363.04 MILLION TO THE EQUITY
SHAREHOLDERS ON A RIGHTS BASIS IN THE RATIO OF ONE EQUITY SHARE FOR EVERY FIVE EQUITY
SHARES HELD ON THE RECORD DATE i.e. FEBRUARY 4, 2008 (“THE ISSUE”). THE ISSUE PRICE FOR EQUITY
SHARES IS 159 TIMES OF THE FACE VALUE OF THE EQUITY SHARE.
Corporate Office of the Bank
State Bank of India
State Bank Bhavan, Madame Cama Road
Mumbai 400 021
Maharashtra, India
The Equity Shares of the Bank are listed on the BSE and NSE. The Bank's Equity Shares are also listed at Ahmedabad,
Calcutta, Chennai and New Delhi Stock Exchanges. The GDRs issued by the Bank of New York in respect of the Equity
Shares are listed on the London Stock Exchange.
Central Board of Directors as of December 31, 2007.
 Name                                                             Designation
 Mr. O.P. Bhatt                                                   Chairman
 Mr. T.S. Bhattacharya                                            Managing Director
 Mr. S. K. Bhattacharyya                                          Managing Director
 Mr. Suman Kumar Bery                                             Director appointed under section 19(c) of the Act
 Dr. Ashok Jhunjhunwala                                           Director appointed under section 19(c) of the Act
 Mr. Ananta C. Kalita                                             Director appointed under section 19(ca) of the Act
 Mr. Amar Pal                                                     Director appointed under section 19(cb) of the Act
 Mr. Piyush Goyal                                                 Director appointed under section 19(d) of the Act
 Dr. Deva Nand Balodhi                                            Director appointed under section 19(d) of the Act
 Prof. Mohd. Salahuddin Ansari                                    Director appointed under section 19(d) of the Act
 Mr. Vinod Rai                                                    Director appointed under section 19(e) of the Act
 Ms. Shyamala Gopinath                                            Director appointed under section 19(f) of the Act
For further details on the Bank's Directors, see "Management" on page 135 of this Letter of Offer.




                                                            35
Compliance Officer
Mr. Subrata Maiti
General Manager (Shares & Bonds)
State Bank of India
State Bank Bhavan, Madame Cama Road
Mumbai 400 021
Maharashtra, India
Tel.: (91 22) 2288 3888
Fax: (91 22) 2285 5348
Email: gm.snb@sbi.co.in
Investors may contact the General Manager (Shares & Bonds) for any pre-Issue / post-Issue related matters.
Bankers of the Issue
State Bank of India
Issue Management Team
Lead Managers to the Issue
Citigroup Global Markets India Private Limited
Bakhtawar, 12th Floor
229, Nariman Point,
Mumbai 400 021
Tel : (91 22) 6631 9999
Fax : (91 22) 6631 9803
Email: investors.cgmib@citi.com
Website: www.citibank.co.in
Contact Person: Amulya Goyal
CLSA India Limited
8th Floor, Dalamal House
Nariman Point
Mumbai 400 021
Tel: (91 22) 6650 5050
Fax: (91 22) 2285 6524
Email: sbi.rights@clsa.com
Website: www.india.clsa.com
Contact Person: Mr. Sumit Jalan
DSP Merrill Lynch Limited
Mafatlal Center, 10th Floor,
Nariman Point,
Mumbai 400 021
Tel: (91 22) 6632 8000
Fax: (91 22) 2204 8518
Email: sbi_rights@ml.com
Website: www.dspml.com
Contact Person: Mr. Pranav Mehta



                                                         36
                                                         State Bank of India

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




                                                    37
     The statement of inter se allocation of responsibilities for this Issue between is as follows:
No      Activities                                                           Responsibility           Coordinator
1.      Capital structuring with the relative components and               Citi, DSPML, DB,           DSPML
        formalities such as type of instrument, number of                  CLSA, Kotak
        instruments to be issued, etc.
2.      Finalising ESPS Scheme alongwith the Bank and other                Citi, DSPML, DB,           DSPML
        intermediaries and related activities.                             CLSA, Kotak
3.      Drafting, design and distribution of the Letter of Offer           Citi, DSPML, DB,           Citi
        (LOF), Abridged LOF, CAF etc. and memorandum containing            CLSA, Kotak
        salient features of the Letter of Offer. The Lead Managers
        shall ensure compliance with the Guidelines for Disclosure
        and Investor Protection, Listing Agreement and other
        stipulated requirements and completion of prescribed
        formalities with Stock Exchanges and SEBI.
4.      Drafting and approval of all publicity material including          Citi, DSPML, DB,           CLSA
        statutory advertisement, corporate advertisement, brochure,        CLSA, Kotak
        corporate films, etc.
5.      Selection of various agencies connected with the issue,            Citi, DSPML, DB,
        namely                                                             CLSA, Kotak
             Registrars to the Issue;                                                                 Kotak
             Printers;                                                                                Citi
             Advertisement agencies; and                                                              CLSA
             Banker to Issue                                                                          DB
6.      Institutional marketing strategy                                   Citi, DSPML, DB,           CLSA
                                                                           CLSA, Kotak,
                                                                           SBI CAPS

7.      Offer to GDR Holders as applicable                                 Citi, DSPML, DB,           DB
                                                                           CLSA, Kotak
8.      Retail/Non-institutional marketing strategy which will cover,      Citi, DSPML, DB,           CLSA
        inter alia, preparation of investor presentation, publicity        CLSA, Kotak,
        budget, arrangements for selection of (i) ad-media, (ii) centres   SBI CAPS
        of holding conferences of brokers, investors etc.
9.      Follow-up with Banker to the Issue to get quick estimates of       Citi, DSPML, DB,           Kotak
        collection and advising the Bank about closure of the issue,       CLSA, Kotak
        based on the correct figures. The post-issue activities will
        involve essential follow-up steps, which include finalisation
        of basis of allotment / weeding out of multiple applications,
        listing of instruments and dispatch of certificates and
        refunds, with the various agencies connected with the work
        such as Registrars to the Issue, Bankers to the Issue, and
        bank handling refund business. The Lead Managers shall be
        responsible for ensuring that Registrars to the Issue and
        Bankers to the Issue fulfill their functions and enable it to
        discharge responsibility through suitable agreements with
        the Bank.


                                                         38
                                                         State Bank of India

Indian Legal Advisors to the Bank
Amarchand & Mangaldas & Suresh A. Shroff & Co.
Peninsula Chambers
Peninsula Corporate Park
Ganpatrao Kadam Marg
Lower Parel, Mumbai 400 013
Tel: (91 22) 6660 4455
Fax: (91 22) 2496 3666
International Legal Advisors to the Bank
Allen & Overy
9th Floor, Three Exchange Square
Central
Hong Kong
Tel No: (852) 2974 7000
Fax No: (852) 2974 6999
Indian Legal Advisors to the Lead Managers
J. Sagar Associates
Vakils House, 1st Floor
18 Sprott Road, Ballard Estate, Mumbai 400 001
Tel No: (91 22) 6656 1533
Fax No: (91 22) 6656 1515
International Legal Advisors to the Lead Managers
Clifford Chance
29th Floor, Jardine House
One Connaught Place
Hong Kong
Tel No: (852) 2825 8888
Fax No: (852) 2825 8800
Auditors of the Bank
1.   M.M. Nissim & Co.
     Chartered Accountants,
     Barodawala Mansion, B-Wing, 3rd Floor,
     81, Dr. Annie Besant Road
     Worli, Mumbai 400 018.
2.   Khandelwal Jain & Co
     Chartered Accountants,
     12-B Baldota Bhawan, 5th Floor,
     117, Maharshi Karve Road, Opp. Churchgate
     Mumbai 400 020




                                                    39
3.   R.G.N. Price & Co.
     Chartered Accountants,
     Simpson Buildings,
     861, Mount Road, Chennai 600 002
4.   S.K. Mittal & Co.
     Chartered Accountants, Mittal House, E-29,
     South Extension Part II, New Delhi 110 049.
5.   Vinay Kumar & Co.
     Chartered Accountants,
     Chandra Shekar Azad Market Complex,
     5 Sardar Patel Marg, Civil Lines,
     Allahabad 2110 01 (UP)
6.   D.P. Sen & Co.
     Chartered Accountants
     22, Ashutosh Chowdhury Avenue,
     2nd Floor, Flat No. 22, Kolkata 700 019
7.   Laxminiwas & Jain
     Chartered Accountants,
     5-4-726, Station Road, Nampally, Hyderabad 500 001
8.   Chaturvedi & Co.
     Chartered Accountants,
     60, Bentinck Street, Kolkata - 700 069
9.   Jain Kapila Associates
     3000, Bhagat Singh Street No. 2,
     Paharganj, New Delhi 110 055
10. Datta Singla & Co.
    Chartered Accountants,
    SCO-2935-36 (1st floor), Sector 22 C,
    Chandigarh 160 022
11. M. Choudhury & Co.
    Chartered Accountants,
    60, Bentinck Street, Kolkata - 700 069
12. G. M. Kapadia & Co.
    Chartered Accountants,
    36B Tamarind House, Tamarind Lane,
    Fort, Mumbai 400 001
13. Vardhaman & Co.
    Chartered Accountants,
    Flat 1C Rear Block, Oakland Apartments,
    7 Malony Road,
     T. Nagar, Chennai 600 017



                                                          40
                                                                                         State Bank of India

Registrar to the Issue
Datamatics Financial Services Limited
Plot No. A-16 & A-17, MIDC Area, Part B, Cross Lane,
Andheri (East)
Mumbai 400 093
Tel.: (91 22) 6671 2151- 2156
Fax: (91 22) 6671 2192
Contact Person: Mr. Dnyanesh Gharote
E-mail id: sbirights@dfssl.com
Website: www.dfssl.com
Note: Investors are advised to contact the Registrar to the Issue/Compliance Officer in case of any pre-issue/post issue
related problems such as non-receipt of Letter of Offer/abridged letter of offer/composite application form/allotment
advice/share certificate(s)/ refund orders.
Credit Rating
This being an issue of Equity Shares, no credit rating is required.
Monitoring Agency
No monitoring agency has been appointed for this Issue.
Minimum Subscription
If the Bank does not receive a minimum subscription of 90% of the Issue, the Bank shall refund the entire subscription
amount received within 42 days from the date of closure of the Issue. If there is a delay beyond eight days after the date
from which the Bank becomes liable to pay the amount (i.e. 42 days after closure of the Issue), the Bank shall pay interest
calculated at the rate of 15% p.a.
Underwriting Arrangements
The Issue is not underwritten.
ISSUE OPENS ON                            -      February 18, 2008
LAST DATE FOR REQUEST                    -       March 3, 2008
FOR SPLIT APPLICATION FORMS
ISSUE CLOSES ON                          -       March 18, 2008




                                                            41
                                          OVERSEAS SHAREHOLDERS

The distribution of this Letter of Offer and the issue of Equity Shares on a rights basis to persons in certain jurisdictions
outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this
Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this
issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer
and CAF will be dispatched to those shareholders who have an Indian address.
No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that
purpose. Accordingly, the Equity Shares represented thereby may not be offered or sold, directly or indirectly, and this
Letter of Offer may not be distributed in any jurisdiction outside of India. Receipt of this Letter of Offer will not constitute
an offer in those jurisdictions in which it would be illegal to make such an offer and, in those circumstances, this Letter of
Offer must be treated as having been sent for information only and should not be copied or redistributed. No person
receiving a copy of this Letter of Offer in any territory other than in India may treat the same as constituting an invitation
or offer to him, nor should he in any event use the CAF. The Bank will not accept any CAF where the address as indicated
by the applicant is not an Indian address. Accordingly, persons receiving a copy of this Letter of Offer should not, in
connection with the issue of Equity Shares or the Rights Entitlements, distribute or send the same in or into the United
States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If this Letter
of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to
the Equity Shares or the Rights Entitlements referred to in this Letter of Offer.
Neither the delivery of this Letter of Offer nor any sale hereunder shall under any circumstances create any implication that
there has been no change in the Bank's affairs from the date hereof or that the information contained herein is correct as
at any time subsequent to this date.
European Economic Area Restrictions
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive at any
relevant time (each, a "Relevant Member State") an offer of the Equity Shares to the public may not be made in that
Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved
by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus
Directive, except that an offer to the public in that Relevant Member State of any Equity Shares may be made at any time
under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member
State:
(a)   to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or
      regulated, whose corporate purpose is solely to invest in securities;
(b)   to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year;
      (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown
      in its last annual or consolidated accounts; or
(c)   in any other circumstances falling within Article 3(2) of the Prospectus Directive;
provided that no such offer of Equity Shares shall result in a requirement for the publication by the Bank or any Manager
of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purpose of this provision, the expression an "offer of Equity Shares to the public" in relation to any Equity Shares
in any Relevant Member State means the communication in any form and by any means of sufficient information on the
terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for
the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive
in that Member State and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant
implementing measure in each Relevant Member State.


                                                              42
                                                                                           State Bank of India

This European Economic Area selling restriction is in addition to any other selling restriction set out below.
United Kingdom Restrictions
This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii)
to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom it may lawfully be
communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant
persons"). The Equity Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or
otherwise acquire such Equity Shares will be engaged in only with, relevant persons. Any person who is not a relevant
person should not act or rely on this document or any of its contents.
Republic of Italy Restrictions
The Issue of the Equity Shares has not been registered pursuant to Italian securities legislation and, accordingly, no
Equity Shares may be offered, sold or delivered, nor may copies of this document or of any other document relating to the
Equity Shares be distributed in the Republic of Italy, except:
(i)    to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24
       February 1998, as amended (the Financial Services Act) and the relevant implementing CONSOB regulations, as
       amended from time to time, and in Article 2 of Directive No. 2003/71/EC of 4 November 2003; or
(ii)   in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the
       Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as
       amended (Regulation No. 11971).
Any offer, sale or delivery of the Equity Shares or distribution of copies of this document or any other document relating
to the Equity Shares in the Republic of Italy under (i) or (ii) above must be:
(a)    made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of
       Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 (as amended
       from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the "Banking Act"); and
(b)    in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian
       authority.




                                                              43
                                     NO OFFER IN THE UNITED STATES

The Rights Entitlements and the Equity Shares of the Bank have not been and will not be registered under the United
States Securities Act of 1933, as amended (the "Securities Act"), or any U.S. state securities laws and may not be offered,
sold, resold or otherwise transferred within the United States of America or the territories or possessions thereof (the
"United States" or "U.S.") or to, or for the account or benefit of, "U.S. Persons" (as defined in Regulation S under the
Securities Act ("Regulation S")), except in a transaction exempt from the registration requirements of the Securities Act.
The rights referred to in this Letter of Offer are being offered in India, but not in the United States. The Issue which this
Letter of Offer relates is not, and under no circumstances is to be construed as, an offering of any shares or rights for sale
in the United States or as a solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter
of Offer and the enclosed CAF should not be forwarded to or transmitted in or into the United States at any time.
Neither the Bank nor any person acting on behalf of the Bank will accept a subscription or renunciation from any person,
or the agent of any person, who appears to be, or who the Bank or any person acting on behalf of the Bank has reason to
believe is, in the United States and to whom an offer, if made, would result in requiring registration of this Letter of Offer
with the United States Securities and Exchange Commission. Envelopes containing a CAF should not be postmarked in the
United States or otherwise dispatched from the United States, and all persons subscribing for Equity Shares and wishing
to hold such shares in registered form must provide an address for registration of the Equity Shares in India. The Bank is
making this issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter
of Offer and CAF shall be dispatched to those Shareholders who have an Indian address. Any person who acquires Rights
Entitlements or Equity Shares will be deemed to have declared, warranted and agreed, by accepting the delivery of this
Letter of Offer, that it is not and that at the time of subscribing for the Equity Shares or the Rights Entitlements, it will not
be, in the United States.
The Bank reserves the right to treat as invalid any CAF which: (i) appears to the Bank or its agents to have been executed
in or dispatched from the United States; (ii) does not include the relevant certification set out in the CAF headed
"Overseas Shareholders" to the effect that the person accepting and/or renouncing the CAF does not have a registered
address (and is not otherwise located) in the United States; or (iii) where the Bank believes acceptance of such CAF may
infringe applicable legal or regulatory requirements; and the Bank shall not be bound to allot or issue any Equity Shares
or Rights Entitlement in respect of any such CAF.
Rights may not be transferred or sold to any U.S. Person.




                                                               44
                                                                                                     State Bank of India

                                                    CAPITAL STRUCTURE

                                                                                               Face value               Value at Issue
                                                                                                       (in                  Price (in
                                                                                              Rs. million)                Rs. million)
    Authorised share capital
    Equity Shares of Rs. 10 each                                                                  10,000.00                        N.A.
    Issued capital*#
       526,298,878       Equity Shares of Rs. 10 each                                              5,262.99            Detailed below
    Subscribed capital
       526,298,878       Equity Shares of Rs. 10 each                                              5,262.99            Detailed below
    Present Issue being offered to the Equity Shareholders
    through the Letter of Offer**
       105,259,776       Equity Shares of Rs. 10 each at a premium of
                         Rs. 1,580 per Equity Share at a price of Rs. 1,590 each                   1,052.60                  167,363.04
    Present Issue being offered to the employees of the Bank under the ESPS
           8,617,500     Equity Shares of Rs. 10 each at a premium of Rs. 1,580
                         per Equity Share at a price of Rs. 1,590 each                                86.18                   13,701.83
    Paid up capital after the Issue and the ESPS**
    After allotment of Equity Shares under the Issue and ESPS
    Equity Shares of Rs. 10 each                                                                   6,401.76                        N.A.
    Share Premium Account
    Existing share premium account                                                                35,105.73                        N.A.
    Share premium account after the Issue                                                       215,031.83                         N.A.
*       As required by Section 5(3) of the Act, the Central Government has, by its letter (no. F.No.11/16/2005-BOA) dated January 2, 2008,
        authorised the increase in the issued capital of the Bank from Rs. 526.30 crores to Rs. 650 crores. Further, in terms of the
        Government's Letter (Letter No. F/ 11/ 7/ 2007- BOA) dated December 3, 2007, the Government has intimated to the Bank that
        the cabinet has granted its approval for investing approximately Rs. 10,000 crores in the Issue by issuing SLR marketable securities
        towards the Government's Rights Entitlement. Accordingly, in terms of Section 5(2) of the Act, this Issue, with a right to renounce,
        has been authorised by the Central Board pursuant to the resolution passed at its meetings held on January 14, 2008. This Letter of
        Offer has been approved by the Central Board at its meeting held on February 1, 2008.
#       Prior to the present Issue being offered to the Equity Shareholders, the Bank as on January 25, 2008 has 38,830,638 Equity Shares
        of Rs. 10 each which are evidenced by 19,415,319 GDRs.

**      These figures assume a full subscription of the Issue and the ESPS.

Changes in the Bank's Authorised Share Capital
    Year                                                                  Authorized Share Capital
    July 1, 1955                                                          Rs. 200,000,000
    1985                                                                  Rs. 2,000,000,000
    1990                                                                  Rs. 10,000,000,000



                                                                     45
Notes to the Capital Structure
1.      The build up of the Bank's Equity Share Capital as of December 31, 2007 is set out below:
 Date of                  No. of     Face   Issue Nature of         Reasons for                 Cumulative    Cumulative
 Allotment               Equity     value   price Consideration     Allotment                      Number     Subscribed
                         Shares              (Rs.)                                                of shares     capital (Rs
                                                                                                               in million)
 1955                    562,500      100     100   Cash            Incorporation of the Bank       562,500          56.25
 1985                  4,437,500      100     160   Cash            Increase in the Issued        5,000,000         500.00
                                                                    Capital of the Bank -
                                                                    public issue
 1987                 10,000,000      100     160   Cash            Increase in the Issued       15,000,000       1,500.00
                                                                    Capital of the Bank -
                                                                    public issue
 1991                  5,000,000      100     160   Cash            Increase in the Issued       20,000,000       2,000.00
                                                                    Capital of the Bank -
                                                                    public issue
 STOCK SPLIT         180,000,000       10                           Stock Split                 200,000,000       2,000.00
 1994                141,850,000       10     100   Cash            Public Issue of Equity      341,850,000        3,418.5
                                                                    Shares of Rs 10 each for
                                                                    cash at a premium of
                                                                    Rs 90 per Equity Share
 1994                131,978,726       10      60   Cash            Rights Issue of Equity      473,828,726       4,738.30
                                                                    Shares of Rs 10 each for
                                                                    cash at a premium
                                                                    of Rs 50 per equity
                                                                    share in the ratio
                                                                    of three new Equity
                                                                    Shares for every five
                                                                    shares held and also to
                                                                    employees at the
                                                                    Rights Issue price.
 1995                    180,463       10     100   Cash            Increase in the             474,009,189     4,740.091
                                                                    Issued Capital -
                                                                    public
 1996                        683       10     100   Cash            Increase in the             474,009,872     4,740.098
                                                                    Issued Capital
 1996                 52,290,000       10   U.S.$   Cash            Issue of GDR                526,299,872     5,262.999
                                            14.15                   representing two
                                                                    Equity Shares
                                                                    @ U.S.$ 14.15 per
                                                                    GDR. (Rectification
                                                                    of 994 shares (net)
                                                                    relating to public
                                                                    equity issue in
                                                                    1994 resulted in
                                                                    reduction of share
                                                                    capital by Rs 9,940
                                                                    and share premium
                                                                    by Rs. 55,700)
 1996                        994       10       -   Rectification   Rectification of 994        526,298,878     5,262,989
                                                                    shares (net) relating to
                                                                    public equity issue in
                                                                    1994 resulted in reduc-
                                                                    tion of share capital by
                                                                    Rs. 9,940 and share pre-
                                                                    mium by Rs, 55,700




                                                            46
                                                                                          State Bank of India

2.       Shareholding pattern of the Bank as of January 28, 2008
     Category     Category of               Number of            Total      Number of              Total pre-issue
     code         Shareholder                  Share-         number     held in shares           shareholding as a
                                              holders       of shares    dematerialised             percentage of
                                                                                   form             total number
                                                                                                      of shares
                                                                                                    As a          As a
                                                                                              percentage   percentage
                                                                                               of (A+B)1   of (A+B+C)
     (A)          Shareholding of
                  Promoter and
                  Promoter Group2
     1            Indian
     (a)          Individuals/ Hindu                0              0                      0         0.00          0.00
                  Undivided Family
     (b)          Central Government/               1    314,339,200          314,339,200          64.48         59.73
                  State Government(s)
     (c)          Bodies Corporate                  0              0                      0         0.00          0.00
     (d)          Financial Institutions/           0              0                      0         0.00          0.00
                  Banks
     (e)          Any Others(Specify)              0              0                    0            0.00         0.00
                  Sub Total(A)(1)                  1    314,339,200          314,339,200          64.48         59.73
     2            Foreign
     A            Individuals (Non-                 0              0                      0         0.00          0.00
                  Residents Individuals/
                  Foreign Individuals)
     B            Bodies Corporate                  0              0                      0         0.00          0.00
     C            Institutions                      0              0                      0         0.00          0.00
     D            Any Others(Specify)               0              0                      0         0.00          0.00
     d-i                                            0              0                      0         0.00          0.00
     d-ii                                           0              0                      0         0.00          0.00
                  Sub Total(A)(2)                  0               0                      0         0.00         0.00
                  Total Shareholding               1    314,339,200          314,339,200          64.48         59.73
                  of Promoter and
                  Promoter Group
                  (A)= (A)(1)+(A)(2)




                                                            47
Category   Category of                Number of            Total      Number of              Total pre-issue
code       Shareholder                   Share-         number     held in shares           shareholding as a
                                        holders       of shares    dematerialised             percentage of
                                                                             form             total number
                                                                                                of shares
                                                                                              As a          As a
                                                                                        percentage   percentage
                                                                                         of (A+B)1   of (A+B+C)
(B)        Public shareholding
1          Institutions
(a)        Mutual Funds/ UTI                233     26,594,320            26,565,290          5.46          5.05
(b)        Financial Institutions /         103      8,903,411             8,889,921          1.83          1.69
           Banks
(c)        Central Government/                1       101,632                       0         0.02          0.02
           State Government(s)
(d)        Venture Capital Funds              0              0                     0          0.00          0.00
(e)        Insurance Companies               13     25,358,442            25,357,192          5.20          4.82
(f)        Foreign Institutional            289     65,135,578            65,030,602         13.36         12.38
           Investors
(g)        Foreign Venture                    0              0                      0         0.00          0.00
           Capital Investors
(h)        Any Other (specify)                0              0                      0         0.00          0.00
(h-i)                                         0              0                      0         0.00          0.00
(h-ii)                                        0              0                      0         0.00          0.00
           Sub-Total (B)(1)                639    126,093,383          125,843,005          25.87         23.96
B2         Non-institutions
(a)        Bodies Corporate               3,985     14,344,210            14,222,390          2.94          2.73
(b)        Individuals
I          Individuals -i.               544715     28,744,552            16,004,130          5.90          5.46
           Individual shareholders
           holding nominal share
           capital up to Rs 1 lakh
II         ii. Individual share-             55      2,794,333             2,780,646          0.57          0.53
           holders holding
           nominal share capital
           in excess of Rs. 1 lakh.
(c)        Any Other (specify)
(c-i)      Non-Residents                  2,362       268,638               243,639           0.06          0.05
(c-ii)     Trust                            154       257,594               257,594           0.05          0.05
(c-iii)    OCB                                4         1,010                   610           0.00          0.00
(c-iv)     Foreign National                   2           150                   150           0.00          0.00
(c-v)      Foreign Body Corporates            0             0                     0           0.00          0.00
(c-vi)     Clearing Member.                 701       625,170               625,170           0.13          0.12
           Sub-Total (B)(2)             551,978    47,035,657           34,134,329            9.65         8.94


                                                     48
                                                                                           State Bank of India


     Category     Category of               Number of             Total      Number of              Total pre-issue
     code         Shareholder                  Share-          number     held in shares           shareholding as a
                                              holders        of shares    dematerialised             percentage of
                                                                                    form             total number
                                                                                                       of shares
                                                                                                     As a          As a
                                                                                               percentage   percentage
                                                                                                of (A+B)1   of (A+B+C)
     (B)          Total Public Share-
                  holding
                  (B)= (B)(1)+(B)(2)          552,617   173,129,040           159,977,334          35.52         32.90
                  TOTAL (A)+(B)               552,618   487,468,240           474,316,534                        92.62
     (C)          Shares held by                   1      38,830,638           38,830,638            7.97         7.38
                  Custodians and
                  against which
                  Depository Receipts
                  have been issued
                  GRAND TOTAL                 552,619   526,298,878           513,147,172                       100.00
                  (A)+(B)+(C)

3.         Post-issue Shareholding pattern of the Bank (assuming full subscription of Rights Issue and ESPS)
     Category     Category of               Number of             Total      Number of              Total post-issue
     code         Shareholder                  Share-          number     held in shares           shareholding as a
                                              holders        of shares    dematerialised             percentage of
                                                                                    form             total number
                                                                                                       of shares
                                                                                                     As a          As a
                                                                                               percentage   percentage
                                                                                                of (A+B)1   of (A+B+C)
     (A)          Shareholding of
                  Promoter and
                  Promoter Group2
     1            Indian
     (a)          Individuals/ Hindu                0               0                      0         0.00          0.00
                  Undivided Family
     (b)          Central Government/               1     377,207,040          377,207,040          63.55         58.92
                  State Government(s)
     (c)          Bodies Corporate                  0               0                      0         0.00          0.00
     (d)          Financial Institutions/           0               0                      0         0.00          0.00
                  Banks
     (e)          Any Others(Specify)               0               0                      0         0.00          0.00
                  Sub Total(A)(1)                  1    377,207,040           377,207,040          63.55         58.92




                                                             49
Category   Category of                Number of            Total      Number of              Total post-issue
code       Shareholder                   Share-         number     held in shares           shareholding as a
                                        holders       of shares    dematerialised             percentage of
                                                                             form             total number
                                                                                                of shares
                                                                                              As a          As a
                                                                                        percentage   percentage
                                                                                         of (A+B)1   of (A+B+C)
2          Foreign
A          Individuals (Non-                  0              0                      0         0.00          0.00
           Residents Individuals/
           Foreign Individuals)
B          Bodies Corporate                   0              0                      0         0.00          0.00
C          Institutions                       0              0                      0         0.00          0.00
D          Any Others (Specify)               0              0                      0         0.00          0.00
d-i                                           0              0                      0         0.00          0.00
d-ii                                          0              0                      0         0.00          0.00
           Sub Total(A)(2)                   0               0                      0         0.00         0.00
           Total Shareholding of             1    377,207,040          377,207,040          63.55         58.92
           Promoter and Promoter
           Group
           (A)= (A)(1)+(A)(2)
(B)        Public shareholding
1          Institutions
(a)        Mutual Funds/ UTI                252     31,913,185            31,878,349          5.38          4.99
(b)        Financial Institutions /          93     10,684,093            10,667,905          1.80          1.67
           Banks
(c)        Central Government/                1        121958                       0         0.02          0.02
           State Government(s)
(d)        Venture Capital Funds              0              0                     0          0.00          0.00
(e)        Insurance Companies               12     30,430,130            30,428,630          5.12          4.75
(f)        Foreign Institutional            276     78,162,694            78,036,722         13.17         12.21
           Investors
(g)        Foreign Venture                    0              0                      0         0.00          0.00
           Capital Investors
(h)        Any Other (specify)               0              0                    0           0.00          0.00
(h-i)                                        0              0                    0           0.00          0.00
(h-ii)                                       0              0                    0           0.00          0.00
           Sub-Total (B)(1)                634    151,312,060          151,011,606          25.49         23.64




                                                     50
                                                                                     State Bank of India


Category   Category of                Number of             Total      Number of             Total post-issue
code       Shareholder                   Share-          number     held in shares          shareholding as a
                                        holders        of shares    dematerialised            percentage of
                                                                              form            total number
                                                                                                of shares
                                                                                              As a          As a
                                                                                        percentage   percentage
                                                                                         of (A+B)1   of (A+B+C)
B2         Non-institutions
(a)        Bodies Corporate                3,826     17,213,052            17,066,868         2.90          2.69
(b)        Individuals                         0              0
I          Individuals -i.               653481      38,573,460            19,204,956         6.50          6.03
           Individual shareholders
            holding nominal share
           capital up to Rs 1 lakh
II         ii. Individual share-          65616       7,890,700             3,336,775         1.33          1.23
           holders holding
            nominal share capital
           in excess of Rs. 1 lakh.
(c)        Any Other (specify)                0              0
(c-i)      Non-Residents                  2,326        322,368               292,367          0.05          0.05
(c-ii)     Trust                            152        309,113               309,113          0.05          0.05
(c-iii)    OCB                                3           1212                   732          0.00          0.00
(c-iv)     Foreign National                   2            180                   180          0.00          0.00
(c-v)      Foreign Body                       0              0                     0          0.00          0.00
           Corporates
(c-vi)     Clearing Member                  374        750,204               750,204          0.13          0.11
           Sub-Total (B)(2)             725,780     65,060,289           40,961,195         10.96         10.16
(B)        Total Public                 726,414    216,372,349          191,972,801         36.45         33.80
           Shareholding
           (B)= (B)(1)+(B)(2)
           TOTAL (A)+(B)                726,415    593,579,389          569,179,841        100.00         92.72
(C)        Shares held by                     1      46,596,765            46,596,765         7.85          7.28
           Custodians and
           against which
           Depository Receipts
            have been issued
           GRAND TOTAL
           (A)+(B)+(C)                  726,416    640,176,154          615,776,606                      100.00




                                                      51
4.       Details of the shareholding of the Promoter subsequent to the ESPS
     SR. NO.           PARTICULARS              Pre-Issue                 %             Post-Issue                      %
     A
     1                 President of India      314,339,200             59.73           377,207,040                    58.92
5.       Details of the transactions in Equity Shares by the directors during the last six months
         There have been no transactions in the Equity Shares by the Directors of the Bank in the last six months.
6.       Top ten Shareholders of the Bank
         a)    Top ten Shareholders of the Bank on January 28, 2008
                 SR.NO.    PARTICULARS                                                 Total Shares      % of pre-issue
                                                                                                                capital
                 1         PRESIDENT OF INDIA                                            314,339,200                 59.726
                 2         THE BANK OF NEW YORK AS DEPOSITORY TO GDRs                     38,830,638                  7.378
                 3         LIFE INSURANCE CORPORATION OF INDIA                            19,894,211                  3.780
                 4         CLSA (MAURITIUS) LIMITED                                       13,855,209                  2.633
                 5         EUROPACIFIC GROWTH FUND                                         6,879,139                  1.307
                 6         CITIGROUP GLOBAL MARKETS MAURITIUS                              5,152,395                  0.979
                           PRIVATE LIMITED
                 7         BMF - BANK BEES - INVESTMENT A/C                                4,903,665                  0.932
                 8         FIDELITY MANAGEMENT AND RESEARCH                                4,000,000                  0.760
                           COMPANY A/C FIDELITY INVESTMENT TRUST -
                           FIDELITY DIVERSIFIED INTERNATIONAL FUND
                 9         GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LTD                     3,507,746                  0.666
                 10        LIC OF INDIA MONEY PLUS                                         3,412,634                  0.648
                           TOTAL                                                       414,774,837                   78.810
         b)    Top ten Shareholders of the Bank as on January18, 2008
                 SR.NO.    PARTICULARS                                                 Total Shares      % of pre-issue
                                                                                                                capital
                 1         PRESIDENT OF INDIA                                            314,339,200                 59.726
                 2         THE BANK OF NEW YORK AS DEPOSITORY TO GDRs                     38,930,638                  7.397
                 3         LIFE INSURANCE CORPORATION OF INDIA                            19,277,020                  3.663
                 4         CLSA (MAURITIUS) LIMITED                                       13,869,240                  2.635
                 5         EUROPACIFIC GROWTH FUND                                         6,879,139                  1.307
                 6         BMF - BANK BEES - INVESTMENT A/C                                5,253,697                  0.998
                 7         CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE                      5,062,214                  0.962
                 8         FIDELITY MGNT AND RESEARCH CO A/C FIDELITY                      4,000,000                  0.760
                 9         GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LTD                     3,527,746                  0.670
                 10        LIC OF INDIA MONEY PLUS                                         3,362,634                  0.639
                           TOTAL                                                       414,501,528                   78.758




                                                             52
                                                                                           State Bank of India

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

              SR.NO.     PARTICULARS                                                           Shares                     %
              1          RESERVE BANK OF INDIA                                             314,338,700                59.726
              2          THE BANK OF NEW YORK AS DEPOSITORY TO GDRs                         41,468,018                  7.879
              3          LIFE INSURANCE CORPORATION OF INDIA                                25,010,282                  4.752
              4          FIDELITY MGNT AND RESEARCH CO A/C FIDELITY                          7,200,000                  1.368
              5          BMF - BANK BEES - INVESTMENT A/C                                    5,185,309                  0.985
              6          EUROPACIFIC GROWTH FUND                                             4,479,662                  0.851
              7          GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LTD                          3,977,848                 0.756
              8          MERRILL LYNCH CAPITAL MARKETS ESPANA S A S V                         3,312,674                 0.629
              9          GOVERNMENT OF SINGAPORE                                              3,300,872                 0.627
              10         FIDELITY INVESTMENT FUNDS - FIDELITY SPECIAL                         2,599,352                 0.494
                         SITUATIONS FUND
                         TOTAL                                                           410,872,717                 78.068

7.    The Bank has not made any public offering of its Equity Shares in the two years immediately preceding the date of
      filing of this Letter of Offer.
8.    The total number of shareholders of the Bank as on January 28, 2008 was 552,619.
9.    In accordance with clause 2.4.1 (iv) of the SEBI DIP Guidelines, the Bank is exempted from the eligibility norms as
      stated in the Guidelines.
10.   The Bank has not issued any Equity Shares or granted any options under any scheme of employee's stock option
      or employee's stock purchase.
11.   The Directors of the Bank or Lead Managers of the Issue have not entered into any buy-back, standby or similar
      arrangements for any of the securities being issued through Letter of Offer.
12.   The terms of issue to Equity Shareholders/Applicants have been presented under the section "Terms of the Present
      Issue" on page 291 of this Letter of Offer.
13.   At any given time, there shall be only one denomination of the Equity Shares of the Bank. The Equity Shareholders
      of the Bank do not hold any warrant, option or convertible loan or debenture which would entitle them to acquire
      further shares in the Bank.
14.   Except as disclosed in this Letter of Offer, no further issue of capital by way of issue of bonus shares, preferential
      allotment, rights issue or public issue or in any other manner which will affect the equity capital of the Bank, shall be
      made during the period commencing from the filing of this Letter of Offer with the Stock Exchanges and the date on
      which the Equity Shares under the Letter of Offer are listed or application moneys are refunded on account of the
      failure of the Issue. Further, other than as disclosed in this Letter of Offer, presently the Bank does not have any
      intention to alter the equity capital structure by way of split/consolidation of the denomination of the shares on a
      preferential basis or issue of bonus or rights or public issue of shares or any other securities within a period of six
      months from the date of opening of the Issue. However, the Bank is proposing an employee share purchase scheme
      (the "ESPS"). The Government has, by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue
      of the ESPS. Pursuant to the Government authorisation, the Bank's Central Board has, at its meeting held on
      February 1, 2008 approved the ESPS. The Bank may issue a maximum of 8,617,500 Equity Shares to its Eligible
      Employees (as defined therein). The ESPS shall remain open for a period commencing from March 28, 2008 to April

                                                              53
      15, 2008. The issue price is Rs. 1,590 per Equity Share. The terms and conditions of the Scheme, will be in
      accordance with the provisions of the SEBI (Employee Stock Option Scheme and Employees Stock Purchase
      Scheme) Guidelines, 1999 and all the issuances of shares will be done in compliance with the guidelines/regulations/
      circulars at that time.
15.   The Issue will remain open for 30 days. However, the Central Board will have the right to extend the Issue period as
      it may determine from time to time but not exceeding 60 days from the Issue Opening Date.
16.   Pursuant to a letter dated December 3, 2007, the Government, the Bank's Promoter, has agreed to subscribe to Equity
      Shares aggregating to approximately Rs. 10,000 crores in the Issue.




                                                           54
                                                                                            State Bank of India

                                             OBJECTS OF THE ISSUE

The Bank intends to deploy the net proceeds from the Issue of Rs. 166,913.04 million after meeting Issue expenses of
approximately Rs. 450 million to augment its capital base in line with its growth strategy.
The provisions of the Act enable the Bank, it to undertake existing activities and permit the utilisation of funds proposed
herein.
The details of the proceeds of the Issue are summarised below:
  Particulars                                                                                           Estimated Amount
                                                                                                           (In Rs. million)
  Gross proceeds of the Issue                                                                                    167,363.04
  Issue related expenses*                                                                                             450.00
  Net Proceeds of the Issue                                                                                      166,913.04
*Approximated
Utilisation of the Issue Proceeds
The Bank is subject to the capital adequacy requirements of the RBI, which, based on the guidelines of the Basel
Committee on Banking Regulations and Supervisory Practices, 1998, currently require the Bank to maintain a minimum
ratio of capital to risk adjusted assets and off-balance sheet items of 9.0%, at least half of which must be Tier I capital. For
further details please see "Regulations and Policies - Capital Adequacy Requirements." The Bank's total capital adequacy
ratio was 12.34% at March 31, 2007, including a Tier I capital adequacy ratio of 8.01% and Tier II capital of 4.33% of risk-
weighted assets. Additional capital is required for future asset growth and compliance with regulatory requirements.
The objects of the Issue are to augment the Bank's capital base to meet the capital requirements arising out of growth in
its assets, primarily the loan and investment portfolio due to the growth of the Indian economy, compliance with
regulatory requirements and for other general corporate purposes including meeting expenses related to the Issue.
         The details of capital vis-à-vis risk weighted assets for the previous five financial years is as follows:
 Financial Year ended                       2003           2004            2005          2006           2007     Six months
 March 31                                                                                                           ended on
                                                                                                                 September
                                                                                                                   30, 2007
                                                                   (Rs. in millions, except percentages)
 Eligible Tier I Capital               135,264.10     139,022.80      163,088.40    251,772.90     304,682.20      340,896.90
                                         (8.81%)        (8.34%)         (8.04%)       (9.36%)        (8.01%)         (7.78%)
 Eligible Tier II Capital               71,972.96      86,469.40        89,491.20    67,797.10     164,654.10      222,510.10
                                         (4.69%)        (5.19%)          (4.41%)      (2.52%)        (4.33%)         (5.08%)
 Total Capital                         207,237.06     225,492.20      252,579.60    319,570.00     469,336.30      563,407.00
 Total Risk-Adjusted Assets          1,534,968.67 1,666,396.10 2,028,931.70 2,690,800.40 3,804,789.90            4,383,144.10
 Capital Adequacy Ratio (%)               13.50%         13.53%           12.45%       11.88%         12.34%          12.85%

The Issue is expected to achieve the objective of augmenting the Tier I capital of Bank and further strengthening its
capital adequacy ratio. Basel II standards prescribed by the RBI will be effective from March 31, 2008. The Bank's capital
adequacy ratio, after providing for the funds out of the gross proceeds of the present Issue aggregating to Rs. 167,363.04
million, is excepted to be well above the Central Board mandate of a capital adequacy ratio of 11% as well as RBI's
stipulated capital adequacy ratio of 9%.

                                                              55
The issue of 105,259,776 Equity Shares each at a premium of Rs. 1,580 per Equity Share for an aggregate amount of Rs.
167,363.04 million, if fully subscribed, will augment the Tier I capital of the Bank and result in its CAR increasing to more
than 12%. Since the Government proposes to subscribe to its Rights Entitlement through an issue of Government bonds,
the issue proceeds equivalent to the Government's subscription will be deployed in an investment of Government bonds.
A portion of the Issue proceeds will be used to meet Issue expenses estimated at Rs. 450 million (or approximately 0.27%
of the total Issue size) following are the estimated Issue expenses.
 Particulars (Approximate Expenditure)                                Rs. in millions       % of net          % of total
                                                                                          proceeds of     expenses of the
                                                                                            the Issue              Issue
 Fees to Intermediaries
 Fees paid to the Lead Managers, legal advisors, and auditors                    66.4             0.04               14.76
 Fees paid to the Registrar to the Issue                                          7.5             0.01                1.67
 Statutory Fee                                                                  193.5             0.11               43.00
 Advertising and marketing fees                                                  60.0             0.04               13.33
 Printing, Stationery and Despatch                                               51.8             0.03               11.51
 Listing Fees                                                                    15.7             0.01                3.49
 Others                                                                          55.1             0.03               12.24
 Total                                                                         450.0              0.27             100.00
Interim Use of Proceeds
Pending utilisation of Issue proceeds, the management, in accordance with the policies established by the Central Board,
will have flexibility in deploying the proceeds received from the present Issue. During this period, the Bank intends to
temporarily invest the funds in interest or dividend bearing liquid instruments including money market mutual funds and
deposits with banks for the necessary duration. Such investments would be in accordance with the investment policies
approved by the Central Board from time to time.
Monitoring of Utilisation of Funds
As the Issue is being made with an objective to improve the capital adequacy ratio, to augment the long-term resources
for increasing the business, no appraisal of the same is required and therefore no monitoring agency has been appointed.
No part of the Issue proceeds will be paid by the Bank as consideration to the Directors or the Bank's key management
personnel except in the usual course of business.




                                                             56
                                                                                          State Bank of India

                                           BASIS FOR ISSUE PRICE

                                          (Based on consolidated Group data)
The Issue Price for the Equity Shares has been determined by the Central Board of Directors. Investors should also refer
to the sections "Risk Factors" and "Auditor's Report" to get a more informed view before making any investment
decision.
Qualitative factors
     The Bank is India's largest bank, with 10,072 domestic offices and 84 international offices in 32 countries with more
     than 100 million accounts as of December 31, 2007.
     The Bank is also India's largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2 billion as on
     September 30, 2007.
     The Bank is present, through its subsidiaries, in diverse segments of the Indian financial sector, including asset
     management, factoring and commercial services, treasury operations, credit cards, payment services and life
     insurance.
Quantitative Factors
1.   Basic earning per equity share (EPS) of face value of Rs. 10
          Year                                                                            Basic EPS (Rs.)           Weight
          Fiscal 2005                                                                              103.82                1
          Fiscal 2006                                                                              105.07                2
          Fiscal 2007                                                                              120.93                3
          Weighted Average                                                                        112.79
     The EPS has been computed on the basis of Net Profit after Taxes and Provisions divided by the number of shares
     outstanding.
     The Bank reported a Basic EPS of Rs. 120.93 for the period ended March 31, 2007.
2.   Price/Earning Ratio (P/E) in relation to the issue price of Rs. 1,590
     a)      Basic EPS as per the consolidated financial statements for year ended March 31, 2007 is Rs. 120.93.
               Particulars                                                                          P/E at the Issue Price
                                                                                                             (no. of times)
               Based on year ended March 31, 2007 Basic EPS of Rs. 120.93                                             13.15
               Based on weighted average Basic EPS of Rs. 112.79                                                      14.10
     b)      Peer Group P/E
                                                                                                               Industry P/E
               Highest                                                                           22.3 (State Bank of India)
               Lowest                                                                                 6.1 (Allahabad Bank)
               Industry Average                                                                                         13.7
             Source: Capital Markets Vol. XXII/24 dated January 28, 2008 to February 10, 2008. Sector: Banks - Public
             Sector.




                                                             57
3.   Return on Equity (RoE) as per regrouped Indian GAAP financials
        Year                                                                            RoE (%)                Weight
        Fiscal 2005                                                                         18.22                     1
        Fiscal 2006                                                                         15.85                     2
        Fiscal 2007                                                                         15.96                     3
        Weighted Average                                                                    16.30
     Return on Equity (%) is calculated as Profit after tax (as regrouped) divided by Average Equity.
4.   Minimum Return on Increased Net Worth Required to Maintain Pre-Issue EPS
     The minimum return on increased net worth after issue of Equity Shares (at Rs. 1,590 per share) required to maintain
     pre-Issue EPS is 12.89%.
5.   Book Value
                                                                                                          Book Value
                                                                                                        (Rs. per share)
        As on March 31, 2007                                                                                       808
        After the Issue of Equity Shares (at Rs. 1,590 per share)                                                  939
     Book Value is calculated as Net worth at the end of the period divided by the number of Equity Shares outstanding
     at the end of the period.
6.   Peer Group Comparisons (Industry Peers)
       Name of the Bank                      Equity      Face Value          EPS           P/E        RoNW          BV
                                            Capital       per share       (Rs. per                      (%)        (Rs.)
                                      (Rs. in Crs.)            (Rs.)       share)
       State Bank of India                    526.30                10        83.8        22.3          15.4      594.7
       Peer Group
       Punjab National Bank                   315.30                10        47.2        12.3          16.0      321.6
       Canara Bank                            410.00                10        33.5         8.6          18.8      197.8
       Bank of India                          487.40                10        22.3        13.8          21.3      117.9
       Bank of Baroda                         367.00                10        26.8        13.1          12.5      235.7
       Union Bank (I)                         505.12                10        16.2        10.4          19.2       93.7
     Note: Peer set has been determined on the basis of financial data of the Bank.
     Source: Capital Markets Vol. XXII/23 dated January 24, 2008 to February 10, 2008. Sector: Banks - Public
     Sector
     The face value of the Equity Shares is Rs. 10 and the Issue Price is 159 times the face value.
     The Issue Price of Rs. 1,590 per Equity Share has been determined by the Central Board of Directors, on the basis
     of assessment of market demand for the Equity Shares and the same is considered justified by the Lead Managers
     on the basis of the above factors.




                                                           58
                                                                                             State Bank of India

                                               INDUSTRY OVERVIEW

The information in this section is derived from a combination of various official and unofficial publicly available
materials and sources of information. It has not been independently verified by the Bank, the Lead Managers or their
respective legal or financial advisors, and no representation is made as to the accuracy of this information, which may
be inconsistent with information available or compiled from other sources.
Introduction
The RBI, the central banking and monetary authority of India, is the central regulatory and supervisory authority for the
Indian financial system. A variety of financial intermediaries in the public and private sectors participate in India's financial
sector, including the following:
      commercial banks;
      long-term lending institutions;
      non-bank finance companies, including housing finance companies;
      other specialised financial institutions and state-level financial institutions;
      insurance companies; and
      mutual funds.
Until the early 1990s, the Indian financial system was strictly controlled. Interest rates were administered, formal and
informal parameters governed asset allocation and strict controls limited entry into and expansion within the Indian
financial sector. The Government's economic reform program, which began in 1991, encompassed the financial sector. The
first phase of the reform process began with the implementation of the recommendations of the Committee on the Financial
System, the Narasimham Committee I. The second phase of the reform process began in 1999. See "- Banking Sector
Reform - Committee on Banking Sector Reform (Narasimham Committee II)."
RBI
The RBI, established in 1935, is the central banking and monetary authority in India. The RBI manages the country's
money supply and foreign exchange and also serves as a bank for the Government and for the country's commercial
banks. In addition to these traditional central banking roles, the RBI undertakes certain developmental and promotional
roles.
The RBI issues guidelines on exposure limits, income recognition, asset classification, provisioning for non-performing
and restructured assets, investment valuation and capital adequacy for commercial banks, long-term lending institutions
and non-bank finance companies. The RBI requires these institutions to furnish information relating to their businesses
to it on a regular basis. For further information regarding the RBI's role as the regulatory and supervisory authority of
India's financial system and its impact on the Bank, see "Regulations and Policies."
Commercial Banks
Commercial banks in India have traditionally focused only on meeting the short-term financial needs of industry, trade and
agriculture. As of September 30, 2007, there were 179 commercial banks (175 scheduled commercial banks and 4 non-
scheduled commercial banks) in India with a network of 72,117 branches holding approximately Rs. 28,538.3 billion in
deposits and Rs. 20,409.1 billion in loans . Scheduled commercial banks are banks listed in the schedule to the Reserve
Bank of India Act, 1934, and are further categorised as public sector banks, private sector banks and foreign banks.
Scheduled commercial banks have a presence throughout India, with approximately 65% of bank branches located in rural
or semi-urban areas of the country. A large number of these branches belong to public sector banks.




                                                               59
Public Sector Banks
Public sector banks make up the largest category in the Indian banking system. They include the SBI and its seven
associate banks, 19 nationalised banks (plus IDBI Bank) and 95 regional rural banks. Excluding the regional rural banks,
the remaining public sector banks have 50,228 branches, and accounted for 70.0% of the outstanding gross bank credit
and 70.6% of the aggregate deposits of the scheduled commercial banks of September 30, 2007. The public sector banks'
large network of branches enables them to fund themselves out of low cost deposits.
The Bank is the largest public sector bank in India. As of September 30, 2007, the Bank and its associate banks had 14,150
branches. They accounted for 22.6% of the aggregate deposits and 22.9% of the outstanding gross bank credit of all
scheduled commercial banks.
Since 1976, regional rural banks have been jointly established by the Government, state governments and sponsoring
commercial banks with a view to developing the rural economy. Regional rural banks provide credit to small farmers,
artisans, small entrepreneurs and agricultural labourers. The National Bank for Agriculture and Rural Development
("NABARD") is responsible for regulating and supervising the functions of the regional rural banks. In 1986, the Kelkar
Committee made comprehensive recommendations covering both the organisational and operational aspects of regional
rural banks.
As of September 30, 2007, there were 95 regional rural banks with 14,455 branches, accounting for 3.0% of the aggregate
deposits and 2.6% of the outstanding gross bank credit of scheduled commercial banks. During the six-month period
ended September 30, 2007, the number of regional rural banks was reduced from 96 to 95 through the amalgamation of two
regional rural banks.
Private Sector Banks
After the first phase of bank nationalisation was completed in 1969, public sector banks made up the largest portion of
Indian banking. The focus on public sector banks was maintained throughout the 1970s and 1980s. Furthermore, existing
private sector banks which showed signs of an eventual default were merged with state-owned banks. In July 1993, as part
of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry of
the private sector into the banking system. This resulted in the introduction of nine private sector banks. These banks are
collectively known as the "new" private sector banks. As of September 30, 2007, there were 24 private sector banks, of
which eight were "new" private sector banks and 16 were private sector banks existing prior to July 1993.
As on September 30, 2007, private sector banks accounted for approximately 20.3% of aggregate deposits and 20.6% of
outstanding gross bank credit of the scheduled commercial banks. Their network of 7,177 branches accounted for 10.0%
of the total branch network of scheduled commercial banks in the country.
Foreign Banks
As of September 30, 2007, there were 29 foreign banks with 257 branches operating in India, accounting for 6.1% of the
aggregate deposits and 6.8% of the outstanding gross bank credit of scheduled commercial banks at of September 30, 2007.
As part of the liberalisation process, the RBI has permitted foreign banks to operate more freely, subject to requirements
largely similar to those imposed on domestic banks. While the primary activity of most foreign banks in India has
traditionally been in the corporate sector, some of the larger foreign banks have increasingly made consumer financing a
larger part of their portfolios, offering an array of products such as automobile finance, home loans, credit cards and
household consumer finance. See " - Impact of Liberalisation on the Indian Financial Sector."
Foreign banks operate in India through branches of the parent bank, though certain foreign banks also have wholly-owned
non-bank finance company subsidiaries or joint ventures for both corporate and retail lending. In a circular dated July 6,
2004, the RBI stipulated that banks should not acquire any fresh stake in a bank's equity shares, if by such acquisition the
investing bank's holding would exceed 5% of the investee bank's equity capital. This also applies to holdings in Indian
banks of foreign banks with a presence in India.
The RBI issued a notification (the "Roadmap for presence of foreign banks in India") on February 28, 2005, announcing
the following measures with respect to the presence of foreign banks:


                                                            60
                                                                                           State Bank of India

        During the first phase (up to March 2009), foreign banks will be allowed to establish a presence by setting up
        wholly-owned subsidiaries or by converting existing branches into wholly-owned subsidiaries.
        In addition, during the first phase, foreign banks will be allowed to acquire a controlling stake in a phased manner
        only in private sector banks that are identified by the RBI for restructuring.
        For new and existing foreign banks, it has been proposed to go beyond the existing World Trade Organisation
        commitment of allowing increases of 12 branches per year. A more liberal policy will be followed for under-served
        areas.
        During the second phase (from April 2009 onwards), after a review of the first phase, foreign banks will be allowed
        to acquire up to 74.0% in private sector banks in India. The current aggregate limit for all investments in a private
        sector bank by foreign institutional investors is restricted to 24.0%, which can be raised to 49.0%, subject to the
        approval of the bank's board and shareholders, and the limit on holdings by individual foreign institutional
        investors is 10.0%. The current aggregate limit for all investments by non-resident Indians ("NRIs") is 10.0%. This
        can be increased to 24.0%, subject to a special resolution passed by the bank's shareholders to that effect. However,
        in respect of individual NRIs, the limit is 5.0%.
Cooperative Banks
Cooperative banks cater to the financing needs of agriculture, small-scale industry and self employed businessmen in
urban and semi-urban areas of India. The state land development banks and the primary land development banks provide
long-term credit for agriculture. In the light of liquidity and insolvency problems experienced by some cooperative banks
in fiscal year 2001, the RBI undertook several interim measures, pending formal legislative changes, including measures
related to lending against shares, borrowings in the call market and term deposits placed with other urban cooperative
banks. Presently the RBI is responsible for the supervision and regulation of urban co-operative societies, and the
NABARD is responsible for state cooperative banks and district central cooperative banks.
The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 provides for the regulation of all
cooperative banks by the RBI. A task force appointed by the Government to examine the reforms required in the
cooperative banking system submitted its report in December 2004. It recommended several structural, regulatory and
operational reforms for cooperative banks, including the provision of financial assistance by the Government in order to
revitalise this sector. In the Union Budget for fiscal year 2006, the Finance Minister accepted the recommendations of the
task force in principle and proposed to call state governments for consultation and begin to implement the
recommendations in the States willing to do so.
In February 2005, the RBI issued guidelines on mergers and amalgamations in the urban cooperative bank sector with a
view to facilitating the emergence of strong entities resulting from the merger between two banking entities and to
providing an avenue for the non-disruptive exit of unviable banking entities. The RBI may consider proposals for mergers
or amalgamations in the following circumstances:
(i)     the net worth of the acquired bank is positive and the acquirer bank commits to protect the deposits of all the
        depositors of the acquired bank;
(ii)    the net worth of the acquired bank is negative and the acquirer bank commits to protect the deposits of all the
        depositors of the acquired bank; and
(iii)   the net worth of the acquired bank is negative and the acquirer bank assures protection of the deposits of all
        depositors of the acquired bank with financial support from the relevant state government extended upfront as part
        of the merger process.
In all mergers or amalgamations, the financial parameters of the acquirer bank post merger should conform to the
prescribed minimum prudential and regulatory requirement for urban co-operative banks. The realisable value of assets
should be assessed through a process of due diligence. Relaxations in this regard were announced in the Mid-term
Review of October 2005, pursuant to which the acquirer bank was permitted to amortise any loss taken over from the
acquired bank over a period of five years, including the year of the merger.


                                                              61
Long-Term Lending Institutions
Long-term lending institutions such as IDFC Limited, IFCI Limited, ICICI Limited (prior to amalgamation) and the Industrial
Investment Bank of India were established to provide medium-term and long-term financial assistance to various industries
for setting up new projects and for the expansion and modernisation of existing facilities. These institutions provide fund-
based and non-fund-based assistance to industry in the form of loans, underwriting, direct subscription to shares,
debentures and guarantees. Such long-term lending institutions were expected to play a critical role in Indian industrial
growth and accordingly had access to concessional government funding. However, in recent years, the operating
environment of the long-term lending institutions has changed substantially. Although the initial role of these institutions
was largely limited to providing a channel for government funding to industry, the reform process required them to expand
the scope of their business activities. Their new activities include:
      fee-based activities such as investment banking and advisory services; and
      short-term lending activities, including corporate finance and issuing working capital loans.
Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, a working group created
in 1999 to harmonise the role and operations of long-term lending institutions and banks, the RBI, in its mid-term review
of monetary and credit policy for fiscal year 2000, announced that long-term lending institutions would have the option of
transforming themselves into banks subject to compliance with the prudential norms applicable to banks. In April 2001,
the RBI issued operational and regulatory guidelines required to transform long-term lending institutions into universal
banks. See "- Banking Sector Reforms - Universal Banking Guidelines." In April 2002, ICICI Limited merged with ICICI
Bank Limited. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 converted IDBI into a
banking company to be incorporated under the Companies Act, with exemptions from certain statutory and regulatory
norms otherwise applicable to banks, including an exemption for a period of five years from the SLR. IDBI Bank Limited,
a new private sector bank that was a subsidiary of the Industrial Development Bank of India, was merged with IDBI in
April 2005.
Non-Bank Finance Companies
There are over 12,968 non-bank finance companies in India, mostly in the private sector. All non-bank finance companies
are required to register with the RBI. The non-bank finance companies may be categorised into entities which take public
deposits and those which do not. The companies which accept public deposits are subject to the strict supervision and
capital adequacy requirements of the RBI. The scope and activities of non-bank finance companies have grown
significantly over the years. The primary activities of the non-bank finance companies are consumer credit, including
automobile finance, home finance and consumer durable products finance, as well as wholesale finance products such as
bill discounting for small and medium-sized companies, and fee-based services such as investment banking and
underwriting. In 2003, Kotak Mahindra Finance Limited, a large non-bank finance company, was granted a banking license
by the RBI and converted itself into Kotak Mahindra Bank Ltd. Over the past few years, certain non-bank finance
companies have defaulted on their obligations to investors and depositors, and consequently actions (including
bankruptcy proceedings) have been initiated against them, many of which are currently pending. See also "- Reforms of
the Non-Bank Finance Companies."
Housing Finance Companies
Housing finance companies form a distinct subgroup of non-bank finance companies. As a result of various incentives
given by the Government for investing in the housing sector in recent years, the scope of this business has grown
substantially. Until recently, Housing Development Finance Corporation Limited was the premier institution providing
housing finance in India. In recent years, several other players, including banks, have entered the housing finance
industry. The National Housing Bank and the Housing and Urban Development Corporation Limited are the two
government-controlled financial institutions created to improve the availability of housing finance in India. The National
Housing Bank Act provides for the securitisation of housing loans, foreclosure of mortgages and establishment of the
Mortgage Credit Guarantee Scheme. Housing loans up to certain limits prescribed by the RBI and mortgage-backed
securities qualify as priority sector lending under the RBI's directed lending rules. See also "Regulations and Policies - RBI


                                                             62
                                                                                           State Bank of India

Regulations - Capital Adequacy Requirements" and "Regulations and Policies - RBI Regulations - Regulations relating to
the Making of Loans" and "Regulations and Policies -RBI Regulations - Directed Lending - Priority Sector Lending."
Other Financial Institutions
Specialised Financial Institutions
In addition to the long-term leading institutions, there are various specialised financial institutions which cater to the
specific needs of different sectors. They include the National Bank for Agricultural and Rural Development, the Export-
Import Bank of India, the Small Industries Development Bank of India, Risk Capital and Technology Finance Corporation
Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited, the
Infrastructure Development Finance Corporation Ltd. and India Infrastructure Financing Company Ltd.
State Financial Institutions
State financial corporations operate at the state level and form an integral part of the institutional financing system. State
financial corporations were set up to finance and promote small and medium-sized enterprises. The state financial
institutions are expected to achieve balanced regional socio-economic growth by generating employment opportunities
and widening the ownership base of industry. At the state level, there are also state industrial development corporations,
which provide finance primarily to medium-sized and large enterprises.
Insurance Companies
Currently, there are 32 insurance companies in India, of which 16 are life insurance companies, 15 are general insurance
companies and one is a re-insurance company. Of the 16 life insurance companies, 15 are in the private sector and one is
in the public sector (Life Insurance Corporation of India). Of the 15 general insurance companies, nine are in the private
sector and six are in the public sector (four government-owned general insurance companies, Export Credit Guarantee
Corporation of India Limited and the Agriculture Insurance Company of India). The sole reinsurance company, GIC, is in
the public sector.
LIC, GIC and public sector general insurance companies also provide long-term financial assistance to the industrial sector.
Gross premiums underwritten of all general insurance companies increased by 22.4% in fiscal year 2007 to Rs. 250.0 billion,
compared to an increase of 16.5% in fiscal year 2006. First year premiums underwritten in the life insurance sector recorded
a growth of 100.6% to reach Rs. 754.1 billion in fiscal year 2007 compared to a 40.6% growth in fiscal year 2006.
The insurance sector in India is regulated by the Insurance Regulatory and Development Authority. In December 1999,
the Indian Parliament passed the Insurance Regulatory and Development Authority Act (the "Act"), which opened the
Indian insurance sector to foreign and private investors. The Act allows foreign equity participation in new insurance
companies of up to 26.0%. The new company should have a minimum paid-up equity capital of Rs. 1.0 billion to carry out
the business of life insurance or general insurance or Rs. 2.0 billion to carry out exclusively the business of reinsurance.
In its monetary and credit policy for fiscal year 2001, the RBI issued guidelines governing the entry of banks and financial
institutions into the insurance business. The guidelines permit banks and financial institutions to enter the business of
insurance underwriting through joint ventures, provided that they meet certain criteria relating to their net worth, capital
adequacy ratio, profitability track record, level of impaired loans and the performance of their existing subsidiary
companies. The Government, while presenting its budget for fiscal year 2005, proposed an increase in the limit on foreign
equity participation in private sector insurance companies from 26.0% to 49.0%. However, this would require an
amendment to the Insurance Regulatory and Development Authority Act, 1999 and has not yet been implemented.
Mutual Funds
At the end of fiscal year 2007, there were 755 mutual fund schemes in India with total assets under management of Rs.
3,263.0 billion. From 1963 to 1987, the Unit Trust of India was the only mutual fund operating in the country. It was set up
in 1963 at the initiative of the Government and the RBI. From 1987 onwards, several other public sector mutual funds
entered this sector and participation was finally opened up to the private sector in 1993. The industry is regulated by the
Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. As of September 30, 2007, there were 18 private
sector mutual funds with a 79.18% market share in terms of total assets under management.

                                                             63
In 2001, the Unit Trust of India, with a high level of investment in equity securities, started to face difficulties in meeting
redemptions and assured return obligations due to a significant decline in the market value of its securities portfolio. In
response, the Government implemented a package of reform measures for the Unit Trust of India, including guaranteeing
redemptions and assured return obligations to the unit holders, subject to restrictions on the maximum permissible
redemption amount. As part of the reforms, the Unit Trust of India was divided into two mutual funds structured in
accordance with the regulations of SEBI, one comprising assured return schemes and the other comprising net asset value
based schemes.
Impact of Liberalisation on the Indian Financial Sector
Until 1991, the financial sector in India was heavily controlled. Commercial banks and long term lending institutions, the
two dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stable
environment, with little or no competition. Long-term lending institutions were focused on achieving the Government's
various socio-economic objectives, including balanced industrial growth and employment creation, especially in areas
requiring development. Long-term lending institutions were given access to long-term funds at subsidised rates through
loans and equity from the Government and from funds guaranteed by the Government and originating from commercial
banks in India and foreign currency resources originating from multilateral and bilateral agencies.
The focus of the commercial banks was primarily on mobilizing household savings through demand and time deposits and
to use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition,
the commercial banks provided a range of banking services to individuals and business entities. However, since 1991,
there have been comprehensive changes in the Indian financial system. Various financial sector reforms have transformed
the operating environment of the banks and long-term lending institutions. In particular, the deregulation of interest rates,
emergence of a liberalised domestic capital market, entry of new private sector banks and broadening of long-term lending
institutions' product portfolios have progressively intensified competition between banks and long-term lending
institutions. The RBI has permitted the transformation of long-term lending institutions into banks, subject to compliance
with the prudential norms applicable to banks.
Banking Sector Reform
Most large banks in India were nationalised in 1969 and were thereafter subject to a high degree of control until reform
began in 1991. In addition to controlling interest rates and entry into the banking sector, regulations also channelled
lending into priority sectors. Banks were required to fund the public sector through the mandatory acquisition of low
interest-bearing government securities or SLR bonds to fulfil statutory liquidity requirements. As a result, bank
profitability was low, impaired assets were comparatively high, capital adequacy was diminished and operational flexibility
was hindered.
Committee on the Financial System (Narasimham Committee I)
The Committee on the Financial System (the Narasimham Committee I) was set up in August 1991 to recommend measures
for reforming the financial sector. Many of the recommendations made by the committee, which addressed organisational
issues, accounting practices and operating procedures, were implemented by the Government. The major
recommendations that were implemented included the following:
      with fiscal stabilisation and the Government increasingly resorting to market borrowing to raise resources, the SLR
      i.e. the proportion of a banks' demand and time liabilities that was required to be invested in government securities,
      was reduced from 38.5% in the pre-reform period to 25.0% in October 1997;
      similarly, the CRR, i.e. the proportion of a bank's net demand and time liabilities that was required to be deposited
      with the RBI, was reduced from 15% in the pre-reform period to 4.5%. The CRR was increased to 7.0%. Pursuant to
      the mid-term review of the Annual Monetary Policy, the CRR has been increased by 50 basis points to 7.5%,
      effective as of November 10, 2007;
      special tribunals were created to resolve bad debt problems;



                                                              64
                                                                                         State Bank of India

      most of the restrictions on interest rates for deposits were removed, and commercial banks were allowed to set their
      own level of interest rates for all deposits except savings bank deposits;
      substantial capital injection to several state-owned banks was approved in order to bring their capital adequacy
      closer to internationally accepted standards. By the end of fiscal year 2002, aggregate recapitalisation amounted to
      Rs. 217.5 billion, and the stronger public sector banks were given permission to issue equity to further increase
      capital; and
      banks were granted the freedom to open or close branches.
Committee on Banking Sector Reform (Narasimham Committee II)
The Committee on Banking Sector Reform (the Narasimham Committee II) submitted its report in April 1998. The major
recommendations of the committee were in respect of capital adequacy requirements, asset classification and
provisioning, risk management and merger policies. The RBI accepted and began implementing many of these
recommendations in October 1998.
Recent Structural Reforms
Amendments to the Reserve Bank of India Act
In May 2006, the Indian Parliament approved amendments to the Reserve Bank of India Act, removing the minimum cash
reserve ratio requirement of 3.0%, and giving the RBI discretion to reduce the CRR to less than 3.0%. Further, the
amendments also created a legal and regulatory framework for derivative instruments.
Recent Amendments to Laws Governing Public Sector Banks
The Indian Parliament recently amended the laws governing India's public sector banks, permitting these banks to issue
preference shares and make preferential allotments or private placements of equity. The amendments also empower the RBI
to prescribe 'fit and proper' criteria for directors of these banks, and permit supercession of their boards and appointment
of administrators in certain circumstances.
Proposed Amendments to the Banking Regulation Act
Legislation seeking to amend the Banking Regulation Act has been introduced in the Indian Parliament. As presently
drafted, the main amendments propose to:
      permit all banking companies to issue preference shares that will not carry any voting rights;
      make prior approval of the RBI mandatory for the acquisition of more than 5.0% of a banking company's paid-up
      capital or voting rights by any individual, firm or group;
      prohibit lending to relatives of directors and to non-subsidiary companies that are under the same management as
      the banking company, joint ventures, associates or the holding company of the banking company;
      remove the minimum SLR requirement of 25.0%, giving the RBI discretion to reduce the SLR to less than 25.0%. See
      also "Regulations and Policies - RBI Regulations - Legal Reserve Requirements - Statutory Liquidity Ratio"; and
      remove the limit of 10.0% on the maximum voting power exercisable by a shareholder in a banking company.
In order to provide greater operational flexibility to the RBI, as the regulator and the authority vested with the powers to
conduct monetary policy through the requirement for banks to hold liquid instruments, the Government promulgated an
ordinance on January 23, 2007, enabling the RBI to specify the SLR without any floor rate. The Ordinance facilitated the
removal of the then existing SLR floor of 25.0%, while leaving the ceiling of 40.0% intact. On March 9, 2007 the Banking
Regulation (Amendment) Bill, 2007 was submitted in Parliament, seeking to replace the Ordinance and to amend Section 24
of the Banking Regulation Act, 1949 to enable the RBI to specify the SLR without any floor rate. Changes were also
proposed in Section 53 of the Act to make it mandatory to present draft notification before both Houses of Parliament in
cases of exemptions being granted to institutions, banks or branches located in Special Economic Zones ("SEZs"). The
Ordinance has subsequently been repealed and replaced by the Banking Regulation (Amendment) Act, 2007, which
received the assent of the President on March 26, 2007, and is deemed to have come into force on January 23, 2007.
                                                            65
Legislative Framework for Recovery of Debts due to Banks
In fiscal year 2003, the Indian Parliament passed the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 ("SARFAESI"). SARFAESI provides that a secured creditor may, in respect of
loans classified as non-performing in accordance with RBI guidelines, give notice in writing to the borrower, requiring it
to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting
the security for the loan, and exercise management rights in relation thereto, including the right to sell or otherwise
dispose of the assets. SARFAESI also provides for the setting up of asset reconstruction companies regulated by the RBI
to acquire assets from banks and financial institutions. The RBI has issued guidelines for asset reconstruction companies
in respect of their establishment, registration and licensing by the RBI, and their operations. Asset Reconstruction
Company (India) Limited, set up by the Bank, ICICI Bank Limited, IDBI, SBT and certain other banks and institutions, has
received registration from the RBI.
Several petitions challenging the constitutional validity of SARFAESI were filed before the Indian Supreme Court. In April
2004, the Supreme Court upheld the constitutionality of the Act, other than the requirement that the borrower deposit 75%
of the dues with the debt recovery tribunal as a precondition for appeal by against the enforcement measures. The
Government has subsequently made amendments to the Act, which provide that a borrower may make an objection or
representation to a secured creditor after a notice is issued by the secured creditor to the borrower under the Act
demanding payment of dues. The secured creditor has to give reasons to the borrower for not accepting the objection or
representation. The Act also introduces a deposit requirement for borrowers if they wish to appeal the decision of the
debt recovery tribunal. Further, the Act permits a lender to take over the business of a borrower under certain
circumstances (unlike the earlier provisions under which only assets could be taken over).
Following recommendations of the Narasimham Committee, the Recovery of Debts due to Banks and Financial
Institutions Act, 1993 was enacted. This legislation provides for the establishment of a tribunal for speedy resolution of
litigation and recovery of debts owed to banks or financial institutions. However, if a scheme of reconstruction is pending
before the Board for Industrial and Financial Reconstruction, under the Sick Industrial Companies (Special Provision) Act,
1985, no proceeding for recovery can be initiated or continued before the tribunal. This protection from creditor action
ceases if the secured creditor takes action under SARFAESI. While presenting its budget for fiscal year 2002, the
Government announced measures for the setting up more debt recovery tribunals and the eventual repeal of the Sick
Industrial Companies (Special Provision) Act, 1985. Subsequently, the Sick Industrial Companies (Special Provisions)
Repeal Act, 2004 was introduced with a view to repealing the Sick Industrial Companies Act, 1985. To date, however, the
said legislation has not come into effect and the Sick Industrial Companies Act, 1985, has not been repealed.
Corporate Debt Restructuring Forum
To establish an institutional mechanism for the restructuring of corporate debt, the RBI has devised a corporate debt
restructuring system. The objective of this framework is to ensure a timely and transparent mechanism for restructuring
the corporate debts of potentially viable entities facing problems, outside the purview of the Board of Industrial and
Financial Rehabilitation, debt recovery tribunals and other legal proceedings. In particular, this framework aims to preserve
viable corporations that are affected by certain internal and external factors and minimize any losses to the creditors and
other stakeholders through an orderly and coordinated restructuring program. The corporate debt restructuring system is
a non-statutory mechanism and a voluntary system based on debtor-creditor and inter-creditor agreements.
Universal Banking Guidelines
Universal banking in the Indian context means the transformation of long-term lending institutions into banks. Pursuant
to the recommendations of the Narasimham Committee II and the Khan Working Group, the RBI, in its mid-term review of
monetary and credit policy for fiscal year 2000, announced that long-term lending institutions would have the option of
transforming themselves into banks, subject to compliance with certain prudential norms applicable to banks. If a long-
term lending institution chose to exercise the option available to it and formally decided to convert itself into a universal
bank, it could formulate a plan for conversion into a universal bank over a specified time frame. In April 2001, the RBI
issued operational and regulatory guidelines required to transform long-term leading institutions into universal banks.



                                                             66
                                                                                        State Bank of India

Pension Reforms
Currently, there are three categories of pension scheme in India: pension schemes for government employees, pension
schemes for employees in the organised sector and voluntary pension schemes. In the case of pension schemes for
government employees, the Government pays its employees a defined periodic benefit upon their retirement. The
contribution towards the pension scheme is funded solely by the Government and not matched by a contribution from
employees. The Employees Provident Fund, established in 1952, is a mandatory program for employees of certain
establishments. It is a contributory program that provides for periodic contributions of 10% to 12% of the basic salary by
both the employer and the employees. The contribution is invested in prescribed securities and the accumulated balance
in the fund (including the accretion thereto) is paid to the employee as a lump sum on retirement. In addition, there are
voluntary pension schemes administered by the Government (such as the Public Provident Fund to which contribution
may be made up to a maximum of Rs. 70,000 per annum) or offered by insurance companies, where the contribution may be
made on a voluntary basis. Such voluntary contributions are often driven by tax benefits offered under the schemes.
In 1998, the Government commissioned the Old Age Social and Income Security ("OASIS") project and nominated an
expert committee to suggest changes to the existing policy framework. The committee submitted its report in January 2000,
recommending a system for private sector management of pension funds to provide market-linked returns. It also
recommended the establishment of a separate pension regulatory authority to regulate the pension system. Subsequently,
in the budget for fiscal year 2001, the Government announced that a high level committee would be formulated to design
a contribution-based pension scheme for new Government recruits. The Government also requested the Insurance
Regulatory and Development Authority to draw up a roadmap for implementing the OASIS report. The Insurance
Regulatory and Development Authority submitted its report in October 2001. The report suggested that pension fund
managers should constitute a separate legal entity to conduct their pension business.
In August 2003, the Government announced that it would be mandatory for its new employees (excluding defence
personnel) to join a new defined contribution pension scheme where both the Government and the employee would make
monthly contributions of 10% of the employee's salary. The Government also set up the Pension Fund Development and
Regulatory Authority to regulate the pension industry. The Government also formed the interim Pension Fund
Development and Regulatory Authority on October 11, 2003. In December 2003, the Government announced that the new
pension scheme would be applicable to all new recruits to the public sector (excluding defence personnel) from January
1, 2004. Further, on December 30, 2004, the Government promulgated an ordinance establishing a statutory regulatory
body, the Pension Fund Regulatory and Development Authority ("PFRDA") to undertake promotional, developmental
and regulatory functions with respect to the pension sector. In March 2005, the Government tabled the Pension Fund and
Development Authority Bill in Parliament. The Union Budget for fiscal year 2006 recognised the opportunities for foreign
direct investment in the pension sector and it also announced that the Government would issue guidelines for such
investment.
The Bank is one of only three Indian entities (UTI AMC and LIC of India being the other two) selected by the Pension
Fund Regulatory and Development Authority ("PFRDA") to sponsor pension fund managers. The Bank intends to
become involved in the pension fund business through a subsidiary fund manager.
Credit Policy Measures
The RBI issues an annual policy statement setting out its monetary policy stance and announcing various regulatory
measures. It issues a review of the annual policy statement on a quarterly basis.
Annual Policy Statement of the RBI for Fiscal Year 2008
RBI announced its Annual Policy Statement for the year 2007-2008 on April 24, 2007 against a backdrop of strong economic
fundamentals, as evident from the higher growth of GDP and IIP, reasonable liquidity, healthy foreign exchange reserves
and stable exchange rates. The monetary policy focused on credit quality and financial market conditions for maintaining
macro-economic, and in particular financial, stability. The salient features of the policy are as follows:
      it raised the aggregate ceiling on overseas investment by mutual funds to U.S.$ 4 billion from U.S.$ 3 billion;



                                                            67
      it reduced the interest rate ceiling on non-resident Rupee deposits by 50 basis points to LIBOR/SWAP rates and
      reduced interest rate ceiling on non-resident dollar deposits by 50 basis points to LIBOR minus 75 basis points;
      it allowed prepayment of external commercial borrowings ("ECBs") of up to U.S.$ 400 million, as against the existing
      limit of U.S.$ 300 million, by authorised dealer banks without prior approval of the Reserve Bank, however, this limit
      has subsequently been increased to U.S.$ 500 million;
      it reduced, as a temporary measure, the risk weight on residential housing loans to individuals of up to Rs. 2.0
      million to 50%;
      it permitted banks and primary dealers to begin transactions in single-entity credit default swaps; and
      it enhanced the overseas investment limit for domestic companies to 300% of their net worth and listed companies'
      limit for portfolio investment abroad to 35% of their net worth.
In September 2007, the RBI eased overseas investment and loan repayment norms for companies, mutual funds and
individuals seeking to stem the Rupee's gains by encouraging capital outflows and signalling another step toward fuller
capital account convertibility.
First Quarter Review of Annual Monetary Policy in July 2007
The salient features of the first quarter review of the annual monetary policy are as set out below:
      the repo rate was retained at 7.75%: repo is an instrument for the RBI's lending of funds by purchasing government
      securities, with an agreement to resell securities on a mutually agreed future date at an agreed price which includes
      interest for the funds lent;
      the reverse repo rate was retained at 6.0%: the reverse repo rate is an instrument for the RBI's borrowing of funds
      by selling government securities, with an agreement to repurchase the said securities on a mutually agreed future
      date at an agreed price which includes interest for the funds borrowed. Therefore, the reverse repo rate is the rate at
      which the RBI borrows from the banks;
      effective as of August 6, 2007, the ceiling of Rs. 30 billion on daily reverse repo under the liquidity adjustment
      facility ("LAF") was withdrawn, subject to re-imposition of such ceiling as deemed appropriate by the RBI;
      the CRR was increased by 50 basis points to 7.0%, effective as of August 4, 2007, with an additional increase to
      7.5% effective as of November 10, 2007;
      the projection of real GDP growth in fiscal year 2008 of around 8.5%, as set out in the Annual Policy Statement of
      April 2007, was retained.
Mid-term Review of Annual Monetary Policy in October 2007
The salient features of the mid-term review of the monetary policy are as set out below:
      the repo and reverse repo rates were kept unchanged at 7.75% and 6.0% respectively;
      the bank rate was kept unchanged at 6.0%; and
      the CRR was increased by 50 basis points to 7.5%, effective as of November 10, 2007, and the projection of real GDP
      growth of 8.5% was reiterated.
Reforms of the Non-Bank Finance Companies
The standards relating to income recognition, provisioning and capital adequacy were prescribed for non-bank finance
companies in June 1994. The registered non-bank finance companies were required to achieve a minimum capital adequacy
of 6% by fiscal year 1995 and 8% by fiscal year 1996 and to obtain a minimum credit rating. To encourage companies to
comply with the regulatory framework, in July 1996, the RBI announced certain liberalisation measures under which
registered non-bank finance companies, in compliance with the prudential norms and credit rating requirements, were
granted freedom from the ceiling on interest rates on deposits and deposit amounts. Other measures introduced include


                                                             68
                                                                                            State Bank of India

a requirement that non-bank finance companies maintain a certain percentage of liquid assets and create a reserve fund.
The percentage of liquid assets to be maintained by non-bank finance companies has been uniformly revised upwards.
Since April 1999, non-bank finance companies must maintain 15% of public deposits. The maximum rate of interest that
non-bank finance companies could pay on their public deposits was reduced from 12.5% per annum to 11% per annum
effective as of March 4, 2003. See "- Impact of Liberalisation on the Indian Financial Sector."
Efforts have been made to integrate non-bank finance companies into the mainstream financial sector. The first phase of
integration covered registration and standards. The focus of supervision has now shifted to non-bank finance companies
accepting public deposits because companies accepting public deposits are required to comply with directions relating to
public deposits, prudential norms and liquid assets. A task force of non-bank finance companies set up by the Government
submitted its report on October 1998 and recommended several steps to rationalize the regulation of non-bank finance
companies. Accepting these recommendations, the RBI issued new guidelines for non-bank finance companies as follows:
      a minimum net owned fund of Rs. 205 million is mandatory before existing non-bank finance companies may accept
      public deposits;
      a minimum investment grade rating is compulsory for loan and investment companies accepting public deposits,
      even if they have the ,minimum net owned funds;
      permission to accept public deposits must be linked to the level of capital to ratio assets ratio, with different capital
      to risk assets ratio for non-bank finance companies with different ratings being specified; and
      non-bank finance companies are advised to restrict their investments in real estate to 10% of their net owned funds.
In its monetary and credit policy for fiscal year 2000, the RBI stipulated a minimum capital of Rs. 20 million for all new non-
bank finance companies. In the Government's budget for fiscal year 2002, the procedures for foreign direct investment in
non-bank finance companies were substantially liberalised. During fiscal year 2003, the RBI introduced a number of
measures to enhance the regulatory and supervisory standards of non-bank finance companies in order to bring them in
line with those pf commercial banks in select operations over a period of time. Other regulatory measures adopted and
subsequently revised in November 2004 included aligning interest rates in this sector with the rates prevalent in the rest
of the economy, tightening prudential norms and harmonising supervisory directions with the requirements of the
Companies Act, procedural changes in nomination facilities, issuance of a Know Your Customer policy and allowing a
non-bank finance companies to take up insurance agency business.
On December 12, 2006 the RBI issued guidelines on the financial regulation of systematically important non-banking
financial companies and bank's relationships with them with a view to removing the possibility for regulatory arbitrage
leading to an uneven playing field and potential systematic risk.
New Initiatives in the Banking Sector
Risk Management and Basel-II
With gradual deregulation, banks are now exposed to different types of risk. In view of the dynamic nature of the financial
market, banks face various market risks such as interest rare risks, liquidity risks, and exchange risks. In respect of lending,
they face credit risks, which include default risks and portfolio risks. Banks also face risks such as operational risks.
In preparation for the adoption of the Basel-II accord, banks have already required by the RBI to take active measures in
terms of risk management systems, evaluate capital charges, including for operational risks and bring about more
transparency in financial reporting as part of market discipline. The RBI has also moved towards adoption of the Risk
Based Supervision of banks, under which the risk profile of the banks will decide their supervisory cycles. A Bank with a
higher risk rating will undergo more frequent supervisory reviews than those with a lower risk rating. The RBI has also
indicated that it will adopt a phased approach to the implementation of the Basel-II accord. It was proposed to complete
implementation of market risk systems within two years from the year ended March 31, 2005 and the credit risk and
operational risk systems with effect from March 31, 2007.
Taking into account the state of preparedness of the banking system, the RBI, in its Mid-term Review of Annual Policy for
the Year 2006-07, decided to provide banks some more time to put in place appropriate systems so as to ensure full

                                                              69
compliance with Basel II. The RBI had earlier stipulated its commitment to the adoption of Basel II by the banks and had
indicated March 31, 2007 as the intended date for adoption by all.
Foreign banks operating in India and Indian banks having presence outside India are now required to migrate to the
Standardised Approach for credit risks and the Basic Indicator Approach for operational risks under Basel II with effect
from March 31, 2008. In order to be in alignment with these banks, all other scheduled commercial banks are encouraged
to migrate to these approaches under Basel II, but in any case by no later than March 31, 2009. The Steering Committee of
banks will continue to interact with banks and the Reserve Bank, and guide the smooth implementation of Basel II.
RTGS Implementation in India
With the commencement of operations of the Real Time Gross Settlement ("RTGS") system from March 26, 2004, India
crossed a major milestone in the development of systemically important payment systems and complied with the core
principles framed by the Bank for International Settlements. As of the end of January 2007, there were 110 direct
participants in the RTGS system and RTGS connectivity was available in more than 26,000 bank branches spread across
more than 3,000 places in the country. The salient features of the RTGS are as follows:
      payments are settled transaction-by-transaction for high-value and retail payments;
      the settlement of funds is final and irrevocable;
      the settlement is done on a real-time basis and the funds settled can be further used immediately;
      it is a fully secure system which uses digital signatures and Public Key Infrastructure based inscription for safe and
      secure message transmission;
      there is a provision for intra-day collateralised liquidity support for member banks to smooth the temporary mismatch
      of fund flows; and
      RTGS provides for the transfer of funds relating to inter-bank settlements and also for customer-related fund
      transfers.
On a typical day, RTGS handles about 14,000 transactions a day with an approximate value of Rs. 1,500 billion.
Check Truncation
        The pilot project for the Check Truncation System ("CTS"), which is aimed at enhancing efficiency in the retail
check clearing sector, is expected to be implemented on a pilot basis in the National Capital Region in six different
branches of selected banks by December 2007. The RBI proposes to extend this service to additional metropolitan centres
(Mumbai, Kolkata and Chennai) in a phased manner by including more banks under the CTS. However, the encoded
instruments will continue to exist alongside this service until the CTS is fully implemented.




                                                            70
                                                                                          State Bank of India

                                                      BUSINESS

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


                                                             71
Equity Shares to eligible employees of the Bank. The ESPS will remain open for a period commencing from March 28, 2008
to April 15, 2008. The issue price will be Rs. 1,590 per Equity Share. The terms and conditions of the ESPS, will be in
accordance with the provisions of the SEBI (Employee Stock Option Scheme and Employees Stock Purchase Scheme)
Guidelines, 1999 and all the issuances of shares will be done in compliance with the guidelines/regulations/circulars at that
time. See, "Risk Factors -- Shareholders will experience additional dilution as a result of the Bank's planned Employee
Share Purchase Scheme."
Government Pension Fund
The Bank is one of the only three entities (the other two being UTI AMC and Life Insurance Corporation of India) selected
by the Pension Fund Regulatory and Development Authority ("PFRDA") for sponsoring Pension Fund Managers
("PFM") under the New Pension Scheme. The Bank has set up the SBI Pension Funds Pvt Ltd., a wholly owned subsidiary
to undertake activities relating to Points of Presence ("POP") and PFM.PFRDA had advised that 55% of the corpus will be
allocated to the Bank in the first year. SBI Pension Funds Pvt. Ltd will initially manage pension funds for the Government
as well as the pension funds of those state governments which have opted to join the Scheme. Once the PFRDA Bill is
passed, the sector is expected to open up for individuals to join the New Pension Scheme by voluntary contribution.
General Insurance
The Bank's recently invited expressions of interest for its proposed entry into the non-life insurance segment. The
prospective joint venture partner is expected to bring non-life insurance experience from both mature and emerging
markets, relevant knowledge of product development, underwriting best practices, risk management and other systems.
Venture Capital Fund
The Bank’s capital markets subsidiary, SBI Capital Markets Ltd., has entered into a 50% joint venture partnership with
Japan’s SBI Holdings. Inc. to launch a U.S. $ 100 million venture capital fund focusing on knowledge based sectors within
India. The India Knowledge Fund will target specific India sectors including IT. Knowledge Process Outsourcing. Clinical
Research Outsourcing nanotechnology online and mobile businesses, environmental technology and alternative energy.
The fund will invest primarily in unlisted, high growth companies through initial investments ranging from U.S.$ 3 million
to U.S.$ 10 million. The fund will be co-managed by both SBI Capital Markets Ltd. and SBI Holdings, Inc.
Strengths and Strategy
The Bank's key strengths are its:
      Relationship with the Government, state governments and state-owned enterprises;
      Market standing;
      Extensive branch network and portfolio of products and services, resulting in a large, diverse and growing customer
      base;
      Strong financial position; and
      Experienced management team.
Relationship with the Government , state governments and state-owned enterprises
The Bank believes its strong relationships with both the Government and state governments is a key factor driving its
growth in terms of total assets and provides the Bank with a stable source of business. The Bank acts as the RBI's agent
for certain banking businesses of the Government and state governments. The Bank also handles payment functions of
the Government through its branches, including salary and pension payments and expenditure payments of various
ministries. This relationship with the Government is instrumental in attracting new customers.
In addition, the Bank handles a significant portion of the banking requirements for India's public sector enterprises
("PSEs"), including administering payments and loans to employees and offering life insurance and pension plans. As on
March 31, 2007, 3.5% of the Bank's loan portfolio consisted of food credit (including loans to agencies of the Government


                                                             72
                                                                                             State Bank of India

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


                                                               73
      government departments to provide financing products to their employees and customers. For example, the Bank is
      seeking strategic relationships with vehicle manufacturers and dealers to increase its car, two-wheeler and tractor
      loans, and with reputable builders and construction agencies to increase its home loans base.
      The Bank has recently created a Corporate Strategy and New Business Group to focus on emerging opportunities.
      These opportunities include new developments in India, the provision of non-banking products and services,
      including the management of pension funds, the provision of general and non-life insurance products and financial
      advisory and wealth management services. Such services are increasingly sought after in India as a result of the lack
      of a national retirement savings plan.
      The Bank continues to be heavily involved in the agriculture sector through its extensive rural and semi-urban
      branch network, specialised branches for agriculture and small-scale industries and new innovative products. The
      Rural and Agri Business Group (subsequently renamed as Rural Business Group) was created in November 2006 to
      further coordinate the Bank's business in this sector.
      The Bank is committed to its ongoing effort of leveraging new technology to maximize efficiency in its operations
      and expanding the modes of delivery of its services, enabling it to increase its penetration of existing customer
      segments. To achieve this, the Bank plans to expand its existing ATM and internet banking network as well as
      migrate all of its branches to the Core Banking Solution platform. The Bank also plans to offer mobile banking
      services to individuals in rural and semi-urban areas of India. Lastly, the Bank is continuing to invest in payment
      systems to make them more robust and efficient, thereby improving customer service and enhancing its product
      offerings. See "- Information Technology Systems and Infrastructure - IT-based products and development."
      The Bank, under its proposed Private Equity and Venture Capital initiatives, is considering equity investments in
      core sectors such as power, telecom, petroleum, oil, gas, roads, ports, airports and hotels.
      The Bank intends to grow its business through further overseas expansion, primarily to meet the growing needs of
      Indian corporates operating overseas as well as non-resident Indians living abroad. In addition, the Bank expects
      that its central treasury hubs in Hong Kong and London will expand their foreign exchange and money-market
      activities to cover interest rate, foreign exchange, credit structures and bond trading.
Strong financial position and effective risk management
The Bank has a strong cost-to-income ratio, which was 54.5% for the six-months ended September 30, 2007. In addition,
the Bank's capital position, as measured by its capital adequacy ratio (which is higher than mandatory levels), allows the
Bank to take advantage of significant growth opportunities in the market. The Bank's gross and net NPA were 2.9% and
1.6%, respectively, as of September 30, 2007 of its gross and net advances, respectively. This low level of NPAs is due to
the Bank's rigorous risk management policies and procedures.
Experienced management team
The Bank has an experienced management team led by Mr. O.P. Bhatt, Chairman of the Bank, who has over 30 years'
experience in banking. The Bank's executive committee members have on average more than 25 years' banking and
financial experience. The balance of the senior management team has strengths in key areas, including retail, corporate
and international banking. The management team's extensive and diverse expertise provides the Bank with a broad
perspective from which it can make strategic management and operational decisions. In addition, during the past 12
months, several new positions in departments such as Global Markets, Rural Business and Corporate Strategy and New
Businesses have been created. Under the guidance of the New Businesses department, the Bank has recently undertaken
or is planning to undertake the following initiatives within the next two fiscal years: mobile banking, merchant acquiring
business, custodial services and private equity and venture capital.
Business Process Re-engineering
The Bank has instituted a Business Process Re-engineering Project, BPR, in order to transform itself into a world class
financial institution by proactively reaching out to acquire new customers, building stronger relationships with existing
customers and providing all customers with the highest quality of service across multiple delivery channels in the


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                                                                                                        State Bank of India

shortest time possible.
The Bank believes that the Core Banking Solution (which provides the capability of online real time transaction
processing across the Bank's branches) and BPR will create a new sales and service platform across its urban branch
network, and improve the Bank's key business performance indicators, such as increases in the return-on-asset ratio,
cost-to-income ratio and decrease in non-performing assets ("NPAs").
The Bank believes that BPR will redefine the Bank's operating architecture with an aim to enhance the sales and service at
its branches. The Bank plans to transfer the majority of the transactions from branches to alternative service channels,
namely ATMs, drop-boxes, internet banking, mobile banking and call centres. In addition, all non-customer facing back
office activities will be transferred from branches to Central Processing Centres ("CPCs"). The Bank's branches will also
be redesigned to provide better service for customers.
The BPR initiatives include the establishment of:
      Grahak Mitras (customer greeting personnel) to help customers at the branch entry by providing basic information;
      Relationship managers for Personal Banking, Small and Medium Enterprises;
      Home Loans Sales Team and Multi-Product Sales Team; and
      CPCs including Currency Administration Cell, Retail Assets CPCs, Small and Medium Enterprises City Credit Center,
      Liability CPC, Trade Finance CPC, Stressed Assets Resolution Center, Centralised Clearing Processing Center and
      Centralised Pension Processing Cell.
Relationship managers have been introduced for certain of the Bank's customer segments. Relationship mangers have
been a feature of corporate banking for significant clients since May 2003, and have now been introduced for mid-
corporate banking customers. In addition, personalised services to mass affluent and medium enterprise customers are
being promoted through the appointment, as of December 31, 2007, of approximately 456 relationship managers for
personal banking and 105 relationship managers for medium enterprises. As of December 31, 2007 approximately 60 home
loan sales teams have been created to engage in door-to-door sales of home loans to targeted customers. Finally,
approximately 214 multi-product sales teams have been created to sell product to small business enterprises and 'personal'
                                                                       Chairman




               Global        Rural Business       Corporate                 National                   International            Associates and
               Markets                             Banking                  Banking                      Banking                 Subsidiaries




                                                        Corporate                      Personal
                                      Rural             Accounts Group                 Banking
                                     Non-Farm

                                                                                       Government
                                    Agriculture         Project Finance &                                    Foreign Offices
                                                        Leasing                                              and Subsidiaries
                                                                                       Marketing and
                                                                                       Cross-Selling
                                                        Mid-Corporates
                                                        Group                                                          Associates Banks
                                                                                                                       and Subsidiaries
                                                                                       SME

                                                        SAMG

                Global and
                Domestic
                 Treasury



                                                                  75
segment loans (other than housing loans).
The Bank expects that these initiatives will assist it in transforming its operating structure, providing improved service,
reducing operating costs, decreasing back office work at branches, boosting sales efforts and leveraging the strength of
the existing branch network.
Organisation of the Bank's Business Groups
The Bank organizes its client relationships, marketing and product development, as well as internal, non-customer facing
activities, through business groups and strategic business units. Its business groups are the Corporate Banking Group,
National Banking Group, Rural Business Group, International Banking Group and Global Markets Group (previously the
Treasury and Markets Group). The Associates and Subsidiaries Group manages the Bank's investment in its Associate
Banks and its other subsidiaries. The Marketing and Cross Selling Group assists the business groups in cross-selling the
products and services of the Bank's subsidiaries and joint ventures. The principal customer facing strategic business units
and groups are the Corporate Accounts and Mid-Corporates Groups of the Corporate Banking Group; the Personal
Banking, Government, and SME Groups of the National Banking Group; and the Rural Business Group. The Bank is
currently in the process of creating a Wholesale Banking Group. The Bank expects this group to provide a wide range of
banking services required by large organisations and institutions.
The Bank's administrative services and management, including risk management, IT, inspection and audit, legal and
human resources functions, are common to all its business groups. Within the National Banking Group and Rural Business
Group, which together have the largest number of the Bank's branches, these common services are organized on the basis
of administrative units, which are referred to within the Bank as "circles," "zones" and "branches." Each circle serves as
the geographic centre of approximately 600 to 800 branches and is sub-divided into four to five zones per circle. Each zone
covers approximately 150 branches.
The risk management department has risk officers and risk raters located at each circle headquarters as well as within the
Mid-Corporate Group, Corporate Accounts Group, International Banking Group, in each case reporting to Chief General
Manager (Risk Management). The IT department provides support to all business groups. A Deputy General Manager
position (IT-Coordination) has been created at Corporate Center to prioritise and coordinate IT related issues among the
various business groups with the IT department, human resources, and industrial relations.
Corporate Banking
The Corporate Banking Group provides corporate banking services to many of India's most significant corporations and
institutions, including state-owned enterprises, and offers fund-based and non-fund-based products, fee and
commission-based products and services, deposits and foreign exchange and derivatives. The Corporate Banking Group's
customers span the range from mid-corporate clients with annual turnover of between Rs. 0.5 billion and Rs. 5.0 billion to
the largest corporations in India. Each customer is assigned a relationship manager, who serves as a single point of
contact for all of the customer's banking needs, from loan products and deposit accounts to international funding for
cross-border transactions and interest rate and foreign exchange hedging products. The relationship manager may also
serve as the bridge to the Bank's other product groups, such as Personal Banking for the corporate's management or
employees or International Banking for export finance services.
The Corporate Banking Group comprises four strategic business units - the Corporate Accounts Group, Mid-Corporate
Group, Stressed Assets Management Group and Project Finance and Leasing Group.
The Corporate Accounts and Mid-Corporate Groups service large Indian corporations and mid-corporates, respectively.
The Stressed Assets Management Group provides specialised internal support in managing and recovering the Bank's
high value NPAs (Rs. 10 million and above), while the Project Finance and Leasing Group appraises and provides
specialist support to all high value projects (with project cost exceeding Rs. 2 billion) in which the Bank is involved.
The focus of the Corporate Banking Group is to go beyond traditional lending products by:
      emphasising relationship managers to deepen customer relationships and promote cross selling of the Group's
      extensive range of products and services;


                                                            76
                                                                                         State Bank of India

      exploring new growth areas like cash management;
      offering centralised payment solutions; and
      marketing derivatives products by taking advantage of the volatility in the currency markets and the consequent
      need by corporates to hedge their balance sheet risks.
Corporate Accounts Group
The Corporate Accounts Group focuses on the Bank's prime corporate customers across India. Through its customer
relationship management approach, where each client is assigned a dedicated accounts management team, headed by a
relationship manager to coordinate its banking relationship with the Bank, the Corporate Accounts Group aims to leverage
its strong corporate relationships and increase the Bank's market share in fund-based, non-fund-based and fee based
products. Services are delivered through four branches dedicated exclusively to Corporate Accounts Group customers in
Delhi, Mumbai, Chennai and Kolkata. The Bank also believes that separate marketing and customer service departments
are necessary in order to adequately meet the demands of this customer base.
Within the Corporate Accounts Group, the Institutional Accounts Unit focuses exclusively on institutional accounts such
as mutual funds, insurance companies, other institutions and government departments, leveraging such relationships to
maximize fee and commission income. The Bank believes that banking services in the form of payment and collection
solutions and liquidity management have become critical requirements of such customers, who will continue to be a
significant driver of both interest and fee and commission-based income.
Products offered to Corporate Account Group customers include loan products, deposits, fee and commission-based
products and services, and a broad range of foreign exchange and treasury services, including RBI-permitted derivatives,
which are developed and provided by the International Banking and Treasury Services Groups, respectively.
The Bank provides a corporate internet banking facility, with multi-level access and authorisation controls required by
corporate customers. The Corporate Account Group's other delivery channels include the Bank's extensive branch
network, credit cards, and electronic payments platforms. See"- Delivery Channels."
The Corporate Accounts Group's corporate loan portfolio primarily consists of working capital finance and term loans for
project and corporate finance. The Corporate Accounts Group offers its customers both fund based and non-fund-based
facilities. The most commonly used facilities are cash credits, working capital demand loans, bill discounting, term loans,
corporate loans and export credit. Interest rates on these facilities are linked to the State Bank Advance Rate (the
benchmark rate at which the Bank may lend to its prime borrowers) or to other market related rates. Non fund based
products such as letters of credit, bank guarantees, deferred payment guarantees, remittance and collection services,
online tax payment, cash management services, as well as end to end payment solutions are some of the sources of fee-
based income. As on September 30, 2007, total outstanding loans of the Corporate Accounts Group was Rs. 381.7 billion
in respect of fund-based products and Rs. 441.5 billion in respect of non-fund-based products.
The Bank handles bulk business for all Corporate Accounts Group customers across India by way of dividend warrant
payments for companies, as well as bulk electronic salary payments of large corporates, PSUs, and government
departments. These activities are all processed through the Bank's own computerised network and also through the
electronic payment gateways of the RBI. Additionally, the Bank handles bulk draft issuances for customers across the
country. The Bank also acts as a refund bank for the Government tax authorities and is the exclusive refund bank in respect
of income taxes. These activities all contribute to the Bank's fee-based income.
Principal products and services that the Bank offers specifically, although not exclusively, to Corporate Account Group
customers are:
Loan Syndication
Through its subsidiary SBI Capital Markets Ltd., the Bank has developed significant syndication capabilities, structuring




                                                            77
and arranging the syndication of large financial transactions. The Bank seeks to leverage these syndication capabilities
to arrange project and corporate finance for its corporate customers and earn fee income. By leveraging the experience of
SBI Capital Markets and the extensive customer relationships of the Bank, this strategic relationship has made a
significant contribution to the Bank's ability to cross-sell the products and services of its various business groups and
subsidiaries.
Corporate Cash Management
The Bank provides cash management services to corporate customers under the brand name SBI FAST, which stands for
"Funds Available in Shortest Time." Customers can use approximately 359 collecting centres throughout India, with
pooling facilities at various branches, which are connected to the Bank's central clearing centre in Mumbai. This service
aims to enhance liquidity, reduce costs and provide profit opportunities for the Bank's customers by allowing for better
liquidity management. Through SBI FAST, funds are transferred directly to the customer's main account at any branch that
has implemented the Core Banking Solution (numbering 7,303 branches as of December 31, 2007), from various collection
centres on the same day that they are cleared at the collecting centres. SBI FAST also offers disbursement and payment
services through a separate platform to facilitate payments and collections across the country at customers' payment
centres and plant locations.
Detailed management information system reports covering a variety of banking information are made available on a daily
basis to customers' corporate head offices as well as to their local offices and representatives at the centres through
automatically generated email. The Bank customizes the management information system reports to customers' needs.
Monthly reports are also sent to customers through automatically generated email. Full reconciliation support, meaning
the automatic reconciliation of payments and receipts effected by the customer, is provided centrally from the Bank's hub
in Mumbai by a dedicated team.
The payment solutions offered by the Bank as a part of corporate cash management make it possible for corporate
customers to outsource their accounts payable to the Bank and have payments processed using electronically-based as
well as paper products. In addition to effecting payments to the 6,243 Bank branches connected through the Core Banking
Solution, electronic payments may be made by the Bank on behalf of its customers to other banks' branches across India.
Currently, more than 620 District Headquarters in India and an additional 40 business locations use this centralised cash
management system, enabling quick, time-sensitive bulk payments to any beneficiary in India on behalf of the Bank's
corporate customers.
Trade Finance
Trade finance services include the issuance and advising of domestic and foreign letters of credit, the confirmation of
export letters of credit, the issuance of guarantees on behalf of domestic customers in favour of domestic and foreign
beneficiaries, and on behalf of foreign correspondent banks to beneficiaries in India, domestic and foreign bill discounting
against letter of credit as well as non-letter of credit bills and similar services.
Trade finance services include a new IT-driven supply chain financing product being developed by the National Banking
Group. The Bank expects that supply chain financing will enable it to leverage its links with existing Corporate Accounts
Group customers, referred to by the Bank as "Industry Majors," to offer financing services to the small and medium size
vendors and dealers to such Industry Majors, whether or not the vendors are already customers of the Bank. The target
vendors would typically be part of the SME or SSI customer base. Supply chain financing is being marketed to corporates
for use by their vendors. It is anticipated that this activity will bring into the Bank a number of new vendors who serve
the Mid-Corporate and SME segments. See "- Small and Medium Sized Enterprises."
Mid-Corporate Group
The Mid-Corporate Group focuses on mid-corporate customers, which are defined by the Bank as entities with annual
turnover between Rs. 0.5 billion and Rs. 5.0 billion. The objectives of the Mid-Corporate Group are to:
      Focus the Bank's attention on the banking requirements of mid-corporate clients;



                                                            78
                                                                                         State Bank of India

      Improve turn around time for credit delivery;
      Provide customized solutions to meet the financial requirements of mid-corporate clients; and
      Develop teams well versed in credit, foreign exchange, derivatives and trade finance, as those products are used by
      Mid-Corporate customers.
Mid-sized corporate customers have been and continue to be an integral part of India's economic development. The Bank
believes that this market segment encompasses more than 10,000 entities, many of whom are listed on a domestic stock
exchange. High concentrations of these customers are located in 14 metropolitan centres, and are served by the Bank's
extensive branch network. In addition to the branch network, the Bank services customers in these metropolitan centres
by establishing sales hubs and centralised credit processing facilities. The Bank has established 28 branches that are
dedicated exclusively to Mid-Corporate Group customers. Relationship managers provide a single point of contact for all
mid-corporate customers. Mid-corporate customers located outside the Mid-Corporate Group's geographic coverage area
are served through the Bank's branch network.
Relationship managers are assigned to all mid-corporate customers. These relationship managers are expected to attract
more banking business from high-end mid-corporate customers by building close relationships with existing customers,
as well as reaching out to potential customers, and familiarising customers with the various banking products and
services offered by the Bank's specialised business units. An example would be the cross-selling of retail banking
services to the customer's management or employees, or of interest rate and currency hedging products that are offered
by the Global Markets Group. A typical relationship manager handles approximately 30 mid-corporate accounts depending
on the manager's location and is a customer's central contact at the Bank. A relationship manager may also be approached
by the specialised business units within the Bank for the purposes of cross-selling banking products or services to the
relationship manager's customers.
A recent initiative is the formation in 2007 of the precious metals business unit within the Mid-Corporate Group. The focus
of this business unit is to meet the demand for precious metals financing by mid-corporate customers. Demand for gold,
in the form of wholesale and metal loans, has traditionally come from the Bank's mid-sized customers such as jewellery
firms and traders. This unit also serves the retail sector's demand for portfolio diversification by offering precious metal
products to that market through the Personal Banking Group.
The Mid-Corporate Group offers the same banking services and products as the Corporate Accounts Group, although
generally with less customisation, as well as a range of trade finance products. Similar to the Corporate Accounts Group,
the Mid-Corporate Group offers supply chain financing to leverage the Bank's customer base by offering vendor and
dealer financing to link the large corporate, mid-corporate and SME customer segments served by the Bank. Unlike
customers of the Corporate Accounts Group, customers of the Mid-Corporate Group can be either the Industry Majors or
the vendors or dealers.
Stressed Assets Management Group
The Stressed Assets Management Group ("SAMG") focuses on the resolution of NPAs of Rs. 10 million and above
incurred in the Bank's customer-facing business units. The Bank's Credit Policy and Procedures Committee formulates
NPA policy, while the SAMG handles the NPAs in accordance with such policies. The SAMG operates from 10 branches
throughout India where dedicated teams of specialists evaluate NPAs referred from other business units within the Bank
(for example, the Corporate Accounts Group, which will have booked the assets that may become NPAs). If the NPAs are
found ineligible for restructuring, the SAMG takes steps to recover the amounts due to the Bank either by compromising
the claim or enforcing any security interests the Bank may have or selling the NPA to other banks, financial institutions or
other entities. See "Description of Assets and Liability Management and Risk Management of the Bank - Credit
Management Policies and Procedure." In addition, for small value NPAs, the SAMG may use outsourced recovery agents
and resolution agents to assist its efforts to resolve NPAs.
Project Finance and Leasing
The Project Finance and Leasing Group provide specialist project evaluation services to the Bank's customers. This unit


                                                            79
has a particular focus on core infrastructure sectors of the Indian economy such as telecommunications, oil and gas,
roads, bridges, ports and urban infrastructure, although it has also expanded to corporate sectors such as steel and
concrete. The project finance team examines projects whose total cost is at least Rs. 2 billion, with debt exposure in excess
of 25.0% of the project cost. The Corporate Accounts Group, the National Banking Group and the Mid-Corporate Group
interface with the customer in proposing project finance services, while appraisals, sanctioning and documentation of a
project will generally be carried out by the Project Finance and Leasing business units. Once the project risk has passed,
control of the project reverts to the originating Group. Leasing activities, which were started by the Bank in 1995, are
progressively being wound up and the Bank does not expect leasing to comprise a significant part of its activities in the
future.
National Banking
The National Banking Group provides a range of retail banking products to individuals through the Personal Banking unit,
corporate banking products to the Bank's corporate, mid-corporate and small enterprise customers that are not serviced
by the Corporate Banking Group, or the Mid Corporate Group and banking services to the Government and state
governments. Corporate banking products and services offered by the National Banking Group are largely the same as
those offered by the Corporate Banking Group. The National Banking Group services customers located in urban and
metro areas, while customers in rural and semi-urban areas are serviced by the Rural Business Group (discussed below).
Geographic areas are classified as urban, metro, rural or semi-urban by the RBI based on population.
The National Banking Group comprises three customer-facing business units - Personal Banking, SMEs and Government
Banking Unit, spread out over 14 administrative circles with a network of 3,415 offices as of December 31, 2007.
Personal Banking
The Bank is the largest retail bank in India having, as of September 30, 2007, approximately 71 million retail accounts, 20.0%
of which were located in metro and urban areas, and retail banking assets and liabilities of Rs. 3,321.2 billion. The Bank has
the largest branch and ATM network in India. As of December 31, 2007, it had a total of 10,072 offices, of which 3,415 were
in urban and metro areas (and therefore under the umbrella of the National Banking Group) and 6,657 of which were in
rural and semi-urban areas (servicing customers of the Rural Business Group), with 7,303 of those branches integrated
through the Core Banking Solution. The Bank's ATM network totalled 5,577 ATMs across India as of December 31, 2007,
with 3,299 of those in urban and metro areas, and 2,278 in rural and semi-urban areas. The Bank also has bilateral sharing
arrangements with 13 other banks for the sharing of ATM networks, thereby giving the Bank's customers access to over
16,500 ATMs across India. Together with its Associate Banks, subsidiaries and joint ventures, in both the banking and
non-banking sectors, the Bank offers a broad range of products and services to its retail customers, including lending
products such as home finance loans, automobile finance loans, and personal loans, deposit products, such as demand
and time deposits and savings accounts, and credit cards. In addition, the Bank goes beyond traditional banking services
to provide access to fee and commission-based products such as life insurance and mutual funds as well as providing
services tailored to non-resident Indians ("NRIs").
Specific customer segments include the high net worth and mass affluent, and salaried employees. Nearly 650,000
customers qualify as high net worth or mass affluent on the basis of the value of their domestic deposits with the Bank. Of
that number, approximately 170,000 customers across India as of September 30, 2007 were eligible for the Bank's recently
initiated high net worth and mass affluent banking offering, "SBI-Vishesh" scheme, a priority banking service offered in
select branches throughout India. In addition, the Bank has a strong customer base of salaried employees, with over two
million salary accounts. The Bank is also focusing on increasing the number of retail relationship managers to strengthen
its franchise. Approximately 1,400 customer relationship executives handle distribution and servicing for high net worth
individuals and mass affluent customers, with another 1,000 expected to be hired by March 2008.
Products
The Bank's retail lending products include home, auto and personal loans. According to RBI data, as of March 31, 2007,
the Bank had a 16.5% share of the home loan market, and a 16.8% share of the personal loans market (which includes
personal, auto and educational loans), in each case measured by amounts outstanding.


                                                             80
                                                                                           State Bank of India

Home Loans
The Bank is one of the top three providers of home loans within India (CRISIL Research Retail Finance - Housing Finance
Update: May 2007). As of December 31, 2007, home loans constituted more than 52.0% of the personal banking loan
portfolio of the Bank by total amounts outstanding. The Bank believes home loans will continue to be a significant driver
in the growth of its retail banking business, due to the expected housing shortage in India coupled with the rising
affluence of the Indian population. In addition to home loans for the purpose of construction, purchase and repair of
personal residences, the Bank is also introducing more sophisticated products such as reverse mortgages and home
equity loans. Recent initiatives include "SBI Tribal Plus" (special housing financing product for persons residing in the hill
or tribal areas, where land records are not available), "SBI Freedom" (housing loan secured by liquid securities, without a
mortgage of the property) and "SBI Flexi" (housing loan with a portion at fixed rate and the remaining at floating rate).
Personal Loans
Personal loans are general purpose loans for individuals, the proceeds of which can be used at the borrower's discretion.
The Bank offers a wide range of personal loan products targeting specific customer segments or funding purposes. This
category includes auto loans, which are loans for the purchase of new and used cars, jeeps and utility vehicles, as well as
for two-wheel vehicles such as scooters, motorcycles and mopeds. Other personal loan products are the "Xpress Credit"
(pre-approved personal loans for employees of the Government (including State governments) and leading private sector
enterprises), "SBI Loans to Pensioners" (personal loans to pensioners of the Government (including State governments)
and PSUs), loans against financial securities (financing provided by way of overdrafts or demand loans, against the
security of term deposits, shares, debentures and mutual funds) and the "Rent Plus Scheme" (securitisations of future rent
receivables).
In India, the Bank is the largest provider of educational loans according to Indian Banks' Association, which comprised
5.03% of the personal banking loan portfolio of the Bank as of December 31, 2007. Educational loans include such targeted
products as "Nursing Plus" (loans to individuals for undertaking graduate and post-graduate courses in nursing from
recognised institutes).
Deposit products offered to Personal Banking customers include savings, checking, term deposits and hybrid accounts
that combine features of savings and term deposit accounts.
In addition to traditional lending and deposit products, the Bank offers technology based payment products. The SBI
Vishwa Yatra Foreign Travel Card is a prepaid card issued in association with VISA International that can be used to
withdraw cash from VISA-enabled ATMs and to purchase goods and services from merchants and points of sales
displaying the VISA logo. The card is available in U.S. dollars, sterling and euro currencies. For domestic use, Rupee
prepaid cards are issued in association with VISA International. Periodic payments such as salary may be loaded onto the
card at any Bank branch connected to the Core Banking Solution, with the funds available to cardholders immediately.
Funds can be withdrawn at VISA-enabled ATMs and at VISA points of sale in India, Nepal and Bhutan.
The Personal Banking unit is the largest user of the ATM distribution channel and credit cards. Although credit cards are
marketed primarily by the Personal Banking unit, they are operated by a subsidiary. See "Distribution Channels - Credit
Cards."
Small and Medium Sized Enterprises
The SME Group focuses on servicing the specific credit needs of small and medium enterprises ("SMEs"), defined by the
Bank as entities with an annual turnover of up to Rs. 500 million. The Bank believes that small and medium sized
enterprises are a major driving force behind India's recent economic success. Accordingly, the Bank has dedicated specific
resources to this customer segment. Because SMEs are large in number but generally share similar needs, highly
customized products are not necessary to serve these customers. Relationship managers are provided to high-end SMEs,
as these customers generally require more specialised attention.
Products and services offered specifically to SME include dedicated branch tellers, stand-by lines of credit, current
accounts, time and other deposits, business to business payment solutions, multi-city checks, bank guarantees, letters of


                                                             81
credit, specially tailored internet banking as well as working capital and term loans. Further, the Bank has taken initiatives,
including advisory services and concessionary finance, in implementing an Energy Efficiency Program for its SME clients.
The Energy Efficiency Program offers a subsidised energy study to energy-intensive SMEs, carried out by energy
consultants employed by the Bank, and financing on advantageous terms of the implementation of energy conservation
measures.
The Bank has simplified the credit appraisal process and reduced credit delivery time through its "SME Smart Score"
scheme. This scheme is based on a scoring model system to simplify the approval process for loans up to Rs. 5 million for
manufacturing units and Rs. 2.5 million for trade and services. The Bank has also developed industry, activity, and cluster
specific scoring models. As part of its BPR initiative, the Bank has begun to centralise credit processing for SMEs,
enabling the Bank to offer greater uniformity in appraisals, quicker processing and better risk management.
In addition to traditional lending products, the Bank seeks to extend its reach to the supply chain partners of large
corporations through supply chain financing, including the financing of selected vendors and dealers of the Bank's
corporate clients. This IT-based product provides an important cross-selling opportunity, linking customers of the
Corporate Accounts Group, as the Industry Majors, and suppliers or vendors of various sizes that comprise the customer
base of the SME Group. See "- Corporate Accounts Group - Trade Finance."
Small Scale Industries and Small Business Finance
SMEs are further subdivided into Small Scale Industries ("SSI") and Small Business Finance ("SBF") units. Since its
inception, the Bank has played and continues to play an important role in the development of SSIs and small businesses.
SSI and SBF customers located in rural or semi-urban areas have access to the same products and services through the
Rural Business Group.
Small Scale Industries
SSI customers are businesses engaged in the manufacture, processing or preservation of goods and whose investment in
plant and machinery does not exceed Rs. 50 million. The Bank currently has 44 specialised SSI branches located in areas
where there is a greater potential for SSI activity. These branches provide focused attention for SSIs through specially
trained personnel whose sole responsibility is to look after SSI customers.
As part of its involvement in this sector, the Bank has prepared a charter for Small Scale Industries, detailing schemes and
standards for lending to this sector. The Bank also offers management consultancy services to SSIs who plan to upgrade
their technology capabilities. Through this project, the Bank has increased penetration in, among others, industries
relating to auto components, rice mills and other industries.
Small Business Finance
The Bank finances small business activities for a large number of its SME customers. SBF is undertaken under four broad
categories: retail traders, business enterprises, professionals and self-employed persons and small road transport
operators. For example, with respect to retail trade, the Bank extends loans to retail traders who act as a link between the
manufacturers of goods or commodities and the consumer. The Bank also offers working capital products as well as loans
for the purchase, renovation and repair of equipment.
Government Banking
The Bank handles government transactions as an agent for the Government (including RBI) and various state
governments. For the year ended March 31, 2007, the Bank handled approximately 52.0% of Government aggregate
payments and receipts, and approximately 62.0% of state government payments and receipts. The Bank acts as agent for
the receipt and payment of government transactions. The Bank collects government revenues by way of taxes such as
central excise and service taxes through its branches. The Bank also handles government payment functions through its
branches, including pension payments and expenditures payments of various ministries. Further, the Bank remits funds
deposited by departments such as post & telecommunications, railways, defence and other government departments.
The Bank earns commission income on the payment services it provides. Receipts and pension payments made by the
Bank are subject to a fixed fee per transaction, irrespective of the transaction amount; fees for payments, other than

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                                                                                           State Bank of India

pension payments, made by the Bank are calculated as a fixed percentage of the payment amount.
Rural Business
The Bank services customers located in rural and semi-urban areas through the largest branch and ATM network in India.
The Rural Business Group was formed in November 2006 and focuses on developing innovative and effective modes of
delivering banking services to all customers located in the rural and semi-urban areas of India, as defined by the RBI. As
of December 31, 2007, approximately 66.0% of the Bank's branch network was in semi-urban and rural areas. Banking
products and services provided to customers of the Rural Business Group generally include all corporate and retail
products and services that are provided by the National Banking Group, and are provided to the same demographic
customer groups as are served by the National Banking Group. In addition, to a much smaller extent, the Rural Business
Group provides sophisticated corporate products and services to mid-corporate customers that are located outside the
geographic areas served by the Mid-Corporate Group of Corporate Banking.
The Rural Business Group is subdivided into two business units - Rural Banking (Non-farm) and Agriculture.
Rural Banking (Non-farm)
The Bank believes that the rural areas of India are greatly underserved by the financial sector, and therefore views rural
banking as one of the key drivers of future growth.
The Bank serves its rural clients through an extensive network of 6,657 offices located in rural and semi-urban areas as of
December 31, 2007. Rural banking requires an innovative approach in respect of delivery of services in remote areas, to a
population with significant illiteracy rates, and a large number of small-value transactions. To cater to customer needs, the
Bank has set up branches focusing on products important to rural customers such as savings and term deposits, small
business financing, life insurance and remittance services, in addition to the other corporate and retail products and
services offered by the National Banking Group. These branches service all customer segments that are present in their
geographic coverage area, from personal banking clients to mid-corporate clients (who, although serviced at a rural
branch, will have their credit needs assessed by the Mid-Corporate Group). Branches located in rural and semi-urban areas
distribute the same personal banking, SME, SSI and SBF products and services as those of the National Banking Group.
Rural housing and micro finance, previously handled at the national level, have been regrouped under the Rural Banking
(Non-farm) business unit.
The Bank is developing alternative delivery channels for banking services and products through business facilitators and
business correspondents. The Bank is currently pilot testing a business correspondent relationship with India Post,
whereby India Post will be able to take deposits and permit cash withdrawals through smart cards. The Bank is testing
these operations in seven states with an intention to expand into additional states in the near future, including through
other entities, such as non-governmental organisations and micro finance institutions located in areas where the Bank
does not yet have a physical presence. The Bank is also in the process of rolling out services through business facilitators,
which are persons appointed by the Bank, such as insurance agents or non-governmental organisations, to market asset
and liability products to customers on a commission basis.
Rural banking offers a particular challenge due to the low margin transactions that typically occur at rural branches. The
Bank seeks to overcome this challenge through IT-based initiatives targeted specifically at the rural customer. These
initiatives include a user-friendly ATM network that now spans more than 485 rural locations, a kiosk project that will
allow for access to more remote areas as well as a Smart Card program that allows rural customers to access basic banking
services through business correspondents without meeting the minimum deposit requirements for accounts with the
Bank.
The Bank has moved beyond traditional banking to support grass-roots initiatives to encourage access to finance for the
poorest of the rural population. The Bank believes that micro finance, including financing to Self Help Groups ("SHGs"),
has significantly contributed to the credit growth in rural areas and the improvement in the standard of living of the rural
poor. The Bank has provided advances of Rs. 46.56 billion to approximately 936,000 SHGs in India as of December 31,
2007. The Bank is a market leader in SHG lending in India, and, in 2006, became the first commercial bank in India to be
assigned the status of "Self Help Promoting" institution by the National Bank for Agriculture and Rural Development.
The Bank believes that the clients it assists through micro finance initiatives will become loyal customers in the future. The
Bank's micro finance initiatives are accomplished primarily through the use of SHGs. The Bank believes that these groups,
comprising approximately 15 to 20 families, each of which is represented by one family member (who is generally a woman),
serve as the basis for establishing group dynamics and a culture of savings within the community. Traditional micro

                                                             83
finance in India has been done through the use of intermediary organisations. The Bank believes, however, that these
organisations are unnecessary, given the Bank's own extensive branch network and its initiatives to broaden delivery
channels for banking services, such as the strategic alliance with India Post discussed above. By eliminating
intermediaries, the Bank expects to be able to cultivate relationships with the SHGs and ultimately assist in the
development of micro finance projects into micro enterprises. The SHG forms a savings unit, depositing the collective
savings with the Bank. The Bank in turn lends to the SHG an amount of up to four times the SHG's savings, which the
SHG lends out to its members at its sole discretion. Micro finance loans extended by the Bank form part of the Bank's
directed lending obligations. See "Regulations and Policies - RBI Regulations -Directed Lending."
Agriculture
Since its inception, the Bank has played and continues to play an important role in the development of Indian agriculture.
The Bank had 424 agricultural development branches as of September 30, 2007. These are specialised branches located
throughout India used exclusively for the development of the agriculture sector and its related industries.
The Bank's agricultural development branches offer products such as crop financing, farm equipment financing, and
agricultural value chain financing and serve customers involved in a wide range of agricultural activities such as crop
production, horticulture, plantation crops, floriculture, farm mechanisation, land development and reclamation, digging of
wells, tube wells and irrigation projects, as well as activities linked to agriculture such as storage, trading and processing.
The Bank also finances activities such as dairy production, fisheries, livestock management and silk worm farming. The
Bank's focus has been on cultivating direct relationships with the farmers, thereby allowing them to offer more customized
products to their clients. Initiatives aimed at strengthening ties with the farming community include attending farmers'
meetings and Farmer's Club events as well as a village adoption program whereby each region, encompassing 40 to 45
branches, adopts a village in order to build banking relationships there as well as to support integrated development of
the village.
As in its other lending operations, the Bank uses a scoring model for credit assessment of borrowers under several of its
programs. Lending by individual branches under certain loan programs is linked to NPA levels, so that NPA levels
exceeding certain benchmarks will lead to a tightening of certain credit lines. In addition, recovery agents are increasingly
being used by the Bank to address debt collection, generally by enforcing on the underlying collateral securing the loans.
Global Markets
The Bank's Global Markets Group (previously known as the Treasury and Markets Group) manages its domestic liquidity
and foreign currency exposure, engages in proprietary trading of currencies and offers foreign exchange and risk hedging
derivative products to its customers. The treasury also handles equity trading for the Bank's trading and banking books.
Through its treasury operations, the Bank manages its required regulatory reserves and investment portfolio with a view
to maximising efficiency and return on capital. The Bank also seeks to optimise profits from its trading portfolio by taking
advantage of market opportunities. The Bank's trading and securities portfolio includes its regulatory portfolio, as there
is no restriction on active management of the regulatory portfolio.
Under the RBI's statutory liquidity ratio requirement for Indian banks, the Bank is required to maintain 25.0% of its net
demand and time liabilities by way of approved securities, such as Government securities (including state government
securities). The Bank maintains its statutory liquidity requirement through a portfolio of Government securities that it
actively manages to optimise yield and benefit from price movements. The RBI may prescribe the Cash Reserve Ratio
("CRR") for scheduled commercial banks without any floor or ceiling rate. The rate of CRR to be maintained by banks on
their total demand and time liabilities is 7.0% as from August 4, 2007, which has since been raised to 7.5% as of November
10, 2007. In view of section 3 of the Reserve Bank of India (Amendment) Act, 2006 which came into force on April 1, 2007,
the RBI does not pay any interest on the CRR balances. See "Regulations and Policies - Legal Reserve Requirement."
Due to these regulatory reserve requirements, a substantial portion of the Bank's trading and securities portfolio consists
of Government securities. As on September 30, 2007, Government securities (excluding securities purchased under
agreements to resell) constituted 67.0% of the Bank's total trading and available for sale securities portfolio, while the
remainder included corporate debt securities and equity securities. The Bank had outstanding Government securities
worth Rs. 1.6 billion in its trading portfolio as on September 30, 2007.
The Treasury Group engages in domestic and foreign exchange operations from its main office in Mumbai. As part of its
treasury activities, the Bank also maintains proprietary trading portfolios in domestic debt and equity securities and in


                                                              84
                                                                                             State Bank of India

foreign currency assets. During the fiscal year 2007, the Bank recorded a total turnover of Rs. 5,117 billion in its foreign
exchange business for foreign trade, representing an estimated 27.0% market share calculated based on DGCIS trade data.
The Bank undertakes foreign exchange sales and purchases on behalf of its customers through cover operations,
occasionally running a position backed by merchant transactions. The Bank also sells RBI permitted hedging products to
the Bank's large and medium sized corporate customers through seven Regional Treasury Marketing Units which work in
close coordination with the relationship managers in the Mid-Corporate and Corporate Accounts Groups.
The Bank offers all RBI permitted derivative structures to its clients including: foreign exchange forward contracts,
options, and currency and interest rate swaps. The Bank's investment and market risk policies are approved by the Central
Board. The Bank has implemented treasury solutions software that facilitates online trading, accounting, valuation and
portfolio risk management. A real time gross settlement system ("RTGS") for inter-bank transfers has also been
implemented under the direction of the RBI. However, under the delivery versus payment mechanism, cash and
Government securities are netted by the RBI through the Clearing Corporation of India Ltd. See "Industry Overview -
RTGS Implementation in India."
International Banking
The Bank's international banking products and services include corporate lending, loan syndications, letters of credit and
guarantees, short-term financing, project export finance, and collection of documentary credits and remittances, as well as
the raising of funds and other borrowings outside India. The International Banking Group's core activity is to provide
these services to Indian corporates doing business outside of India, and foreign companies with operations inside of
India, as well as NRIs conducting business in foreign markets. To a lesser extent, the International Banking Group also
seeks to service corporate and individual customers outside India through the Bank's branches and subsidiaries. The
International Banking Group's customers span the range from India's largest corporates to individuals.
As of December 31, 2007, the Bank had a network of 84 overseas offices in 32 countries covering all major time zones.
Among its other locations, it is present in New York, London, Frankfurt, Singapore, Hong Kong and the Maldives. It
maintains correspondent relationships with 530 leading banks in 124 countries.
As part of the centralisation of treasury activities of foreign offices, the Bank has set up central treasury hubs in Hong
Kong and London. These hubs are intended to aggregate market risks and achieve economies of scale. Besides meeting
the foreign exchange and money market needs of their linked branches and undertaking proprietary trading in currencies,
it is expected that the central treasury hubs will expand their activities to cover interest rate, foreign exchange, credit
structures and bond trading.
The Bank has a significant global presence and is participating in syndicated loans to large international corporations
both in the primary and secondary markets. The Bank's foreign offices have had success in managing documentary
credits, and have also been active in providing loans to Indian joint ventures or the wholly owned subsidiaries of Indian
corporates which have acquired companies or set up new projects outside India. The Bank's foreign offices have also
achieved significant growth in the area of trade finance as the import and export trade of India has increased. The Bank
periodically revises its investment policy for foreign offices in line with international market practice and available
products, emphasising investments in the fixed income products of sovereign, banking and corporate issuers.
The Bank continues to be a leading arranger for syndicated corporate loans in foreign currencies for corporate customers
in India, generally clients of the Corporate Account Group and the Mid-Corporate Group. In fiscal year 2007, the Bank
participated in syndicated corporate loan transactions amounting to U.S.$ 5.9 billion and extended several bilateral
corporate loans amounting to U.S.$ 218.0 million. As of December 31, 2007, the Bank handled 41 syndications representing
a total of U.S.$ 22.6 billion. Of these, 30 syndications worth a total of U.S.$ 20.1 billion were concluded and the remaining
are in various stages of progress. In addition, 13 bilateral deals, worth a total of U.S.$ 552.4 million, for external commercial
borrowings by Indian corporates were concluded. During the current fiscal year, the Bank syndicated loans for both
project finance as well as overseas acquisitions by Indian corporates.
In NRI services, the Bank provides management and technological expertise to two exchange companies, or entities
providing customer to customer money transfer services, in Qatar and Oman, and has also entered into arrangements with
eight other exchange companies in the Gulf region to facilitate NRI and other customer remittances to India.
The Bank's emphasis on technology is a critical part of the international banking platform. A core banking software,
specific to the Bank's international branches and subsidiaries, has been installed at 33 foreign branches, four subsidiaries


                                                               85
and two joint ventures providing data transfer and limited transaction processing connectivity with the Bank's domestic
IT network. Internet banking is provided to customers at all foreign offices and "Instant Transfers" are available from 18
countries. The Bank has recently launched a web-based remittance initiative targeted at the sizeable NRI population in the
United States and the United Kingdom. This product allows customers to transmit remittances online, even where the
remitting party is not an SBI customer.
The Bank's electronic export payment collection facility, Global Link Services ("GLS"), facilitates export payments, other
overseas collections and inward remittances. During the fiscal year 2007, on behalf of domestic branches of the Bank, GLS
collected proceeds of 148,000 export bills in U.S. dollars and euros, and the proceeds of 277,463 checks in sterling, euro,
and U.S. dollars totalling U.S.$ 13.3 billion in value terms. For the period ended September 30, 2007, there were 76,633
export bill transactions and foreign currency checks worth U.S.$ 8.5 billion.
Project Export Finance
The Bank is an active participant in the financing of project export activities by Indian corporates involving the bidding
for and execution of turnkey and civil construction contracts and export of engineering goods on a deferred payment
basis as well as service exports. The Bank can approve projects of up to U.S.$ 100 million (Rs. 4.0 billion), and acts as a
sponsor for its customers in respect of projects exceeding U.S.$ 100 million (Rs. 4.0 billion), which need to be approved by
a number of Indian government departments. The Bank provides bond guarantees for projects during the bidding stage.
Once projects are approved, the Bank provides performance guarantees and other non-fund based products as well as
construction funding if required by the customer. In the six-month period ended September 30, 2007, the Bank supported
21 large projects and service export proposals aggregating Rs. 67.1 billion involving 9 countries.
Foreign Subsidiaries and Joint Ventures
The following table sets out details of the Bank's international subsidiaries and joint ventures outside India as of
September 30, 2007.
  Name                                    Year of                       Bank's           Total       Owned     Net Profit
                                          Establishment            Shareholding        Assets        Funds
                                                                           (%)
                                                                               (Rs. in millions, except percentages)
  Foreign Subsidiaries
  SBI (Canada)(1)                         1982                            100.00        20,928        2,704            81
  SBI (California)(2)                     1982                            100.00        17,233        1,419            89
  SBI Intl. (Mauritius) Ltd(3)            As JV - 1989
                                          As a Sub. - 1999                 98.00        16,154         991             64
                                 (4)
  Indian Ocean Intl. Bank Ltd.            1978                             61.93         8,159         760             35
  PT Bank Indo Monex(5) (8)               1970                             76.00         2,162         678              5
  Joint Ventures
  Bank of Bhutan(6)                       1968                             20.00        17,141        1,260           199
  Nepal SBI Bank Ltd.(7)                  1993                             50.00         8,090          610            73
  Commercial Bank of India                2003                             60.00         1,924          974            33
  LLC, Moscow(9)

Notes:
(1) CAD     = Rs. 39.8750 as on September 30, 2007.
(2)   U.S.$ = Rs. 39.8450 as on September 30, 2007.
(3)   MUR = Rs. 1.3175 as on September 30, 2007.
(4)   Stake acquired by the Bank on April 19, 2005.
(5)   Stake acquired by the Bank on December 14, 2006.
(6)   BTN = Rs. 1.000 as on September 30, 2007; figures as of December 31, 2007
(7)   NPR = Rs. 0.6206 as on September 30, 2007; figures as of July 16, 2007
(8)   IDR = Rs. 0.004350 as on September 30, 2007.
(9)   IDR = Rs. 0.004350 as on September 30, 2007.


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                                                                                         State Bank of India

Delivery Channels
The Bank is committed to bringing convenience and technology to its customers. In accordance with this goal, the Bank's
delivery channels for its banking products and services include:
Branch Network
As of December 31, 2007 the Bank had an established network of 10,072 offices (excluding administrative offices) across
India, catering to the diversified banking needs of its customers. Of this, the Corporate Banking Group had a network of
42 branches catering to high value corporate customers (which are customers other than customers of the Rural Business
Group, SMEs and retail accounts). The National Banking Group along with the Rural Business Group had 14
administrative circles encompassing a network of 10,030 offices, four sub-offices (Bank offices in non-rural areas offering
all standard services but operating only a limited number of days or hours per week), 12 exchange bureaus, 131 satellite
offices (Bank offices in rural areas offering all standard services but operating only a limited number of days per week),
and 341 extension counters (offering deposit and liability products, and loans against deposits, operating during all
working days) to service customers as of December 31, 2007. Of the total branches, 110 were specialised branches catering
to high net worth customers and the mass affluent customer segment, as well as branches handling exclusively home
loans. Up to December 31, 2007 of fiscal year 2008, 555 new domestic offices were opened. There are 103 personal banking
branches located in metropolitan and urban areas, which offered a wide range of services to high net worth and mass
affluent individuals.
ATM Services
The Bank is rapidly expanding its ATM network which included 5,577 Bank ATMs in India, and was the largest ATM
network in the country, as of December 31, 2007. The Bank's customers can conduct the following transactions free of
charge at any one of the Bank's ATMs across the country: cash withdrawal, balance enquiry, mini-statement, utility
payments, mobile recharge, temple donations, fee payments and fund transfer.
The Bank believes that ATMs are its most dynamic retail delivery channel today. The Bank had issued 24.17 million ATM
cards as of December 31, 2007. All the Bank's ATM cards also function as debit cards.
The Bank has created a single ATM network across all of its subsidiaries and associates, for a total of 8,079 ATMs across
the Group, with a total of 33.35 million ATM cards issued by the Group. On average, the Bank's ATMs transact 1.67 million
transactions daily involving approximately Rs. 3.3 billion worth of cash withdrawals during the month of December 2007.
For the Group, average transactions were 2.25 million transactions per day, with cash withdrawals of Rs 4.4 billion per day
during the month of December 2007.
The Bank's ATM expansion drive was strengthened through a change in strategy, which included improved marketing and
customer education including:
      segment specific cards for customer groups such as high net worth individuals, farmers, and SMEs;
      enhanced visibility of ATM machines; and
      strategic positioning of ATMs, such as in railway stations, shopping malls and residential complexes.
The Bank has bilateral arrangements with 13 other banks, providing its cardholders with access to the largest network in
India, with over 18,500 ATMs in service as of December 31, 2007.
Value-added facilities such as payment of premiums on SBI Life Insurance Policies, SBI Credit Card account payments,
payment of fees for selected schools and colleges, mobile phone, bill payments and temple donation are available through
the Bank's ATMs.




                                                            87
Credit Cards
The Bank operates its credit card business through its subsidiary, SBI Cards and Payment Services Pvt. Ltd. ("SBICPSL").
SBICPSL believes its estimated market share to be 16.3% at March 31, 2007 in terms of number of credit cards issued in
India. Credit cards are marketed primarily by the National Banking and Rural Business Groups.
Internet Banking
As of December 31, 2007, approximately 6,868 branches provided internet banking service and were used by approximately
1.5 million customers in the retail segment and approximately 77,000 customers in the corporate segment.
An internet banking service is available at the Bank's website: www.onlinesbi.com. The Bank's internet banking solution
is a comprehensive product for both retail and corporate use. Internet banking has given the Bank a real-time transaction
processing capability and has allowed the implementation of the Bank's business initiatives in many areas such as railway
and air ticket booking, online tax payment, transfer of funds, railway freight payment and utility bill payment. The Bank's
customers can check account balances, request check books, bank drafts and banker's cheques, issue standing
instructions, trade stocks, invest and renew term deposits, open new accounts, donate to religious organisations and pay
income taxes online. Customers can make inter-branch transfer of funds to their other accounts and also to third party
accounts. Customers can also book rail tickets, pay utility bills and insurance premiums, invest in mutual funds, pay credit
card balances and set up SMS alerts for transaction information.
The Bank also has dedicated internet banking for the corporate customers, including SMEs, that include features
specifically tailored to these clients, including control and authorisation features. Internet banking for corporate customers
includes online payment of customs tax and corporate income tax, online payment of central railway freight, vendor
finance, issuance of online bulk draft, and transfer of funds to multiple vendors at different locations.
Bill payment through the Bank's e-payment systems, a part of internet banking, allows its customers to pay their
telephone, mobile phone, electricity, insurance and credit card bills, donations to charitable institutions and college tuition
electronically. Auto payment is also available for customers to set up payments such that the bill amount is withdrawn
from the customer's account each month without any action taken by the customer.
The Bank's Associate Banks use the same platform to make internet banking services available to their customers.
Insurance Activities
SBI Life Insurance Company ("SBI Life") was established in 2001 as a joint venture with Cardif SA ("Cardif") of France,
which holds a 26.0% stake as of the date of this Letter of Offer. Cardif SA is a wholly owned subsidiary of BNP Paribas.
SBI Life distributes life insurance products through bank branches as its primary distribution channel. This allows SBI Life
to leverage the combined strengths of the Group's extensive branch network and Cardif's expertise in bancassurance
distribution. For the half year ended September 30, 2007, 42.6% of SBI Life's premiums were sourced through
bancassurance. As a secondary distribution channel, SBI Life had 27,758 licensed advisors as of September 30, 2007, who
sell life insurance through SBI Life branches. For the half year ended September 30, 2007, 52.2% of SBI Life's premiums
were sourced through these advisors. SBI Life also sells to corporate customers, which comprised 5.2% of SBI Life's
premiums
As of September 30, 2007, SBI Life has written more than 6.84 million life insurance policies and has become one of the top
private insurers in India in terms of number of lives covered.
SBI Life had premium income of Rs. 13.8 billion for the six-months ended September 30, 2007 and Rs. 29.3 billion for the
year ended March 31, 2007. SBI Life has been rated 'AAA' by CRISIL (affiliate of Standard and Poor's) for financial
strength. See "Regulations and Policies - Regulations Governing Insurance Companies" for a discussion of regulations
applicable to insurance operations in India.
Associate Banks and Subsidiaries in India
The Bank has three wholly-owned and four majority-owned Associate Banks and a banking subsidiary, SBICI. The Bank
also provides financial services through its non-bank subsidiaries, including merchant banking, fund management, leasing
and factoring services. In the Bank's financial statements, investment in subsidiaries and joint ventures (both in India and


                                                              88
                                                                                            State Bank of India

abroad) are valued at historical cost after netting of provisions, if any. The Associate Banks Department of the Bank
coordinates the Bank's management of the Associate Banks and subsidiaries.
Associate Banks
The Associate Banks were created by an Act of Parliament in 1959. Prior to the Bank's investment, they were independent
regional banks.
The Associate Banks operate on the same IT system as the Bank, apply the same accounting policies and are administered
by senior level management appointed by the Bank. The Associate Banks have a total of 4,867 branches located in
various regions in India as of September 30, 2007. Collectively, the Associate Banks accounted for Rs. 2,589.8 billion in total
assets as of September 30, 2007, representing 28.6% of the Group's total consolidated assets.
The Bank has recently announced its intent to merge with one of its Associate Banks, the State Bank of Saurashtra. A
scheme of merger has been submitted to the Government and the RBI and is subject to their approval. If this merger
occurs, the State Bank of Saurashtra will cease to exist as an entity, and the SBI brand name is planned to replace existing
State Bank of Saurashtra branding.
The Associate Banks generally offer the same products and services as the Bank offers, though they are allowed the
freedom to initiate their own product lines where they deem it necessary to meet the specific demands of their clients. The
Bank's seven Associate Banks together had an estimated market share of 7.33% in deposits and 7.68% in advances of all
scheduled banks as of September 30, 2007, calculated based on RBI data. The Bank agrees to a budget and a business
plan with each Associate Bank annually. The Bank exercises strategic control over each Associate Bank through the
respective boards of directors.
Although there are no inter-company loans, there are customary inter-bank drawing and deposit arrangements and short-
term inter-bank lending transactions between the Bank and the Associate Banks. Although the Bank has participated in
capital increases of certain of the Associate Banks in the past, it made no additional investments in any of the Associate
Banks during fiscal year 2007 or the six-month period ended September 30, 2007.
The Associate Banks recorded a growth in business during the period ended September 30, 2007 with deposits and
advances growing by 20.1% and 27.3%, respectively, over the previous year. The Associate Banks together reported net
profit of Rs. 10.0 billion during the period ended September 30, 2007, which was an increase of 16.9% from the period ended
September 30, 2006. Gross NPAs as a percentage of gross advances decreased from 2.4% as of September 30, 2006 to 1.9%
as of the end of the period ended September 28, 2007. Net NPAs as a percentage of net advances decreased from 0.9% as
of September 30, 2006 to 0.8% as of the period ended September 30, 2007. Net NPA is defined as gross NPA (which is the
aggregate of all NPAs) less provisions.
The following tables set out the Bank's shareholding and certain performance highlights of the Associate Banks as of
September 30, 2007:
 Name of the Bank                            Bank's Ownership          Deposits      Advances       Operating        Net Profit
                                                                                                       Profit
                                                             (%)                                 (Rs. in millions)
 State Bank of Bikaner and Jaipur                         75.07%         294,356       213,187             2737           1317
 State Bank of Hyderabad                                 100.00%         433,313       310,396            3,854           2356
 State Bank of Indore                                     98.05%         215,297       162,054            1,938           1159
 State Bank of Mysore                                     92.33%         242,766       180,124            2,606           1640
 State Bank of Patiala                                   100.00%         438,279       312,703             3084           1720
 State Bank of Saurashtra                                100.00%         164,156       115,956              825             289
 State Bank of Travancore                                 75.00%         330,360       263,060            3,600           1,541
 Total                                                               2,118,527      1,557,480           18,644          10,022




                                                              89
 Name of the Bank                                                    Return on Average                  Net NPA                   CRAR1
                                                                                Assets
 State Bank of Bikaner and Jaipur                                                  0.76%                   1.22%                  13.30%
 State Bank of Hyderabad                                                           0.91%                   0.30%                  12.18%
 State Bank of Indore                                                              0.93%                   1.08%                  12.76%
 State Bank of Mysore                                                              1.18%                   0.34%                  11.12%
 State Bank of Patiala                                                             0.61%                   0.98%                  12.49%
 State Bank of Saurashtra                                                          0.30%                   0.64%                  12.10%
 State Bank of Travancore                                                          0.79%                   1.17%                  12.87%
 Average                                                                          0.82%                   0.82%                  12.44%
_______________________
Note:
(1)     Capital to risk asset ratio, which indicates the ratio of capital employed to the risk weighted assets of the bank and is computed in
        accordance with RBI guidelines.

SBICI
SBI Commercial & International Bank Ltd, ("SBICI") is a wholly-owned banking subsidiary of the Bank established in
Mumbai on October 7, 1993. The Bank acquired SBICI in January 1994, purchasing all of BCCI's Indian operations
following BCCI's insolvency in England. SBICI is engaged in standard retail and corporate banking operations with retail
and corporate customer bases. As on September 30, 2007, the aggregate deposits and total advances of SBICI stood at
Rs. 4.9 billion and Rs. 3.4 billion respectively. SBICI recorded an operating and net profit of Rs. 43.6 million and Rs. 33.8
million, respectively, during the period ended September 30, 2007. Return on assets stood at 1.04%, whereas net NPA and
CRAR were 0.16% and 19.28%, respectively.
Non-Bank Subsidiaries and Joint Ventures
In addition to the Associate Banks, the Bank also has a network of non-bank subsidiaries and joint ventures engaged in
businesses other than commercial banking. At September 30, 2007, such non-bank subsidiaries and joint ventures
accounted for Rs. 136.9 billion in total assets. In the Bank's financial statements, investments in subsidiaries and joint
ventures (both in India and abroad) are valued at historical cost net of provisions, if any.




                                                                     90
                                                                                                         State Bank of India


 Non-Banking Subsidiaries                                  Group's           Group's       Assets           Net Business Line
                                                         Ownership        Investment                     Profit
                                                              (%)                                    (Rs. in millions)
 SBI Factors and Commercial Services Pvt. Ltd                 69.88%               427      11,046               134      (Factoring services)
 SBI DFHI Ltd                                                 65.95%              3406      18,409               489      (Primary dealer
                                                                                                                          trading in
                                                                                                                          securities, trustee
                                                                                                                          services)
 SBI Capital Markets Ltd                                      86.16%             500.0     5,065.7               829      (Finance
                                                                                                                          syndication; debt
                                                                                                                          and equity capital
                                                                                                                          markets; mergers
                                                                                                                          and acquisitions;
                                                                                                                          advisory;
                                                                                                                          infrastructure
                                                                                                                          project advisory;
                                                                                                                          securitisation)
 SBI CAP Securities Ltd                                       86.16%               500            818             48      (Stock brokering)
 SBI CAP Ventures Ltd                                         86.16%                  1             28          (0.1)     (Venture capital)
 SBI CAP Trustee Co. Ltd.                                     86.16%                 .5            0.6          0.01
 SBICAP (UK) Ltd                                              86.16%                16              50            3.7     (Financial services
 and advisory)
 SBI Mutual Fund Trustee Co Pvt Ltd                          100.00%               1.0             28            7.3
 SBI Funds Management (International) Ltd.                    63.00%               0.4              6              2
_____________
Note:
(1)     Shareholding amounts are the aggregate of the Bank's direct and indirect shareholdings.

 Non-Banking Joint Ventures                                                 Bank's         Investment              Assets        Net Profit
                                                                          Ownership
                                                                                  (%)                          (Rs. in millions)
 SBI Life Insurance Company Ltd (Life insurance)                               74.00%                4,440          69,278              141
 SBI Cards and Payment Services Pvt. Ltd (Credit cards)                        60.00%                1,500          31,490            (640)
 GE Capital Business Process Management Services Pvt. Ltd                      40.00%                    108            2,014           149
 C-Edge Technologies Ltd                                                       49.00%                     49             140              6
 SBI Fund Mgmt. Pvt. Ltd (Asset management)                                    63.00%                    189            1,493           253
______________
Note:
(1)        Shareholding amounts are the aggregate of the Bank's direct and indirect shareholdings.




                                                                    91
Regional Rural Banks
The Bank has sponsored, in accordance with applicable legislation, 16 Regional Rural Banks covering over 104 districts
in 16 states with a network of approximately 2,311 branches as of December 31, 2007. Following changes to the regulatory
framework governing Regional Rural Banks, these banks have been transformed into commercial banks. The Bank retains
certain sponsor responsibilities. These responsibilities include approving annual business plans and quarterly monitoring
of performance, managerial assistance through secondment of high-level staff, inspection and audit, planning and
budgeting, training and development, prevention of frauds, and guidance and support through the Bank's Global Markets
Group. The Bank's shareholding in each Regional Rural Bank is limited to 35.0%; the Government holds 50.0% and each
relevant state government holds 15.0% of the shares of each Regional Rural Bank. Regional Rural Banks cater to the
banking needs of customers in rural and semi-urban areas and their operations are concentrated in one district or a cluster
of districts in each state. Their target customer group is agricultural, small business and retail, to whom the Regional Rural
Banks provide services such as deposit and time accounts, lending and financing. Following Government consolidation
of the sector, the number of Bank sponsored Regional Rural Banks decreased from 25 to 16 during the fiscal year 2007. The
Group had sponsored an aggregate of 44 Regional Rural Banks, which have been reduced to a total of 22 following
consolidation.
Information Technology Systems and Infrastructure
The Bank's IT infrastructure provides connectivity among the domestic and international network of branches. The
objective of the Bank's IT policy is to achieve and maintain efficiency in internal operations and to meet customer and
market expectations.
IT Infrastructure
Core Banking Solution
The Bank is moving towards a fully centralised database with its Core Banking Solution, which provides the capability of
online real-time transaction processing across the Bank's branches that are included within this platform. The Bank
believes that the Core Banking Solution will allow for efficient transaction handling through centralised processing. Further,
it believes that the Core Banking Solution will enable the Bank to deliver multi-channel value-added services to
customers, facilitate uniform product offerings and assist in the introduction of innovative banking products. Since the
first pilot branch went live in August 2003, the Bank has added more than 12,000 branches (7,303 branches of the Bank
and 5,012 branches of Associate Banks as of December 31, 2007) to its Core Banking Solution. All of the Bank's branches
are expected to have completed the implementation of the Core Banking Solution by March 2008. The Core Banking
Solution includes a centralised processing centre and a disaster recovery site which provides back-up information for the
entire project. This back-up is accomplished through a three way disaster recovery: primary data centre, near recovery
centre and disaster recovery site. The disaster recovery sites can host critical banking applications in the event of a
disaster at the primary site. Near recovery centres are located in proximity to primary data centres, while disaster recovery
sites are located some distance from the near recovery centres. The Core Banking Solution is being implemented by Tata
Consultancy Services.
Although the Bank and the Associate Banks use the same Core Banking Solution application, each of them has retained
separate databases.
SBI Connect
SBI Connect, a platform for the Bank's connectivity which makes real-time transactions between branches possible, is the
foundation for the technology infrastructure within the Group. The Bank and the Associate Banks, each with distinct
internet protocol addresses, depend on SBI Connect to support all their business critical applications such as Core
Banking Solution, trade finance software, ATMs, payment systems, cash management software, corporate email and
intranet portals. The platform, both as to software and hardware, was designed by Tata Consultancy Services. As of
December 31, 2007, more than 7,822 branches and offices of the Bank, and 12,988 offices of the Group, were connected by
SBI Connect.



                                                             92
                                                                                         State Bank of India

Trade Finance Project
The Bank has purchased integrated trade finance solution software called "CS Exim Bills," which has been customized for
the Bank's operations. CS Exim Bills is a trade finance system designed to address the data processing requirements of the
Bank's trade finance department. CSExim Bills automates the full range of trade finance activities from document
preparation, calculation of commissions and foreign exchange to accounting, the generation of S.W.I.F.T. messages and
report management. Single entry input captures all the necessary data to process, record, and report on the entire
transaction. As of September 30, 2007, this software had been installed in 453 branches, including the Bank's foreign
branches. The software also has a facility for customer access over the internet.
IT-based products and developments
In an effort to remain technologically competitive with its peers, the Bank has introduced the following technology based
products:
      Centralised payment services (e.g. dividend warrant payments, salary payments) through the Cash Management
      Module (also provided in bulk via the usual manual mode).
      Centralised collection of bulk equated monthly instalments for the benefit of the Bank's corporate customers
      (through the e-debit facility of the cash management product).
      Vendor financing for those vendors who serve the Bank's corporate clients. The Bank believes that there is strong
      potential to increase this service among the Bank's Mid-Corporate Group and SME customer base.
      IT based solutions for corporates including on-line payment of taxes and direct payment of freight to railways at the
      point of loading.
The Bank's IT initiatives have played a significant role in transforming the Bank into a more responsive organisation in a
constantly evolving competitive landscape. The Bank also offers Internet Banking to customers of more than 5,800
branches. These alternate delivery channels, coupled with a network of more than 6,200 branches connected through the
Core Banking Solution have increased the transaction processing capacity and efficiency of the Bank and is expected to
continue to contribute substantially to the Bank's growth.
Competition
The Bank faces competition in all its principal areas of business. Private sector banks, foreign banks and other public
sector banks are the Bank's main competitors, followed closely by finance companies, mutual funds and investment banks.
The regulations governing the Indian banking sector are expected to be liberalized in 2009, which might expose Indian
banks to more intense competition from foreign banks. The Bank seeks to gain a competitive advantage by offering
innovative products and services, maximising the functions of its extensive branch network, in particular in rural and semi-
urban areas, investing in technology and building on relationships with the Bank's key customers. See "Risk Factors -
Risks Relating to the Bank's Business - The Indian banking industry is very competitive and the Bank's growth strategy
depends on its ability to compete effectively."
Corporate Banking
Corporate banking faces competition from foreign and private banks in such areas as pricing, rupee loans, foreign
currency loans, trade finance services and cash management services. The lower risk rating of corporate clients as well as
the higher income generating capacity due to the volume and diversity of their business, attracts foreign and private banks
to this sector. Foreign banks also have the advantage of their home country connections, with much larger resource
raising abilities. However, the Bank believes its extensive low-cost deposit base provides it with a competitive advantage
in meeting customers' borrowing expectations.
In addition, traditional corporate banking faces competition from the disintermediation of financial products. Customers
increasingly have multiple financing sources available to them beyond those generally provided by traditional banks,
which in turn is putting pressure on margins. The Corporate Accounts Group has been able to counter this competition
through strong customer relationships, as well as through efficient and focused delivery of products and services. This


                                                            93
has been most noticeable in the area of trade finance services, including letters of credit. To further counter the downward
pressure on margins, the Bank intends to focus on developing new fee-based services, such as vendor financing, as well
as wholesale banking services such as payment and collections services.
With over 7,303 branches connected through the Core Banking Solution covering more than 94.68% of the Bank's business
as of December 31, 2007, the Bank is able to process bulk direct debits, direct credits and other centralised solutions,
without having to utilise the services of any intermediate banks in the payment chain, ensuring a high level of data privacy
for corporate clients. In addition, this extensive network of branches connected to the Core Banking Solution has
increased the Bank's transaction processing capacity and efficiency, enabling customers to carry out their payments and
collections across all of India, while centralizing their cash management in Mumbai.
Retail Banking
In the retail banking sector, the Bank faces competition primarily from foreign and Indian commercial banks and housing
finance companies. Foreign banks typically focus on limited customer segments, such as high net worth individuals and
mass affluent, and geographic locations due to limitations of their smaller branch networks relative to Indian commercial
banks. Indian commercial banks generally have wider distribution networks than foreign banks, but relatively weaker
technology and marketing capability. The Bank seeks to compete in this sector by offering a wide product portfolio
through its extensive branch network and by leveraging its client relationships in diverse market and geographic
segments. In addition, in rural banking and micro finance, the Bank believes it can build on the strength of its extensive
geographic presence and reputation to continue to expand in these areas.
The Bank has sought to capitalise on its extensive and diverse corporate relationships to gain individual customer
accounts through payroll management products. Furthermore, it intends to continue to pursue a multi-channel distribution
strategy using physical branches, ATMs, call centres and the internet to reach customers.
In recent years, investment in mutual funds has become an increasingly viable alternative to traditional banking products,
since they offer tax advantages and have the capacity to earn competitive returns. This has resulted in competition for the
deposit base of the Bank's retail customers. The Bank has sought to address the competitive pressure by offering a wider
range of mutual fund products to its customers in addition to traditional deposits.
International Banking
The Bank's international strategy is focused on India-linked opportunities in the initial stages. In its international
operations, the Bank faces competition from other Indian banks with overseas operations, as well as foreign banks with
products and services targeted at non-resident Indians and Indian businesses and other service providers like remittance
services. The Bank intends to leverage its strong relationships with Indian corporates in its international business. The
Bank also intends to expand its banking operations to serve non-resident Indians as well as local clients in its host
countries.
Treasury Operations
The Bank is the market leader in India in treasury operations measured by the size of investment book, the volume of
foreign exchange transactions handled, and the size of money market operations. However, there is intense competition in
relation to simple treasury products, such as foreign exchange, spot and forward sales and purchases. The Bank believes
that, relying on its extensive branch network, long-standing customer relationships, strong sales teams, and product
innovation, it has been able to maintain its strong position within India. The Bank believes it benefits from economies of
scale in developing and offering foreign exchange and money market products.
Government Banking
The RBI, the Bank and other public sector banks conduct Government business in India. Other public sector banks are the
Bank's principal competitor in handling Government and state government payments and receipts. The Bank believes it
has a competitive advantage in this activity due to its specially trained staff, business processes tailored over the course
of long relationships to the unique demands of the various Government departments that the Bank deals with, and the
depth of its funding base, which enables it to set aside sufficient funds to meet the remittance requirements of the
Government on a recurring basis.
                                                            94
                                                                                            State Bank of India

Four new-generation private sector banks including AXIS Bank (formerly UTI Bank), IDBI Bank, ICICI Bank and HDFC
Bank have been authorised by the RBI for the revenue collection of Central Board of Excise and Customs (CBEC) and
Central Board of Direct Taxes (CBDT) of Department of Revenue, Ministry of Finance, and the Government. The Bank
expects to address this growing competition by emphasising its extensive branch network, providing easy access for
customers, its historical links with the Government, its perception as a Government Bank due to its historical association
with handling Government business and staff that is trained and experienced in handling Government business.
Legal and Regulatory Proceedings
The Bank is involved in certain legal proceedings in the ordinary course of its business. However, currently, the Bank is
not a party to any proceedings, and is not aware of any current, pending or anticipated proceedings by governmental
authorities or third parties, which, if adversely determined, would have a material adverse effect on the Bank's financial
condition or results of operations.
Insurance
The Bank maintains its own insurance policies and coverage that it deems to be appropriate. The Bank's standard
insurance policies cover for losses of or damage to property including furniture, fixtures, computer hardware, ATMs and
vehicles. Cash-in-transit, cash, securities and precious metals and other valuables are covered against theft. In addition,
the Bank has also obtained a fidelity policy for employees and directors' and officers' liability insurance to cover the Bank's
directors and other key management members. The Bank carries insurance coverage commensurate with its level of
operations and risk perception.
Employees
As of September 30, 2007, the Bank had 179,188 employees, of whom approximately 30.0% were officers, approximately
44.0% were clerical and the remaining 26.0% were subordinate staff. The Bank's officers include professionals in business
management, accountancy, engineering, law, computer science and economics. The Bank's management believes that it
has a good relationship with its staff.
The Bank aims to develop a collaborative culture and ongoing consultative process at various levels of administration
within the Bank. The Bank has entered into numerous settlements and memoranda of understanding with the "All India
SBI Staff Federation," which represents 98.0% of SBI's employees. These relate to matters such as promotion policies,
staff empowerment and training, redeployment of staff and career progression.
The All-India State Bank Officers' Federation and the All-India SBI Staff Federation jointly went on strike from April 3, 2006
to April 8, 2006 demanding a review of the Bank's pension scheme to bring it in line with industry standards. The strike
ended after a settlement was reached on the issues raised by the respective federations. During this period banking
services were provided through various alternate delivery channels. Emergency services were also extended through the
Associate Banks' network. Clerical employees from the Associates Bank's as well as officers from the State Bank of
Mysore, jointly went on strike in December 2007 to protest the Bank's proposed merger of two Associate bank's with the
Bank. See "Risk Factors- The proposed merger of the Associate banks with the Bank's may engender opposition against
the Bank and lead to business disruptions, such as labour strikes, and adversely affect the Bank's operations." As a result,
of these strikes, there was minimal impact on both the Bank's operation and reputation.
Computerisation of branches and other IT initiatives have reduced employee workloads and allowed the Bank to reduce
its overall workforce during the past five to six years despite growing its business. However, the introduction of BPR
initiatives and focused efforts for marketing has resulted in an increased demand for new staff. The Bank has a human
resources plan in place which will be reviewed once the Core Banking Solution and BPR initiative roll out is complete,
which is expected in 2008. Various initiatives such as retraining operational staff are under way. Incentive schemes based
on performance measurement have also been introduced. The Bank introduced an exit option scheme for officers which
ran from April 29, 2005 to October 31, 2006, and from September 1, 2006 to March 31, 2007 for non-officer staff.
The Bank believes that its employees are its most valuable asset. The Bank has implemented e-learning at the State Bank
Academy, Gurgaon, to provide online training and assessment. The performance management system in the Bank has been
upgraded to focus on competency based assessments and career progression implications. The State Bank Staff College,

                                                              95
State Bank Academy, State Bank Institute of Information and Communication Management, State Bank Institute of Rural
Development and 45 Staff Training Centres, all owned and operated by the Bank, are located across India and are focused
on creation and skills development relevant to the future of banking.
The Bank faces intense competition for the recruitment and retention of its employees. Poaching of qualified employees
has been a concern for the Bank in the past and will likely continue to be in the future. In order to deal with this issue, the
Bank is recruiting staff for specialised functions. In addition, the Bank recruits staff at universities across India. The Bank
has also formulated an incentive scheme for operational employees in an effort to retain talented employees. Further,
adjustments to this scheme are undertaken on a regular basis to align with market conditions. The Bank has also
appointed a consultant to formulate a stock-option scheme.
Properties
The Bank's principal network consists of 10,072 offices, 341 extension counters and 5,577 ATMs. These facilities are
located throughout India. In addition to the branches, extension counters and ATMs, the Bank has commercial premises
housing 14 administrative circles, 12 exchange bureaus and 131 satellite offices. Of the Bank's properties, approximately 800
are owned by the Bank. The Bank's corporate office is located in Mumbai. The Bank's premises and other fixed assets are
accounted for on a historical cost basis in accordance with Indian GAAP. As such, the Bank believes the value of its
properties, many of which have been in the Bank's possession for a long period, are being carried on its balance sheet at
values significantly below their current fair value.
Relationship with the Government and the Reserve Bank of India
The Bank has relationships with the Government and the RBI in several contexts as described below.
Government as Majority Shareholder
The RBI was the Bank's majority shareholder with a shareholding of approximately 59.7%. On February 28, 2007, the
finance minister of India announced that the entire shareholding of the RBI would be transferred to the Government. The
Government purchased RBI's entire shareholding in the Bank on June 29, 2007. The Act provides that the Government
shall not hold less than 55.0% of the Bank's outstanding shares. As the Bank's controlling shareholder, the Government
has effective control over the affairs of the Bank.
Statutory Powers of the Government over SBI
Because the Bank was created by statute, it does not have articles of association. However, under the Act, the
Government has been given rights and powers typically given to shareholders under typical corporate structures. For
example, the Government has the power to increase or reduce the authorised number of shares of the Bank. The Act also
provides that no shareholder other than the Government shall be entitled to exercise voting rights in respect of any
shares held in excess of 10.0% of the Bank's issued share capital. See "Regulations and Policies - The State Bank of India
Act."
The Act and its related rules and regulations provide the Government and the RBI with certain additional rights which may
be used to influence the affairs of the Bank. The Act expressly provides that the Bank shall be guided in matters of policy
involving public interest by such direction as the Government may, in consultation with the RBI and the Chairman of the
Bank, provide. In addition, although the Bank's affairs are managed by the Central Board, the Central Board consists of
members directly appointed by the Government in consultation with the RBI as well as nominees from the Government
and the RBI. The RBI also nominates a director of the Central Board, under section 19(f) of the Act; the Chairman and the
two Managing Directors are directly appointed by the Government in consultation with the RBI. The Government has the
power to terminate any director's service. See "Regulations and Policies - RBI Regulations."
Government and the RBI as Regulator
The Government and the RBI regulate the banking sector. In particular, the RBI has authority to issue instructions and
notifications, which are typically broad in scope, thereby giving the RBI considerable latitude over banks in general,
including the Bank. Pursuant to such instructions and notifications, the RBI defines the scope of the Bank's activities and


                                                              96
                                                                                         State Bank of India

otherwise controls many factors affecting the Bank's competitive position, operations and financial condition. It also has
the power to license new banks which may compete with the Bank. See "Regulations and Policies - RBI Regulations."
Government as Customer
         The Act specifically provides that the Bank shall act as the agent of the RBI for certain banking businesses of
the Government and state governments. The Bank also transacts a significant portion of the banking needs of public
sector enterprises ("PSEs"). The Government, PSEs and the various state governments transact business with the Bank
on a regular basis. As on March 31, 2007, approximately 3.5% of the Bank's loan portfolio consisted of food credit (in the
form of loans to agencies of the Government and state governments for procurement and sale of food grains), and
approximately 8.1% of the Bank's loan portfolio was to PSEs. It is the policy of the Bank not to enter into any transaction
with PSEs unless the terms are no less favourable than those which would have been obtained by the Bank in the normal
course of business.




                                                            97
           DESCRIPTION OF ASSETS AND LIABILITY MANAGEMENT AND RISK
                           MANAGEMENT OF THE BANK

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


                                                         Board of Directors




                          Risk Management                                         Credit Policy and
                             Committee                                          Procedures Committee




            Credit Risk                Asset Liability              Market Risk                 Operational Risk
            Management                 Management                   Management                   Management



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


                                                              98
                                                                                            State Bank of India

independent Risk Committees including the CRMC, ALCO, MRM and ORMC in place to monitor the credit, liquidity,
interest rate and operational risk matters. Critical issues and developments in their respective areas are referred to the Risk
Management Committee. The risk philosophy of the Bank is guided by the twin objectives of enhancement of shareholder
value and optimum allocation of capital.
The Bank's exposure norms are in line with the norms laid down by the RBI for commercial banks and financial institutions.
As per these norms, exposure by way of direct assistance to any single borrower may not exceed 15.0% (extendable to
20.0% in case of infrastructure projects) of the Bank's capital funds (Tier I and Tier II capital) although in exceptional
circumstances and with the consent of the Central Board, the Bank could consider increasing exposure to a borrower up
to a maximum of a further 5.0% of the Bank's capital funds, subject to such borrower's consent to appropriate disclosure
in the Bank's annual report. Exposure to any single business group may not exceed 40.0% (extendable to 50.0% in case of
infrastructure projects) of the Bank's capital funds.
The Bank believes it has the policies and procedures in place to manage its risks and anticipate future risk based on RBI
guidelines and what management believes are international best practices. The primary responsibility for the management
of risk rests with the Central Board which has approved the policies and organisational structure for various risk
management measures.
The Bank also has a Chief Credit and Risk Officer ("CCRO") who is entrusted with further integrating risk management
across the Bank. The Credit Risk Management Department, the Market Risk Department and the Operational Risk
Management Department all report directly to the CCRO through the Chief General Manager (Risk Management). These
three departments act independently but coordinate with the business units to implement risk management policies.
Credit Risk Management
The Bank is exposed to credit risk due to the possibility that a borrower or counter-party may fail to meet its obligations
in accordance with agreed terms, principally the failure to make required payments on loans or other obligations due to the
Bank. Credit risk management aims at building up sound asset quality and the long-term profitability of the institution. It
involves activities such as risk identification, risk measurement, risk mitigation and risk-based pricing. The Bank manages
its portfolio of loan assets with a view to limiting concentrations in terms of risk quality, geography industry, maturity and
large exposure aggregates by providing a centralised focus to its credit portfolio and instituting a suitable mechanism for
its management
Credit risk management uses credit audit and inspection systems to determine and manage risk exposure levels across the
Bank. This is an integral part of the Bank's risk management system and helps identify early warning signals of potential
problems. The following exposure levels are currently prescribed by the Bank:
Individuals as borrowers                                   Maximum aggregate credit facilities (fund based and non-fund
                                                           based) of Rs. 200 million (other than against specified securities
                                                           for which there is no restriction).
Non-corporates (Partnerships, Associations, etc.)          Maximum aggregate credit facilities (fund based and non-fund
                                                           based) of Rs. 800 million (other than against specified securities
                                                           for which there is no restriction). The above ceiling will also be
                                                           applicable to the aggregate of all facilities sanctioned to
                                                           partnership firms which have identical partners.
Corporates                                                 Maximum aggregate credit facilities in accordance with
                                                           prudential norms of the RBI on exposures.
The Bank's current credit policy prescribes that the Bank's aggregate term loans with residual maturity of over three years
should not in the aggregate exceed 35.0% of the total domestic advances of the Bank. The Bank's policy is to restrict fund-
based exposure to a particular industry to a maximum of 15.0% of the Bank's total fund-based exposure. In addition, the
Bank restricts term loan exposure to infrastructure projects to 10.0% of the Bank's total domestic advances.



                                                              99
The Bank's exposure to certain "sensitive sectors," including capital markets, real estate, and sensitive commodities (as
prescribed by the RBI) are as follows:
      Real estate: the Bank's exposure shall not exceed 20.0% of the Bank's total domestic advances.
      Sensitive commodities: the Bank's exposure shall not exceed 5.0% of the Bank's net worth as of the end of the
      Bank's previous fiscal year.
      Capital markets: the Bank's exposure shall not exceed 40.0% of its net worth as of the end of its previous fiscal year,
      as applied to both fund-based and non-fund-based exposure to all forms of capital market products.
The Bank's major exposures to individual borrowers and borrower groups are consolidated and disclosed to the Central
Board at their regular meetings. The Risk Management Department conducts studies on various industries to examine the
quantitative and qualitative measures that should be considered in regard to the handling of the Bank's current exposure
to various industries. These studies are also meant to provide information to help the Bank determine the merits in taking
on additional exposure to various industries.
The Bank has credit risk assessment models in place based on the activity of the borrower including manufacturing, trade,
non-banking financial corporations, banks and primary dealers. Although not currently required by the RBI, the Bank's risk
assessment model for manufacturing entities complies with the AIRB approach.
The Asset Liability Management Committee('ALCO")
The Bank has an asset liability management policy which prescribes various prudential limits for liquidity risk and interest
rate risk management. ALCO has the job of managing liquidity and interest rate risk. To this end, ALCO manages and
controls the structure of assets, liabilities and interest rate sensitivity with a view to maximising profits. It also ensures
capital adequacy and sufficient liquidity. The Bank has made significant efforts to improve its market risk management
capabilities and fine-tune its management information systems. These efforts have included the implementation of the risk
management module of the Oracle financial services application, an asset liability management software solution, for
strengthening the risk management process.
Liquidity Risk Management
Liquidity risk comprises the risk of not being able to raise necessary funds from the market to meet operational and debt
servicing requirements. An important objective of the Bank's liquidity management is to maintain an optimal asset to
liability maturity portfolio that minimizes liquidity risk while maximizing profit. The Bank ensures that pro-active steps are
taken to meet all impending liquidity requirements. Borrowing is also timed in consideration of overall market liquidity and
not just requirements of funds. The Bank also maintains a reasonable level of investment in liquid securities which can be
liquidated at short notice.
The Bank monitors its liquidity position through a structural liquidity gap analysis carried out fortnightly in accordance
with RBI guidelines on asset liability management. The liquidity position is also monitored every two weeks through a
short-term dynamic liquidity analysis for the following three months based on business projections and a review of the
contingency funding plan at the end of each quarter. Finally, certain liquidity ratios are examined as prescribed by the
asset liability management policy to track the Bank's liquidity position as of a particular date.
The Bank has an extensive branch network and therefore holds deposits from a large number of retail customers. These
deposits provide a stable resource base. In addition, liquid assets in the form of cash, balances with other banks and
short-term securities help to meet the liquidity requirements of the Bank.
Interest Rate Risk Management
Since the Bank's balance sheet consists predominantly of assets and liabilities denominated in Rupees, movements in
domestic interest rates constitute the main source of interest rate risk. The Bank's portfolio of traded and other debt
securities and its loan portfolio is impacted by movements in interest rates. Exposure to fluctuations in interest rates is
measured primarily by way of a gap analysis, providing a static view of the maturity and repricing characteristics of the
Bank's balance sheet positions. An interest rate gap report is prepared by classifying all assets and liabilities into various


                                                             100
                                                                                            State Bank of India

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

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

The Market Risk Management Department ("MRMD") uses various tools for monitoring market risk. These tools include:
exposure limits, counterparty limits, position limits, gap limits, broker transaction limits, duration and VAR limits. The
MRMD marks to market various positions and breaches, if any, are promptly reported.
Operational Controls and Procedures in Retail Asset Operations
The Bank's retail asset operations are spread out geographically across India and the Bank has Retail Assets CPCs in most
cities across India. These centres carry out disbursement of approved credit facilities, accounting, reconciliation and
repayment management activities of retail assets. All operational and other risks are identified, mitigants designed and
measures of performance specified to ensure adherence. Internal auditors monitor adherence to controls and procedures
and report deviations to facilitate corrective action.
Operational Controls and Procedures for Corporate Banking
The Bank's Corporate Accounts Group ("CAG") operates a central functioning office at Mumbai as well as CAG branches
at Chennai, Mumbai, Kolkata and New Delhi. These offices are jointly responsible for operations relating to trade finance,
cash management and other general banking operations
Operational Controls and Procedures for Rural Banking
All rural branches are fully computerised. Operational risks pertaining to rural and agricultural branches are identified,
assessed, monitored, controlled and mitigated by the respective controlling offices. Risk and control self assessment
exercises are conducted at branch level for the purpose of identifying and assessing operational risks. The Bank's rural
asset operations are spread across India. Besides the respective controllers, officials from the Bank's Inspection & Audit
Department and Circle Audit Departments also visit all rural branches periodically to conduct a detailed audit for
monitoring the adherence to controls and procedures as well as report irregularities within the branches. A statutory audit
is also conducted at branch level after the annual closing.
Anti-Money Laundering Measures adopted by the Bank
The Bank has established a policy implementing know your customer ("KYC") standards and anti-money laundering
("AML") Measures. Detailed procedural guidelines on KYC and AML Measures have been issued to all branches and
offices of the Bank, incorporating the following four key elements of the Policy:
      Customer Acceptance Policy
      Customer Identification Procedures
      Monitoring of Transactions
      Risk Management
The Bank has acquired an AML software solution that is currently in the process of being implemented. This solution will
enable automatic generation of various reports, assist branch officers with the identification of customers and
classification of customers by risk profile as well as monitoring and reporting of suspicious transactions. KYC guidelines
are covered as part of regular training program for various staff categories by the Bank Training Institutes. A list of
terrorist organisations, periodically updated by the United Nations, is circulated to all branches of the Bank. The Bank is
closely monitoring the implementation of the KYC guidelines and AML procedures through a system of education and
monitoring by utilizing various training forums as well as an inspection and audit process.
Country Risk and Bank Exposure
Prudent exposure risk management is ensured by setting up appropriate bank exposure limits in accordance with the
Bank's approved model on a large number of foreign commercial banks. Different types of prudential exposure limits are set
up for 569 banks worldwide, covering 82 countries. Substantial counterparty bank limits for handling letters of credit, bank
guarantees, foreign exchange and money market activities are in place. The Executive Committee of the Central Board
("ECCB") has approved a country risk management policy, in line with RBI guidelines, for setting up country exposure
limits. Further, the overall global risk for the Bank as a whole is monitored on a regular basis.


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Credit Management Policies and Procedures
Credit Policy and Procedures Committee
The Credit Policy and Procedures Committee ("CPPC") is headed by the Chairman of the Bank and tasked with handling
issues relating to credit policy and procedures and to analyze, manage and control credit risk on a Bank-wide basis. The
CPPC formulates clear policies on standards for presentation of credit proposals, financial covenants, rating standards
and benchmarks, delegations of credit approving powers, prudential limits on large credit exposures, asset concentrations,
standards for loan collateral, portfolio management, loan review mechanisms, risk concentrations, risk monitoring and
evaluation, pricing of loans, provisioning and regulatory and legal compliance.
The Bank's credit risk management process is articulated in its credit policy, which is approved by the Central Board. The
credit policy recognises the need for measures aimed at better risk management and avoidance of concentration of credit
risks. With this objective, limits have been prescribed for the Bank's exposure to any single borrower, group of borrowers
or specific industries or sectors.
The credit policy embodies the Bank's approach to sanctioning, managing and monitoring credit risk and aims at making
the systems and controls effective. It is guided by the best practices of commercial prudence, high standards of ethical
norms and the requirement of national priorities. It also aims at striking a measured balance between underwriting assets
of high quality and customer oriented selling.
Accordingly, the credit policy sets out guidelines on the following aspects, in accordance with RBI and Government
directives.
      Exposure levels for industries, sectors and credit facilities
      Credit appraisal standards
      Documentation standards
      Pricing policy
      Review, renewal and takeover of advances
      Credit monitoring and supervision
      Credit risk assessment
      NPA management
      Export credit
      Approach to lending to priority sectors and the services sector.
All revisions in policies and procedures are carried out with the approval of the CPPC and the Central Board.
Credit Approval and Monitoring
The Bank's credit approval process involves multiple levels of loan approval authority, depending on the loan amount and
other factors such as the nature of the credit, the conditions of the transaction and whether or not the loan is secured.
At each level of authority, loan applications are reviewed on the basis of the feasibility of the project from a technical,
financial and economic point of view, in addition to being evaluated according to the probability of recovery. In
conducting such a review the following factors are considered: the borrower's profile, management structure, past financial
performance and credit ratings, the Bank's exposure to the company, industrial group and/or industry in light of prudential
exposure norms, industry outlook and financial projections for the borrower company and/or project. In the case of
overseas financing, appraisals also include an assessment of an overseas venture in terms of commercial risk, political risk
and currency risk, an assessment of the relevant international market, an analysis of the benefits from the overseas
venture likely to accrue to the Indian promoter, and compliance with regulatory guidelines. The Bank may also conduct a
sensitivity analysis which includes variables such as debt servicing ratios and internal rates of return.


                                                            104
                                                                                            State Bank of India

The Bank has internal guidelines that limit the amounts of loans that can be authorised. Loan amounts differ depending
on the type of loan and certain other factors, such as type of borrower, rating of borrower or type of facilities.
The Bank disburses funds to a borrower in strict compliance with the terms of the sanction, after all necessary
documentation has been executed. Specific approval must be sought from the original sanctioning authority, or as
delegated in accordance with the policy approved by the Executive Committee of the Central Board ("ECCB") or the Credit
Policy and Procedures Committee ("CPPC") before deviating from the terms of the sanction, if any.
Examples of the types of procedures in place for various finance divisions include:
Corporate Finance Procedures
As part of the corporate loan approval procedures, the Bank carries out a detailed analysis of funding requirements
including normal capital expenditure, working capital requirement and status of liquidity. The Bank's corporate term loans
are generally available for periods of three to eight years. The Bank's corporate term loans may carry fixed or floating rates,
as befit the exact requirements of the client and the risk context. The repayment mode is generally linked to the cash flow
of the company. The Bank's credit analysts gauge the applicant's particular funding requirements and evaluate the
company's creditworthiness, factoring in the cash flows generated by it.
Retail Loan Procedures
The Bank's retail loan customers are typically middle or high-income, salaried or self employed individuals. The Bank's
retail credit product operations are sub-divided into various product lines. Each product line is further sub-divided into
separate sales, marketing and credit groups. The Bank has an established process for giving and collecting retail credits.
In most cases, the Bank requires a contribution from the borrower and the loans are secured by the asset financed.
Working Capital Finance Procedures
The Bank carries out a detailed analysis of its borrowers' working capital requirements. The Bank's dedicated credit team
has a deep understanding of the intricacies of various industries and is experienced in evaluating the business potential
of companies. The credit team assesses the customer's specific credit requirements and customizes financial solutions to
suit the customer's risk profile and its working capital cycle. Working capital finance limits are normally valid for one year
and repayable on demand. Approved facilities will lapse within three months of approval unless used within that time.
Project Finance and Leasing Procedures
The Bank has a strong framework for the appraisal and execution of project finance and leasing proposals. The Bank
believes that this framework allows for risk identification, allocation and mitigation, and helps minimize residual risk. The
Bank has formed a dedicated Project Finance and Leasing SBU to assess credit proposals and extend term loans for large
industrial and infrastructure projects. Apart from this, project term loans for medium sized projects and smaller clients are
delivered through the Corporate Business Group and the NBG. The loans are approved on the basis of in-house appraisal
of the cost and viability of the venture as well as the credit standing of promoters. Project finance is typically structured
as long-term loans, with repayment periods generally from five to ten years. Maturity periods and repayment modes are
structured in line with the specific aspects of each project and industry, factoring in a timeframe for the venture to generate
a stable revenue stream.
The Project Finance and Leasing SBU is dedicated to lease financing for procuring equipment for projects or plants. The
Bank enters into lease agreements as stand-alone contracts or as part of a structured package. The Bank typically
undertakes leasing contracts with a minimum ticket size of Rs. 50 million, generally restricted to 50.0% of the total net worth
of the lessee. Lease contracts are usually structured for tenure of five to seven years. The Bank, however, has stopped
encouraging new leases due to a change in tax law resulting in unfavourable tax treatment with respect to such lease
contracts.
Internal Controls
The Bank has built-in internal control systems with well-defined responsibilities at each level. The Bank carries out various
audit streams covering different facets of internal audit requirement including an inspection and audit, and a management


                                                             105
audit. In addition, a credit audit is conducted for units with large credit limits and a concurrent audit is carried out at
branches with large deposit, advances and other risk exposures. An information systems audit is conducted at the
centralised IT establishments. The information systems audit of branches is handled by incorporating the necessary
checklists and value statements in the audit report formats of the branches. The Bank has 534 employees who perform its
audit function.
Inspection & Audit
The inspection system plays an important and critical role in introducing international best practices in the internal audit
function which is regarded as a critical component of corporate governance. Inspection and audit undertake a critical
review of the entire working of audited units. Risk focused internal audit, an adjunct to risk based supervision in
accordance with RBI directives, has been introduced in the Bank's audit system. All domestic branches have been divided
into three groups on the basis of business profile and risk exposure. Audit of 314 branches under Group I is conducted by
Central Audit Unit at the Inspection Audit Department, which is headed by a General Manager who reports to the Chief
General Manager. The responsibility of conducting audit of branches under Group II and Group III rests with the General
Managers of nine Zonal Inspection Offices spread over the entire country. The inspection of branches is conducted
periodically under guidance from the Audit Committee of the Board ("ACB") which is well within RBI norms.
As of September 30, 2007, 2,457 domestic branches have been inspected. During the period from April 1, 2007 to September
30, 2007, 216 BPR entities were audited.
Management Audit
With the introduction of risk focused internal audits, management audit has been reoriented to focus on the effectiveness
of risk management in the processes and the procedures followed by the Bank. The management audit policy document
is also being revised in the light of the Bank's focus on risk management as part of its transition to BASEL II norms.
Credit Audit
Credit audit aims to achieve continuous improvement in the quality of the commercial credit portfolio of the Bank by
critically examining individual commercial loans with exposures of Rs. 50 million and above. The audit, which has been
aligned with the risk focused internal audit, examines the probability of default, identifies risks and suggests risk
mitigation measures. The Bank uses the credit audit to analyze risk and to initiate early remedial actions to improve the
quality of the credit portfolio. During the six-month period ended September 30, 2007, on-site credit audits were conducted
at 80 branches while off-site credit audits covered 303 branches.
Concurrent Audit System
Branches covered by the concurrent audit system are reviewed on a day-to-day basis in accordance with RBI directives.
As per RBI directives, 30-40% of the deposits and 60-70% of the advances are subjected to a concurrent audit. A review
of the coverage of the branches made on September 30, 2007 revealed that 363 branches in Group I & Group II categories
and 109 "End State" model credit oriented BPR entities are identified for coverage under the concurrent audit system. In
addition, concurrent audit takes place in larger individual branches where daily activity at the branch is monitored.
Information System Audit
Since April 2006, all branches are subject to an Information Systems audit to assess IT related risks. A "Handbook on Self
Audit of Information Systems" was introduced to facilitate the efficiency level of the Bank's IT systems. An information
systems audit of centralised IT has also been carried out. In addition, as a prerequisite to the adoption of the advanced
measurement approach required by Basel II, a committee of senior officers of the Bank has been formed to finalise the
design, development and implementation of a loss database. This Committee is in the process of deciding on various
measures relating to the loss database, such as data to be collected by the business units, materiality thresholds, and
levels at which the procedures will initially be implemented.




                                                            106
                                                                                         State Bank of India

Audit of BPR Entities
Following implementation of various BPR initiatives and as certain branches attain full BPR implementation, an audit
process for ten BPR entities has been developed and introduced. Taking into account the processes involved in each of
the ten entities, exclusive audit report formats, with appropriate audit queries, were introduced.
Basel II Framework
In accordance with the guidelines issued by the RBI, foreign banks operating in India and Indian banks having
operational presence outside India should adopt the Standardised Approach for credit risk and the Basic Indicator
Approach for operational risk when computing their capital requirements under the revised framework, which will come
into effect on March 31, 2008.
The Bank has conducted a self-assessment and has created a roadmap for migration to Basel II, which is to be completed
by March 31, 2008. In accordance with RBI guidelines, the Bank intends to migrate to Basel II standards with the
Standardised Approach for credit risk and Basic Indicator approach for operational risk in accordance with Basel II by
March 31, 2008. The Bank implemented the Standardised Duration Method for Market Risk on March 31, 2006.
Simultaneously, the Bank is updating and fine-tuning its systems and procedures, technology capabilities, risk assessment
and risk governance structure to meet the requirements of the Advance Approaches as per Basel II.
Enforcement of Security Interests under the SARFAESI Act
To assist banks and financial institutions in recovering their unpaid advances and to ensure financial discipline among
borrowers, the Government enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act (the "SARFAESI Act") in December 2002. The SARFAESI Act provides the legal framework for (i) the
securitisation of financial assets by setting up a Securitisation Company ("SC") or Reconstruction Company ("RC"); (ii)
the foreclosure of assets through a SC or RC; and (iii) the foreclosure of NPA accounts. See "Regulations and Policies-
RBI Regulations- Enforcement of Security Interests Under the SARFAESI Act."
As of September 30, 2007, the Bank issued notices under the SARFAESI Act to 45,420 borrowers with an aggregate
principal outstanding of Rs. 70.2 billion. Of the 45,420 borrowers on whom the Bank had served notice, Rs. 7.6 billion has
been recovered. The Bank has been applying all available methods for the recovery of unpaid advances, including
reporting the name of wilful defaulters to the RBI together with commencing the necessary steps for recovery. The Bank
has also initiated aggressive one-time settlement measures to recover unpaid loans.
Corporate Debt Restructuring Mechanism
In addition to the Government passing the SARFAESI Act, the RBI has established the Corporate Debt Restructuring
Mechanism ("CDRM"). See "Regulations and Policies -- Corporate Debt Restructuring Mechanism." The objectives of
the CDRM are (i) to ensure a timely and transparent mechanism for restructuring corporate debts of viable entities
affected by certain internal and external factors and (ii) to minimize losses to creditors and other stakeholders through an
orderly and coordinated restructuring program. The CDRM is a voluntary, non-statutory mechanism based on debtor-
creditor and inter-creditor agreements and operates outside the authority of the BIFR, debt recovery tribunals or legal
proceedings.
The following table shows loan assets subjected to restructuring during the years ended March 31, 2005, 2006 and 2007
and as a percentage of the Bank's total loans on those dates. No NPAs were sold in the period from March 31, 2007 to
September 30, 2007.




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                                                                                   Year ended March 31,
                                                                        2005                 2006                    2007
                                                                 Rs.             %      Rs.       %                Rs.    %
                                                                                    (Rs. in billions, except percentages)
 Total loan assets which have been restructured                48.46       2.40%        14.27          0.56%       9.06   0.27%
 Total sub-standard assets which have been restructured          5.57      0.28%         4.42          0.17%       0.76   0.02%
 Total Doubtful assets which have been restructured              5.54      0.27%         5.65          0.22%       1.94   0.06%
Establishment of Asset Reconstruction Company
The SARFAESI Act provides the framework for setting up asset reconstruction companies in India. Accordingly, the
Bank, together with other major Indian banks, has jointly promoted the Asset Reconstruction Company (India) Ltd.
("ARCIL"). ARCIL serves as the entity that acquires the NPAs of its parent banks at a mutually acceptable price against
the issue of security receipts. ARCIL seeks to recover outstanding debts through restructuring, settlement or
enforcement of security interests. ARCIL then uses amounts recovered to redeem the security receipts issued to certain
qualified institutional investors. As of September 30, 2007, the Bank owns 19.95% of the share capital of ARCIL.
In July 2005, the RBI issued guidelines on the sale and purchase of NPAs amongst banks, financial institutions and
NBFCs. See "Regulations relating to Sale of Assets to Asset Reconstruction Companies." Pursuant to an amendment of
these guidelines on October 4, 2007, the RBI has stipulated that banks should calculate the net present value of the
estimated cash flows associated with the realisable value of the available securities net of the cost of realisation. As a
result, the sale price of a NPA should generally not be lower than the net present value arrived at in the manner described
above.
Sale of Assets to Asset Reconstruction Companies, Banks, Financial Institutions and NBFCs
The Bank has sold NPAs to reconstruction companies, banks, financial institutions and NBFCs.
The following table sets out the sales of NPAs by the Bank to reconstruction companies as of September 30, 2007:
 Fiscal Year                                              No. of               Total Outstanding               Consideration
                                                       NPAs sold               Principal Amount                    Received
                                                                                  (Rs. in billions)
 2005                                                          114                               8.2                      1.5
 2006                                                          131                               8.9                      2.0
 2007                                                            90                              0.8                      0.3
 Six-months ended September 30, 2007                             Nil              Not Applicable               Not Applicable
 Total                                                        335                               17.9                      3.8




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                                                                                           State Bank of India

The following table sets out the sales of NPAs by the Bank to banks, financial institutions or NBFCs as of September 30,
2007; there were no NPAs sold in the fiscal year ended March 31, 2005:
 Fiscal Year                                            No. of NPAs          Total Outstanding            Consideration
                                                                sold         Principal Amount                 Received
                                                                               (Rs. in billions)
 2006                                                              290                      11.4                      2.3
 2007                                                              20                        0.5                      0.1
 Six-months ended September 30, 2007                               Nil          Not Applicable           Not Applicable
 Total                                                           310                        11.9                      2.4
Risk Management in Banking Subsidiaries
The Bank's banking subsidiaries, which include the seven Associate Banks and SBICI Bank Limited, have implemented
Risk Management Policies which are in line with SBI's policies to identify, assess, monitor, control and mitigate risks
coming under the broad categories of credit risk, liquidity risk, interest rate risk, market risk and operational risk. A risk
governance structure has also been put in place by all the banking subsidiaries with one general manager designated as
the chief risk officer at each subsidiary bank. As is the case with the Bank, the banking subsidiaries have put in place risk
management committees. Steps are being taken to modify the risk management framework of the subsidiary banks to
conform to Basel II guidelines. As of the date of this Letter of Offer, all banking subsidiaries are in compliance with the
minimum CRAR requirement stipulated by the RBI.




                                                             109
                                        REGULATIONS AND POLICIES

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



                                                              110
                                                                                           State Bank of India

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


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weighted total of specified funded and non-funded exposures. Degrees of credit risk expressed as percentage weighting
have been assigned to various balance sheet asset items and for off-balance sheet items. The percentage risk-weight age
is made with the appropriate credit conversion factor. The face value of each item is multiplied by the relevant weight and/
or conversion factor to produce risk-adjusted values of assets and off-balance sheet items. Standby letters of credit or
guarantees and documentary credits are treated as similar to funded exposure and are subject to similar risk weight. All
foreign exchange and gold open position limits of the bank carry a 100.0% risk weight. Capital requirements have also been
prescribed for open foreign currency exposures and open positions in gold. In respect of banks and financial institutions,
after March 31, 2001, a risk weight of 2.5% to cover market risk must be assigned in respect of the entire investment
portfolio over and above the existing risk weights for credit risk in all categories of security. Further, in June 2004, the RBI
issued guidelines requiring banks to maintain a capital charge for market risk in respect of:
●     securities included in the held for trading category (including derivatives) by March 31, 2005; and
●     securities included in the available for sale category by March 31, 2006.
Currently, held-to-maturity securities are not marked to market and are carried at acquisition cost or at an amortised cost
if acquired at a premium over the face value. Securities classified as available for sale or held for trading are valued at
market or fair value as of the balance sheet date.
The aggregate risk-weighted assets are taken into account for determining the capital adequacy ratio. Accordingly, the
Bank has provided a capital charge for market risk on the securities included in the trading book, as per the standardised
duration method.
Banks were required to maintain a capital charge for market risk in respect of their trading book exposure (including
derivatives) by the end of fiscal year 2005 and in respect of securities included in the available for sale category by the
end of fiscal year 2006. In October 2005, the RBI specified that banks that maintain capital for both credit and market risk
for both the held for trading and available for sale categories at the end of fiscal year 2006 would be permitted to treat the
entire balance in the investment fluctuation reserve as Tier I capital. With the introduction of a capital charge for market
risk as of March 31, 2006, an additional risk weight of 2.5% on the banking book has been removed across the board.
In April 2007, the RBI issued final guidelines for the implementation of the revised capital adequacy framework of the Basel
Committee ("Basel II framework"). These guidelines specify that foreign banks operating in India and Indian banks having
an operational presence outside India should migrate to the Basel II framework by adopting the Standardised Approach
for credit risk and the Basic Indicator Approach for operational risk with effect from March 31, 2008. All other commercial
banks (except local area banks and regional rural banks) are encouraged to migrate to the Basel II framework no later than
March 31, 2009 by adopting one of these approaches, as appropriate these approaches. After adequate expertise has been
developed, both at the banks and at the supervisory level, some banks may be allowed to migrate to the Internal Ratings-
based approach after obtaining RBI approval. The guidelines also prescribe a 75.0% risk weight for retail credit exposures,
differential risk weights for other credit exposures linked to their credit rating, and a capital charge for operational risk
based on a factor of 15.0% of the sum of a bank's previous three year average net interest income and non-interest income
(excluding extraordinary income). The RBI has, in January 2008, decided that educational loans will no longer qualify as
consumer credit and carry a risk weight of 100% under the Basel I framework and 75% under the Basel II framework.
Issuance of Preference Shares as Part of Regulatory Capital
With a view to providing banks with a wider choice of instruments to raise Tier I and Tier II capital, the RBI, through its
circular dated October 29, 2007, permitted the issue of preference shares in Indian Rupees. The said circular provides, inter
alia, that preference shares shall be eligible for inclusion in Tier I or Tier II capital as set out below:
Tier I capital:
●     the outstanding amount of Tier I preference shares along with innovative Tier I instruments must not exceed
      40% of total Tier I capital;
●     the shares shall be perpetual non-cumulative preference shares and shall be fully paid up, unsecured and free of
      restrictive clauses;


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●     the shares shall be issued without a put or step-up option; however, a call option is permitted provided it is
      exercisable only after a period of ten years and with the prior approval of the RBI;
●     no dividend may be declared if the Bank's CRAR is below (or is caused by the payment to fall below) the minimum
      stipulated CRAR or if the half yearly (for a half yearly dividend) or current year's balance sheet shows accumulated
      losses; and
●     the dividend shall not be cumulative, for example a dividend missed in one year will not be paid in future years, even
      if adequate profit is available and the level of CRAR conforms to the regulatory minimum.
Tier II capital:
●     the outstanding amount of these instruments, along with other components of Tier II capital, must not exceed 100%
      of Tier 1 capital at any point in time;
●     the shares may be perpetual cumulative preference shares, redeemable non-cumulative preference shares or
      redeemable cumulative preference shares and shall be fully paid up, unsecured and free of any restrictive clauses;
●     the period of maturity for redeemable non-cumulative preference shares and redeemable cumulative preference
      shares shall be at least 15 years;
●     shares shall be issued without a put option; a call option, however, is permitted provided such option is exercisable
      only after a period of ten years and with the prior approval of the RBI. A step-up option may be exercised only once
      during the term of the instrument and must not exceed 100 basis points;
●     the coupon rate payable should be a fixed or floating rate referenced to a market determined Rupee interest
      benchmark rate and will not be payable if the Bank's CRAR is below (or is caused by the payment to fall below) 9%
      or if the Bank suffers a net loss; and
●     redemption shall not be at the initiative of the holder and shall only be made with the prior approval of the RBI, even
      at maturity.
The Redeemable Preference Shares (both cumulative and non-cumulative) shall be subjected to a progressive discount
for capital adequacy purposes over the last five years of their tenor, as they approach maturity.
Loan Loss Provisions and Non-Performing Assets
In April 1992, the RBI issued formal guidelines, which are revised periodically, on income recognition, asset classification,
provisioning standards and the valuation of investments applicable to banks. These guidelines are applied for the
calculation of impaired assets under Indian GAAP.
The principal features of these RBI guidelines, which have been implemented with respect to the Bank's loans,
debentures, lease assets, hire purchases and bills, are set forth below.
Non-Performing Assets
An asset, including a leased asset, becomes non-performing when it ceases to generate income for the Bank. An NPA is
an asset in respect of which either the principal or interest remains overdue for more than 90 days.
An NPA is a loan or an advance where:
●     interest and/or the instalment of principal has remained overdue for a period of more than 90 days in respect of a
      term loan;
●     the account has remained "out-of-order" (as defined below) in respect of an overdraft or cash credit for more than
      90 days;
●     the bill has remained overdue for a period of more than 90 days in the case of purchased and discounted bills;
●     the interest and/or principal have remained overdue for two harvest seasons but for a period not exceeding two half
      years in the case of an advance granted for agricultural purposes.

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A loan granted for short duration crops will be treated as a non-performing asset, if the instalment of principal or interest
thereon remains overdue for two crop seasons. A loan granted for long duration crops will be treated as a non-performing
asset, if the instalment of principal or interest thereon remains overdue for one crop season. (Crops with harvest seasons
longer than one year are long duration crops, and crops, which are not long duration crops are treated as short duration
crops); and
●     an amount to be received remains overdue for a period of 90 days in respect of other accounts.
Once an account has been classified as a non-performing asset, the unrealised interest and other income already debited
to the account is de-recognised and further interest is not recognised or credited to the income account unless collected.
"Out-of-Order" Status
An account should be treated as "out-of-order" if the outstanding balance remains continuously in excess of the
sanctioned drawing limit. In circumstances where the outstanding balance in the principal operating account is less than
the sanctioned drawing limit, but (i) there are no credits for a continuous period of 90 days as of the date of the balance
sheet of the Bank or (ii) the credits are not sufficient to cover the interest debited during the same period, these accounts
should be treated as "out-of-order."
Asset Classification
NPAs are classified as described below:
●     Sub-Standard Assets. Assets that are NPAs for a period not exceeding 12 months. In such cases, the current net
      worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure
      recovery of dues to the bank in full. Such an asset has well-defined credit weaknesses that jeopardize the liquidation
      of the debt and are characterised by the distinct possibility that the bank will sustain some loss, if deficiencies are
      not corrected.
●     Doubtful Assets. Assets that are NPAs for more than 12 months. A loan classified as doubtful has all the
      weaknesses inherent in assets that are classified as sub-standard, with the added characteristic that the weaknesses
      make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly
      improbable.
●     Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors or RBI
      inspection but the amount has not been written off fully.
There are separate guidelines for projects under implementation which are based on the achievement of financial closure
and the date of approval of the project financing.
The RBI also has separate guidelines for restructured loans. A fully secured standard asset can be restructured by
rescheduling principal repayments and/or the interest element, but must be separately disclosed as a restructured asset.
A rescheduling of the instalments of principal amount alone does not result in a standard asset being classified as sub-
standard provided the loan/credit facility is fully secured. A rescheduling of interest shall not result in an asset being
downgraded to sub-standard, provided that the amount of sacrifice, measured in present value terms, is written off or
provision is made to the extent of the sacrifice involved. Similar guidelines apply to sub-standard assets. The sub-standard
accounts which have been subjected to restructuring by whatever modality, whether in respect of the principal instalment
or interest amount, are eligible to be upgraded to the standard category only after the specified period, i.e., a period of one
year after the date when first payment of interest or of principal, whichever is earlier, falls due, subject to satisfactory
performance during the period.
To put in place an institutional mechanism for the restructuring of corporate debt, the RBI has devised a corporate debt
restructuring system. See "Industry Overview - Recent Structural Reforms."
Provisioning and Write-offs
Provisions are based on guidelines specific to the classification of the assets. The following guidelines apply to the
various asset classifications:

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RBI guidelines on provisioning and write-offs are as follows:
●     Standard Assets. The general provisioning requirement for "Standard Advances" is currently 0.4%, with the
      exception of direct advances to agricultural and SME sectors where the general provisioning required is 0.25%. The
      rate of provisioning for residential housing loans beyond Rs. 2,000,000 is 1.0%. For specific sectors, such as personal
      loans (including credit card receivables), loans and advances qualifying as capital market exposures, loans and
      advances to systemically important NBFCs, and non-deposit taking and commercial real estate loans, the general
      provisioning requirement is 2.0%.
●     Sub-standard Assets. A general provision of 10.0% of the total outstanding and an additional 10.0% total
      outstanding on the "unsecured exposures" identified as "Substandard" (i.e. the total provisioning on the unsecured
      exposures shall be 20.0%). For purposes of this classification, an unsecured exposure is one where the realisable
      value of security is not more than 10.0%, ab initio, of the outstanding exposure. Also "exposure" shall include both
      funded and non-funded exposure.
●     Doubtful Assets. Provision at 100.0% of the extent to which the advance is not covered by the realisable value of
      security. With regard to the secured portion, provision is to be made as set out below:
      Period for which advance remained in "Doubtful" category                      Provisioning requirement (%)
      Up to one year                                                                             20.0%
      One to three years                                                                         30.0%
      More than three years                                                                     100.0%
Banks are, however, permitted to phase the additional provisioning, required due to the reduction in the transition period
from "sub-standard" to "doubtful asset," from 18 to 12 months over a four year period commencing from the year ending
March 31, 2005, with a minimum of 20.0% each year.
●     Loss Assets. The entire asset shall be written off. However, if, for any reason whatsoever, the asset is retained on
      the books, a 100.0% provision shall be made on the outstanding amount.
●     Restructured Assets. A provision is made in present value terms equal to the level of sacrifice (of interest) made.
Whilst the provisions indicated above are mandatory, a higher provision on a loan could be made if considered necessary.
For more information see "Industry Overview - Credit Policy Measures."
Regulations relating to the Making of Loans
The provisions of the Banking Regulation Act govern the making of loans by banks in India. The RBI issues directions
covering the loan activities of banks. Some of the major guidelines of the RBI, which are now in effect, are as follows:
●     The RBI has prescribed norms for bank lending to non-bank financial companies.
●     Banks are free to determine their own lending rates but each bank must declare its benchmark prime lending rate as
      approved by its board of directors. Each bank should also indicate the maximum spread over the prime lending rate
      for all credit exposures other than retail loans. The interest charged by banks on advances up to Rs. 200,000 to any
      one entity (other than most retail loans) must not exceed the benchmark prime lending rate. Banks are also given
      freedom to lend at a rate below the prime lending rate in respect of creditworthy borrowers and exporters. Interest
      rates for certain categories of advance are regulated by the RBI. Banks are also free to stipulate lending rates
      without reference to their own benchmark prime lending rates in respect of certain specified categories of loan.
●     In terms of section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances against the
      security of its own shares, a banking company is prohibited from entering into any commitment for granting any
      loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as
      partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a
      company registered under section 25 of the Companies Act, 1956, or a Government company) of which, or the


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      subsidiary or the holding company of which, any of the directors of the bank is a director, managing agent, manager,
      employee or guarantor or in which, or the subsidiary or the holding company in which, he holds substantial interest,
      or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in
      this regard as the explanation to the section provides that "loans or advances" shall not include any transaction
      which the RBI may specify by general or special order as not being a loan or advance for the purpose of such
      section. The Bank is in compliance with these requirements.
The RBI permitted banks to extend financial assistance, as a strategic investment, to Indian companies for the acquisition
of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing. Banks
are not permitted to finance acquisitions by companies in India (except in the case of companies engaged in implementing
or operating infrastructure projects, subject to the conditions specified).
There are guidelines on loans against equity shares in respect of the amount, margin requirement and purpose.
Corporate Debt Restructuring Mechanism
In order to put in place as institutional mechanism for the restructuring of corporate debt, the RBI devised a Corporate
Debt Restructuring ("CDR") System, guidelines pertaining to which were issued on August 23, 2001. Subsequently,
detailed guidelines were issued of February 5, 2003. The objective of this framework is to ensure a timely and transparent
mechanism for the restructuring of corporate debts of viable entities facing problems, but outside the purview of the Board
for Industrial and Financial Reconstruction, debt recovery tribunals and other legal proceedings. In particular, the
framework aims to preserve viable corporates that are affected by certain internal and external factors and minimize the
losses to the creditors and other stakeholders through an orderly and coordinated restructuring program. The corporate
debt restructuring system is a non-statutory mechanism and a voluntary system based on debtor-creditor and inter-
creditor agreements. Secured creditors having a minimum 20.0% exposure in term loans or working capital may make a
reference to the CDR Forum. The system established by the RBI has a three-tier structure, led by the CDR Standing
Forum, which is the general body for all member institutions, out of which is carved out the CDR Core Group, a niche body
of select institutions that decides policy matters. Decisions on restructuring are taken by the CDR Empowered Group,
which has all the member banks and financial institutions as its members. A CDR Cell has been formed to assist the CDR
Forum in administrative matters and for analysis of the restructuring packages.
The total membership of the CDR Forum, as of March 31, 2007, was 58, consisting of 12 financial institutions, one Trust,
28 public sector banks and 17 private sector banks.
The RBI has, by its circular dated November 10, 2005, amended the above guidelines on CDR.
The major amendments include:
●     extending the scheme to entities with an outstanding exposure of Rs. 100 million or more;
●     requiring the support of 60.0% of creditors by number in addition to the support of 75.0% of creditors by value,
      with a view to making the decision-making more equitable;
●     giving discretion to the Core Group in dealing with wilful defaulters in certain cases, other than cases involving
      fraud or the diversion of funds with mala fide intentions;
●     linking the restoration of asset classification prevailing on the date of reference to the CDR Cell to implementation
      of the CDR package within four months from the date of approval of the package;
●     restricting the regulatory concession in asset classification and provisioning to the first restructuring, where the
      package also has to meet norms relating to the turn-around period, minimum sacrifice and injection of funds by
      promoters;
●     converging in the methodology used by banks and financial institutions for the computation of economic sacrifice;
●     limiting RBI's role to providing broad guidelines for the CDR mechanism;
●     enhancing disclosures in the balance sheet to provide greater transparency;


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●     requiring the pro-rata sharing of additional finance requirements by both term lenders and working capital lenders;
●     allowing one-time settlement as a part of the CDR mechanism to make the exit option more flexible; and
●     requiring the valuation and regulatory treatment of non-SLR instruments acquired while funding interest or in lieu
      of outstanding principal.
Furthermore, on September 8, 2005, a debt restructuring mechanism in line with the CDR mechanism prevailing in the
banking sector was introduced for units in the SME sector.
Enforcement of Security Interests under the SARFAESI Act
To assist banks and financial institutions in recovering their unpaid advances and to ensure financial discipline among
borrowers, the Government enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act ("SARFAESI Act") in December 2002. The SARFAESI Act provides the legal framework for (i) the
securitisation of financial assets by setting up a Securitisation Company ("SC") or Reconstruction Company ("RC"); (ii)
the foreclosure of assets through an SC or RC; and (iii) the foreclosure of NPA accounts.
Pursuant to the SARFAESI Act, a secured creditor may, in respect of loans classified as NPAs, give notice in writing to the
borrower, requiring it to discharge its liabilities within 60 days, failing which, and in the absence of any satisfactory
objections or representations made by the borrower, the secured creditor may take the following measures to recover the
amounts due:
●     taking possession of the secured assets of the borrower including the right to transfer by way of lease, assignment
      or sale in order to realise the secured assets;
●     taking over the management of secured assets, including the right to transfer these assets by way of lease,
      assignment or sale in order to realise the secured loans;
●     appointing any person to manage the secured assets after taking possession; or
      advising any person who owes money, due to the acquisition of any of the secured assets from the borrower, to
      pay the money directly to the banks and institutions.
If required, the secured creditors may request the Chief Metropolitan Magistrate or the District Magistrate to take
possession of part or whole of the secured assets and other related documents and forward the assets and documents to
the secured creditors. The sale proceeds would first be utilized to meet all the expenses incurred in enforcement of the
security interest and then for payment of amounts due to secured creditors. The remaining amount would be paid to
others in accordance with their rights and interests. In case the amounts due are not fully recovered by the sale of secured
assets, then the secured creditors may file an application to the Debt Recovery Tribunal for the remaining amounts due.
The secured creditors are also entitled to proceed against the guarantors and sell the pledged assets independent of their
action for enforcement of the security interest.
Pursuant to the SARFAESI Act, the borrower cannot make a reference to the BIFR after the transfer of financial assets to
an SC or a RC. Similarly, any pending reference before the BIFR shall be withdrawn if 75.0% of the secured creditors (in
terms of amount outstanding) have taken any action to recover their amounts due under the SARFAESI Act.
On April 8, 2004 the Supreme Court pronounced a judgment upholding the constitutional validity of the SARFAESI Act
(with the exception of section 17(2)). The Government has since enacted the Enforcement of Security Interest and
Recovery of Debts Laws (Amendment) Act, 2004 (the "Amended Act").
The Amended Act includes:
●     a new provision in the Amended Act making it mandatory for the secured creditor to consider any representation or
      objection raised by the borrower (on whom notice had been served) and communicate reasons for rejection of the
      representation or objection within one week from the date of receipt of such representation or objection; and
●     a new section 13(4)(b) empowering the secured creditor to take over management of the business of such borrower,


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      which is related to the security of the debt. Where a substantial part of the business of the borrower is held as
      security for the debt, the secured creditor is also empowered to take over the management, including the right to
      transfer by way of lease, assignment or sale in order to realise the secured asset. However, the term "substantial
      part of the business" has not been defined;
●     an amendment to the Debt Recovery Tribunal Act, 1993, whereby banks and financial institutions may withdraw the
      recovery application filed by them at the Debt Recovery Tribunal ("DRT") in the event that they propose to initiate
      action under the SARFAESI Act; and
●     two new provisions enabling the aggrieved borrower to make an application to the DRT against any action taken
      under the SARFAESI Act. The application is required to be decided within 60 days. Further, an appeal can be filed
      against the order of the DRT before the Debt Recovery Appellate Tribunal ("DRAT") after the borrower has
      deposited 50.0% of the amount of debt (such sum may be reduced to 25.0% by the DRAT for reasons to be
      recorded in writing).
On November 29, 2006 the Supreme Court pronounced a judgment on whether withdrawal of an application from the DRT
is a condition precedent to having recourse under the SARFAESI Act as defined.
The following three points were discussed:
●     whether the banks or financial institutions that have elected to seek a remedy under the Recovery of Debts due to
      Banks and Financial Institutions Act, 1993 ("DRT Act") can still invoke the SARFAESI Act in order to realise the
      secured assets, without withdrawing or abandoning the original application filed before the DRT pursuant to the
      DRT Act;
●     whether recourse to take possession of the secured assets of the borrower pursuant to section 13(4) of the
      SARFAESI Act encompasses the power to take actual possession of the immovable property; and
●     whether an ad valorem court fee prescribed under rule 7 of the DRT (Procedure) Rules, 1993, is payable on an
      application under section 17(1) of the SARFAESI Act in the absence of any rule framed under the said Act.
The Supreme Court discussed various provisions of the DRT Act and the SARFAESI Act and observed that the
SARFAESI Act is treated as an additional remedy and is not inconsistent with the DRT Act. Therefore, the withdrawal of
an application pending before the DRT under the DRT Act is not a pre-condition for recourse under the SARFAESI Act.
It is for the banks or the financial institutions to exercise their discretion in withdrawing cases from the DRT.
Regulations relating to the Sale of Assets to Asset Reconstruction Companies
The RBI has issued guidelines to banks on the process to be followed for sales of financial assets to asset reconstruction
companies. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided
that the asset is an NPA. These assets are to be sold on a non-recourse basis only. A bank may sell a standard asset only
if the borrower has a consortium or multiple banking arrangements, at least 75.0% by value of the total loans to the
borrower are classified as non-performing and at least 75.0% by value of the banks and financial institutions in the
consortium or multiple banking arrangements agree to the sale.
The banks selling financial assets should ensure that there is no known liability devolving on them and that they do not
assume any operational, legal or any other type of risk relating to the financial assets sold. Further, banks may not sell
financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation. However,
banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction
company in the future. Whilst each bank is required to make its own assessment of the value offered in the sale before
accepting or rejecting an offer for the purchase of financial assets by an asset reconstruction company, in consortium or
multiple banking arrangements where more than 75.0% by value of the banks or financial institutions accept the offer, the
remaining banks or financial institutions are obliged to accept the offer. Consideration for the sale may be in the form of
cash, bond, debentures or security receipts. Banks may invest in pass-through certificates issued by the asset
reconstruction company or trusts set up by it to acquire the financial assets.



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In February 2006, the RBI issued guidelines for the securitisation of standard assets. The guidelines provide that for a
transaction to be treated as a securitisation, a two-stage process must be followed. In the first stage, the pooling of assets
and their transfer to a bankruptcy remote vehicle ("SPV") should take place and in the second stage, the repackaging of
the security interests representing claims on incoming cash flows from the pool of assets and their sale to third party
investors should be effected. Further, to enable the transferred assets to be removed from the balance sheet of the seller
in a securitisation structure, the isolation of assets or the "true sale" from the seller or originator to the SPV is an essential
prerequisite. In addition, arm's length relationship must be maintained between the originator and seller, and the SPV.
The RBI also issued guidelines in July 2005 in relation to the sale or purchase of NPAs by banks, financial institutions and
NBFCs (excluding securitisation companies and reconstruction companies). These guidelines set out the procedure for
the purchase or sale of non-performing financial assets by banks, including valuation and pricing aspects and prudential
norms in the following areas: (a) asset classification, (b) provisioning, (c) accounting of recoveries, (d) capital adequacy,
(e) exposure and (f) disclosure requirements. On October 4, 2007, RBI issued guidelines on the sale and purchase of
NPAs, wherein it imposed on banks the consideration that while selling NPAs, banks have to account for the net present
value of the estimated cash flows associated with the realisable value of the available securities, net of the cost of
realisation. Further, the sale price should generally not be lower than the net present value. The said principle should be
applied to compromise settlements entered into by the banks.
Certain regulatory norms relating to capital adequacy, valuation, profit and loss on the sale of assets, income recognition
and provisioning for originators and service providers (such as credit enhancers), liquidity support providers,
underwriters and investors, and also relating to the accounting treatment for securitisation transactions and disclosure
norms, have been prescribed. Apart from banks, these guidelines are also applicable to financial institutions and Non-
Banking Financial Companies ("NBFCs").
Classification of SMEs
The Government passed the Micro, Small & Medium Enterprises Development Act, 2006 in June 2006 to promote lending
to SMEs and to create uniformity in the way that banks classify SMEs. Entities are divided into micro-, small- and medium-
sized entities. Micro-sized entities comprise manufacturing companies with investments in plant and machinery of up to
Rs. 2.5 million or service companies with investments in equipment of up to Rs. 1.0 million. Small-sized entities comprise
manufacturing companies with investments in plant and machinery of over Rs. 2.5 million but less than Rs. 50.0 million
and service companies with investments in equipment of over Rs. 1.0 million but less than Rs. 20.0 million. Medium-sized
entities comprise manufacturing companies with investments in plant and machinery of over Rs. 50.0 million but less than
Rs. 100.0 million and service companies with investments in equipment of over Rs. 20.0 million but less than Rs. 50.0
million.
Directed Lending
Priority Sector Lending
The RBI requires commercial banks to lend a certain percentage of their net bank credit to specific sectors (the priority
sectors), such as agriculture, small-scale industry, small businesses and housing finance. Total priority sector advances
should be 40.0% of the adjusted net bank credit or the credit-equivalent amount of off-balance sheet exposure, whichever
is higher, with agricultural advances required to be 18.0% of the adjusted net bank credit or credit-equivalent amount of
off-balance sheet exposure, whichever is higher, and advances to weaker sections required to be 10.0% of the adjusted net
bank credit or credit-equivalent amount of off-balance sheet exposure, whichever is higher, and 1.0% of the previous
year's total advances required to be lent under the Differential Rate of Interest scheme. Any shortfall in the amount
required to be lent to the priority sectors may be required to be deposited with the National Bank for Agriculture and the
Rural Development. These deposits can be for a period of one year or five years.
Export Credit
The RBI also requires commercial banks to make loans to exporters at concessional rates of interest. This enables
exporters to have access to an internationally competitive financing option. Pursuant to existing guidelines, export credit
is not a part of the priority sector of domestic commercial banks. The Bank provides export credit for pre-shipment and


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post-shipment requirements of exporter borrowers in Rupees and foreign currencies.
Credit Exposure Limits
As a prudent measure aimed at better risk management and the avoidance of concentration of credit risk, the RBI has
prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual
borrowers and to all companies in a single group (or sponsor group)
The limits set by RBI are as follows:
●     exposure ceiling for a single borrower is 15.0% of capital funds. The group exposure limit is 40.0% of capital funds.
      In the case of financing for infrastructure projects, the single borrower exposure limit is extendable by another 5.0%,
      i.e. up to 20.0% of capital funds, and the group exposure limit is extendable by another 10.0%, i.e. up to 50.0% of
      capital funds. Banks may, in exceptional circumstances and with the approval of their boards of directors, consider
      enhancement of the exposure to a borrower up to a maximum of a further 5.0% of capital funds, subject to the
      borrower consenting to the banks making appropriate disclosures in their annual reports;
●     the capital fund is the total capital, as defined under capital adequacy standards (Tier I and Tier II capital); and
●     exposure shall include credit exposure (funded and non-funded credit limits) and investment exposure (including
      underwriting and other similar commitments). Non-fund based exposures are calculated at 100.0% of the limit or
      outstandings, whichever is higher. In addition, banks include forward contracts in foreign exchange and other
      derivative products, such as currency swaps and options, at their replacement cost value in determining individual
      or group borrower exposure.
As of fiscal year-end 2007, the Bank was in compliance with the credit exposure limits, taking into account the following
(except in one case for which the Bank has received permission to be in non-compliance):
●     all types of funded and non-funded credit limits;
●     facilities extended by way of equipment leasing, hire purchase finance and factoring services;
●     advances against shares, debentures, bonds and units of mutual funds to stockbrokers and market makers;
●     bank loans to finance promoters' contributions;
●     bridge loans against equity flows/issues;
●     investments in shares, debentures, bonds and units of mutual funds; and
●     the financing of initial public offerings.
      Credit exposure is the aggregate of:
●     all types of funded and non-funded credit limits;
●     facilities extended by way of equipment leasing, hire purchase finance and factoring services;
●     advances against shares, debentures, bonds and units of mutual funds to stockbrokers and market makers;
●     bank loans to finance promoters' contributions;
●     bridge loans against equity flows/issues; and
●     the financing of initial public offerings.
      Investment exposure comprises the following elements:
●     investments in shares and debentures of companies acquired through direct subscription or devolvement arising
      out of underwriting obligations or purchased from secondary markets or on the conversion of debt into equity;
●     investments in public sector undertaking bonds through direct subscription, or devolvement arising out of
      underwriting obligations or purchased from secondary markets;
●     investments in commercial paper issued by corporate bodies or public sector undertakings; and
●     investments in debentures, bonds, security receipts, pass-through certificates issued by securitisation or

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      reconstruction companies (banks are allowed to exceed prudential exposure on account of such investments on a
      case by case basis).
As of fiscal year-end 2007, the Bank is in compliance with the above.
To ensure that exposure is evenly spread, the RBI requires banks to fix internal limits of exposure to specific sectors.
These limits are subject to periodical review by the banks. The Bank has fixed a ceiling of 15.0% of the Bank's total fund-
based exposure to any one industry (other than retail loans) and monitors its exposure accordingly.
Regulations relating to Investments and Capital Market Exposure Limits
The aggregate exposure of a bank to the capital markets in any year (both fund-based and non-fund-based) should not
exceed 40.0% of its net worth as of March 31 in the previous year. Within this overall ceiling, the bank's direct investment
in shares, convertible bonds, debentures and units of equity-oriented mutual funds and all exposures to Venture Capital
Funds ("VCFs") (both registered and unregistered) should not exceed 20.0% of its net worth.
Further, the aggregate exposure of a consolidated bank to capital markets in any year (both fund-based and non-fund-
based) should not exceed 40.0% of its consolidated net worth as of March 31 in the previous year. Within this overall
ceiling, the aggregate direct exposure by way of the consolidated bank's investment in shares, convertible bonds,
debentures and units of equity oriented mutual funds and all exposures to VCFs (both registered and unregistered) should
not exceed 20.0% of its consolidated net worth.
The above-mentioned ceilings are the maximum permissible and the Bank's Central Board of Directors is free to adopt a
lower ceiling for its bank, keeping in view its overall risk profile and corporate strategy.
These guidelines for the rationalisation of norms relating to exposure to capital markets, issued on December 15, 2006,
came into effect on April 1, 2007.
In December 2007, the RBI advised banks to be judicious in extending finance to mutual funds and has mandated that any
loans extended to equity oriented mutual funds will form part of that bank's capital market exposure. However, a transition
period of 6 months is provided to comply with the above obligations.
In April 1999, the RBI, in its monetary and credit policy, stated that investment by a bank in subordinated debt instruments,
representing Tier II capital issued by other banks and financial institutions, should not exceed 10.0% of the investing
bank's capital, including Tier II capital and free reserves. Pursuant to the RBI guidelines of July 2004, the said ceiling of
10.0% became applicable to the Bank's investments in all types of instruments, i.e. equity shares, preference shares
eligible for capital status, subordinated debt instruments, hybrid debt capital instruments and any other instrument
considered to be in the nature of capital, which are issued by other banks/FIs and are eligible for capital status for the
invested bank/FI. Investments in the instruments issued by other banks/FIs which are not deducted from the Tier I capital
of the investing bank or financial institution will attract 100.0% risk weight for credit risk for capital adequacy purposes.
Further, banks and financial institutions cannot acquire any fresh stake in a bank's equity shares, if by such acquisition,
the investing bank's or financial institution's holding exceeds 5.0% of the investee bank's equity capital.
Banks with investments in excess of the prescribed limits were required to apply to the RBI with a roadmap for reduction
of the exposure. In July 2005, the RBI increased the risk weight requirement for credit risk on capital market exposures to
125.0% with immediate effect. In November 2003, the RBI issued guidelines on investments by banks in non-Statutory
Liquidity Ratio securities issued by companies, banks, financial institutions, central and state-sponsored institutions and
special purpose vehicles. These guidelines apply to primary market subscriptions and secondary market purchases.
Pursuant to these guidelines, banks are prohibited from investing in non-Statutory Liquidity Ratio securities with an
original maturity of less than one year, other than commercial papers and certificates of deposits. Banks are also prohibited
from investing in unrated securities. A bank's investment in unlisted non-Statutory Liquidity Ratio securities may not
exceed 10.0% of its total investment in non-Statutory Liquidity Ratio securities as of the end of the preceding fiscal year.
However, investments in unlisted non-Statutory Liquidity Ratio securities such as security receipts issued by
securitisation or reconstruction companies registered with the RBI and asset-backed securities and mortgage-backed
securities with a minimum investment grade credit rating shall be permitted up to a limit of 20.0%. These guidelines were


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effective as of April 1, 2004, with provision for compliance in a phased manner by January 1, 2005. Pursuant to an RBI
circular in August 2005, banks are allowed to invest their surplus funds in non-Statutory Liquidity Ratio securities without
obtaining prior approval from the RBI on a case-by-case basis, subject to certain specified conditions.
Consolidated Supervision Guidelines
In fiscal year 2003, the RBI issued guidelines on consolidated accounting and consolidated supervision in respect of
banks. These guidelines became effective as of April 1, 2003. The principal features of these guidelines are:
Consolidated Financial Statements ("CFSs"). Banks are required to prepare consolidated financial statements intended for
public disclosure. CFSs are prepared quarterly and annually. Quarterly CFSs are subject to a limited review while annual
CFSs are audited.
Consolidated Prudential Returns. Banks are required to submit to the RBI, at half yearly intervals, consolidated prudential
returns reporting their compliance excluding that of insurance subsidiaries, with various prudential norms on a
consolidated basis. Compliance on a consolidated basis is required in respect of the following main prudential norms:
●     single borrower exposure limit of 15.0% of capital funds (20.0% of capital funds provided that the additional
      exposure of up to 5.0% is for the purpose of financing infrastructure projects);
●     borrower group exposure limit of 40.0% of capital funds (50.0% of capital funds provided that the additional
      exposure of up to 10.0% is for the purpose of financing infrastructure projects);
●     deduction from the Tier I capital of the bank of any shortfall in capital adequacy of a subsidiary for which capital
      adequacy norms are specified; and
●     consolidated capital market exposure limit of 2.0% of consolidated advances and 10.0% of consolidated net worth.
The Bank is in compliance with these guidelines, except with regard to the single borrower exposure limit of 15.0% of
capital funds for which the Bank has received permission from its Central Board as well as from the RBI to be in non-
compliance. The State Bank Group is also in compliance with these guidelines.
Conglomerate Reporting and Supervision
Since June 2004, the Group has been designated as a financial conglomerate as its operations straddle more than one
financial market segment and it has a significant presence in one segment, i.e. banking. Under the supervisory framework
for financial conglomerates, the Bank is required to report to the regulator on the following risk areas:
●     large intra-group transactions carried out for any purpose;
●     the build up of any disproportionate exposure (both fund-based and non-fund-based) of any group entity to other
      group entities;
●     any group level concentration of exposure to various financial market segments and counterparties outside the
      group;
●     direct indirect cross-holdings;
●     shared directors and senior executives; and
●     other significant aspects, such as intra-group advisory and service arrangements.
The Group has adopted appropriate internal controls and risk management systems to manage the above risks by putting
in place appropriate prudential limits and firewalls.
Banks' Investment Classification and Valuation Norms
The salient features of the guidelines on the categorisation and valuation of banks' investment portfolio are given below:
●     The entire investment portfolio is required to be classified under three categories: (a) held to maturity, (b) held for
      trading and (c) available for sale. Banks should decide the category of investment at the time of acquisition.



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●     Held to maturity investments compulsorily include (a) recapitalisation bonds received from the Government, (b)
      investments in subsidiaries and joint ventures and (c) investments in bonds and debentures deemed as advance.
      Held to maturity investments also include any other investment identified for inclusion in this category, subject to
      the condition that such investments cannot exceed 25.0% of the total investment excluding recapitalisation bonds
      and debentures. In September 2004, the RBI announced that it would set up an internal group to review the
      investment classification guidelines with a view to aligning them with international practices and the current state
      of risk management practices in India, taking into account the unique requirement, applicable to banks in India, to
      maintain an SLR equal to 25.0% of a bank's demand and time liabilities. In the meantime, the RBI has permitted banks
      to exceed the limit of 25.0% of investments for the held to maturity category provided that the excess comprises
      only SLR investments and that the aggregate of such investments in the held to maturity category does not exceed
      25.0% of the demand and time liabilities. During fiscal year 2005, the RBI permitted banks to transfer additional
      securities to the held to maturity category as a one-off measure, in addition to the transfer permitted under the earlier
      guidelines. The transfer had to be done at the lower of acquisition cost, book value and market value on the date of
      transfer.
●     Profit on the sale of investments in the held to maturity category is appropriated to the capital reserve account after
      being entered into the profit and loss account. Loss on any sale is recognised in the profit and loss account.
●     The market price of the security available from the stock exchange, the price of securities in subsidiary general
      ledger transactions, the RBI price list or prices declared by the Primary Dealers Association of India ("PDAI") jointly
      with the Fixed Income Money Market and Derivatives Association of India ("FIMMDA") serves as the "market
      value" for investments in available for sale and held for trading securities.
●     Investments under the held for trading category should be sold within 90 days; in the event of an inability to sell due
      to adverse factors, including tight liquidity, extreme volatility and a unidirectional movement in the market, the
      unsold securities should be shifted to the available for sale category, at acquisition cost/book value/market value on
      the date of transfer, whichever is the least.
●     Profit or loss on the sale of investments in both held for trading and available for sale categories is entered into the
      profit and loss account.
●     The shifting of investments from or to the held to maturity category may be done with the approval of the board of
      directors once a year, normally at the beginning of the accounting year: the shifting of investments from the
      available for sale to the held for trading category may be done with the approval of the board of directors, the Asset
      Liability Management Committee or the Investment Committee;
Held to maturity securities are not marked to market and are carried at acquisition cost or at an amortised cost if acquired
at a premium over the face value.
Available for sale and held for trading securities are given a market or fair value as of the balance sheet date. Depreciation
or appreciation for each basket within the available for sale and held for trading categories is aggregated. Net appreciation
in each basket, if any, that is not realised, is ignored, whilst net depreciation is provided for.
Investments in security receipts or pass-through certificates issued by asset reconstruction companies or trusts set up by
asset reconstruction companies should be valued at the lower of the redemption value of the security receipts or pass-
through certificates and the net book value of the financial asset.
Restrictions on Investments in a Single Company
No bank may hold shares in any company exceeding 30.0% of the paid-up share capital of that company or 30.0% of its
own paid-up share capital and reserves, whichever is less. However, a bank may hold shares in a subsidiary company in
accordance with the provisions of the Banking Regulation Act.
Limit on Transactions through Individual Brokers
Guidelines issued by the RBI require banks to empanel brokers for transactions in securities. These guidelines also require


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that a disproportionate part of the bank's business should not be transacted only through one broker or a few brokers.
The RBI specifies that not more than 5.0% of the total transactions through empanelled brokers can be transacted through
a single broker. If for any reason this limit is breached, the RBI has stipulated that the board of directors of the bank
concerned should be informed of such occurrence, with reasons therefore.
Short-Selling
The RBI does not permit short-selling of securities by banks, except short-selling by the banks to undertake the outright
sale of Central Government dated securities that they do not own, subject to the short position being covered within a
maximum period of five trading days, including the day of trade. In other words, the short sale position initiated today (trade
date, T+0) will have to be covered on or before close of T+4 days. The Union Budget for fiscal year 2008 has announced
delivery-based short-selling by institutions in order to make capital markets transactions more efficient.
Regulations relating to Deposits
The RBI has permitted banks to independently determine rates of interest offered on term deposits. However, banks are
not permitted to pay interest on current account deposits. Further, banks may only pay interest of up to 3.5% per annum
on savings deposits. In respect of savings and time deposits accepted from employees, the Bank is permitted by the RBI
to pay additional interest of 1.0% over the interest payable on deposits from the public.
Domestic time deposits have a minimum maturity of seven days and a maximum maturity of ten years. Time deposits from
non-resident Indians denominated in a foreign currency have a minimum maturity of one year and a maximum maturity of
three years.
Since April 1998, the RBI has permitted banks the flexibility to offer varying rates of interest on domestic deposits of the
same maturity, subject to the following conditions:
●     time deposits are of Rs. 1.5 million and above; and
●     interest on deposits is paid in accordance with the schedule of interest rates disclosed in advance by the bank and
      not pursuant to negotiation between the depositor and the bank.
Non-resident external deposit contracts effective as of close of business in India on April 24, 2007 for one to three years
should not exceed LIBOR/ swap rates of the last working day of the previous month for corresponding U.S. dollar
maturities. The interest rates as determined above shall also be applicable if the maturity period exceeds three years.
Deposit Insurance
Demand and time deposits of up to Rs. 100,000 that are accepted by Indian banks are required to be insured with the
Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the RBI. Banks are required to pay the
insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual
basis. The cost of the insurance premium cannot be passed on to the customer.
Regulations relating to Know Your Customer and Anti-Money Laundering
The RBI has issued several guidelines relating to the identification of depositors and has advised banks to put in place
systems and procedures to tackle financial fraud, identify money laundering and suspicious activities, and monitor high
value cash transactions. The RBI has also issued guidelines periodically, advising banks to be vigilant whilst opening
accounts for new customers so as to prevent misuse of the banking system for the perpetration of fraud.
Revised guidelines were issued by the RBI in November 2004 following the recommendations made by the Financial
Action Task Force ("FATF") and paper on Customer Due Diligence for banks by the Basel Committee on Banking
Supervision. Based on RBI guidelines, the Bank has put in place a Policy on "know your customer - anti-money laundering
measures" with the approval of the Central Board. The detailed procedural guidelines in this regard have been circulated
to all branches of the Bank. They include comprehensive instructions on customer acceptance, customer identification,
risk categorisation, monitoring of transactions and risk management.
RBI has simplified the know your customer procedure for opening accounts for persons who intend to keep balances not


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exceeding Rs. 50,000 in all their accounts taken together, where the total credit in all the accounts taken together is not
expected to exceed Rs. 200,000 in any year in order to ensure that the implementation of the KYC guidelines do not result
in the denial of banking services to those who are financially or socially disadvantaged.
In addition to keeping customer information confidential, banks must ensure that only information relevant to the
perceived risk is collected and the same is not intrusive in nature. Apart from addressing this concern, the RBI Guidelines
set out in detail the framework to be adopted by banks as regards their customer dealings. The concerns remain
substantially the same and are directed towards the prevention of financial frauds and money laundering transactions.
In a bid to prevent money laundering activities, the Government enacted the Prevention of Money Laundering Act, 2002
(the "PML Act"). The PML Act seeks to prevent money laundering and provides for the confiscation of property derived
from, or involved in, money laundering and for incidental matters connected therewith. The Central Government has made
public the rules under the PML Act on July 1, 2005, via Gazette Notification. Under these rules, banking companies,
financial institutions and intermediaries (together, the "Institutions") must maintain a comprehensive record of all their
transactions, including the nature and value of such transactions. Further, the rules require verification of the identities of
all their clients and also require that the Institutions maintain records of their respective clients. These details are to be
provided to the appropriate authority under the PML Act, which is empowered to order confiscation of property where it
is of the opinion that a crime as recognised under the PML Act, has been committed. In addition, the applicable exchange
control regulations prescribe reporting mechanisms for foreign exchange transactions and required authorised dealers to
report suspicious transactions that they identify to RBI.
Legal Reserve Requirements
Cash Reserve Ratio
A banking company such as the Bank is required to maintain a specified percentage of its demand and time liabilities,
excluding inter-bank deposits, by way of cash reserve with itself and by way of balance in current account with the RBI.
Pursuant to section 3 of the Reserve Bank of India (Amendment) Act 2006, the amendment to sub-section (i) of section 42
of the Reserve Bank of India Act came into force with effect from April 1, 2007. Accordingly, the statutory minimum and
maximum CRR requirement of 3.0% and 15.0% of total demand and time liabilities no longer exists from April 1, 2007. The
RBI may prescribe the CRR for banks without any floor or ceiling. At the date of this Letter of Offer, the CRR is 7.5% of
total demand and time liabilities.
The following liabilities are excluded from the calculation of the cash reserve ratio:
●     inter-bank liabilities;
●     credit balances in ACU (U.S. dollar) accounts;
●     liabilities of offshore banking units; and
●     liabilities on account of transactions in CBLO with the Clearing Corporation of India Ltd.
In view of section 3 of the Reserve Bank of India (Amendment) Act, 2006 with effect from April 1, 2007, the RBI will not
pay any interest on the CRR balances maintained by banks for each fortnightly period, beginning March 31, 2007
The CRR must be maintained on an average basis for a fortnightly period and should not be below 70.0% of the required
CRR on any day of the fortnight.
Statutory Liquidity Ratio
In addition to the cash reserve ratio, a banking company such as the Bank is required to maintain a specified percentage
of its net demand and time liabilities in liquid assets such as cash, gold or approved securities. The percentage of this
liquidity ratio is periodically fixed by the RBI and can be a maximum of 40.0%. The Banking Regulation (Amendment) Act,
2007, which received the assent of the President on March 26, 2007 and was deemed to have come into force on January
23, 2007, has, inter alia, removed the floor rate of 25.0% for the SLR to be prescribed by the RBI. It has also empowered the
RBI to determine SLR-eligible assets, giving it more flexibility in its monetary management operations. At the date of this
Letter of Offer, the RBI requires banking companies to maintain a liquidity ratio of 25.0%. See also "Industry Overview -


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Recent Structural Reforms - Proposed Amendments to the Banking Regulation Act."
Regulations on Asset Liability Management
At the date of this Letter of Offer, the RBI's regulations for asset liability management ("ALM") require banks to draw up
asset-liability gap statements separately for Rupees and for four major foreign currencies. These gap statements are
prepared by scheduling all assets and liabilities according to the stated and anticipated re-pricing date or the maturity
date. These statements for the domestic assets and liabilities have to be submitted to the RBI periodically. The RBI has
advised banks to actively monitor the difference in the amount of assets and liabilities maturing or being re-priced in a
particular period and place internal prudential limits on the gaps in each time period, as a risk control mechanism.
Additionally, the RBI has asked banks to manage their asset-liability structure such that the negative liquidity gap in the
periods of 1-14 and 15-28 days does not exceed 20.0% of cash outflows in these same periods. This 20.0% limit on
negative gaps was made mandatory with effect from April 1, 2000. In respect of other time periods, RBI has directed banks
to lay down internal norms for negative liquidity gaps. On October 24, 2007, the RBI made certain amendments to the ALM
framework. These are set out below:
●     Banks may split the first time period (referred to above) into three periods, i.e. next day, 2-7 days and 8-14 days;
●     The net cumulative negative mismatches during the next day, 2-7 days, 8-14 days and 15-28 days should not exceed
      5%, 10%, 15% and 20%, respectively, of the cumulative cash outflows in the same periods;
●     Further, banks may undertake dynamic liquidity management and should prepare the Statement of Structural
      Liquidity on a daily basis. However, the Statement of Structural Liquidity may be reported to the RBI once a month,
      for example on the third Wednesday of every month.
These norms will have to be complied with from January 1, 2008. Further, from April 1, 2008, supervisory reporting of the
Structural Liquidity position will take place every fortnight.
Foreign Currency Dealership
The RBI has granted the Bank a full authorised dealers' license to deal in foreign exchange through its designated
branches. Under this license, the Bank has been granted permission to
●     engage in foreign exchange transactions in all currencies;
●     open and maintain foreign currency accounts abroad;
●     raise foreign currency and Rupee denominated deposits from non-resident Indians;
●     grant foreign currency loans to onshore and offshore corporations;
●     open documentary credits;
●     grant import and export loans;
●     handle the collection of bills and funds transfer services;
●     issue guarantees; and
●     enter into derivative transactions and risk management activities that are incidental to its normal functions
      authorised under its organisational documents.
The Bank's foreign exchange operations are subject to the guidelines specified under the Foreign Exchange Management
Act, 1999. As an authorised dealer, the Bank is required to enrol as a member of the Foreign Exchange Dealers Association
of India, which prescribes the rules relating to foreign exchange activities in India.
Authorised dealers such as the Bank are required to determine their limits on open positions and maturity gaps in
accordance with the RBI's guidelines and these limits are approved by the RBI. Further, the Bank is permitted to hedge the
foreign currency loan exposures of Indian corporations in the form of interest rate swaps, currency swaps and forward
rate agreements, subject to certain conditions.




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Statutes Governing Foreign Exchange and Cross-Border Business Transactions
The foreign exchange and cross-border transactions undertaken by banks are subject to the provisions of the Foreign
Exchange Management Act. All branches should monitor all non-resident accounts to prevent money laundering.
In November 2003, the RBI issued guidelines which stated that no banks will be permitted to raise external commercial
borrowings or provide guarantees in favour of overseas lenders for external commercial borrowings. The London Branch
and Nassau Branch are not affected by these guidelines since Regulation 4(2)(ii) of the Foreign Exchange Management
(Borrowing or Lending in Foreign Exchange) Regulations, 2000 provides that overseas branches of authorised dealers that
are banks incorporated or constituted in India (including the Bank) are permitted to borrow in a foreign currency in the
normal course of their banking business outside India.
Restrictions on External Commercial Borrowings
Under the RBI's Circular on external commercial borrowings ("ECBs") dated August 7, 2007, companies requiring ECBs
can utilise: (i) only up to U.S.$ 20 million of ECBs per financial year (per company) for Rupee expenditure for permitted
end-uses with the prior approval of the RBI, subject to the funds remaining overseas until they are required to be expended
in India or (ii) ECBs for foreign currency expenditure for permitted end-uses without RBI approval, subject to the funds
remaining overseas. The maximum amount of ECBs that companies are permitted to raise is subject to a limit of U.S.$ 500
million per company per financial year.
Further, pursuant to the RBI Circular dated September 26, 2007, the limit for prepayment of external commercial borrowing
(without prior approval of the Reserve Bank) has been increased from U.S.$ 400 million to U.S.$ 500 million, subject to
compliance with the applicable minimum average maturity period.
Restriction on Transfer of Shares
The Act lays down restrictions on the transfer of the Bank's shares. The Government cannot transfer any shares of the
Bank if the transfer results in the Government's overall shareholding falling below 55.0% of the Bank's issued capital.
Also, under the Act, no shareholder other than the Government can exercise voting rights in excess of 10.0% of the issued
capital of the Bank (unless permitted by the Government after consultation with the RBI).
Special Provisions of the Banking Regulation Act, 1949
Under sections 35A and 36 of the Banking Regulation Act (which apply to the Bank), the RBI is empowered to advise
generally and give directions to the Bank and prohibit the Bank from entering into any transactions.
Under section 50 of the Banking Regulation Act (which also applies to the Bank), no person shall have a right, whether in
contract or otherwise, to any compensation for any loss incurred by reason of operation of certain provisions of the Act,
including sections 35A and 36.
Prohibited Business
The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from
engaging in business activities other than the specified activities.
Reserve Fund
Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 20.0% of the
profits in each year before dividends. If there is an appropriation from this account, the bank is required to report the same
to the RBI within 21 days, explaining the circumstances leading to such appropriation. The Government may, on the
recommendation of the RBI, exempt a bank from requirements relating to its reserve fund.
Restrictions on Payment of Dividends
As regards the guidelines issued by the RBI pertaining to the payment of dividends, banks have been given general
permission to declare dividends, subject to compliance with the following norms:



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●     Capital to Risk Asset Ratio ("CRAR") of at least 9.0% for the preceding two completed years and the accounting
      year for which the bank proposes to declare a dividend; and
●     net NPA ratio of less than 7.0%.
      In the event a bank does not meet the above CRAR norms, but has a CRAR of at least 9.0% for the accounting year
      for which it proposes to declare a dividend, it would be eligible to declare a dividend provided its net NPA ratio is
      less than 5.0%.
The bank should also satisfy the following conditions:
●     the bank should comply with the provisions of sections 15 and 17 of the Banking Regulation Act, 1949;
●     the bank should comply with the prevailing regulations/guidelines issued by the RBI in respect of creating adequate
      provisions for the impairment of assets and staff retirement benefits, the transfer of profits to statutory reserves etc;
●     the dividend payout ratio should not exceed 40.0%;
●     the proposed dividend should be payable out of the current year's profit;
●     the financial statements pertaining to the financial year for which the bank is declaring a dividend should be free of
      any qualifications by the statutory auditors which have an adverse bearing on the profit during that year; and
●     the RBI should not have placed any explicit restrictions on the bank as regards the declaration of dividends.
In the event that a bank fulfils the conditions stated above, it can declare dividends without the consent of the RBI. If a
bank does not comply with the conditions stated above but wishes to declare dividends or a higher rate of dividend, no
exemptions shall be available from the RBI.
Additionally, the Bank should comply with the requirements of the Act prior to declaring any dividend. In terms of the
Act, a dividend can only be declared after making provision for, inter alia, bad and doubtful debts, depreciation in assets,
the equalisation of dividends, and the contribution to staff and superannuation funds. The rate of dividend shall be
determined by the Central Board.
Banks may declare and pay interim dividends out of the relevant accounting period's profit without the prior approval of
the RBI if they satisfy the minimum criteria above, and the cumulative interim dividend is within the prudential cap on the
dividend payout ratio (40.0%) computed for the relevant accounting period. The declaration and payment of an interim
dividend beyond this limit would require the prior approval of RBI.
Restriction on Share Capital and Voting Rights
Banks can issue only ordinary shares. The Banking Regulation Act specifies that, on a poll of shareholders, no
shareholder in a banking company can exercise voting rights in excess of 10.0% of the total voting rights of all the
shareholders of the banking company. Also, in accordance with the Act, no shareholder other than the Government can
exercise voting rights in excess of 10.0% of the issued capital of the Bank (unless permitted by the Government after
consultation with the RBI).
However, the Act (Amendment) Bill, 2006, proposes to permit the issuance of preference shares in accordance with the
guidelines framed by the RBI.
Regulatory Reporting and Examination Procedures
The RBI is empowered under the Banking Regulation Act to inspect banks. The RBI monitors prudential parameters at
quarterly intervals. To this end and to enable off-site monitoring and surveillance by the RBI, banks are required to report
to the RBI on aspects such as:
●     assets, liabilities and off-balance sheet exposures;
●     the risk weighting of these exposures, the capital base and the capital adequacy ratio;
●     the unaudited operating results for each quarter;



                                                             128
                                                                                         State Bank of India

●     asset quality;
●     the concentration of exposures;
●     connected and related lending and the profile of ownership, control and management; and
●     other prudential parameters.
The RBI also conducts periodical on-site inspections on matters relating to the bank's portfolio, risk management systems,
internal controls, credit allocation and regulatory compliance, at intervals ranging from one to three years. The Bank is
subject to the on-site inspection by the RBI at intervals of at least one year. The inspection report, along with the report
on actions taken by the Bank, must be placed before the board of directors. On approval by the board of directors, the
Bank is required to submit the report on actions taken by it to the RBI. The RBI also discusses the report with the
management team, including the Chairman, the Managing Director and other senior executives.
The RBI also conducts on-site supervision of selected branches of the Bank with respect to their general operations and
foreign exchange related transactions.
Appointment and Remuneration of the Chairman, Managing Director and Other Directors
The Chairman and Managing Director(s) of the Bank are appointed by the Central Government, in consultation with the
RBI. The salary and allowances of the Chairman and the Managing Director(s) shall be determined by the Central
Government. Four directors are to be elected by the shareholders and nine other directors are nominated or appointed by
the Central Government except one director who shall be nominated by the RBI. The Directors shall be paid fees and
allowances for attending the meetings and for attending to any other work of the Bank.
Criteria for elected directors on boards of the Associated Banks
In November 2007, the RBI issued guidelines laying down the 'fit and proper' criteria for elected directors on the boards of
the Associate Banks. The salient features of these guidelines are set out below:
●     the board of directors of the Associate Bank should constitute a nomination committee;
●     the nomination committee should undertake due diligence to determine the fit and proper status of existing elected
      directors and of persons to be elected as directors;
●     before any person is appointed as director, the nomination committee must meet and decide upon his candidature
      based inter alia on educational qualification, experience and field of expertise, track record and integrity;
●     the board of directors should ensure that the elected directors sign the deed covenants laid down; and
●     elected directors must be a yearly basis provide a declaration that the information submitted by them has not
      undergone any change, and in case there is any significant change in such information, the nomination committee
      should re-examine the fit and proper status of such director.
Penalties
The RBI may impose penalties on banks and its employees in the case of any infringement of regulations under the
Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any
contravention of the regulations. The penalty may also include imprisonment.
Assets to be Maintained in India
Each bank is required to ensure that its assets in India (including import-export bills drawn in India and RBI-approved
securities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and time
liabilities in India.
Subsidiaries and other Investments
The Bank requires the prior permission of the RBI to incorporate a subsidiary. The Bank is required to maintain an arm's
length relationship with its subsidiaries. The Bank and its subsidiaries have to observe the prudential norms stipulated by


                                                            129
the RBI from time to time. Pursuant to such prudential norms, the Bank also requires the prior approval of the RBI to
participate in the equity of financial services ventures, including stock exchanges and depositories, notwithstanding the
fact that such investments may be within the ceiling prescribed under section 19(2) of the Banking Regulation Act. See "-
Restrictions on Investments in a Single Company" above. Further investment by the Bank in a subsidiary, financial
services company or financial institution cannot exceed 10.0% of its paid-up capital and reserves and its aggregate
investments in all such companies and financial institutions put together cannot exceed 20.0% of its paid-up capital and
reserves.
Restriction on Creation of Floating Charge
Prior approval of the RBI is required for creating a floating charge on the Bank's undertaking or its property. Currently, all
the Bank's borrowings, including bonds, are unsecured.
Maintenance of Records
The Bank is required to maintain books, records and registers. The Banking Regulation Act specifically requires banks to
maintain books and records in a particular manner. The provisions contained in the Act and SBI General Regulations, the
Banking Regulations Act, together with rules and regulations framed there under, and the Banker's Books Evidence Act
govern the production of documents, preservation of records and inspection by shareholders.
The KYC guidelines also provide for certain records to be maintained for a minimum period of five years.
Issue of Bonus Shares
In the absence of any provision in the Act to re-capitalise the reserves, the Bank cannot issue bonus shares.
Secrecy Obligations
The Bank's obligations relating to maintaining secrecy arise out of section 44 of the Act and common law principles
governing the Bank's relationship with its customers. The Bank cannot disclose any information to third parties except
under clearly defined circumstances. The following are the exceptions to this general rule:
●     where disclosure is required to be made under any law;
●     where there is an obligation to disclose to the public;
●     where the Bank needs to disclose information in its interests; and
●     where disclosure is made with the express or implied consent of the customer.
The Bank is required to comply with the above in furnishing any information to any parties. The Bank is also required to
disclose information if ordered to do so by a court. The RBI may, in the public interest, publish the information obtained
from the Bank. Under the provisions of the Banker's Books Evidence Act, a copy of any entry in a bankers' book, such as
ledgers, day books, cash books and account books, certified by an officer of the bank may be treated as prima facie
evidence of a corresponding transaction in any legal proceedings. The Right to Information Act, 2005 gives citizens the
right to secure access to information under the control of public authorities in order to promote transparency and
accountability in the working of every public authority. Banks, such as the Bank, which are 'Public Authorities' within the
meaning of the Right to Information Act, 2005 are required to provide any information called for by any citizen, except
information pertaining to commercial confidence, trade secrets or intellectual property, the disclosure of which would harm
the competitive position of a third party, or personal information, the disclosure of which has no relationship to any public
activity or interest, or which would cause unwarranted invasion of the privacy of the individual, and, on certain other
grounds, similar information which would cause a breach of privilege of Parliament or the state legislature or which would
prejudicially affect the sovereignty and integrity of India, its security or relationship with foreign states or which would
lead to an incitement to commit an offence.
Regulations Governing Offshore Banking Units
The Government and the RBI have permitted banks to set up Offshore Banking Units in Special Economic Zones, which


                                                             130
                                                                                           State Bank of India

are specially delineated duty free enclaves deemed to be foreign territory for the purpose of trade operations, duties and
tariffs. The key regulations applicable to Offshore Bank Units include, but are not limited to, the following:
●     No separate assigned capital is required. However, the parent bank is required to provide a minimum of U.S.$ 10
      million to its Offshore Banking Unit.
●     Offshore Banking Units are exempt from cash reserve ratio requirements.
●     The RBI may exempt a bank's Offshore Banking Unit from SLR requirements on specific application by the bank for
      a specified period.
●     An Offshore Banking Unit may not enter into any foreign exchange transactions with a resident in India, unless such
      a person is eligible to enter into or undertake such transactions under the Foreign Exchange Management Act, 1999.
●     All prudential norms applicable to overseas branches of Indian banks apply to Offshore Banking Units.
●     Offshore Banking Units are required to adopt liquidity and interest rate risk management policies prescribed by the
      RBI in respect of overseas branches of Indian banks as well as within the overall risk management and asset and
      liability management framework of the banks subject to monitoring by the bank's board of directors at prescribed
      intervals.
●     The sources for raising foreign currency funds must be external. Funds can also be raised from those resident
      sources to the extent such residents are permitted under the existing exchange control regulations to invest/
      maintain foreign currency accounts abroad. The deployment of funds is restricted to lending to units located in the
      SEZ (including other SEZs) and SEZ developers. Foreign currency requirements of corporates in the Domestic Tariff
      Area ("DTA") can also be met by the Offshore Banking Units. If funds are lent to corporates in the DTA, the ECB
      guidelines apply, subject to Foreign Exchange Management regulations.
●     Offshore Banking Units may operate and maintain balance sheets only in foreign currencies, except for a special
      Rupee account out of the convertible fund to meet daily expenses.
●     The loans and advances of Offshore Banking Units are not counted as net bank credit when computing priority
      sector lending obligations.
●     A bank cannot borrow from its Offshore Banking Units.
●     Offshore Banking Units must follow the Know Your Customer guidelines and must be able to establish the identities
      and addresses of the participants in a transaction, the legal capacity of the participants and the identity of the
      beneficial owner of the funds.
The Bank's Offshore Banking Units in India are located in Mumbai and Kochi.
Regulations and Guidelines of the Securities and Exchange Board of India
The Securities and Exchange Board of India was established to protect the interests of public investors in securities and
to promote the development of, and regulate, the Indian securities market. The Bank is subject to the Securities and
Exchange Board of India's regulations as regards its capital issuances, as well as its underwriting, custodial, depositary
participant, investment banking, brokering and debenture trusteeship activities. These regulations provide for its
registration with the Securities and Exchange Board of India for each of these activities, functions and responsibilities. The
Bank has adhered to the regulations and guidelines issued by SEBI for various activities.
Foreign Ownership Restriction
The existing permissible foreign investment limit in the Bank (for public sector banks) is 20.0%. As of January 28, 2008, the
total foreign holding of the Bank is 19.8%. The limit is inclusive of the global depository receipt ("GDR") holdings which
stood at 7.8% as on September 30, 2007.
Guidelines for Merger and Amalgamation of Private Sector Banks



                                                             131
The RBI has issued guidelines for the merger and amalgamation of private sector banks. The guidelines relate to: (i) an
amalgamation of two banking companies and (ii) an amalgamation of an NBFC with a banking company.
In the case of an amalgamation of two banking companies, section 44A of the Banking Regulation Act requires that a draft
scheme of amalgamation be approved by the shareholders of each banking company by passing a resolution which
requires a two-thirds majority. Additionally, the draft scheme must also be submitted to the RBI for approval.
Where an NBFC is proposed to be amalgamated into a banking company, the banking company should obtain the
approval of the RBI before it is submitted to the relevant high court for approval. Similar provisions apply in the rare case
where a banking company is amalgamated into an NBFC.
In July 2004, the RBI issued a draft policy on ownership and governance in private sector banks. The key provisions of
the policy on the ownership of banks are:
●     no single entity or group of related entities is permitted to directly or indirectly hold more than 10.0% of the equity
      capital of a private sector bank and any higher level of acquisition would require the RBI's prior approval;
●     banks with shareholders with holdings in excess of the prescribed limit have to indicate a plan for compliance;
●     in respect of corporate shareholders, the objective is to ensure that no entity or group of related entities has a
      shareholding in excess of 10.0%. In the case of shareholders that are financial entities, the objective is to ensure
      that it is in good standing, publicly listed and well regulated; and
●     banks are responsible in any ongoing basis for the "fit and proper" criteria applicable to shareholders.
Special Status of Banks in India
The special status of banks is recognised under various statutes including the Sick Industrial Companies Act, 1985, the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation Act. As a bank, under various
statutes the Bank is entitled to certain benefits, including the following:
●     The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides for the establishment of Debt
      Recovery Tribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial
      Institution or to a consortium of banks and Public Financial Institutions. Under this Act, the procedures for
      recoveries of debt have been simplified and time frames have been fixed for the speedy disposal of cases. Upon
      establishment of the Debt Recovery Tribunal, no court or other authority can exercise jurisdiction in relation to
      matters covered by this Act, except the higher courts in India in certain circumstances.
●     The Sick Industrial Companies Act, 1985, provides for the reference of sick industrial companies to the Board for
      Industrial and Financial Reconstruction. Under the Act, other than the Board of Directors of a company, a scheduled
      bank (where it has an interest in the sick industrial company owing to any financial assistance or obligation rendered
      or undertaken by it) may refer the company to the BIFR. The Sick Industrial Companies Act, 1985 has been repealed
      by the Sick Industrial Companies (Special Provisions) Repeal Act, 2004, subject to which the provisions of
      Companies Act will apply in relation to sick companies.
●     The Securitisation Act focuses on improving the rights of banks, financial institutions and other specified secured
      creditors, as well as asset reconstruction companies, by providing that such secured creditors can take over
      management control of a borrower company upon default and/or sell assets without the intervention of the courts,
      in accordance with the provisions of the Securitisation Act.
Regulations Governing Insurance Companies
Subsidiaries offering life insurance and non-life insurance are subject to the provisions of the Insurance Act, 1938 and
the various regulations prescribed by the Insurance Regulatory and Development Authority. These regulations regulate
and govern, among other things, registration as an insurance company, investment, the licensing of insurance agents,
advertising, the sale and distribution of insurance products and services, and the protection of policyholders' interests.
In May 2002, the Indian Parliament approved the Insurance (Amendment) Act 2002, which facilitates the appointment of


                                                            132
                                                                                      State Bank of India

corporate agents by insurance companies and prohibits intermediaries and brokers from operating as surrogate insurance
agents.
Income Tax Benefits
As a banking company, the Bank is entitled to certain tax benefits under the Indian Income Tax Act, including the
following:
●    In respect of the provision made by it for bad and doubtful debts, the Bank is entitled to a tax deduction equal to
     7.5% of the Bank's total business income, computed before making any deductions prescribed under section
     36(1)(viia) of the Income Tax Act, 1961, and of up to 10.0% of the aggregate average advances made by its rural
     branches computed in the manner prescribed. The Bank has the option of claiming a deduction of up to 5% in
     respect of the provision made by it for any assets classified pursuant to the RBI's guidelines as doubtful or loss
     assets.
●    For income tax purposes, the Bank's deposits and bonds are prescribed modes of investing and depositing surplus
     money by charitable and religious trusts.
●    The income of non-resident persons and persons not ordinarily resident in India, acquired as interest on the Bank's
     deposits in a foreign currency qualifying under section 10(15)(iv)(fa), is exempt from tax.




                                                         133
                                                   DIVIDENDS

The declaration and payment of dividends is recommended by the Bank's Central Board of Directors and approved by its
shareholders. The Bank's decision to declare a dividend depends on a number of factors including but not limited to its
profits, capital requirements and overall financial condition. The Central Board may also pay interim dividends from time
to time. All dividend payments are made in cash to the shareholders of the Bank.
Past dividends declared by the Bank have been made pursuant to the guidelines issued by RBI from time to time. RBI has
issued a revised Dividend Policy through their circular DBOD No. BC.88/21.02.067/2004-05 dated May 4, 2005. The Bank
has declared dividends for the years 2006 and 2007 in accordance with RBI's revised policy. The Bank's dividend policy is
to declare dividends only at the conclusion of the fiscal year.
The dividends declared by the Bank during the previous fiscal years ended March 31, 2003, 2004, 2005, 2006 and 2007 are
presented in the table below.
                          March 31, 2003    March 31, 2004      March 31, 2005     March 31, 2006      March 31, 2007
Number of Shares
(Face value of                526,298,878       526,298,878         526,298,878         526,298,878         526,298,878
Rs. 10 each)
Dividend Rate (%)                   85%               110%                125%                140%                140%
Total divided                     4,473.6            5,789.3             6,578.7            7,368.2              7,368.2
amount (Rs. in million)
The amounts paid as dividends in the past are not necessarily indicative of the Bank's dividend policy or dividend
amounts, if any, in the future.




                                                          134
                                                                                        State Bank of India

                                                 MANAGEMENT

         The following chart illustrates the management structure of the Bank as of December 31, 2007.




Central Board of Directors
The Central Board of Directors of the Bank is appointed in accordance with Section 19 of the Act. The Central Board is
headed by the Chairman of the Bank. Two Managing Directors are also members of the Central Board. As of January 30,
2008, in addition to the three whole-time Directors, i.e., the Chairman and two Managing Directors, there were nine other
Directors, on the Central Board, including eminent members of academia, finance and accounting professions. These
included representatives of shareholders and staff of the Bank, nominees of the Government and the RBI, as well as other
directors nominated under Section 19 of the Act. Brief particulars of the Bank's Directors as on December 31, 2007 are set
out below:




                                                           135
Sr.   Name, Designation, Address,    Nationality   Age    Other Directorships
No.   Occupation and Term
1.    Mr. O.P. Bhatt                 Indian        56     1.   SBI Funds Management (Private) Limited
      Chairman
      Appointed under Sec 19(a)                           2.   SBI Factors & Commercial Services Private Limited
      of the Act
      Address: No. 5, Dunedin                             3.   State Bank of Indore
      J.M. Mehta Road                                     4.   State Bank of Saurashtra
      Mumbai - 400 006                                    5.   State Bank of Patiala
      Occupation: Banking                                 6.   State Bank of Bikaner & Jaipur
      Term: July 1, 2006 to                               7.   State Bank of Hyderabad
      March 31, 2011                                      8.   State Bank of Mysore
      Date of Birth: March 7, 1951                        9.   State Bank of Travancore
      DIN No. 00548091                                    10. State Bank of India (California)
                                                          11. SBI Life Insurance Company Limited
                                                          12. SBI Capital Markets Limited
                                                          13. SBICAPS Ventures Limited
                                                          14. SBI Discount & Finance House of India Limited
                                                              (SBIDFHI)
                                                          15. SBI Cards & Payment Services Private Limited,
                                                          16. General Insurance Corporation of India
                                                          17. Export-Import Bank of India
                                                          18. GE Capital Business Process Management
                                                              Services Private Limited, Member
                                                          19. Member of the Governing Board and Chairman
                                                              of the Finance Committee & Campus Committee -
                                                              National Institute of Bank Management
                                                          20. Member of the Governing Board & Chairman of
                                                              the Finance Committee and Committee of
                                                              Administrators of IBPS Employees Provident
                                                              Fund - Institute of Banking Personnel Selection
                                                          21. Confederation of Indian Industry - National
                                                              Council
                                                          22. Federation of Indian Chamber of Commerce &
                                                              Industry - Chairman of the Banking & Financial
                                                              Institutions
                                                          23. Khadi & Village Industries Commission
                                                          24. National Co-operative Development Corporation-
                                                              Member



                                                    136
                                                                                     State Bank of India


Sr.   Name, Designation, Address,       Nationality   Age    Other Directorships
No.   Occupation and Term
                                                             25. High Level Committee on Financial Sector
                                                                 Reforms
                                                             26. Governing Board of Indian Council for Research
                                                                 on International Economic Relations
                                                             27. Board of Governors of XLRI, Jamshedpur
                                                             28. Institute for Development and Research in
                                                                 Banking Technology
2.    Mr. T.S. Bhattacharya         Indian            59     1.    SBI Capital Markets Limited
      Managing Director
      Appointed under Sec 19(b)                              2.    State Bank of India (Canada)
      of the Act
      Address: M-1, Kinellan Towers                          3.    Infrastructure Leasing & Financial Services
      100 A, Napean Sea Road                                       Limited (IL & FS)
      Mumbai 400 006
      Occupation: Banking                                    4.    PT Bank Indomonex (PBIM), Indonesia
      Term: February 28, 2005 to
      January 31, 2008
      Date of Birth: January 24, 1948
      DIN No. 00157305
3.    Mr. S.K. Bhattacharyya            Indian        57     Nil
      Managing Director
      Appointed under
      Sec 19(b) of the Act
      Address: M-2, Kinellan Towers
      100 A, Napean Sea Road
      Mumbai - 400 006
      Occupation: Banking
      Term: October 8, 2007 to
      October 31, 2010
      Date of Birth:
      October 31, 1950
      DIN No. 01924770
4.    Mr. Suman Kumar Bery              Indian        58     Director General, NCAER
      Non-Executive Director,
      elected under Section 19(c)
      of the Act
      Address: N-42,
      Panchshila Park,
      New Delhi - 110 017



                                                       137
Sr.   Name, Designation, Address,    Nationality   Age    Other Directorships
No.   Occupation and Term
      Occupation: Economist
      Term: with effect from
      September 15, 2005;
      three years and eligible
      for re-election for a
      further three years,
      maximum six years
      continuously
      Date of Birth: July 18, 1949
      DIN No. 01943092
5.    Dr. Ashok Jhunjhunwala         Indian        54     1.    Polaris Software Lab Limited
      Non-Executive Director,                             2.    Tejas Networks Private Limited
      elected under Section 19(c)                         3.    Sasken Communications Technologies Limited
      of the Act                                          4.    Midas Communication Technologies Private
                                                                Limited
      Address: Professor,                                 5.    Bharat Electronics Limited
      Telecom & Networks (TeNeT)                          6.    National Research Development Corporation
      Group Department of                                       Limited
      Electrical Engineering                              7.    Vishal Bharath Comnet (Sec.25 Company)
      IIT Madras                                          8.    National Internet Exchange of India Limited.
      Chennai - 600 036                                         (Sec.25 Company) - Member - Governing Council
      Occupation: Academician                             9.    Institute for Development & Research in
                                                                Banking Technology (IDRBT)
      Term: with effect from                              10. 3i Infotech Limited
      September 15, 2005;
      three years and eligible                            11. Tata Teleservices (Maharashtra) Limited
      for re-election for a                               12. Member of the Scientific Advisory to the Prime
      further three years,                                    Minister (SAC-PM)
      maximum six years                                   13. Member of the Army Information Technology
      continuously                                            Advisory Board, Army Headquarters, New Delhi
                                                          14. Member of the Executive Council of Jawaharlal
      Date of Birth:                                          Nehru University
      June 22, 1953
                                                          15. Member of the Governing Council of the Institute
      DIN No. 00417944                                        of Financial Management and Research, Chennai
                                                          16. Member of the Board, I-Tech (International
                                                              Training and Education Centre on HIV), Chennai
6.    Mr. Ananta C. Kalita           Indian        59     Nil
      Employee Representative
      Director, appointed under
      Section 19(ca) of the Act
      Address: Head Assistant,
      State Bank of India


                                                    138
                                                                                       State Bank of India


Sr.   Name, Designation, Address,        Nationality   Age    Other Directorships
No.   Occupation and Term
      Zonal Office
      Bhangagarh
      Guwahati 781 005
      Occupation: SBI Employee,
      Term: with effect from
      July 15, 2003; three years or
      until a successor is appointed
      and eligible for re-appointment;
      maximum tenure of six years
      continuously
      Date of Birth: June 1, 1948
      DIN No. 00609564
7.    Mr. Amar Pal                       Indian        59     Nil
      Employee Representative
      Director, appointed under
      Section 19(cb) of the Act
      Address: Deputy Manager,
      Official Languages Department,
      State Bank of India, Local
      Head Office, Chandigarh.
      President, All India State Bank
      of India Officers' Federation
      House No.354
      Sector 37-A
      Chandigarh - 160 037
      Occupation: SBI Employee
      Term: August 19, 2005 to
      March 31, 2008
      Date of Birth: April 1, 1948
      DIN No. 01944128
8.    Mr. Piyush Goyal                   Indian        43     1.    Flashnet Infosolutions (I) Limited
      Non-Executive Director,                                 2.    Thane Belapur Industries Association
      nominated under Section 19(d)                                 Infrastructure Development Centre
      of the Act
      Address: 28, Sonmarg,                                   3.    S.V. Shah Constructions Services Private Limited
      14th Floor, Napean Sea Road                             4.    Flash Agro Farms Private Limited
      Opp. J.B. Petit Hall                                    5.    Intercon Advisers Private Limited
      Mumbai - 400 006                                        6.    Managing Committee, Indian Merchants Chamber
      Occupation: Chartered
      Accountant/Industrialist


                                                        139
Sr.   Name, Designation, Address,        Nationality   Age    Other Directorships
No.   Occupation and Term
      Term: with effect from
      January 23, 2004; three years or
      until a successor is nominated
      and eligible for re-nomination,
      maximum tenure six years
      continuously
      Date of Birth: June 13, 1964
      DIN No. 00024431
9.    Dr. Deva Nand Balodhi              Indian        61     Nil
      Non-Executive Director,
      nominated under Section 19(d)
      of the Act
      Address: 669, Military Road,
      1st Floor, Anand Parbat
      New Delhi - 110 005
      Occupation: Working
      Journalist
      Term: with effect from July 9,
      2007; three years and eligible
      for re-nomination, maximum
      tenure six years continuously
      Date of Birth: July 14, 1946
      DIN No. 01946041
10.   Prof. Mohd. Salahuddin Ansari Indian             61     Nil
      Non-Executive Director,
      nominated under Section 19(d)
      of the Act
      Address: Professor
      Madhupur College
      Madhupur (District Deoghar)
      Jharkhand - 815 353
      Occupation: Professor of
      Commerce
      Term: with effect from July 9,
      2007 for three years and
      eligible for re-nomination ,
      maximum tenure six years
      continuously
      Date of Birth: July 30, 1946
      DIN No. To be applied for.


                                                        140
                                                                                        State Bank of India


 Sr.    Name, Designation, Address,      Nationality   Age     Other Directorships
 No.    Occupation and Term
 11.    Mr. Arun Ramanathan              Indian        58      1.    Infrastructure Development Finance Company Ltd.
                                                                     (IDFC)
        GOI Nominee Director,                                  2..   India Infrastructure Finance Company Limited
        appointed under Section 19(e)                                (IIFCL)
        of the Act
        Address: Secretary                                     3.    Industrial Development Bank of India Ltd.
        (Financial Services)                                         (IDBI Ltd.)
        Department of Financial                                4.    Life Insurance Corporation of India
        Services, Ministry of Finance,
        Government of India                                    5.    ICICI Bank.
        Parliament Street
        New Delhi - 110 001
        Occupation: Member of the
        Indian Administrative Services
        Term: with effect from
        January 18, 2008 until further
        orders
        Date of Birth: April 25, 1949
        DIN No. (to be applied for)
 12.    Ms. Shyamala Gopinath            Indian        58      1.    RBI Central Board - Director
        RBI Nominee Director,                                  2.    National Housing Bank - Director
        appointed under Section 19(f)
        of the Act                                             3.    Export Import Bank of India - Director
        Address: Deputy Governor
        RBI, Central Office
        Mint Road
        Mumbai 400 001
        Occupation: Central Banker
        Term: with effect from
        September 28, 2004 until
        further orders
        Date of Birth: June 20, 1949
        DIN No. To be applied for.
The Central Board meets regularly in accordance with the requirements of the Bank, with a minimum of six meetings per
year. The Central Board meetings were held nine times during fiscal year 2007 and seven times during the nine-month
period ended December 31, 2007.
Brief Biographies of the Directors
Mr. O.P. Bhatt (Chairman)
Mr. Bhatt assumed charge as Chairman of the Bank in July 2006. Under his leadership, the Bank has undertaken
technological upgrades. Mr. Bhatt has held several critical positions in retail, corporate and international banking,
including Managing Director of State Bank of Travancore, Chief General Manager of the Bank's North-East Circle and the
Bank's Representative in Washington D.C. Mr. Bhatt joined the Bank as a direct recruit officer in 1972.
                                                         141
Mr. T. S. Bhattacharya (Managing Director)
Mr. Bhattacharya joined the Bank as a direct recruit officer in 1969. Prior to the present assignment as Managing Director
and Group Executive (Corporate Banking), he was the Managing Director of State Bank of Indore. Mr. Bhattacharya has
also headed the retail banking, marketing and product development and international merchant banking and international
correspondent banking departments of the Bank. Mr. Bhattacharya retires on January 31, 2008.
Mr. S. K. Bhattacharyya (Managing Director)
Mr. Bhattacharyya joined the Bank as a direct recruit officer in 1972. Prior to his present assignment as Managing Director
and Chief Credit and Risk Officer of the Bank, he was the Managing Director of the State Bank of Bikaner and Jaipur. He
has also served as Chief General Manager of the Bank's Hyderabad Circle and as Managing Director of SBI International
(Mauritius) Limited.
Mr. Suman Kumar Bery
Mr. Suman Kumar Bery is a director elected by the shareholders under section 19(c) of the Act with effect from September
15, 2005, for three years and, if re-elected, for a further period of three years. Mr. Bery is a reputed economist and is
currently the Director General (CEO) of National Council of Applied Economic Research (NCAER), New Delhi, having
earlier worked with the World Bank and also as Advisor with the RBI.
Dr. Ashok Jhunjhunwala
Dr. Ashok Jhunjhunwala is a Director elected by the shareholders under section 19(c) of the Act, with effect from
September 15, 2005, for three years and if re-elected, for a further period of three years. Mr. Jhunjhunwala is a Professor of
the Department of Electrical Engineering and leads the Telecommunications and Computer Network Group (TeNeT) at IIT,
Madras that is working closely with the industry in the development of a number of telecom and computer network
systems.
Mr. Ananta C. Kalita
Mr. Ananta Chandra Kalita is a Director nominated under section 19(ca) of the Act, representing the workmen staff, with
effect from July 15, 2003, for a period of three years or until he ceases to be a workman employee of the Bank or until
further orders, whichever is earlier. Mr. Kalita shall not hold office continuously for a period exceeding six years. Mr. Kalita
is the Head Assistant, State Bank of India, Zonal Office, Guwahati.
Mr. Amar Pal
Mr. Amar Pal is a Director nominated by the Central Government under section 19(cb) of the Act, representing the non-
workmen staff, with effect from August 19, 2005 until March 31, 2008, which is the date on which he will attain the age of
superannuation, or until he ceases to be an officer of the Bank, whichever is earlier. Mr. Pal is the Deputy Manager at the
Chandigarh Local Head Office of the Bank.
Mr. Piyush Goyal
Mr. Piyush Goyal is a Director nominated by the Central Government under section 19(d) of the Act, with effect from
January 23, 2004, for three years or until the nomination of his successor, whichever is later (maximum six years). Mr. Goyal
is a Chartered Accountant and was previously a Director on the Board of the Bank of Baroda. Mr. Goyal is also the
Chairman & Managing Director of Flashnet Infosolutions (I) Limited.
Dr. Deva Nand Balodhi
Dr. Balodhi is a Director nominated by the Central Government under section 19(d) of the Act, with effect from July 9, 2007,
for three years or until the nomination of his successor, whichever is later (maximum six years). He is a working journalist
and his areas of interest include rural economy and agriculture. Mr. Balodhi was earlier Media Advisor to the Chief
Minister, Uttarakhand.




                                                              142
                                                                                         State Bank of India

Prof. Mohd. Salahuddin Ansari
Professor Ansari is a Director nominated by the Central Government under section 19(d) of the Act, with effect from July
9, 2007, for three years or until the nomination of his successor, whichever is later (maximum six years). Professor Ansari
is active in academia and is presently the Professor at Madhupur College, Jharkhand. Professor Ansari has also been a
member of Parliament.
Mr. Arun Ramanathan
Mr. Arun Ramanathan is a Director nominated under section 19(e) of the Act (nominated by the Government) with effect
from January 18, 2008. Mr. Ramanathan is Secretary (Financial Services) in Ministry of Finance, Government of India.
Ms. Shyamala Gopinath
Ms. Shyamala Gopinath is a Director nominated under section 19(f) of the Act (nominated by the RBI), with effect from
September 28, 2004. Ms. Gopinath is the Deputy Governor of the RBI.
Central Management Committee
The Central Management Committee ("CENMAC") comprises of the Chairman, the Managing Directors and all Deputy
Managing Directors of the Bank. It is headed by the Chairman and is the highest non-Central Board level policy-making
body of the Bank. The CENMAC also deliberates and facilitates the day-to-day affairs of the Bank. The Bank has a system
in place to delegate powers to the various tiers of management. The Bank believes the Central Board has established a
positive functioning relationship with the senior management of the Bank.
 Person                             Designation
 Mr. O.P. Bhatt                     Chairman
 Mr. T.S. Bhattacharya              Managing Director & Group Executive (Corporate Banking)
 Mr. S.K. Bhattacharyya             Managing Director & Chief Credit & Risk Officer
 Mr. Abhijit Datta                  Deputy Managing Director & Group Executive (Mid Corporate)
 Mr. K. Sitaramam                   Deputy Managing Director & Group Executive (National Banking)
 Ms. Bharati Rao                    Deputy Managing Director & Corporate Development Officer.
 Mr. Deepak Chawla                  Deputy Managing Director (Corporate Strategy & New Businesses)
 Mr. Anup Banerji                   Deputy Managing Director & Group Executive (Rural Business)
 Mr. Ashok Mukand                   Deputy Managing Director & Chief Financial Officer
 Mr. H. G. Contractor               Deputy Managing Director & Group Executive (Wholesale Banking)

Corporate Governance
The Central Board has established the following committees (a) to ensure compliance with the Act and corporate
governance requirements and (b) for operational reasons.
(1)   Executive Committee;
(2)   Audit Committee;
(3)   Shareholders' and Investors' Grievance Committee;
(4)   Risk Management Committee of the Board;
(5)   Special Committee of Directors for Monitoring Large Value Frauds;
(6)   Customer Service Committee;
(7)   Technology Committee; and
(8)   Committee of the Board on Rural Sector Business.


                                                           143
Executive Committee of the Central Board
The Executive Committee of the Central Board ("ECCB") constituted in accordance with the requirements of section 30 of
the Act, comprises the Chairman, the Managing Directors, the Director nominated under section 19(f) of the Act, and all
or any of the other Directors who are normally residents or may, for the time being, be present at any place within India
where ECCB meetings are held. The ECCB meets once every week.
In accordance with the Act, the ECCB exercises powers delegated by the Central Board and its functions are subject to the
conditions imposed by the Central Board. Further, Regulations 46 and 47 of the State Bank of India General Regulations,
1955, provide that, subject to the general or special directions of the Central Board, ECCB may deal with any matter within
the competence of the Central Board.
Audit Committee
The Audit Committee ("ACB") functions under RBI guidelines and complies with the provisions of Clause 49 of the
Listing Agreement to the extent that they do not violate the directives and guidelines issued by RBI. The ACB was last re-
constituted with effect from January 14, 2008. The composition and functions of the ACB are set out below:
Composition of the ACB
In accordance with RBI guidelines, the ACB has six members, including two full time Directors, two official Directors
(nominees of the Government and the RBI), and three non-official, non-executive Directors, one of whom is a Chartered
Accountant. Meetings of the ACB are chaired by a non-executive Director.
The members of the ACB are:
1.    Mr. Piyush Goyal - Director, Chairman (ACB);
2.    Mr. S. K. Bery - Director - Member;
3.    Dr. Ashok Jhunjhunwala - Director - Member
4.    Mr. Arun Ramanathan - GOI Nominee - Member (Ex officio);
5.    Ms. Shyamala Gopinath, RBI Nominee - Member (Ex officio);
6.    Mr. T.S. Bhattacharya, Managing Director and GE (CB) - Member (Ex officio).
7.    Mr. S.K. Bhattacharyya, Managing Director and Chief Credit and Risk Officer - Member (Ex officio).
Functions of the ACB
(a)   The ACB provides directions to, and oversees the operation of, the total audit function of the Bank i.e., the
      organisation, realisation and quality control of the internal audit and inspection within the Bank and follow-up on
      the statutory and external audit of the Bank and inspection by the RBI.
(b)   The ACB reviews the internal inspection and audit functions of the Bank, including the system, its quality and its
      effectiveness in terms of follow-up. It reviews the inspection reports of specialised and extra-large branches and
      branches with unsatisfactory ratings. It also focuses on the follow-up of:
            inter-branch adjustment accounts;
            unreconciled and long outstanding entries in inter-bank accounts and nostro or vostro accounts;
            arrears in the balancing of books at various branches;
            acts of fraud; and
            all other major areas of housekeeping.
(c)   The ACB obtains and reviews half-yearly reports of the Compliance Department of the Bank.
(d)   The ACB follows up on all the issues raised in the long form audit reports of the statutory auditors. It also interacts


                                                            144
                                                                                          State Bank of India

      with the external auditors before the finalisation of the annual/semi-annual financial accounts and reports.
For the year ended March 31, 2007 and the nine months ended December 31, 2007, ten and six meetings of the ACB,
respectively, were held to review various matters connected with internal control, systems and procedures and other
aspects as required in terms of RBI guidelines.
Shareholders'/Investors' Grievance Committee
Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Shareholder'/Investors' Grievance
Committee ("SIGCB") of the Board was formed on January 30, 2001, to review shareholders' and investors' complaints
regarding transfer of shares, non-receipt of balance sheet, non-receipt of interest on bonds/declared dividends, etc. The
Committee was last reconstituted with effect from September 1, 2007.
Composition of SIGCB
1.    Mr Suman Kumar Bery, Shareholder Director, Chairman;
2.    Dr. D. N. Balodhi, Director, Member;
3.    Managing Director and GE (CB), Member; and
4.    Managing Director and Chief Credit and Risk Officer, Member.
The SIGCB held four meetings during the year ended March 31, 2007 and three meetings in the nine-month period ended
December 31, 2007, and reviewed complaints received. During the year ended March 31, 2007 and the nine-month period
ended December 31, 2007, 3,699 and 4,802 complaints, respectively, were received and resolved within the stipulated period
excepting those pending in courts and cases where duplicate shares have to be issued with the approval of the ECCB.
Risk Management Committee of the Board
The Risk Management Committee of the Board ("RMCB") was constituted with the approval of the Central Board on
March 23, 2004, to oversee the policy and strategy for integrated risk management relating to credit risk, market risk and
operational risk. The Committee was last reconstituted with effect from September 1, 2007.
Composition of the Committee
The Committee has four members:
Managing Director and Chief Credit and Risk Officer, Chairman of Committee;
Managing Director and GE (CB); and
Two non-executive directors - Mr. Suman Kumar Bery and Dr. Ashok Jhunjhunwala.
The RMCB meets a minimum of four times per year, once in each quarter. The RMCB met four times during the year ended
March 31, 2007 and has met three times in the nine months ended December 31, 2007.
Special Committee of Directors for Monitoring of Large Value Frauds (Rs. 10 million and above)
At its meeting held on March 29, 2004, the ECCB approved the constitution of the Special Committee of Directors for
monitoring of large value frauds (Rs. 10 million and above). The major functions of the Committee are to monitor and review
all cases of fraud of Rs. 10 million and above, with a view to identifying systemic lacunae, and reasons for delay in
detection and reporting; to monitor progress of CBI and police investigation, recovery position; to ensure that any staff
accountability exercise is completed quickly; to review the efficacy of remedial action taken to prevent recurrence of fraud;
and to put in place suitable preventive measures. The Committee was last reconstituted with effect from September 1,
2007, with the following members. As of December 31, 2007, the Bank did not detect any fraud which had any significant
impact on its operating results.




                                                            145
Composition of the Committee
1.    Managing Director and Chief Credit and Risk Officer, Chairman;
2.    Managing Director and Group Executive (CB);
      (Both the present MDs became members of the Committee from November 14, 2007)
3.    Two Directors from the Audit Committee of the Central Board - Mr. Piyush Goyal and Mr. Suman K. Bery; and
4.    Two other Directors from the Central Board of the Bank - Dr. D. N. Balodhi and Prof. Md. Salahuddin Ansari.
      The Committee met five times during the year ended March 31, 2007 and twice during the nine months ended
      December 31, 2007.
Customer Service Committee of the Board
The Customer Service Committee of the Board was constituted on August 26, 2004, to bring about ongoing improvements
in the quality of customer service provided by the Bank. The Committee was last reconstituted with effect from September
1, 2007.
Composition of the Committee
1.    Managing Director and Group Executive (CB), Chairman of the Committee;
2.    Managing Director and Chief Credit and Risk Officer;
      (Both Managing Directors became members of the Committee from November 14, 2007)
3.    Dr. Ashok Jhunjhunwala (Non-Executive Director); and
4.    Prof. Md. Salahuddin Ansari (Non-Executive Director).
      (Both Managing Directors became members of the Committee from November 14, 2007)
      Three meetings of the Committee were held during the year ended March 31, 2007 and two meetings were held in the
      nine months ended December 31, 2007.
Technology Committee of the Board
The Technology Committee of the Board was constituted on August 26, 2004, to track the progress of the Bank's IT
initiatives. It was reconstituted with effect from September 1, 2007, with the following Directors:
1.    Dr. Ashok Jhunjhunwala, Chairman;
2.    Mr Piyush Goyal (alternate Chairman);
3.    Managing Director and Group Executive (CB); and
4.    Managing Director and Chief Credit and Risk Officer.
      (Both Managing Directors became members of the Committee from November 14, 2007)
The Committee met nine times during the year ended March 31, 2007 and four times during the nine months ended
December 31, 2007.
Committee of the Board on Rural Sector Business
The Committee of the Board on Rural Sector Business was constituted on October 27, 2005, as part of the Bank's special
focus on the agricultural sector and was reconstituted with effect from, September 1, 2007, with the following Directors:
1.    Dr. D.N. Balodhi, Chairman;                     3.    Managing Director and Group Executive (CB); and
2.    Prof. Md. Salahuddin Ansari.                    4.    Managing Director and Chief Credit and Risk Officer.
      (Both Managing Directors were also inducted into the Committee from November 14, 2007)
The Committee met twice during the year ended March 31, 2007 and twice during the nine-months ended December 31,
2007.


                                                           146
                                                                                              State Bank of India

Shareholdings of Directors on the Central Board
Except as set out below, no Director holds any Equity Share of the Bank.
    Name                                                Number of Equity Shares                Number of Equity Shares
                                                             (pre-Issue)                           (post-Issue)*
    Mr. O.P Bhatt                                                  250                                     300
    Mr. T.S. Bhattacharya                                           53                                      63
    Mr. S.K. Bhattacharyya                                         119                                     142
    Mr. Suman Kumar Bery                                           500                                     600
    Dr. Ashok Jhunjhunwala                                         500                                     600
    Mr. A.C. Kalita                                                 50                                      60
    Mr. Amar Pal                                                    69                                      82
*       The number of Equity Shares for the column entitled Number of Equity Shares (post-Issue) has been calculated assuming full
        subscription to rights in this Issue and any fractional entitlements have been ignored.
Compensation for Executives and the Central Board
The salary structure for the Chairman and Managing Directors of the Bank is fixed by the Government. Dearness allowance
is to be paid as equivalent to Group A officials of the Government. The salary and allowances of Deputy Managing
Directors are paid according to the Bank's Officers' Service Rules.
With respect to compensation for members of the Central Board, sitting fees are paid as decided by the Government. As
of December 31, 2007, fees payable for Central Board meetings are Rs. 5,000 per meeting and for other Board-level
Committees fees are Rs. 2,500 per meeting. The following tables set forth all compensation paid by the Bank to the
directors for the fiscal year ended March 31, 2007.
Terms of Appointment of the Bank's Chairman are as follows:
Mr. O.P. Bhatt, Chairman
Mr. O.P. Bhatt was appointed as a whole-time Director of the Bank with effect from April 26, 2006. He was later appointed
Chairman with effect from July 1, 2006.
A.   Remuneration:
     Mr. O.P. Bhatt will receive a gross salary of Rs. 0.659 million for the fiscal year 2007-08.
B.   Perquisites:
     In addition to the salary, Mr. O.P. Bhatt is entitled to certain perquisites
Terms of appointment of the Bank's Managing Directors are as follows:
1.   Mr. T.S. Bhattacharya, Managing Director
     Mr. T.S. Bhattacharya was appointed as a whole-time Director of the Bank with effect from February 28, 2005.
     Mr. Bhattacharya retires on January 31, 2008.
A.   Remuneration:
     Mr. T.S. Bhattacharya will receive a salary of Rs. 0.694 million for the fiscal year 2007-08.
B.   Perquisites:
     In addition to the salary, Mr. T.S. Bhattacharya is entitled to certain perquisites.
2.   Mr. S.K. Bhattacharyya, Managing Director
     Mr. S.K. Bhattacharyya was appointed as a whole-time Director of the Bank with effect from October 8, 2007.
A.   Remuneration:
     Mr. S.K. Bhattacharyya will receive a salary of Rs. 0.633 million for the fiscal year 2007-08.
B.   Perquisites:
     In addition to the salary, Mr. S.K. Bhattacharyya is entitled to certain perquisites.

                                                                147
Changes in the Central Board of Directors during the last three years
 Name                     Section    Date of                Date of              Reason
                          under      Appointment            Cessation
                          the Act
 2004-05
 Mr. K. Ashok Kini        19 (b)     April 1, 2004          ------               Appointed as whole-time Director
                                                                                 by the GOI
 Mr. Chandan              19 (b)     December 17, 2003      February 1, 2005     Superannuated on January 31, 2005
 Bhattacharya
 Mr. T.S. Bhattacharya    19 (b)     February 28, 2005      ------               Appointed as whole-time Director
                                                                                 by the GOI
 Mr. Ajay G. Piramal      19 (c)     September 1, 2001      July 15, 2004        Resigned
 Dr. I.G. Patel           19 (c)     September 1, 2001      July 21, 2004        Resigned
 Dr. I.G Patel            19 (c)     September 1, 2004      ------               Independent Director elected by
                                                                                 shareholders
 Mr. Ajay G. Piramal      19 (c)     September 1, 2004      ------               Independent Director elected by
                                                                                 shareholders
 Mr. K.S. Parikh          19 (d)     July 17, 2001          July 23, 2004        Resigned
 Mr. N.S. Sisodia         19 (e)     July 11, 2003          February 1, 2005     Superannuated on January 31, 2005
 Mr A.V. Sardesai         19 (f)     December 27, 2003      September 28, 2004   RBI nominated Ms. Shyamala
                                                                                 Gopinath
 Ms. Shyamala Gopinath 19 (f)        September 28, 2004     ------               Nominated by RBI vice Mr. A.V.
                                                                                 Sardesai
 2005-06
 Mr. K. Ashok Kini        19 (b)     April 1, 2004          January 1, 2006      Laid down office on attaining
                                                                                 superannuation on December 31,
                                                                                 2005
 Dr. I.G. Patel           19 (c)     September 1, 2004      July 17, 2005        On account of his sad demise
 Mr. Suman Kumar Bery     19 (c)     September 10, 2002     August 10, 2005      Resigned
 Prof. M.S. Swaminathan 19 (c)       August 31, 2005        -------              Independent Director elected
                                                                                 unopposed due to vacancy caused
                                                                                 by Dr. I.G. Patel's demise
 Mr. P.R. Khanna          19 (c)     September 10, 2002     September 9, 2005    Completion of term
 Mr. Suman Kumar Bery     19 (c)     September 15, 2005     -------              Independent Director elected by
                                                                                 shareholders
 Dr. Ashok Jhunjhunwala 19 (c)       September 15, 2005     -------              Independent Director elected by
                                                                                 shareholders
 Mr. Shantha Raju         19 (cb)    Originally- May 20,
                                     1999
                                     Extension- May 20, May 20, 2005             Completion of his term on May 19,
                                     2002                                        2005
 Mr. Amar Pal             19 (cb)    August 19, 2005        -------              Non-Workmen          Employee
                                                                                 Representative nominated by the
                                                                                 GOI
 Mr. Ashok Jha            19 (e)     July 14, 2005          ------               GOI nominee Director


                                                          148
                                                                                  State Bank of India


Name                     Section   Date of              Date of               Reason
                         under     Appointment          Cessation
                         the Act
2006-07
Mr. A.K. Purwar          19 (a)    November 13, 2002    June 1, 2006          Laid down office on attaining
                                                                              superannuation on May 31, 2006
Mr. O.P. Bhatt           19 (a)    July 1, 2006         -----                 Appointed as Chairman by the GOI
Mr. O.P. Bhatt           19 (b)    April 26, 2006       * Appointed as        Appointed as Managing Director
                                                        Chairman with         (whole-time Director) by the GOI
                                                        effect from July 1,
                                                        2006
Mr. Yogesh Agarwal       19 (b)    October 10, 2006     -------               Appointed as Managing Director
                                                                              (whole-time Director) by the GOI
Mr. Ashok Jha            19 (e)    July 14, 2005        October 30, 2006      Elevated to post of Finance
                                                                              Secretary and Mr. Vinod Rai
                                                                              nominated on the Central Board in
                                                                              his place
Mr. Vinod Rai            19 (e)    October 31, 2006     -------               Secretary (Financial Sector) - GOI
                                                                              nominee, vice Mr. Ashok Jha
2007-08 (until January
20, 2008)
Mr. Yogesh Agarwal       19 (b)    October 10, 2006     July 1, 2007          Consequent upon his appointment
                                                                              as Chairman of IDBI Ltd.
Mr. S.K. Bhattacharyya   19 (b)    October 8, 2007      ----                  Appointed as Managing Director
                                                                              (whole-time Director) by the GOI
Prof. M.S. Swaminathan 19 (c)      August 31, 2005      Resignation w.e.f.    Prof. Swaminathan resigned from
                                                        April 11, 2007        Bank's Central Board consequent
                                                        accepted by Central   upon his nomination to the Rajya
                                                        Board on May 12,      Sabha
                                                        2007
Mr. Ajay G. Piramal      19(c)     September 1, 2004    August 31, 2007       On completion of his tenure
Dr. Deva Nand Balodhi    19 (d)    July 9, 2007         ----                  Independent Director nominated by
                                                                              the GOI
Prof. Md. Salahuddin     19 (d)    July 9, 2007         ----                  Independent Director nominated by
Ansari                                                                        the GOI
Mr. Arun Singh           19 (d)    July 25, 2003        July 30, 2007         Consequent upon nomination of
                                                                              new Director by the GOI
Mr. Rajiv Pandey         19 (d)    January 23, 2004     July 30, 2007         Consequent upon nomination of
                                                                              new Director by the GOI
Mr. Vinod Rai            19 (e)    October 31, 2006     Resigned w.e.f.       Appointed as CAG and resigned
                                                        January 06, 2008      wef January 6 2008
                                                        accepted by
                                                        Central Board on
                                                        January 24, 2008
Mr. Arun Ramanathan      19 (e)    January 18, 2008     ---                   Secretary (Financial Services) - GOI
                                                                              nominee, vice Mr. Vinod Rai

                                                       149
Key Managerial Personnel
The details of the Bank's key managerial personnel as on January 20, 2008 are as follows:
 Name                Age     Designation       Education     Previous          Total         Date of             Gross
                                                             Position          Years of      joining            Salary
                                                                               Experience    the Bank       per month
                                                                               (including                         (Rs.)
                                                                               relevant
                                                                               experience)
 Mr O.P. Bhatt       56      Chairman          M.A.          Managing          35 Years      July 1,         55,290.00
                                                             Director                        1972
 Mr T.S.             59      Managing          M.Sc.         Managing          38 Years      September       53,915.25
 Bhattacharya                Director                        Director                        8, 1969
                                                             (SB Indore)
 Mr S.K.             57      Managing          B.A.(Hons)    Managing          35 Years      July 1, 0972    51,165.75
 Bhattacharyya               Director                        Director (SBBJ)
 Mr Abhijit Datta    58      Deputy Managing M.A.(Eco)       Deputy            35 Years      July 4, 1972    55,038.45
                             Director & Group                Managing
                             Executive (Mid                  Director and
                             Corporate)                      Corporate
                                                             Development
                                                             Officer
 Mr K. Sitaramam     58      Deputy Managing M.A.            Managing          36 Years      February 1,     54,901.50
                             Director & Group                Director                        1971
                             Executive                       (SBT)
                             (National
                             Banking)
 Mrs Bharati Rao     59      Deputy Managing M.A. (Eco)      Deputy           35 Years       August 7,       54,838.50
                             Director &                      Managing                        1972
                             Corporate                       Director and
                             Development                     Chief Credit and
                             Officer                         Risk Officer
 Mr Deepak Chawla    59      Deputy Managing M.A. (Eco)      Managing       35 Years         July 1,         54,438.60
                             Director                        Director and                    1972
                             (Corporate                      CEO, SBI Funds
                             Strategy & New                  Management
                             Businesses)                     Pvt Ltd
 Mr Anup Banerji     57      Deputy Managing M.A.            Chief General     34 Years      October 31,     54,038.70
                             Director & Group (History)      Manager                         1973
                             Executive (Rural
                             Business)
 Mr Ashok Mukand     58      Deputy Managing B.Sc.           Chief General     37 Years      December 14,    52,572.40
                             Director &Chief                 Manager                         1970
                             Financial Officer
 Mr H.G. Contractor 53       Deputy Managing B.A.            Chief General     33 Years      August 14,      52,572.40
                             Director & Group                Manager                         1974
                             Executive
                             (Wholesale
                             Banking)

All the above-mentioned key managerial personnel are permanent employees of the Bank.


                                                           150
                                                                                            State Bank of India

Interest of Directors and Key Managerial Personnel
The Non-Executive Directors of the Bank may be deemed to be interested to the extent of fees, payable to them for
attending meetings of the Central Board or a Committee. The Chairman and Managing Directors may be deemed to be
interested to the extent of remuneration paid to them for services rendered by them as whole-time directors appointed by
the Government. All the directors may also be deemed to be interested to the extent of Equity Shares, if any, already held
by them or their dependants and relatives in the Bank, or that may be subscribed for and allotted to them, out of the present
Issue in terms of the Letter of Offer and also to the extent of any dividend payable to them and other distributions in
respect of the said Equity Shares. The Directors may also be regarded as interested in the Equity Shares, if any, held by or
that may be subscribed by and allotted to the companies, firms or trusts, in which they are interested as directors,
members, partners and/or trustees.
The key managerial personnel of the Bank do not have any interest in the Bank other than to the extent of the
remuneration or benefits to which they are entitled as per their terms of appointment and reimbursement of expenses
incurred by them during the ordinary course of business and to the extent of the Equity Shares held by them or their
dependants in the Bank, if any.
Loans to Directors and key managerial personnel from the Bank as on December 31, 2007.
Except as described below, none of the Bank's Directors and key management personnel have availed themselves of personal loans.
 Name                   House Building Loan            Employee Temporary Advance     Soft Furnishing loan      Total
                      Amount          Interest          Amount        Interest      Amount         Interest     Amount
                      Outstanding     Rate              Outstanding   Rate          Outstanding Rate            Outstanding
                      (Rs.In                            (Rs. In                     (Rs. In                     (Rs. In
                      million)                          million)                    million)                    million)
 Mr O.P.Bhatt         0.160               Up to         Nil            N/A          Nil             N/A         0.160
                                          0.110–5%
                                          Above
                                          0.110–10%

 Mr S.K.              Individual: 0.309 10%             Nil            N/A          Nil             N/A         0.309
 Bhattacharyya        Commercial: 0.359 13.5%                                                                   0.359

 Mr K.Sitaramam       0.556               Up to 1.1     Nil            N/A          Nil             N/A         0.556
                                          lac : 5%
                                          Above 1.1
                                          lac: 11%

 Mrs Bharati Rao      (i) 0.392           Up to 1.1     Nil            N/A          Nil             N/A         0.392
                                          lac: 5%
                                          Above 1.1
                                          lac to
                                          5 lac: 10%
                      (ii) Addl.          12%                                                                   0.138
                      Housing Loan:
                      Rs 0.138

 Mr Deepak Chawla     Nil                 N/A           0.004          Nil          Nil             N/A         0.004
                                                        (Festival
                                                        Advance)
 Mr Anup Banerji      0.592               Up to 1.1     Overdraft -    11.0%        Nil             N/A         1.052
                                          lac : 5%      0.440
                                          Above 1.1     Festival       Nil
                                          lac : 11%     Advance -
                                                        0.020

 Mr Ashok Mukand      0.047 (Int.                       Nil            N/A          Nil             N/A         0.047
                      amount on H/L,
                      principal already
                      repaid)




                                                                 151
Except as disclosed below the Bank has not entered into any contract, agreement or arrangement during the preceding
two years from the date of this Letter of Offer in which the Directors are interested indirectly and no payments have been
made to them in respect of these contracts, agreements or arrangements or are proposed to be made to them. Except as
stated otherwise in this Letter of Offer, the Bank's Directors and its key managerial personnel have not taken any loan from
the Bank.
Loans to Relatives of Director:
Shri Amar Pal (Other than those specifically exempted by RBI i.e. Housing Loan, Car Loan to an employee of the bank, and
loans against specified securities)
 Sr. No.    Date of               Name of                      Relationship       Nature of Amount           Rate of
            Sanction              Borrower                     with Director      Loan                       Interest
 1.         March 31, 2007        M/s Ductile Auto             Brother            EPC       7.50 million     10%
                                  Engg. P. Ltd                                    EBP       5 million
 2.         March 23, 2007        M/s Fitex Industries Ltd.    Brother            EPC       60 million       9.75% under
                                                                                  EBP       55 million       Gold Card
Changes in the Bank's Key Managerial Personnel during the last three years
2004-05
 Name                             Designation        Date of joining Date of Leaving     Reasons
 Shri K. Ashok Kini               MD                 01.04.2004                          Appointed as MD
 Ms. Ritu Anand                   DMD &CEA           01.10.2004                          Appointed as Chief Economic
                                                                                         Advisor on contract basis
 Shri R.K.Sinha                   DMD (I&MA)         31.10.2004          Retired
 Shri S.Santhanakrishnan          DMD & CDO          30.11.2004          Retired
 Shri Ashwini Kumar Sharma        DMD & CFO          06.12.2004          Posted as DMD
 Shri Abhijit Datta               DMD &CDO           9.12.2004           Posted as DMD
 Shri P.K. Mitra                  DMD (I&MA)         20.12.2004          Posted as DMD
 Shri Yogesh Agarwal              DMD & CFO          27.12.2004                          Appointed as MD of State
                                                                                         Bank of Patiala
 Shri C. Bhattacharya             Managing                               31.01.2005      Retired
                                  Director & Group
                                  Executive (CB)
 Shri T.S. Bhattacharya           Managing         28.02.2005                            Appointed as MD
                                  Director & Group
                                  Executive (CB)
 Shri B.D. Sumitra                DMD & GE (IB)                          28.02.2005      Retired

2005-06
 Name                             Designation        Date of joining Date of Leaving     Reasons
 Shri K. Ashok Kini               Managing                               31.12.2005      Retired
                                  Director &GE
                                  (NB)
 Shri A.G. Kalmankar              DMD &GE (IB)                           28.02.2006      Retired
 Shri R.N. Ramanathan             DMD (IT)                               28.02.2006      Retired



                                                              152
                                                                           State Bank of India

2006-07
 Name                   Designation      Date of joining Date of leaving   Reasons
 Ms Bharati Rao         DMD & GE (IB)    05.04.2006                        Posted as DMD
 Shri V.K. Gupta        DMD & CCO        07.04.2006                        Posted as DMD
 Shri P.P. Pattanayak   DMD (IT)         27.04.2006                        Posted as DMD (IT)
 Shri O.P. Bhatt        Managing         26.04.2006      30.06.2006        Appointed as MD
                        Director & GE
                        (NB)
 Shri A.K. Purwar       Chairman                         31.05.2006        Retired
 Shri P.P. Pattanayak   DMD (IT)                         27.06.2006        Posted as MD, SBM
 Shri O.P. Bhatt        Chairman         01.07.2006                        Appointed as Chairman
 Shri V.K. Gupta        DMD & CCO                        11.07.2006        Deputed as MD, SBIDFHI Ltd.
 Shri Y. Vijayanand     DMD & GE         01.08.2006                        Posted as DMD & GE (A & S)
                        (A&S)
 Shri Deepak Chawla     DMD (Corporate 25.09.2006                          Posted as DMD
                        Strategy & New
                        Business)
 Shri Anup Banerji      DMD & GE         25.09.2006                        Posted as DMD
                        (Rural Business)
 Shri Yogesh Agarwal    Managing         10.10.2006                        Appointed as MD
                        Director & GE
                        (NB)
 Shri Arun Shandilya    DMD &CFO         17.10.2006                        Posted as DMD & CFO.
 Shri M.M. Lateef       DMD ( Global     01.11.2006                        Posted as DMD & GE (Global
                        Markets)                                           Markets)
 Shri S.K. Hariharan    DMD & GE (IB)                    31.03.2007        Retired




                                                153
2007-08
 Name                           Designation         Date of joining Date of leaving     Reasons
 Shri Yogesh Agarwal            MD &GE(NB)                           30.06.2007         Appointed as CMD, IDBI Bank
 Shri K.Sitaramam               DMD &GE (NB) 02.07.2007                                 Posted as DMD & GE (NB)
 Shri S.K. Bhattacharyya        MD & CC & RO 08.10.2007                                 Appointed      as   Managing
                                                                                        Director
 Shri Y. Vijayanand             DMD & GE                             31.08.2007         Retired
                                (A&S)
 Shri M.M. Lateef               DMD (Global                          31.08.2007         Retired
                                Markets)
 Ms Ritu Anand                  DMD & CEA                            30.09.2007         Completion of contract
 Shri H.G. Contractor           DMD & GE            25.10.2007                          Posted as DMD
                                (Wholesale
                                Banking)
 Shri Arun Shandilya            DMD & CFO                            21.01.2008         Appointed as MD, SBBJ
 Shri Ashok Mukand              DMD & CFO           26.11.2007                          Posted as DMD
 Shri Ashwini Kumar Sharma      DMD (IT)                             30.11.2007         Retired
 Shri P.K.Mitra                 DMD (I & MA)                         31.12.2007         Retired

Note: The date of appointment is the date when the relevant person became a key managerial person
Employees Share Purchase Scheme
The Bank is proposing an employee share purchase scheme ("ESPS"). The Government has, by its letter no. F.No.11/7/
2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to the Government authorisation, the Bank's
Central Board has, at its meeting held on February 1, 2008, approved the ESPS. The Bank may issue a maximum of 86,17,500
Equity Shares to its Eligible Employees (as defined therein).
The primary objectives of the scheme are:
a.    to provide an incentive to Eligible Employees, to stimulate their efforts towards the continued success of the Bank,
      and to contribute to the growth and profitability of the Bank;
b.    to provide a means to attract, reward and retain talent at the Bank;
c.    to reward Eligible Employees for their continued support and contribution towards the Bank's growth; and
d.    to encourage equity ownership by Eligible Employees by providing them with the means to acquire a proprietary
      interest in the Bank.
The ESPS shall remain open for a period commencing from March 28, 2008 to April 15, 2008. The issue price is Rs. 1,590 per
Equity Share which is equivalent to the price of the Equity Shares issued through this Issue. The terms and conditions of
the ESPS will be in accordance with the provisions of the SEBI (Employee Stock Option Scheme and Employees Stock
Purchase Scheme) Guidelines, 1999 and the issuances of shares will be done in compliance with the relevant guidelines/
regulations/circulars. The ESPS shall be administered by the Administration Committee (as defined therein) which will
include two Deputy Managing Directors, as members. The Administration Committee has been authorised to determine
inter alia details of the offer of, and the payment for, the Equity Shares to be issued under the ESPS. The Administration
Committee will frame suitable policies and systems to ensure that there is no violation of the SEBI (Insider Trading)
Regulations, 1992, the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and the SEBI (Prohibition of Fraudulent
and Unfair Trading Practice relating to the Securities Market) Regulations, 1995.
The allotment of Equity Shares issued pursuant to the ESPS will occur subsequent to this Issue.

                                                           154
                                                                                       State Bank of India

                                    RELATED PARTY TRANSACTIONS

          For a detailed description of the Bank's related party transactions, see "Auditor's Report" on page 161 of this
Letter of Offer.




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

The Financial Statements have been prepared in accordance with the accounting policies followed by the Bank which
conform to Generally Accepted Accounting Principles in India and RBI Guidelines as applicable to the Bank. The following
are significant differences between Indian GAAP and U.S. GAAP limited to those sign differences that are appropriate to
the Bank's financial statements. However, they should not be construed as being exhaustive, and no attempt has been
made to identify possible future differences between Indian GAAP and U.S. GAAP as a result of prescribed changes in
accounting standards nor to identify future differences that may affect the Bank's financial statements as a result of
transactions or events that may occur in the future. In certain respects, the Financial Statements reflect adjustments made
in accordance with applicable statutory requirements and regulatory guidelines and accounting practices in India, which
change from time to time and may have been applied prospectively. As a result, the periods covered by the Financial
Statements and the Bank's results on a period-by-period basis may not be directly comparable.

 Indian GAAP                                                    U.S. GAAP
 Historical cost convention                                     Historical cost convention
 Uses historical cost, but assets maybe written down to         Uses historical cost, but assets maybe written down to
 reflect an impairment loss, if required. Property, plant and   reflect an impairment loss, if required. No revaluations are
 equipment may be re-valued to fair value. No                   allowed except for securities and derivatives, which are
 comprehensive guidance available for derivatives.              required to be fair valued under specified circumstances.
 Correction of errors                                           Correction of errors
 Restatement is not required. The effect of correction is The correction of material errors usually results in the
 included in the current year income statement as a prior restatement of relevant prior periods.
 period item. The nature and amount of prior period item
 should be disclosed separately in the statement of profit
 and loss in such a manner that its impact on current year
 profits or losses can be perceived.
 Changes in accounting policies                                 Changes in accounting policies
 The cumulative effect of the change is recognised and          Effective from fiscal years beginning after 15 December
 disclosed in the income statement in the period in which       2005, changes in accounting policy are accounted for
 the change is made except as specified in certain              retrospectively. Comparative information is restated, and
 standards (transitional provisions) where the change           the amount of the adjustment relating to prior periods is
 during the transition period resulting from adoption of the    adjusted against the opening balance of retained earnings
 standard has to be adjusted against opening retained           of the earliest year presented. An exemption applies when
 earnings and the impact needs to be disclosed. Any             it is impracticable to change comparative information.
 Change in an accounting policy which has a material            Transition provisions are generally specified in new
 effect should be disclosed.                                    standards and may be different.
 Preparation of consolidated financial statements               Preparation of consolidated financial statements
 All listed entities as per listing requirements or entities that Presentation of consolidated financial statements is
 are in the process of getting their securities listed are mandatory for all enterprises for all periods presented.
 required to present consolidated financial statements in
 their presentation of annual financial statements.
 Consolidated financial statements are however not
 mandatory for interim period financial statements.




                                                            156
                                                                                           State Bank of India


Indian GAAP                                                      U.S. GAAP
Business Combinations                                            Business Combinations
Restricts the use of pooling of interest method to               Business combinations are accounted for using the
circumstances which meet the criteria listed for an              purchase method only (except as discussed below).
amalgamation in the nature of a merger. In all other cases,      Several differences can arise in terms of date of
the purchase method is used. Business Combinations.              combination, calculation of share value to use for purchase
                                                                 price, especially if the Indian GAAP method is
                                                                 'amalgamation' or pooling. For combination of entities
                                                                 under common control, the accounting is done on
                                                                 historical cost basis in a manner similar to a pooling of
                                                                 interests for all periods presented.
Goodwill                                                         Goodwill
Goodwill is computed as the excess of the purchase price Goodwill is computed as the excess of the purchase price
over the carrying value of the net assets acquired.      over the fair value of the net assets acquired.
Negative Goodwill arising on consolidation (i.e., the Negative Goodwill arising on consolidation (i.e., the
excess of the fair value of net assets acquired over the excess of the fair value of net assets acquired over the
aggregate purchase consideration)                        aggregate purchase consideration)
Negative goodwill arising on consolidation is computed           Negative goodwill after reassessment is allocated to
based on the book value of assets (not the fair value) of        reduce proportionately the fair value assigned to non
assets taken over or acquired and is credited to the capital     monetary assets. Any negative goodwill remaining is
reserve account, which is a component of shareholders'           recognised as an extraordinary gain.
funds.
Intangible Assets                                                Intangible Assets
Intangible assets are capitalized if specific criteria are met   When allocating purchase price of a business combination,
and are amortized over their useful life, generally not          companies need to identify and allocate such purchase
exceeding 10 years. The recoverable amount of an                 price to intangible assets, based on specific criteria.
intangible asset that is not ready for use or is being           Intangibles that have an indefinite useful life are required
amortized over a period exceeding 10 years should be             to be tested, at least annually, for impairment. Intangible
reviewed at least at each financial year end even if there is    assets that have finite useful life are required to be
no indication that the asset is impaired.                        amortized over their estimated useful lives.
Segment Information                                              Segment Information
Specific requirements govern the format and content of a         A Public Company is required to report information about
reportable segment and the basis of identification of a          its products and services, the geographical areas in which
reportable segment. Both business and geographical               it operates and its major customers. Reportable segments
segments are identified and either of the two is classified      are required to be identified based on specified criteria.
as primary segment (with the other one being classified as       Segments are identified based on operating segments and
the secondary segment). Segments are identified based            the way the chief operating decision maker evaluates
on risks and returns and the internal reporting structure.       financial information for purposes of allocating resources
While reporting Segmental information, accounting                and assessing performance. Internal financial reporting
policies used for preparing the financial statements of the      policies apply (even if accounting policies differ from
enterprise must be used.                                         group accounting policy.)




                                                             157
Indian GAAP                                                     U.S. GAAP
Property, plant and equipment                                   Property, plant and equipment
Use of historical cost or revalued amounts is permitted. Upward revaluation is not permitted. Downward
Revaluation of an entire class of assets or of a selection of valuations are required when future undiscounted cash
assets is required to be carried out on a systematic basis. flows are less than the carrying value of the asset.
Banks provide depreciation over the asset's useful life         The depreciable amount of an item of property, plant and
subject to rates of depreciation prescribed by the              equipment is allocated on a systematic basis over its
Regulator (RBI) in respect of computers. Depreciation on        useful life, reflecting the pattern in which the entity
revaluation portion can be recouped out of revaluation          consumes the asset's benefits. Upward revaluation is not
reserve.                                                        permitted.
Unrealised gains/losses on investments                          Unrealised gains/losses on investments
All investments are categorised into "Held to Maturity",        Investments are categorised into 'Held to Maturity',
"Available for Sale" and "Held for Trading". "Held to           'Available for Sale' or 'Trading' based on management's
Maturity" securities are carried at their acquisition cost or   intent and ability. While 'Trading' and 'Available For Sale'
at amortised cost if acquired at a premium over the face        securities are valued at fair value, 'Held to Maturity'
value. "Available for Sale" and "Held for Trading"              securities are valued at cost, adjusted for amortisation of
securities are valued periodically as per RBI guidelines.       premiums and accretion of discount. The unrealised gains
Net depreciation, if any, within each category of               and loses on 'Trading' securities are taken to the income
investments is recognised in the profit and loss account.       statement, while those of 'Available for Sale' securities are
The net appreciation if any, under each classification is       reported as a separate component of stockholders equity,
ignored.                                                        net of applicable taxes, until realised.
Amortisation of premium/discount on the purchase of Amortisation of premium/discount on the purchase of
investments                                         investments
No amortisation of premium/discount is allowed on Premium/discount is amortised on all categories of
investments except for the premium on investments investments.
categorised as Held to Maturity.
Allowances for credit losses                                    Allowances for credit losses
All credit exposures are classified as per RBI guidelines,      Loans are tested for impairment and placed on a non-
into performing and non-performing assets (NPAs).               accrual basis (i.e., interest income is not accrued) when
Further, non-performing assets are classified into              based on current information and events, management
substandard, doubtful and loss assets for provisioning          estimates that the collection of outstanding interest and
based on the criteria stipulated by the RBI. Provisions are     principal amounts are doubtful. The impairment of a loan
made in accordance with RBI guidelines. For restructured        is measured based on the present value of the loan's
assets, a provision is made in accordance with the              effective interest rate, or at the observable market price of
guidelines issued by the RBI, which require that a              the loan, or at the fair value of the collateral if the loan is
provision equal to the present value of the interest            collateral dependent. The impairment is recognised if the
sacrifice be made at the time of restructuring. In addition     measured value is less than the recorded investment in the
to the specific provisioning made on NPAs the Bank              impaired loan.
maintains general provisions to cover potential credit
losses of standard assets in accordance with RBI
guidelines.




                                                            158
                                                                                            State Bank of India


Indian GAAP                                                       U.S. GAAP
Loan origination fees/costs                                       Loan origination fees/costs
Loan origination fees are recognised upfront on their             Non-refundable loan origination fees (net of direct loan
becoming due. Loan origination costs are taken to the             origination costs) are deferred and recognised as an
profit and loss account in the year in which accrued/             adjustment to yield over the life of the loan. The
incurred.                                                         adjustment is made using the interest method based on the
                                                                  contractual terms of the loan.
Derivatives                                                       Derivatives
Derivative transactions comprise swaps and options.               All derivatives are required to be recognised as assets or
Swaps and options are disclosed as off-balance sheet              liabilities on the balance sheet and measured at fair value
exposures. The swaps/options are bifurcated as trading or         with changes in fair value being recognised in earnings.
hedge transaction. Trading swaps/options are revalued at          Fair values are based on quoted market prices, or absent
the balance sheet date with the resulting unrealised gain/        quoted market prices, based on valuation techniques
loss being recognised in the profit and loss account and is       which may take into account available current market and
included in other assets or other liabilities.                    contractual prices of similar instruments as well a time
                                                                  value underlying the positions.
Hedged swaps/options are accounted for on an accrual
basis.                                               If a derivative is a hedge, depending on the nature of the
                                                     hedge, the effective portion of the hedge's change in fair
                                                     value is either offset against the change in fair value of the
                                                     hedged asset, liability or firm commitment through income
                                                     or held in equity until the hedge item is recognised in
                                                     income. The ineffective portion of a hedge is immediately
                                                     recognised in income.
Revenue Recognition                                               Revenue Recognition
Revenue is recognised on accrual basis when there is no           Revenue involving the sales of services is recognised
uncertainty of its ultimate collection. Realised gains on         when certain criteria's have been met, including whether
investments under HTM category are recognised in the              persuasive evidence of an arrangement exists, delivery has
profit and loss account and subsequently appropriated to          occurred or services have been rendered, the sales price is
capital reserve account in accordance with RBI guidelines.        fixed or determinable and, collectability is reasonably
                                                                  assured.
Employee Benefits                                                 Employee Benefits
AS 15 (Revised) (mandatory with effect from accounting            Obligation for defined benefit plans must be measured
period commencing on or after December 7, 2006) requires          using projected unit credit method.
the use of projected unit credit method to determine
                                                                  If at the beginning of the year, the actuarial gains or
benefit obligation. Additional liability arising upon the first
                                                                  losses exceed 10% of the greater of the projected benefit
application of the Standard may be either adjusted against
                                                                  obligation or the market-related value of plan assets, then
opening reserve or in the alternative (with effect from
                                                                  such amount is not recognized immediately, but amortized
October 17, 2007), may be charged as an expense over a 5
                                                                  over the average remaining service period of active
year period.
                                                          employees expected to receive benefits under the plan.
All actuarial gains and losses have to be recognised
immediately in profit and loss account.                   The discount rate to be used is determined with reference
                                                          to market yields of high quality corporate bonds.
The discount rate to be used is determined with reference
to market yields of government securities.                Past service costs are amortized over the service period or
                                                          life expectancy of workers.



                                                              159
Indian GAAP                                                     U.S. GAAP
An enterprise should recognise past service cost as an
expense on a straight-line basis over the average period
until the benefits become vested. To the extent that the
benefits are already vested immediately following the
introduction of, or changes to, a defined benefit plan, an
enterprise should recognise past service cost immediately.
Taxation                                                        Taxation
Income tax comprises the current tax (i.e., amount of tax for   Income taxes are accounted for as per the provisions of
the period determined in accordance with the Income Tax         SFAS No. 109, Accounting for Income Taxes. SFAS No.
Act, 1961 and the rules framed there under) and the             109 requires recognition of deferred tax assets and
deferred tax charge or credit reflecting the tax effects of     liabilities for the expected future tax consequences of
timing differences between accounting income and taxable        events that have been included in the consolidated
income for the period.                                          financial statements or tax returns.
The deferred tax charge or credit and the corresponding         Under this method, deferred tax assets and liabilities are
deferred tax liabilities or assets are recognised using the     determined based on the difference between the financial
tax rates that have been enacted or substantially enacted       reporting and tax basis of assets and liabilities, using
by the balance sheet date. Deferred tax assets are              enacted tax rates expected to apply to taxable income in
recognised only to the extent there is reasonable certainty     the years that the temporary differences are expected to
that the assets can be realised in future. However, where       be recovered or settled. The effect on deferred tax assets
there is unabsorbed depreciation or carried forward loss        and liabilities of a change in tax rates is recognised in the
under taxation laws, deferred tax assets are recognised         statement of income in the period of enactment. Deferred
only if there is virtual certainty of realisation of such       tax assets are recognised subject to a valuation allowance
assets. Deferred tax assets are reviewed as of each             based upon management's judgment as to whether
balance sheet date and written down or written up to            realisation is considered more likely than not that the asset
reflect the amount that is reasonably/virtually certain to      will be realised.
be realised.
Employee Stock Option Plan                                      Employee Stock Option Plan
As per the guidance note on Accounting for Employee As per FASB 123R -Accounting for Share Based
Share based payments, effective for all share based grants Payments, employee stock based compensation plans
made after April 1, 2005, employee share based plans are have to be accounted for using the fair value method.
classified into equity settled, cash settled and employee
share based payments plans with alternatives. Any plan
falling into the above categories can be accounted for
adopting fair value method or intrinsic value method as of
the grant date. An enterprise using the intrinsic value
method is required to make fair value disclosures. Listed
entities are also to observe the specific guidance by
market regulator (SEBI).




                                                            160
                                                                                        State Bank of India

                              AUDITOR'S REPORT (UNCONSOLIDATED)

The Board of Directors
State Bank of India
Central Office,
State Bank Bhavan,
Madam Cama Road,
Nariman Point,
Mumbai 400 021
Dear Sirs,
1.    We have been engaged to examine and report on the financial information of the State Bank of India (the "Bank")
      annexed to this report as approved by the Board of Directors of the Bank, which has been prepared in terms of the
      requirements of Paragraph B, Part II of Schedule II to the Companies Act, 1956, (the "Act") and the Securities and
      Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 as amended to date ("SEBI
      Guidelines") issued by Securities and Exchange Board of India Act 1992, to the extent they are not inconsistent with
      the Banking Regulation Act, 1949 (the Banking Regulation Act). The financial information is proposed to be
      included in the offer document of the Bank in connection with its proposed rights issue of Equity Shares.
2.    The financial information has been prepared by the Bank's Management from the Bank's audited financial statements
      for the years ended March 31, 2003, 2004, 2005, 2006 and 2007, which were prepared in accordance with the
      provisions of the Banking Regulations Act. The preparation and presentation of this financial information is the
      responsibility of the Bank's management.
3.    The financial statements of the Bank for the year ended on March 31, 2007 were audited by us, and the unaudited
      profit and loss statement of the Bank for the six months' period ended on September 30, 2007 were subjected to
      limited review and reported upon by us in accordance with Auditing and Assurance Standard (AAS) 33
      "Engagement to Review Financial Statement" issued by the Institute of Chartered Accountants of India (ICAI). The
      audit for the other financial years was conducted by the auditors, as mentioned herein below, and accordingly
      reliance has been placed on the financial statements audited by them for the said years:
       Year ended     Names of the Auditors
       March 31,
       2003           B. M. Chatrath & Co.; Vyas & Vyas; S Viswanathan; S P Chopra & Co., G S Mathur & Co.; R
                      Devendra Kumar & Associates; Venugopal & Chenoy; Salarpuria Jajodia & Co.; O P Totla & Co.;
                      K S Aiyar & Co.; B D Bansal & Co.; Nundi & Associates; K P Rao & Co.; Phillipos & Co.
       2004           B. M. Chatrath & Co.; Vyas & Vyas; S Viswanathan; S P Chopra & Co., G S Mathur & Co.; R
                      Devendra Kumar & Associates; Venugopal & Chenoy; Chaturvedi & Co.; O P Totla & Co.; K S
                      Aiyar & Co.; B D Bansal & Co.; Sarma & Co.; K P Rao & Co.; Phillipos & Co.
       2005           B. M. Chatrath & Co.; Khandelwal Jain & Co.; S Viswanathan; G S Mathur & Co., Vinay Kumar &
                      Co.; M M Nissim & Co.; Venugopal & Chenoy; Chaturvedi & Co.; O P Totla & Co.; Patro & Co.;
                      Kanwalia & Co.; Sarma & Co.; K P Rao & Co.; Phillipos & Co.
       2006           B. M. Chatrath & Co.; Khandelwal Jain & Co.; RGN Price & Co.; G S Mathur & Co., Vinay Kumar
                      & Co.; M M Nissim & Co.; Laxminiwas & Jain; Chaturvedi & Co.; S K Mittal & Co.; Kanwalia &
                      Co.; M Choudhury & Co.; K P Rao & Co.; Vardhman & Co.
      The aforesaid audited financial statements include figures of the branches, which were audited by branch auditors
      who were appointed as per the Guidelines of the Reserve Bank of India (RBI). The financial statement for the half
      year ended September 30, 2007 includes figures of the branches reviewed by concurrent auditors and certified by the
      branch managers as per the Guidelines of RBI. The unaudited Balance Sheet of the Bank as on September 30, 2007


                                                           161
     and unaudited Cash Flow Statement of the Bank for the six months' period ended on September 30, 2007 were
     subjected to limited review and reported upon by M/s Chaturvedi & Co., one of the auditors of the Bank, in
     accordance with AAS 33 "Engagement to Review Financial Statement" issued by the ICAI and we have relied on
     such financial statements.
4.   The financial information for the above periods was examined to the extent practicable, for the purpose of audit of
     financial information in accordance with the AAS issued by the ICAI. Those Standards require that we plan and
     perform our audit to obtain reasonable assurance, whether the financial information under examination is free of
     material misstatement. We have reported on the above statement on the basis of information and explanations
     provided by the management, books and records produced to us and such other tests and procedures, which in our
     opinion, were necessary for our reporting. These procedures included comparison of the attached financial
     information of the Bank with the respective audited/reviewed financial statements.
5.   In accordance with the terms of our engagement with the Bank, we have also examined the following other financial
     information set out in the following annexures prepared by the management and approved by the Board of Directors
     for the purpose of inclusion in the Letter of Offer:
     a)     Statement of Cash Flows for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and half year
            ended on September 30, 2007 set out in the Annexure 5.
     b)     Statement of Major Changes in the activities of the Bank during the financial years ended March 31, 2003,
            2004, 2005, 2006, 2007 and half year ended on September 30, 2007 set out in the Annexure 6.
     c)     Statement of Dividend paid by the Bank for the financial years ended March 31, 2003, 2004, 2005, 2006 and
            2007 set out in the Annexure 7.
     d)     Statement of Other Income for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and half year
            ended on September 30, 2007 set out in the Annexure 8.
     e)     Statement of Loans and Borrowings as at September 30 2007 and material terms and conditions including
            interest rates and repayment terms set out in the Annexure 9.
     f)     Statement of Accounting Ratios for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and half
            year ended on September 30, 2007 set out in the Annexure 10.
     g)     Capitalisation statement as at September 30, 2007 set out in Annexure 11.
     h)     Statement of Tax Shelter for the financial years ended March 31, 2003, 2004, 2005, 2006 and 2007 set out in the
            Annexure 12.
6.   We report that:
     i.     Effects of changes in accounting policies made during the period from April 1, 2002 to September 30, 2007
            for complying with the Mandatory Accounting Standard, have not been given in the attached financial
            information for the periods prior to such changes in the accounting policies.
     ii.    RBI has issued/amended various guidelines from time to time on Income Recognition, Asset Classification,
            Provisioning in respect of Standard Assets/Non Performing Advances/Other Assets, Creation and
            Utilisation of floating provisions, Classification of Investments and valuation thereof, Treatment of
            depreciation on investments, Treatment of amortisation of premium on investments and amortisation of
            expenditure incurred on Voluntary Retirement Scheme. The Bank has carried out necessary amendments in
            its accounting policies in the relevant years to be in conformity with the said RBI guidelines. The effects of
            such changes have not been given in the attached financial information in the period prior to which these
            changes came into effect.
     iii.   Effects of material amounts relating to adjustments for the previous years have not been given in the
            attached financial information to the periods to which they relate.


                                                           162
                                                                                        State Bank of India

     iv.     Attention is drawn to note A.6.a of Notes to the summarised financial information set out in Annexure 4 to
             this report regarding non compliance of Accounting Standard 15 "Employee Benefits" (revised 2005) for
             the reasons stated therein, the impact of which has not been ascertained by the management.
     v.      The Group has, during the year ended March 31, 2007, recognised diminution in the value of investments
             in Regional Rural Banks to the extent of its capital contribution, which hitherto was being recognised by
             the Group without restricting to its capital contribution. The effect of the same on the profits of earlier
             years has not been recomputed to reflect this change in the accounting policy.
     As informed by the management of the Bank, it is not practicable for the management to recast/make adjustments in
     the financial information to reflect such changes referred to above. The impact of the above on the financial
     information for the period covered by this report is not ascertainable.
7.   Subject to our comments in Para 6 above, we report that, in our opinion, the attached summarised financial
     information (comprising of Statement of Assets and Liabilities in Annexure 1 and Statement of Profit and Loss
     Account in Annexure 2) along with the principal accounting policies (Annexure 3), notes to the summarised financial
     information (Annexure 4) and other financial information as set out in Annexure 5 to Annexure 12 respectively to this
     report, have been prepared in accordance with Para B, Part II of Schedule II of the Act and SEBI Guidelines. The
     summarised financial information has been prepared after making such regroupings as were, in our opinion,
     considered appropriate. As a result of these regroupings, the amount reported in the summarised financial
     information may not necessarily be the same as those appearing in the audited/reviewed financial statements for the
     relevant years/period.
8.   This report is intended solely for use of the management and for inclusion in the offer document in connection with
     the proposed rights' issue of Equity Shares of the Bank. Our report should not be used, referred to or distributed
     for any other purpose without our prior written consent.
9.   This report should neither in any way be construed as a re-issuance or redrafting of any of the previous Audit/
     Review Reports issued by us or by other firms of Chartered Accountants nor construed as a new opinion on any
     financial statements referred to herein.

           For M. M. Nissim & Co.               For Khandelwal Jain & Co.                For R G N Price & Co.
           Chartered Accountants                  Chartered Accountants                  Chartered Accountants
              Sanjay Khemani                             Pankaj Jain                       P M VEERAMANI
            Partner: M. No. 44577                   Partner: M. No. 48850                 Partner: M. No. 23933
           For S. K. Mittal & Co.                 For Vinay Kumar & Co.                   For D. P. Sen & Co.
           Chartered Accountants                  Chartered Accountants                  Chartered Accountants
                S. K. Chopra                            V. K. Agrawal                         P. L. Sarkar
            Partner: M. No. 14907                   Partner: M. No. 13795                 Partner: M. No. 51043
           For Laxminiwas & Jain                   For Chaturvedi & Co.                For Jain Kapila Associates
           Chartered Accountants                   Chartered Accountants                Chartered Accountants
            Laxminiwas Sharma                         S. C. Chaturvedi                         D. K. Kapila
            Partner: M. No. 14244                   Partner: M. No. 12705                 Partner: M. No. 16905
           For Datta Singla & Co.                 For M Choudhury & Co.                  For G. M. Kapadia & Co.
           Chartered Accountants                   Chartered Accountants                 Chartered Accountants
                 Rajiv Datta                            D. Choudhury                          Rajen Ashar
            Partner: M. No. 11546                   Partner: M. No. 52066                 Partner: M. No. 48243
           For Vardhaman & Co.
           Chartered Accountants
                V. Baskaran
            Partner: M. No. 12202
                                                          163
                                AUDITOR'S REPORT (CONSOLIDATED)

The Board of Directors
State Bank of India
Central Office,
State Bank Bhavan,
Madam Cama Road,
Nariman Point,
Mumbai 400 021
Dear Sirs,
1.    We have been engaged to examine and report on the financial information of the State Bank of India (the "Bank")
      and its subsidiaries, associates and joint ventures (the "Group") annexed to this report as approved by the Board
      of Directors of the Bank, which has been prepared in terms of the requirements of Paragraph B, Part II of Schedule
      II to the Companies Act, 1956, (the "Act") and the Securities and Exchange Board of India (Disclosure and Investor
      Protection) Guidelines, 2000 as amended to date ("SEBI Guidelines") issued by Securities and Exchange Board of
      India Act 1992, to the extent they are not inconsistent with the Banking Regulation Act, 1949 (the Banking
      Regulation Act). The financial information is proposed to be included in the offer document of the Bank in
      connection with its proposed rights issue of Equity Shares.
2.    The financial information has been prepared by the Bank's Management from the Group's audited financial
      statements for the years ended March 31, 2003, 2004, 2005, 2006 and 2007, which were prepared in accordance with
      the provisions of the Banking Regulations Act. The preparation and presentation of this financial information is the
      responsibility of the Bank's management.
3.    The financial statements of the Group for the year ended March 31, 2007 were audited by us, and the un-audited
      profit and loss statement of the Group for the six months' period ended 30th September 2007 were subjected to
      limited review and reported upon by us in accordance with Auditing and Assurance Standard (AAS) 33
      "Engagement to Review Financial Statement" issued by the Institute of Chartered Accountants of India (ICAI). The
      financial statements for the other financial years included in this report were audited by M/s B. M. Chatrath & Co.
      and accordingly we have relied on the financial statements audited by them for those years. The unaudited Balance
      Sheet of the Group as on September 30, 2007 and unaudited Cash Flow Statement of the Group for the six months'
      period ended on September 30, 2007 were subjected to limited review and reported upon by M/s Chaturvedi & Co.,
      one of the auditors of the Bank, in accordance with AAS 33 "Engagement to Review Financial Statement" issued by
      the ICAI and we have relied on such financial statements.
      The aforesaid audited financial statements include figures of the Bank which have been audited by Joint Auditors
      of the Bank (including us for the year ended March 31, 2005, 2006 and 2007) and audited financial statements of
      Bank's subsidiaries, associates and joint ventures audited by their respective statutory auditors for the respective
      years as per the Provisions of Act/Guidelines of Reserve Bank of India (RBI). The aforesaid reviewed un-audited
      Profit and Loss statement include reviewed results of the Bank reviewed by Joint Auditors of the Bank including us,
      7 subsidiaries reviewed by their respective auditors, un-reviewed results of 14 subsidiaries, 7 Joint Ventures, 24
      associates and estimated results of 4 Associates based on their annual results for the year ended March 31, 2007.
4.    The financial information for the above periods was examined to the extent practicable, for the purpose of audit of
      financial information in accordance with the AAS issued by the ICAI. Those Standards require that we plan and
      perform our audit to obtain reasonable assurance, whether the financial information under examination is free of
      material misstatement. We have reported on the above statement on the basis of information and explanations
      provided by the management, books and records produced to us and such other tests and procedures, which in our
      opinion, were necessary for our reporting. These procedures included comparison of the attached financial
      information of the Bank with the respective audited/reviewed financial statements.
5.    In accordance with the terms of our engagement with the Bank, we have also examined the following other financial
      information set out in the following annexures prepared by the management and approved by the Board of Directors
      for the purpose of inclusion in the Letter of Offer:


                                                           164
                                                                                        State Bank of India

     i.     Statement of Cash Flows for the financial years ended March 31, 2003, 2004, 2005, 2006 and 2007 set out
            in the Annexure C-5.
     ii.    Statement of Accounting Ratios for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and
            half year ended on September 30, 2007 set out in the Annexure C-6.
6.   We report that:
     iii.   Effects of changes in accounting policies made during the period from April 1, 2002 to September 30, 2007
            for complying with the Mandatory Accounting Standard, have not been given in the attached financial
            information for the periods prior to such changes in the accounting policies.
     iv.    RBI has issued/amended various guidelines from time to time on Income Recognition, Asset Classification,
            Provisioning in respect of Standard Assets/Non Performing Advances/Other Assets, Creation and
            Utilisation of floating provisions, Classification of Investments and valuation thereof, Treatment of
            depreciation on investments, Treatment of amortisation of premium on investments and amortisation of
            expenditure incurred on Voluntary Retirement Scheme. The Group has carried out necessary amendments
            in its accounting policies in the relevant years to be in conformity with the said RBI guidelines. The effects
            of such changes have not been given in the attached financial information in the period prior to which
            these changes came into effect.
     v.     Effects of material amounts relating to adjustments for the previous years have not been given in the
            attached financial information to the periods to which they relate.
     vi.    Attention is drawn to note A.6.a of Notes to the summarised financial information set out in Annexure C-4
            to this report regarding non compliance of Accounting Standard 15 "Employee Benefits" (revised 2005) for
            the reasons stated therein, the impact of which has not been ascertained by the management.
     vii.   The Group has, during the year ended March 31, 2007, recognised diminution in the value of investments
            in Regional Rural Banks to the extent of its capital contribution, which hitherto was being recognised by
            the Group without restricting to its capital contribution. The effect of the same on the profits of earlier
            years has not been recomputed to reflect this change in the accounting policy.
     As informed by the management of the Bank, it is not practicable for the management to recast/make adjustments in
     the financial information to reflect such changes referred to above. The impact of the above on the financial
     information for the period covered by this report is not ascertainable.
7.   Subject to our comments in Para 6 above, we report that, in our opinion, the attached summarised financial
     information (comprising of Statement of Assets and Liabilities in Annexure C-1 and Statement of Profit and Loss
     Account in Annexure C-2) along with the principal accounting policies (Annexure C-3), notes to the summarised
     financial information (Annexure C-4) and other financial information as set out in Annexure C-5 and Annexure C-6
     respectively to this report, have been prepared in accordance with Para B, Part II of Schedule II of the Act and SEBI
     Guidelines. The summarised financial information has been prepared after making such regroupings as were, in our
     opinion, considered appropriate. As a result of these regroupings, the amount reported in the summarised financial
     information may not necessarily be the same as those appearing in the audited/reviewed financial statements for the
     relevant years/period.
8.   This report is intended solely for use of the management and for inclusion in the offer document in connection with
     the proposed rights issue of Equity Shares of the Bank. Our report should not be used, referred to or distributed for
     any other purpose without our prior written consent.
9.   This report should neither in any way be construed as a re-issuance or redrafting of any of the previous Audit/
     Review Reports issued by us or by other firms of Chartered Accountants nor construed as a new opinion on any
     financial statements referred to herein.
     For M. M. Nissim & Co.
     Chartered Accountants

     Sanjay Khemani
     Partner: M. No. 44577


                                                           165
                                           FINANCIAL STATEMENTS

NOTE ON REFORMATTING AND REGROUPING
The Bank's financial statements are prepared in accordance with generally accepted accounting principles in India
according to which the financial statements contain figures for two years (current year and previous year) for the purpose
of comparison. The financial statements of the Bank for the years ended March 31, 2003, 2004, 2005, 2006 and 2007 as
presented hereunder have been reformatted to contain the figures for these years.
Because there were changes in the accounting policies during fiscal year 2007, which led to the regrouping of some fiscal
year 2006 financial data, the figures for fiscal year 2006 as extracted from the 2007 annual financial statements relating to
the previous year have been regrouped. Further, as there has been a change in the accounting policies during the half year
ended September 30, 2007, which led to regrouping of some of the data relating to half year ended September 30, 2006, the
figures from the income statement for the half year ended September 30, 2006 are extracted from the 2007 half yearly
income statements relating to the previous year.
Therefore, the data relating to fiscal year 2005 and fiscal year 2006 is not strictly comparable with those relating to fiscal
year 2007 as appearing herein.
The Bank had previously followed a policy of amortising premium in respect of securities in the "Held to Maturity"
("HTM") category by making an adjustment to the "provision and contingencies" line item in the Bank's profit and loss
account. In accordance with an RBI directive dated April 20, 2007, during fiscal year 2007 the Bank changed the previous
policy relating to amortisation of premium in respect of securities held in the HTM category and charged the amortisation
amount as well as marked to market losses on transfer of securities from Available for Sale ("AFS") category to the HTM
category by adjusting the Profit/(Loss) on revaluation of investments (net) line item. Based on a clarification issued by RBI
on July 11, 2007, the Bank is now required to reflect the amortization of premium in respect of securities held in HTM
category by making an adjustment to the "Interest on Investments" line item in the Bank's profit and loss account.
Accordingly, the Bank has regrouped the amortisation of premium in respect of securities held in HTM category for the
period ended September 30, 2007 to conform with the current guidelines. Other than for the period ended September 30,
2006, the Bank has not made this change with respect to any other financial periods. This change in accounting policy
does not have any impact on the Bank's net profit.
Advances: Provisions for restructured standard assets have been retained as provisions during fiscal year 2007, instead
of netting them off against Advances, as was the case during fiscal year 2006. Also claims received from Deposit Insurance
and Credit Guarantee Corporation and Export Credit Guarantee Corporation have been netted off against Advances during
fiscal year 2007 instead off retaining them as a liability item, as was the case during fiscal year 2006.
Other liabilities and provisions: The figures in "Other Liabilities and Provisions" have undergone changes to correspond
with the changes under "Advances". Accordingly, Balance Sheet figures for fiscal year 2006 have also been regrouped.
The Bank's profit and loss account has been changed so as to correlate with the corresponding items in "Assets" and
"Liabilities" in the Balance Sheet for fiscal year 2007. Therefore, the Bank's profit and loss account has also been
regrouped for fiscal year 2006.
The Bank's cash flow statement for fiscal year 2006 has been regrouped to correspond with the revised presentation of its
balance sheet for the same period.
NOTE ON THE LIKELY IMPACT OF ACCOUNTING STANDARD 15 (REVISED 2005)
The Bank's accounting policy on Retirement Benefits complies with the provisions of Accounting Standard 15
"Accounting for Retirement Benefits in the Financial Statements of Employers" ("AS-15"). AS-15 has been revised and
replaced with Accounting Standard 15 "Employee Benefits" (Revised 2005) ("AS-15 Revised"), which will be applicable to
the Bank beginning in fiscal year 2008.
Under the previous AS-15, the Bank has made provisions for retirement benefits (gratuity, superannuation benefits
(pension) and leave encashment benefit) on the basis of an annual acturial valuation done on an aggregate basis. Under

                                                             166
                                                                                           State Bank of India

AS-15 Revised, however, the amount of employee benefits is determined on the "Projected Unit Credit" method, which is
a method prescribed under the International Accounting Standard 19, and the provisioning for such amount is mandatory.
While the impact of AS-15 Revised has not been quantified, it is estimated that the amount of provision that needs to be
set aside by Indian banks under the new standard would, in general, be higher than such provision determined under the
previous standard.
As a result of implementation of AS15-Revised, the actuarial liability of the employees' benefits is likely to be increased.
AS-15 Revised provides banks with the following two options for making a provision in its books of accounts:
1.    Charge off the entire differential of increased liability (as adjusted by any tax related expense) by debit to opening
      reserve and surplus as on April 1, 2007.
2.    Charge off 20% of the differential increased liability each year for a period of 5 years by way of a debit to the profit
      and loss account in each of the five years.
Any increased funding liability in 2008 will likely decrease in future fiscal years.
The Bank’s compliance with AS-15 Revised must take effect from April 1, 1007. AS-15 Revised has not yet been applied to
the Bank's unaudited unconsolidated and consolidated financial results for the six-months ended September 30, 2007 and
nine-months ended December 31, 2007. Had the Bank applied AS-15 Revised, the Bank's financial results for these periods
would have differed from what is shown in this Letter of Offer.
The Bank has not increased its provision for employee benefits for fiscal year 2008 as a result of the expected increase
stemming from implementation of AS-15 Revised. The Bank is currently undergoing an actuarial valuation exercise to
determine which option would be most appropriate. The Bank expects to complete the actuarial valuation exercise in time
to be compliant with the revised standard by March 31, 2008.




                                                             167
                                                                                                                  ANNEXURE 1
SUMMARISED STATEMENT OF ASSETS & LIABILITIES (UNCONSOLIDATED)
                                                                                                             (Rs. in Millions)

           As on                             31-Mar-03     31-Mar-04    31-Mar-05      31-Mar-06     31-Mar-07      30-Sep-07
                                               Audited       Audited      Audited        Audited       Audited      Unaudited
                                                                                                                    Reviewed
 A         ASSETS
     1     CASH AND BALANCES
           WITH RESERVE BANK
           OF INDIA
     i     Cash in hand (including            11,362.04    12,849.81     14,361.60      20,802.31    25,301.19       23,760.02
           foreign currency notes and
           gold)
     ii    Balances with Reserve Bank        116,022.64   177,563.04    153,741.70     195,724.73   265,463.06      438,257.99
           of India in Current Account
           Total                             127,384.68   190,412.85    168,103.30     216,527.04   290,764.25      462,018.01
     2     BALANCES WITH BANKS
           & MONEY AT CALL &
           SHORT NOTICE
     I     In India                          277,726.49   165,006.66    155,394.57      86,836.35    74,999.73       66,210.81
     ii    Outside India                      46,699.07    80,246.67     69,723.12     142,236.61   153,922.91       61,759.37
           Total                             324,425.56   245,253.33    225,117.69     229,072.96   228,922.64      127,970.18
     3     INVESTMENTS
     i     Investments in India             1,678,856.08 1,816,843.62 1,924,563.94    1,572,862.05 1,433,363.22    1,746,489.06
     ii    Investments outside India           44,622.99    39,921.21    46,415.16       52,480.36    58,125.61       55,109.03
           Total                            1,723,479.07 1,856,764.83   1,970,979.1   1,625,342.41 1,491,488.83    1,801,598.09
     4     ADVANCES
     i     Bills purchased and discounted    124,049.39   148,585.53    214,707.78     248,537.49   307,871.01      328,495.39
     ii    Cash Credits, overdrafts and
           loans repayable on demand         691,167.98   693,285.18   739,152.10       958,567.73 1,254,761.73    1,307,253.87
     iii   Term Loans                        562,367.22   737,464.66 1,069,884.67     1,410,904.14 1,810,732.19    1,950,399.88
           Total                            1,377,584.59 1,579,335.37 2,023,744.55    2,618,009.36 3,373,364.93    3,586,149.14
     5     FIXED ASSETS                       23,885.48    26,451.15     26,976.92      27,529.34    28,188.67       31,814.83
     6     OTHER ASSETS                      182,005.60   179,935.28    183,907.11     223,808.43   252,923.06      341,841.04
           TOTAL (A)                        3,758,764.98 4,078,152.81 4,598,828.67    4,940,289.54 5,665,652.38    6,351,391.29
 B         LIABILITIES
     1     DEPOSITS
     I     Demand Deposits
     i     From Banks                         68,261.24    68,999.30     73,279.86       70,135.06   109,748.10       67,280.02
     ii    From Others                       379,462.63   433,909.01    492,843.35      609,821.44   710,231.64      644,146.98
     II    Savings Bank Deposits             657,827.11   795,958.82    949,071.58    1,127,239.21 1,291,364.96    1,392,656.46
     III   Term Deposits
     i     From Banks                          55,529.67    63,025.97    63,726.60       51,830.94    46,134.86       45,766.49
     ii    From Others                      1,800,152.18 1,824,293.62 2,091,553.87    1,941,433.90 2,197,731.33    2,720,694.01
           Total                            2,961,232.83 3,186,186.72 3,670,475.26    3,800,460.55 4,355,210.89    4,870,543.96
     2     BORROWINGS
     i     Borrowings in India                15,718.40    13,653.21     12,420.61      66,423.82    58,197.73       62,510.94
     ii    Borrowings outside India           77,317.79   120,660.13    179,422.53     239,988.63   338,835.62      386,867.94
           Total                              93,036.19   134,313.34    191,843.14     306,412.45   397,033.35      449,378.88




                                                               168
                                                                                           State Bank of India

           As on                           31-Mar-03    31-Mar-04      31-Mar-05     31-Mar-06     31-Mar-07     30-Sep-07
                                             Audited      Audited        Audited       Audited       Audited     Unaudited
                                                                                                                 Reviewed
     3     OTHER LIABILITIES &
           PROVISIONS
     i     Other Liabilities &             497,838.88   520,707.97     461,140.46    507,117.58   456,115.67     460,364.50
           Provisions
     ii    Subordinate Debts                34,623.25    34,631.99      34,648.45     49,858.10   144,306.90     229,975.58
           Sub Total                       532,462.13   555,339.96     495,788.91    556,975.68   600,422.57     690,340.08
           TOTAL (B)                      3,586,731.15 3,875,840.02 4,358,107.31    4,663,848.68 5,352,666.81   6,010,262.92
 C         NET ASSETS (C=A-B)              172,033.83   202,312.79     240,721.36    276,440.86   312,985.57     341,128.37
           Represented By
 D         SHARE CAPITAL                     5,262.99     5,262.99       5,262.99      5,262.99      5,262.99      5,262.99
 E         RESERVES & SURPLUS
     I     Statutory Reserves              106,794.41   116,050.50     140,871.49    170,209.24   203,790.37     203,790.37
     II    Capital Reserves                  1,125.46     1,148.31       3,028.85      4,181.05     4,181.44       4,181.44
     III   Share Premium                    35,105.73    35,105.73      35,105.73     35,105.73    35,105.73      35,105.73
     IV    Investment Fluctuation           22,711.54    43,711.54      52,538.94             -            -              -
           Reserve
     V     Foreign Currency                         -              -     2,879.64      2,934.00      2,686.04        456.55
           Translation Reserve
     VI    Revenue and Other                 1,030.33     1,030.33       1,030.33     58,744.46    61,955.61      61,955.61
           Reserves
     VII   Balance in Profit and                 3.37          3.39          3.39          3.39          3.39    30,375.68*
           Loss Account
           TOTAL (E)                       166,770.84   197,049.80     235,458.37    271,177.87   307,722.58     335,865.38
 F         TOTAL (D+E)                     172,033.83   202,312.79     240,721.36    276,440.86   312,985.57     341,128.37
           CONTINGENT
           LIABILITIES
     I     Claims against the bank           4,506.51     7,637.23       8,321.23     17,048.17    38,089.88       5,738.66
           not acknowledged as debts
     II    Liability for partly paid           440.50       671.75        551.13          28.00         28.00      1,119.78
           investments
     III   Liability on account of         523,257.59   587,203.83     917,047.09   1,343,502.87 1,972,853.05   1,886,439.50
           outstanding forward
           exchange contracts
     IV    Guaranteed given on             150,195.10   162,069.61     190,755.22    268,869.80   376,211.98     462,585.95
           behalf of constituents
     V     Acceptances, endorsements       158,676.36   211,191.95     280,167.87    370,254.83   470,506.43     652,216.40
           and other obligations
     VI    Other items for which the       223,982.90   150,147.92     197,130.48    289,110.11   208,210.83    6,802,807.42
           banks is contingently liable
           Total                          1,061,058.96 1,118,922.29 1,593,973.02    2,288,813.78 3,065,900.17   9,810,907.71
           Bills for collection             75,712.85   101,938.09     167,773.09    205,929.54    233,675.11    221,340.88

* Without appropriation to Statutory reserves, revenue and other reserves.




                                                             169
                                                                                                              ANNEXURE 2
SUMMARISED STATEMENT OF PROFIT AND LOSS ACCOUNT (UNCONSOLIDATED)
                                                                                                         (Rs in millions)
           For the Financial Year/           1-Mar-03    31-Mar-04    31-Mar-05    31-Mar-06    31-Mar-07       30-Sep-07
           Half Year Ended                    Audited      Audited      Audited      Audited      Audited       Unaudited
                                                                                                                 Reviewed
 A         INCOME
 1         Interest Earned
     1.1   Interest/Discount on             112,290.92   112,671.77   130,435.07   176,962.96   248,391.77      163,535.89
           Advances Bills
     1.2   Income on Investments            152,576.37   157,155.15   160,276.66   139,775.28   114,929.92       54,612.97
     1.3   Interest on Balances with         32,736.75    24,993.91    17,870.43    21,217.30    27,196.03        8,886.66
           RBI and other Inter Bank
           Funds
     1.4   Others                            13,266.15     9,784.09    15,697.86    21,840.15     4,392.53         *32.09
           Total                            310,870.19   304,604.92   324,280.02   359,795.69   394,910.25      227,067.61
 2         Other Income
     2.1   Commission, exchange              29,773.46    31,207.21    35,446.74    39,961.99    48,045.03       20,525.37
           and brokerage
     2.2   Profit / (Loss) on sale of        16,945.94    30,734.54    17,753.00     5,871.71     5,677.81        7,124.73
           investments (Net)
     2.3   Profit / (Loss) on revaluation      (50.64)       (2.05)            -            -   (16,775.14)     (7,402.88)
           of investments (Net)
     2.4   Profit / (Loss) on sale of           (2.71)       (4.42)       (8.26)        19.39       121.27               -
           land, buildings and other
           assets (Net) including leased
           assets
     2.5   Profit on exchange                 4,635.71     5,030.39     5,281.96    10,012.66     3,733.99        1,407.58
           transactions (Net)
     2.6   Income by way of dividends         1,372.21     1,613.12     3,932.35     3,171.83     5,969.68        1,723.19
           from subsidiaries/companies
           and or joint ventures abroad
           or in India
     2.7   Income from Financial              2,206.95     1,724.74     1,392.25     1,177.91       836.34         307.75
           Leases
     2.8   Miscellaneous income               2,521.70     5,821.08     7,401.00    14,136.53    10,083.50        8,119.65
           Total                             57,402.62    76,124.61    71,199.04    74,352.02    57,692.48       31,805.39
           Total Income                     368,272.81   380,729.53   395,479.06   434,147.71   452,602.73      258,873.00
 B         EXPENDITURE
 1         Interest Expended
     1.1   Interest on deposits             201,741.88   181,229.01   171,864.90   181,321.85   190,835.80      125,469.99
     1.2   Interest on Reserve Bank           1,953.89     1,609.56     4,086.85    13,215.58    21,415.55       14,411.83
           of India/ Inter-bank
           borrowings
     1.3   Others                             7,398.84     9,903.19     8,882.01     9,367.04    22,116.86       *7,543.00
           Total                            211,094.61   192,741.76   184,833.76   203,904.47   234,368.21      147,424.82




                                                             170
                                                                                     State Bank of India

                                                                                                      (Rs in millions)
          For the Financial Year/       1-Mar-03     31-Mar-04     31-Mar-05    31-Mar-06    31-Mar-07    30-Sep-07
          Half Year Ended                Audited       Audited       Audited      Audited      Audited    Unaudited
                                                                                                           Reviewed
2        Operating Expenses
    2.1  Payments to and provisions     56,887.16     64,476.93     69,073.48    81,230.44    79,325.81    40,215.93
         for employees
    2.2 Rent, taxes and lighting         5,647.42      6,417.67      7,231.19     7,963.51     8,965.01     4,474.06
    2.3 Printing & Stationery            1,221.74      1,461.33      1,625.07     1,756.39     1,738.73     1,032.60
    2.4 Depreciation                     4,936.90      6,983.45      7,522.11     7,291.32     6,023.92     3,113.37
    2.5 Directors' fees, allowances          6.35          7.36          9.94        12.33        10.78         4.80
         and expenses
    2.6 Auditors' fees and expenses        408.26       465.22        542.47       635.60       622.83        595.31
         (including branch auditors'
         fees and expenses)
    2.7 Law charges                        437.15       486.60        497.74        494.86       573.60       266.56
    2.8 Postages, Telegrams,               568.20       815.49        744.27      1,022.48     1,181.69       811.92
         Telephones, etc.
    2.9 Repairs and maintenance            689.18        976.75      1,339.48     1,702.71     1,891.50       994.71
    2.10 Insurance                       1,514.44      1,688.68      2,399.59     3,407.64     3,552.86     2,024.19
    2.11 Other Expenditure               7,107.43      8,673.69      9,756.38    11,733.69    14,348.44     7,167.94
          Total                         79,424.23     92,453.17    100,741.72   117,250.97   118,235.17    60,701.39
          Total Expenditure            290,518.84    285,194.93    285,575.48   321,155.44   352,603.38   208,126.21
          Profit Before Provisions and  77,753.97     95,534.60    109,903.58   112,992.27    99,999.35    50,746.79
          taxation & extraordinary
          items
          Less: Extraordinary Items              -            -             -            -            -            -
          Profit Before Provisions      77,753.97     95,534.60    109,903.58   112,992.27    99,999.35    50,746.79
          and taxation
3         Provision & Contingencies:
    3.1   Provision for Income Tax      21,488.80     15,660.57     24,472.21    16,827.08    29,793.14    17,262.30
          (Current tax)
    3.2   Provision for Income Tax          132.60   (2,762.80)    (2,306.20)     3,578.94     (198.33)       151.40
           (Deferred tax)
    3.3   Provision for Fringe                   -             -            -     4,580.00      885.00        510.00
          Benefit Tax
    3.4   Provision for other taxes           3.60     (454.16)          4.80         8.80         4.90             -
    3.5   Provision for NPAs            25,924.30     36,935.31     12,040.00     1,478.01    14,295.03      4,898.40
    3.6   Provision for Standard Assets   2,046.70       491.17      1,150.00     4,051.72     5,891.90        979.80
    3.7   Provision for Depreciation      4,195.60     4,854.77     23,383.64    38,984.97     3,792.20    (3,760.30)
          on investments
    3.8   Provision for Other Assets/   (7,087.63)     3,999.74      8,113.95     (583.96)      122.44        332.90
          Contingencies
          Total                         46,703.97     58,724.60      66,858.4    68,925.56    54,586.28    20,374.50
          Net Profit for the year       31,050.00     36,810.00     43,045.18    44,066.71    45,413.07    30,372.29
          Add/ Less Adjustments                 -             -             -            -            -            -
          Adjusted Net Profit for       31,050.00     36,810.00     43,045.18    44,066.71    45,413.07    30,372.29
          the year
          Add: Balance of Profit             3.37          3.37          3.39         3.39         3.39         3.39
          Brought forward from
          previous year
          Add: Transfer from                     -             -            -            -        28.86             -
          General Reserve
          Profit Available for          31,053.37     36,813.37     43,048.57    44,070.10    45,445.32    30,375.68
          Appropriation




                                                         171
                                                                                                           (Rs in millions)
            For the Financial Year/           1-Mar-03    31-Mar-04     31-Mar-05     31-Mar-06    31-Mar-07    30-Sep-07
            Half Year Ended                    Audited      Audited       Audited       Audited      Audited    Unaudited
                                                                                                                 Reviewed
            APPROPRIATIONS
            Transfer to Statutory Reserves 9,978.49        9,256.09      24,821.00    29,337.74    33,581.13            -
            Transfer to Capital Reserves , 16,024.74      21,022.85      10,707.94     6,327.40     3,240.40         0.00
             Investment Fluctuation
            Reserve and Revenue and
            Other Reserves
            Dividend                         4,473.59      5,789.29       6,578.74     7,368.18     7,368.18            -
            Corporate Tax on Dividend          573.18        741.75         937.50     1,033.39     1,252.22            -
            Balance carried to Balance Sheet     3.37          3.39           3.39         3.39         3.39    30,375.68
                                              31,053.37   36,813.37      43,048.57    44,070.10    45,445.32    30,375.68
            Break up of Non-Recurring
            Items Included above:
            Income:
            Profit on sale of investments             -    6,937.00       1,464.00            -            -             -
            Interest on Income tax refund             -           -       7,452.80    16,384.60            -             -
            Write back of Depreciation                -           -              -            -       174.70             -
            Write back of provisions                  -           -              -     1,280.00            -             -
            Write back of provisions           8,340.20           -              -            -            -             -
            towards securities transactions
            Exchange gain on India                    -             -             -    5,315.40             -            -
            Millennium Deposits
            Miscellaneous Income -                    -             -             -    3,166.00             -            -
            Unreconciled net credit on
            inter-branch accounts
            Sub-total (A)                      8,340.20    6,937.00       8,916.80    26,146.00       174.70             -
            Expenses:
            Voluntary Retirement Scheme        3,545.10    3,545.10        3,545.20       722.40    4,783.00             -
            Reduction in Provision for                -           -     (29,853.40)     (868.60)           -             -
            depreciation on investments
            Payments to and provisions                -             -             -    3,128.70             -            -
            for employees
            Interest on Income Tax                    -             -             -            -    2,647.60             -
            Interest on India Millennium              -             -             -   (5,635.20)           -             -
            Deposits
            Sub-total (B)                      3,545.10    3,545.10     (26,308.20)   (2,652.70)    7,430.60             -
            Total (A-B)                        4,795.10    3,391.90      35,225.00    28,798.70    (7,255.90)            -
            Tax impact thereon                 5,674.38    1,216.84      12,889.71     9,650.56    (1,551.15)            -
            Net impact on profit               (879.28)    2,175.06      22,335.29    19,148.14    (5,704.75)            -

* Interest on Swaps netted off.




                                                              172
                                                                                           State Bank of India

                                                                                                              ANNEXURE 3
Principal Accounting Policies for the year ended March 31, 2007
The principal accounting policies of the Bank have been described in brief in the following paragraphs. The material
accounting policies which were followed in the financial years ended on March 31, 2003, 2004, 2005 and 2006 and which
have changed in subsequent years have been stated in italics at the appropriate places.
1.   Basis of Preparation
     1.1.   The accompanying financial statements have been prepared under the historical cost convention. They
            conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory
            provisions, regulatory/RBI guidelines, accounting standards/ guidance notes issued by the Institute of
            Chartered Accountants of India (ICAI), and the practices prevalent in the banking industry in India. In respect
            of foreign offices, statutory provisions and practices prevailing in respective countries are complied with.
     1.2.   The preparation of financial statements requires the management to make estimates and assumptions
            considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of
            the financial statements and the reported income and expenditure during the reporting period. Management
            believes that the estimates used in the preparation of the financial statements are prudent and reasonable.
            Future results could differ from these estimates.
2.   Advances and Provisions thereon
     2.1.   Advances are shown net of provisions and unrealised interest on Non-Performing Assets (NPAs).
     2.2.   A general provision is required to be made on Standard Assets on the global portfolio. The provision rates for
            the different categories of Standard Assets are summarised below:
            a.       Direct advances to agricultural and
                     SME Sectors                                                                                    0.25%
            b.       Residential housing loans beyond
                     Rs. 20 lakhs                                                                                   1.00%
            c.       Personal Loans                                                                                 2.00%
                     Loans and advances qualifying as capital market exposures, Commercial
                     real estate loans, and Loans and advancesto systemically important NBFCs -
                     Non Deposit Taking
            d.       All other loans and advances not included in (a), (b) and (c)                                  0.40%
            Earlier Policy: During the years 2002-03,2003-04,2004-05, the general provision on standard assets on the
            global portfolio was 0.25%. In the year 2005-06, the general provision on standard assets on the global
            portfolio was 0.40% except on the advances to small and medium enterprises and direct agriculture which was
            at 0.25%.
     2.3.   Indian Offices
            2.3.1.      All advances are classified under four categories, viz. (a) Standard Assets, (b) Sub-standard Assets,
                        (c) Doubtful Assets and (d) Loss Assets.
            2.3.2.      Provisions are made on outstanding non-performing advances (net of interest not realised) as under :
                           Substandard Assets                        :     10%
                           From the year ended 2004-05               :     20% (In case of ab initio unsecured exposures
                                                                           (where realisable value of security is not more
                                                                           than 10%)


                                                              173
              Doubtful Assets
                a)     Unsecured portion at 100% after netting retainable/realisable amount of guarantee cover
                       provided by Export Credit Guarantee Corporation/ Credit Guarantee Trust for Small
                       Industries, wherever applicable.
                b)     Secured portion
                       Period for which the advance has been considered as doubtful
                        Up to one year                                                                       20%
                        One to three years                                                                   30%
                        More than three years                                                               100%
                Loss assets                                                                                 100%
         Earlier Policy:
         a)     In the case of doubtful assets for more than three years as on March 31, 2004, the percentage
                of provision on secured portion in the earlier years were 50% in 2002-03 & 2003-04, 60% in
                2004-05 and 75% in 2005-06.
         b)     In the case of advances guaranteed by the state governments the accounting policy for
                classification of account and making provisions were as under in the earlier years:
                i)     In the year 2005-06, advances guaranteed by State Governments are classified as 'sub-
                       standard' or 'doubtful' or 'loss', as the case may be, if the amount due to the bank remains
                       overdue for more than 90 days and attracts appropriate provisioning as applicable to
                       other advances.
                ii)    In the year 2004-05, advances guaranteed by State Governments were classified as
                       "sub-standard", "doubtful" or "loss", as the case may be, if the amount due to the bank
                       remains overdue for more than 180 days and attracted appropriate provisioning as
                       applicable to other advances.
                iii)   In the years 2003-04 and 2002-03, advances where State Government guarantee remain
                       default for more than two quarters as on March 31, 2000 after it is invoked at provision
                       was made at 30% of the secured portion and 100% of the unsecured portion.
         c)     In the year 2002-03, the advances were considered as non-performing if they remain overdue or
                out of order for more than 180 days as against 90 days at present.
                       "Financial Assets" sold are recognised as follows:
                i)     In case the sale is at a price lower than the Net Book Value (NBV), the difference is
                       charged to the Profit & Loss Account.
                ii)    In case the sale is at a price higher than the NBV, the surplus provision is not reversed
                       and is utilised to meet the shortfall on sale of other such non-performing financial assets.
2.3.3.   Unrealised Interest recognised in the previous year on advances which have become non-performing
         during the current year is provided for.
2.3.4.   In case of restructuring/rescheduling of advances, the difference between the present value of the
         future interest as per the original agreement and the present value of the future interest as per the
         revised agreement is provided for at the time of restructuring/rescheduling.




                                                 174
                                                                                           State Bank of India

     2.4.   Foreign Offices
            2.4.1.   Advances are classified under four categories in line with those of Indian Offices.
            2.4.2.   Provisions in respect of non-performing advances are made as per the local law or as per the norms
                     of RBI, whichever is higher.
3.   Investments
     3.1.   Investments are classified into three categories, viz. 'Held for Trading', 'Available for Sale' and 'Held to
            Maturity'.
            Under each of these categories, investments are further classified under the following six groups :
            i)       Government Securities
            ii)      Other Approved Securities
            iii)     Shares
            iv)      Debentures and Bonds
            v)       Investments in Subsidiaries/Joint Ventures and
            vi)      Other Investments
            3.1.1.   Investments that are acquired by the Bank with the intention to trade by taking advantage of short
                     term price/interest rate movement are classified under "Held for Trading". These investments are held
                     under this category for 90 days from the date of acquisition.
            3.1.2.   Investments which are intended to be held up to maturity are classified as 'Held to Maturity'.
            3.1.3.   Investments which are not classified in either of the above categories are classified as 'Available for
                     Sale'.
     3.2.   Valuation
            3.2.1.   In determining the acquisition cost of an investment:
                     (a)   Brokerage/commission received on subscriptions is deducted from the cost of securities.
                     (b)   Brokerage, commission and stamp duty paid in connection with acquisition of securities are
                           treated as revenue expenses.
                     (c)   Interest accrued unto the date of acquisition of securities i.e. broken-period interest, is
                           excluded from the acquisition cost and recognised as interest expense. Broken-period interest
                           received on sale of securities is recognised as interest income.
                     (d)   Cost is determined on the weighted average cost method.
                     (e)   The transfer of a security (from one category to another) is accounted for at the lower of
                           acquisition cost/book value/market value on the date of transfer and the depreciation, if any,
                           on such transfer is charged to Profit and Loss Account - "Profit on Revaluation of
                           Investments" as a deduction.
                     Earlier Policy: In the year 2002-03, the weighted average cost was determined at the end of year after
                     considering transactions during the year:
            3.2.2.   Individual scripts classified under 'Held for Trading' category are valued at lower of book value or
                     market value. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each
                     classification. Net depreciation in each classification, if any, is provided for while net appreciation is
                     ignored. The book value of the scripts continue to remain unchanged.


                                                            175
            3.3.3.   Investments under 'Held to Maturity' (HTM) category are carried at acquisition cost. Wherever the
                     book value is higher than the face value/redemption value, the premium on acquisition or on transfer
                     from another category is amortised over the remaining period to maturity of the security using
                     Constant Yield Method (CYM). Amortisation loss is charged to Profit and Loss Account - "Profit on
                     Revaluation of Investments" as a deduction. The book value of the security is reduced to the extent
                     of the amount amortised.
                     Earlier Policy: In the years 2002-03 & 2003-04, the premium amount was amortised equally over
                     the remaining period of maturity.
            3.3.4.   Investments under 'Available for Sale' category are valued at cost or market value, whichever is
                     lower. Where market quotations are not available, market value for this purpose is arrived at on the
                     basis of realisable market price computed as per the guidelines of the Fixed Income Money Market
                     and Derivatives Association of India (FIMMDA) / Primary Dealers Association of India (PDAI) /
                     RBI. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each
                     classification. Net depreciation in each classification, if any, is provided for while net appreciation is
                     ignored. The book value of the scripts continues to remain unchanged.
                     Earlier Policy: In the years 2002-03 & 2003-04, depreciation was recognised scrip-wise and
                     appreciation ignored.
            3.2.5.   Treasury Bills and Commercial Papers are valued at cost.
            3.2.6.   Investments in subsidiaries and joint ventures (both in India and abroad) are valued at historical cost
                     after netting off provisions, if any.
            3.2.7.   Non-Performing Investments are recognised as per RBI guidelines and provision is made as per RBI
                     norms applicable to Non-Performing Advances.
            3.2.8.   Investments in Regional Rural Banks ("RRBs") are valued at carrying cost (i.e. book value)
                     Earlier Policy: In the years 2002-03, 2003-04 and 2004-05 investments in Regional Rural Banks
                     are accounted for after netting off the provisions held on account of losses incurred by RRBs up to
                     the previous accounting period restricted to amount of the Bank's investment up to that period.
     3.3.   The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and
            Reverse Repo transactions other than transactions under the Liquidity Adjustment facility (LAF) with the
            RBI. Accordingly, the securities sold/purchased under Repo/Reverse Repo are treated as outright sales/
            purchases and accounted for in the Repo/Reverse Repo Accounts and the entries are reversed on the date of
            maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in
            Repo/Reverse Repo Account is adjusted against the balance in the Investment Account.
            Securities purchased/sold under LAF with RBI are debited/credited to Investment Account and reversed on
            maturity of the transaction. Interest expended/earned thereon is accounted for as expenditure/revenue.
4.   Derivatives
     4.1    The Bank presently deals in Interest Rate Derivatives viz. Rupee Interest Rate Swaps, Cross Currency Interest
            Rate Swaps and Forward Rate Agreements, and Currency Derivatives viz. Options and Currency Forwards.
            The Bank also deals in a mix of these generic instruments, under the portfolio of Structured Products.
     4.2.   Based on RBI guidelines, Derivatives are valued as follows:
            a)       Derivatives used for trading are marked to market and net appreciation/ depreciation is recognised in
                     the Profit and Loss Account.




                                                            176
                                                                                        State Bank of India

            b)       Derivatives used for hedging are:
                     i)    Marked to market in cases where the underlying Assets/Liabilities are marked to market. The
                           resultant gain/loss is recognised in the Profit and Loss Account.
                     ii)   Accounted on accrual basis in cases where the underlying Assets/Liabilities are not marked to
                           market.
            The net outstanding marked to market position of each type of derivative is shown either under Asset or
            Liability, as the case may be.
5.   Fixed Assets and Depreciation
     5.1.   Premises and other fixed assets are accounted on historical cost basis.
     5.2.   Depreciation is provided on the written down value method at the rates prescribed under the Income Tax Rules,
            1962, which are considered appropriate by the management. In respect of computers, depreciation is provided
            on straight line method at 33.33% per annum, as per RBI guidelines. Computer software not forming an
            integral part of hardware is depreciated fully in the year of purchase.
     5.3.   Assets costing up to Rs. 1,000 are charged off to the Profit and Loss Account.
     5.4.   In respect of fixed assets held at Foreign Offices, depreciation is provided as per the laws/norms of the
            respective countries.
     5.5.   In respect of leasehold premises, the lease amount is amortised over the period of lease.
6.   Assets given on Lease
     6.1.   In respect of assets given on lease by the Bank on or before March 31, 2001, the value of the assets given on
            lease and the amounts paid as advance for assets to be given on lease are disclosed as "Leased Assets" and
            "Capital Work-in-progress (Leased Assets)" respectively under fixed assets. Depreciation is provided on
            straight line method as per the Companies Act, 1956, and the difference between the annual lease charge
            (capital recovery) and the depreciation is taken to Lease Equalisation Account as per the guidelines issued by
            the ICAI.
     6.2.   Assets given on lease by the Bank on or after April 1, 2001 are accounted as per Accounting Standard 19
            (Leases) issued by the ICAI. Such assets are included under "Other Assets".
7.   Impairment of Assets
     7.1.   Impairment losses (if any), are recognised in accordance with Accounting Standard-28 issued by the ICAI and
            charged off to Profit and Loss Account.
8.   Foreign Currency Transactions
     8.1.   In conformity with Accounting Standard 11 (The effects of changes in foreign exchange rates) of the ICAI,
            Foreign Branches of the Bank and Offshore Banking Units ("OBUs") have been classified as Non-integral
            Operations and Representative Offices classified as Integral Operations.
     8.2.   a)       Foreign currency transactions are recorded on initial recognition in the reporting currency by
                     applying to the foreign currency amount the exchange rate between the reporting currency and the
                     foreign currency on the date of transaction.
            b)       Foreign currency monetary items are reported using the FEDAI closing spot rates.
            c)       Exchange differences arising on the settlement of monetary items at rates different from those at
                     which they were initially recorded are recognised as income or as expense in the period in which
                     they arise.



                                                           177
            Earlier Policy: In the Year 2002-03 and 2003-04
            1.      Items of income and expenditure in respect of foreign offices and assets and liabilities in foreign
                    currencies are converted at the rate of exchange prevailing at the close of the year as per RBI
                    guidelines.
            2.      Interest received and paid as well as accruals on Balance Sheet date in different currencies on Cross
                    Currency Interest Rate Swaps are converted into Indian Rupees and routed through the interest
                    account.
            3.      Interest Rate Swaps ("IRSs") and Forward Rate Agreements ("FRAs") have been used as hedging
                    instruments. The notional principals of these instruments are recorded as off Balance Sheet items.
                    Interest income and expense on IRSs and FRAs are accounted for on accrual basis.
     8.3. Non-integral Operations
            a)      All monetary/non-monetary assets and liabilities as well as contingent liabilities are translated at the
                    closing rate notified by FEDAI.
            b)      Income and expenditure are translated using the quarterly average rate notified by FEDAI at the end
                    of the respective quarter.
            c)      All resulting exchange differences are accumulated in a separate "Foreign Currency Translation
                    Reserve" account till the disposal of the net investment.
     8.4.   Integral Operations
            a)      All income and expenditure of integral operations are recorded at the rates prevalent on the date of
                    transaction.
            b)      All foreign currency monetary items are reported using the FEDAI closing spot rates.
     8.5.   Forward Exchange Contracts
            In accordance with the guidelines of FEDAI and the provisions of AS -11, net outstanding forward exchange
            contracts in each currency are revalued at the Balance Sheet date at the corresponding forward rates for the
            residual maturity of the contracts. The difference between the revalued amount and the contracted amount is
            recognised as profit or loss, as the case may be.
9.   Revenue Recognition
     9.1.   Income and expenditure are accounted on accrual basis. In case of Foreign Offices, income is recognised as
            per the local laws of the country in which the respective foreign office is located.
     9.2.   The following items of income are recognised on realisation basis:
            (a)     Commission (other than commission on deferred payment guarantees and government transactions),
                    exchange and brokerage.
            (b)     Dividend on investments.
            (c)     Income on Rupee Derivatives designated as "Trading".
            (d)     Interest on application money on investments and overdue interest on investments.
     9.3.   The following items of income are recognised on realisation basis, owing to significant uncertainty in
            collection thereof:
            (a)     Income on non-performing advances, overdue bills and non-performing leased assets.




                                                           178
                                                                                          State Bank of India

             (b)      Interest on non-performing investments.
      9.4.   Income (other than interest) on investments in "Held to Maturity" (HTM) category acquired at a discount to
             the face value, is recognised as follows :
             a)       On Interest bearing securities, it is recognised only at the time of sale / redemption.
             b)       On zero-coupon securities, it is accounted for over the balance tenor of the security on a constant
                      yield basis.
             Profit on sale of investments in this category is first credited to the Profit and Loss Account and thereafter
             appropriated to the "Capital Reserve Account". Loss on sale is recognised in the Profit and Loss Account.
10.   Retirement Benefits
      10.1. Contributions payable to the Bank's Provident Fund Trust in terms of its Provident Fund Scheme are charged
            to Profit and Loss account on accrual basis.
      10.2. Liability for gratuity, pension and leave encashment (which are defined benefits) is determined on the basis of
            actuarial valuations carried out at the year end and the incremental liability is provided for by charging to the
            Profit and Loss Account.
11.   Provision for Taxation
      Provision for tax comprises current tax for the period determined in accordance with the relevant laws, fringe benefit
      tax and deferred tax charge or credit reflecting the tax effects of timing differences between accounting income and
      taxable income for the period, in conformity with Accounting Standard 22 (Accounting for taxes on income) of the
      Institute of Chartered Accountants of India. The deferred tax charge or credit and the corresponding deferred tax
      liabilities or assets are recognised using the tax rates that have been enacted or substantively enacted by the
      balance sheet date. Deferred tax assets are not recognised unless there is virtual certainty that sufficient future
      taxable income will be available against which such deferred tax assets will be realised.




                                                            179
                                                                                                            ANNEXURE 4
Material Notes to Summarised Unconsolidated Financial Information and Accounting Standard Disclosures
(A)   Material Notes to Summarised Financial Information
      1.   Year Ended on March 31, 2003
           a.      The expenses on encashment of leave of employees were hitherto accounted for on cash basis.
                   However, in order to comply with the Accounting Standard 15 issued by the Institute of Chartered
                   Accountants of India and guidelines issued by the RBI, during the current year, the liability towards
                   encashment of leave is accounted for on the basis of actuarial valuation. Accordingly, an amount of
                   Rs. 382 million representing current's year liability has been charged to Profit and Loss Account and
                   an amount of Rs. 6,213 million representing the accrued liability to March 31, 2002 has been debited
                   to the Revenue Reserve.
           b.      During the year an amount of Rs. 3545 million has been charged to revenue on account of Voluntary
                   Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred
                   revenue expenditure. Unamortised amount of Rs. 7,090 million is to be amortised over a further
                   period of two years in accordance with RBI guidelines.
           c.      In terms of decision of the Government, Ministry of Finance and Court orders, an amount of Rs.
                   8,340 million has been received during the year on account of certain securities transactions. A
                   provision of 8,214 million was made in the accounts in earlier years towards these transactions.
                   Accordingly, the provision held towards "other Assets" has been written back and the balance
                   amount has been credited to the respective revenue accounts.
      2.   Year Ended on March 31, 2004
           a.      During the year an amount of Rs. 3,545 million has been charged to revenue on account of Voluntary
                   Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred
                   revenue expenditure. Unamortised amount of Rs. 3,545 million is to be amortised next year in
                   accordance with RBI guidelines.
           b.      Profit or loss on sale of investments has been accounted for transaction wise on the settlement date,
                   based on actual sales value and weighted average cost of purchases, whereas in the previous years,
                   it was accounted for at the year end, based on the weighted average price for the whole year for
                   both purchases and sales. As a result of this change, profit for the year is higher by Rs. 6,937 million.
      3.   Year Ended on March 31, 2005
           a.      During the year final instalment of Rs. 3,545 million has been charged to revenue on account of
                   Voluntary Retirement Scheme ("VRS") implemented during the year 2000-01, which was treated as
                   deferred revenue expenditure.
           b.      The Bank's Investments in 'Available for Sale' ("AFS") and 'Held For Trading' ("HFT") categories
                   were being valued scrip-wise and depreciation if any, was provided script wise while ignoring
                   appreciation. From the current financial year investment in AFS and HFT categories have been
                   valued in conformity with RBI guidelines after netting-off classification-wise depreciation and
                   appreciation, computed scrip wise and providing for net depreciation in each classification while
                   ignoring net appreciation. Consequent upon the change, net additional provision requirement is
                   lower and profit before tax is higher by Rs. 29,853 million
           c.      During the year, the Bank divested 37% of its stake in its fully owned subsidiary SBI Funds
                   Management Pvt. Ltd resulting in a profit of Rs. 1,464 million.




                                                          180
                                                                                 State Bank of India

     d.      During the year the Bank shifted SLR securities amounting to Rs. 269,782 million from 'Available for
             Sale' (AFS) to 'Held to Maturity' (HTM) category under specific RBI guidelines and made a
             provision of Rs. 17,062 million in the accounts.
     e.      During the year, the Accounting Standard 11 - Effects of change in Foreign Exchange Rate (2003-
             Revised) has come into effect. The net profit of the Bank for the year is arrived at in conformity with
             the provisions of the said Accounting Standard. Consequent upon this, net exchange difference
             arising on translation of monetary items of non integral operations amounting to Rs. 2,880 million
             shown under Other Liabilities & Provisions in earlier years has been transferred to Foreign Currency
             Translation Reserve.
4.   Year Ended on March 31, 2006
     a.      Investments in Regional Rural Banks ("RRBs") were hitherto accounted for after netting off
             provisions towards losses incurred by RRBs in proportion to and not exceeding the Bank's
             investment. From the current financial year, these investments have been valued at cost, which is in
             line with the RBI guidelines. Consequently, the profit for the year is higher by Rs. 869 million.
     b.      Interest Earned-Others includes an amount of Rs. 16,385 million, being interest on refund of Income
             Tax.
     c.      Other Income includes an amount of Rs. 5,315 million being Exchange Gain on India Millennium
             Deposits ("IMDs") redemption. Consequently, profit (net of tax) for the year is higher by Rs. 3,526
             million.
     d.      An amount of Rs. 5,635 million paid to RBI for maintenance of value (MOV) by debit to Interest
             Expended Account in the years 2001 and 2002 was received back during the year on redemption of
             IMDs and credited to Interest Expended account. Consequently, profit (net of tax) for the year is
             higher by Rs. 3,738 million.
     e.      Payments to and provisions for employees, under Operating Expenses includes an amount of Rs.
             3129 million, being arrears of salary paid for the previous financial years.
     f.      As a one time measure, in terms of RBI Guidelines, unreconciled net credit balances in the inter-
             branch accounts unto March 31, 1999 aggregating to Rs. 3166 million has been credited to Profit and
             Loss account under the head Miscellaneous Income. Consequently, profit (net of tax) for the year is
             higher by Rs. 2,100 million.
5.   Year Ended on March 31, 2007
     a.      The Bank had hitherto been following a policy of amortisation of premium in respect of securities
             held in the "Held to Maturity" (HTM) category by an adjustment to the account head "Provision and
             Contingencies". From the current financial year and in accordance with RBI directive dated April 20,
             2007, the Bank has charged the amortisation amount as well as marked to market losses on transfer of
             securities from "Available for Sale" (AFS) to HTM category by an adjustment to the account head
             Other Income: " Profit on Revaluation of Investments" as a deduction. As a result of this change in
             accounting policy, the book value of the securities is reduced by Rs. 6,3571 million being the
             amortisation and marked to market losses on inter-category transfer of Rs. 16,775 million for the
             current year and Rs. 46,796 million for the previous year. However, there is no impact on the Net
             Profit for the year.
     b.      Prior Period Items:
              Items                                                                             (Rs. in millions)
              Depreciation written back                                                                     (175)
              Operating expenses                                                                              164
              Interest expended                                                                              2648
              Other income                                                                                     24


                                                   181
             The Bank accounts for the interest on income tax refund on determination of interest by taxation
             authorities. Such interest is credited to profit and loss account on such determination. Any
             subsequent withdrawal of interest is being charged to profit and loss account. However, during
             earlier years, Interest of Rs. 2,648 million withdrawn by taxation authorities, was debited to the "Tax
             paid in advance". This has been rectified during the year to fall in line with the rationale of opinion
             expressed by Expert Advisory Committee of the Institute of Chartered Accountants of India in
             similar instance.
     c.      Exit Option
             The Bank had implemented an Exit Option Scheme for its eligible employees. The ex-gratia payments
             under exit option aggregating to Rs. 4,783 million has been charged to the Profit & Loss account
             during the year.
6.   Half Year Ended on September 30, 2007
     a.      Accounting Standard 15 "Employee Benefits" (revised 2005) is effective for accounting periods
             commencing on or after December 12, 2006. As per this Standard, the difference (as adjusted by any
             related tax expense) between the transitional liability and the liability that would have been
             recognised at the same date, as per pre revised Accounting Standard (AS) 15, 'Accounting for
             Retirement Benefits in the Financial Statements of Employers', should be adjusted immediately
             against opening balance of revenue reserves and surplus. The Institute of Chartered Accountants of
             India has made a limited revision to this provision, which has been notified on October 17, 2007.
             This revision provides the Bank with another option to charge additional liability arising upon the
             first application of the standard as an expense over a period up to five years. The Bank is currently
             examining both the alternatives. The impact of the Accounting Standard 15 "Employee Benefits"
             (revised 2005) has not been ascertained for transitional provision and current period(s). In the
             interregnum, the Bank has made adequate provisions as per pre-revised Accounting Standard 15,
             'Accounting for Retirement Benefits in the Financial Statements of Employers'.
     b.      During the quarter ended September 30, 2007, the Central Board of State Bank of India (SBI) and the
             Board of State Bank of Saurashtra (SBS) have accorded approval for merger of SBS with SBI. The
             matter has further been referred to RBI and the Government for approval. As the merger process has
             not yet been crystallised, there is no impact on the Bank's results.
     c.      During the half-year ended September 30, 2007, the entire share holding of RBI in State Bank of India
             aggregating 314,339,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been transferred
             to the Central Government.
     d.      During the half-year ended September 30, 2007, the Bank has shifted SLR investments having
             aggregate Face Value of Rs. 90,816 million from 'Available for Sale' (AFS) category to 'Held to
             Maturity' (HTM) category, resulting in a net revaluation loss of Rs. 2,977 million.
     e.      In terms of RBI circular dated 20th April 2007, the Bank had accounted for amortisation of premium in
             respect of securities included in the 'Held to Maturity' (HTM) category as an adjustment against
             'Other Income'. Based on the clarification issued by RBI on 11th July 2007, Banks are required to
             reflect the amortisation of premium held in HTM category by an adjustment to the 'Interest Earned'.
             Accordingly, the Bank has carried out the reclassification of the same for the period ended 30th
             September 2007. This change in accounting procedure does not have any impact on the net profit
             for the period(s) under review.




                                                   182
                                                                                     State Bank of India

(B)   Accounting Standard Disclosures
      1.   Segment Reporting
           i)      Segment identification
                   Primary Segment          i)    Banking Operations : Other than treasury operations
                                            ii)   Treasury Operations - Domestic rupee treasury
                   Secondary Segment        i)    Domestic Operations - Branches/Offices having operations in India
                                            ii)   Foreign Operations - Branches/Offices having operations outside
                                                  India and offshore banking units having operations in India
           ii)     Pricing of Inter-segmental transfers
                   The Banking Operations segment is the primary resource mobilising unit. The Treasury Operations
                   segment is a recipient of funds from Banking Operations. From April 1, 2006, the bank has changed
                   the segmental pricing methodology for more meaningful presentation of segment results and
                   accordingly market related funds transfer pricing (MRFTP) has been introduced under which a
                   separate unit called Funding Centre has been created. The Funding Centre notionally buys funds
                   that the business units raise in the form of deposits or borrowings and notionally sell funds to
                   business units engaged in creating assets. The financial effect on the segmental result due to
                   change in accounting policy is not reasonably determined. However, this change does not have any
                   impact on the financials of the bank.
           iii)    Allocation of Expenses
                   Expenses incurred at Corporate Centre establishments directly attributable either to Banking
                   Operations or to Treasury Operations segment, are allocated accordingly. Expenses not directly
                   attributable are allocated on the basis of the ratio of number of employees in each segment/ratio of
                   directly attributable expenses.




                                                          183
        iv)   Segment Results
Part A: Primary Segments
                                                                                                         (Rs. in millions)
Year /Half Year ending                         March 31,     March 31,   March 31,   March 31,   March 31,   September
                                                   2003          2004        2005        2006        2007      30, 2007
REVENUE
Banking Operations                                312,510      313,353     324,036     352,659     444,722      257,582
Treasury Operations                               214,259      219,894     201,118     174,368     114,642       55,822
Elimination                                       159,868      154,131     141,329     114,747     107,399       54,531
Total                                             366,901      379,116     383,825     412,280     451,965      258,873
RESULTS
Banking Operations                                 26,393       18,357      54,046      60,423      87,061       53,077
Treasury Operations                                28,804       38,156      10,610     -19,913       1,177        3,250
Elimination                                             0            0           0           0           0            0
Total                                              55,197       56,513      64,656      40,510      88,238       56,327
Unallocated Income/(Expenses) Net                 (2,522)      (7,259)        560       19,187    (12,340)       (8,032)
Operating Profit                                   52,675       49,254      65,216      59,697      75,898       48,295
Income Taxes                                       21,625       12,444      22,171      24,995      30,485       17,924
Extraordinary Profit/Loss                                0          0           0        9,365          0              0
Net Profit                                         31,050       36,810      43,045      44,067      45,413       30,372
OTHER INFORMATION
Segment Assets
Banking                                         3,466,243    3,713,661   4,270,570   2,197,148   4,289,119    4,289,119
Treasury                                        1,923,718    2,037,452   2,169,566   3,822,113   2,063,733    2,063,733
Elimination                                     1,819,492    1,713,630   1,881,150   1,104,803     712,593      712,593
Total                                           3,570,469    4,037,483   4,558,986   4,914,458   5,640,259    5,640,259
Unallocated Assets                                188,296       40,670      39,843      25,831      25,393       25,393
Total Assets                                    3,758,765    4,078,153   4,598,829   4,940,289   5,665,652   * 5,665,652
Segment Liabilities
Banking                                         3,310,621    3,530,955   4,047,301   2,165,993   4,010,133    4,010,133
Treasury                                        1,893,560    2,017,848   2,152,113   3,576,827   2,029,733    2,029,733
Elimination                                     1,617,450    1,672,963   1,841,307   1,087,092     867,388      867,388
Total                                           3,586,731    3,875,840   4,358,107   4,655,728   5,172,478    5,172,478
Unallocated Liabilities                                  0          0           0        8,121     180,189      180,189
Total Liabilities                               3,586,731    3,875,840   4,358,107   4,663,849   5,352,667   * 5,352,667
* Segment Assets and Liabilities are as on March 31, 2007.




                                                              184
                                                                                      State Bank of India

Part B: Secondary Segments
                                                                                                      (Rs. in millions)
Year ending                                 March 31,      March 31,   March 31,   March 31,   March 31, September
                                                2003           2004        2005        2006        2007    30, 2007
Revenue
Domestic Operations                              354,843     368,611     369,877     385,396     413,873     239,903
Foreign Operations                                12,058      10,505      13,948      26,884      38,092      18,970
Total                                            366,901     379,116     383,825     412,280     451,965     258,873
Assets
Domestic Operations                          3,533,623     3,840,337   4,292,821   4,504,826   5,138,122    5,138,122
Foreign Operations                             225,142       237,816     306,008     435,463     527,530      527,530
Total                                        3,758,765     4,078,153   4,598,829   4,940,289   5,665,652   5,665,652*
* Segment Assets and Liabilities are as on March 31, 2007.
2.      Related Party Disclosures
        As identified by the management and relied upon by the auditors.
        2.1   Related Parties:
        2.1.1 Joint ventures:
              1.       C Edge Technologies Ltd
              2.       GE Capital Business Process Management Services Private Limited.
        2.1.2 Associates:
              1.       Andhra Pradesh Grameena Vikas Bank
              2.       Arunachal Pradesh Rural Bank
              3.       Chhatisgarh Gramin Bank
              4.       Cauvery Kalpatharu Grameena Bank
              5.       Deccan Grameena Bank
              6.       Ellaquai Dehati Bank
              7.       Ka Bank Nongkyndong Ri Khasi Jaintia
              8.       Krishna Grameena Bank
              9.       Langpi Dehangi Rural Bank
              10.      Madhya Bharat Gramin Bank
              11.      Malwa Gramin Bank
              12.      Marwar Ganganagar Bikaner Bank
              13.      Mizoram Rural Bank
              14.      Nagaland Rural Bank
              15.      Parvatiya Gramin Bank
              16.      Purvanchal Kshetriya Gramin Bank
              17.      Samastipur Kshetriya Gramin Bank
              18.      Saurashtra Grameena Bank
              19.      Utkal Gramya Bank
              20.      Uttaranchal Gramin Bank


                                                            185
     21.      Vananchal Gramin Bank
     22.      Vidisha Bhopal Kshetriya Gramin Bank
     23.      SBI Home Finance Limited.
     24.      Clearing Corporation of India Ltd
     25.      Nepal SBI Bank Ltd.
     26.      Bank of Bhutan
     27.      UTI Asset Management Company Pvt. Ltd.
2.1.3 Key Management Personnel of the Bank:
     Shri O.P. Bhatt, Managing Director from 26.04.2006 to 30.06.06 and from 01.07.2006 onwards as Chairman)
     Shri A.K. Purwar, Chairman (upto 31.05.2006)
     Shri T. S. Bhattacharya, Managing Director
     Shri Yogesh Agrawal, Managing Director (from 10.10.2006 to 30.06.2007)
2.1.4 Related Parties with whom transactions were entered:
     No disclosure is required in respect of related parties which are "state controlled enterprises" as per
     paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18, transactions in the
     nature of banker-customer relationship are not required to be disclosed in respect of Key Management
     Personnel. Other particulars are:
     1.       C Edge Technologies Ltd. (from 28.03.2006)
     2.       GE Capital Business Process Management Services Pvt. Ltd.
     3.       SBI Home Finance Ltd.
     4.       Bank of Bhutan
     5.       Nepal SBI Bank Ltd.
     6.       Shri O.P.Bhatt (from 26.04.2006)
     7.       Shri A.K. Purwar (from 13.11.2002 to 31.05.2006)
     8.       Shri T. S. Bhattacharya, (from 28.02.2005)
     9.       Shri Yogesh Agrawal (from 10.10.2006 to 30.06.2007)
     10.      Shri Ashok Kini (from 01.04.2004 to 31.12.2005)
     11.      Shri C. Bhattacharya (from 17.12.2003 to 31.01.2005)
     12.      Shri A.K. Batra (from 28.02.2002 to 07.07.2003)
     13.      Shri P.N. Venkatachalam (from 28.02.2002 to 31.03.2004)
     14.      Shri Janki Ballabh (up to 31.10.2002)
     15.      Shri Y. Radhakrishnan (up to 30.06.2002)
     16.      Shri S. Govindarajan (up to 31.07.2002)
     17.      Credit Information Bureau of India Ltd (up to 31.03.2005)
     18.      Asset Reconstruction Company (India) Ltd (up to 31.03.2004)




                                                      186
                                                                                       State Bank of India

Transactions/Balances
                                                                                                       (Rs. in millions)
      Year ending                                       March 31,    March 31,      March 31,   March 31,   March 31,
                                                            2003         2004           2005        2006        2007
1.    Borrowings
      i)   Associates                                           48              -           -           -
2.    Deposits
      i)   Associates                                          844       1,457         17,703       5,242        2,954
      ii)  Key management Personnel *                            -           -              1           -            -
3.    Advances
      i)   Associates                                       3,360             105        265            -             -
4.    Investments
      i)    Associates                                         465       2,062           400         334           198
5.    Non funded commitments
      i)    Associates                                           -              -           -       5,601             -
6.    Interest Paid
      i)     Associates                                         22              1        282          72            66
7.    Interest Received
      i)     Associates                                        337             26        109            -             -
8.    Rendering of services
      i)   Associates                                            7              5         36            -             -
9.    Receiving of services of services
      i)    Associates                                          31            162           -           -           17
10.   Management Contracts
      i)   Key management Personnel @                            1              1          1           2             7
11.   Income from Dividends
      i)    Associates                                           -              -           -           -            5
* Transactions which are not in the nature of banker-customer relationship.




                                                         187
3.   Leases:
                                                                                                                           (Rs. in millions)
     Year ending                                                 March 31,      March 31,      March 31,          March 31,      March 31,
                                                                     2003           2004           2005               2006           2007
     Total gross investment in the leases                               1,647         1,647           1,647           1,647           1,647
     Present value of minimum lease payments receivable
     Less than 1 year                                                    263            313             313             176             89
     1 to 5 years                                                        619            447             289             205            151
     5 years and above                                                    85             40               -               -              -
     Total                                                               967            800             602             381            240
     Present value of unearned finance income                            219            159             103              68             50
4.   Earnings per Share:
     The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard 20 -
     "Earnings per Share". "Basic earnings" per share is computed by dividing net profit after tax by the weighted
     average number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares
     outstanding during the year.
                                                                                                                           (Rs. in millions)
     Year ending/half year ending              March 31,         March 31,      March 31,      March 31,          March 31,     September
                                                   2003              2004           2005           2006               2007        30, 2007
     Net Profit *                                    31,050            36,810        43,045         44,067           45,413         30,372
     Weighted average number of shares        526,298,878 526,298,878 526,298,878 526,298,878                 526,298,878       526,298,878
     Earnings Per Share (Basic & diluted)          Rs. 59.00       Rs. 69.94        Rs 81.79      Rs. 83.73        Rs. 86.29 Rs. 115.42**
     * (Rs. in millions)

     ** Annualised

5.   Accounting for taxes on Income:
     The break-up of deferred tax assets and liabilities into major items is given below:
                                                                                                                           (Rs. in millions)
     Year ending/half year ending                      March 31,        March 31,    March 31,     March 31,       March 31, September
                                                           2003             2004         2005          2006            2007    30, 2007
     A.      Deferred Tax Assets (DTA)
     i)      Provision for Non Performing Assets               2,756        3,588         2,440         1,122              -              -
     ii)     Ex Gratia Paid under Exit Option                      -            -             -           195          1,434          1,261
     iii)    Provision for wage revision                           -        1,435         4,208             -              -              -
     iii)    Others                                                -            -             -         1,178            975            985
             Total                                             2,756        5,023         6,648         2,495          2,409          2,246
     B.      Deferred Tax Liabilities (DTL)
     i)      Depreciation on Fixed Assets                        110          209           146          1317           1033            66
     ii)     Interest on Securities                                -            -         6213
     iii)    VRS expenses                                        664          324             -               -            -             -
     iv)     Depreciation of Leased Assets                     2,294        2,039         1,745               -            -           958
     v)      Others                                                -            -             -               -        6,213             -
             Total                                             3,068        2,572         1,891         1,317          7,246          7,237
     C.      Net DTA/ (DTL)(A-B)                               (312)        2,451         4,757         1,178         (4,837)       (4,991)



                                                                  188
                                                                                         State Bank of India

6.   Investments in jointly controlled entities:
     Investments include the following amount representing Bank's interest in the following jointly controlled entities.
                                                                                                           (Rs. in millions)
      Year ending/half year ending                  March 31,   March 31,   March 31,   March 31,   March 31, September
                                                        2003        2004        2005        2006        2007    30, 2007

      GE Capital Business       Country of                                     INDIA
      Process Management        Residence
      Services (P) Ltd          Holding                  40%         40%         40%         40%         40%          40%
                                Investment               108         108         108         108         108          108
                                Rs. (in millions)
      C-Edge Technologies       Country of                                     INDIA
      Ltd                       Residence
                                Holding                     -           -           -        49%         49%          49%
                                Investment                  -           -           -         0.2         49            49
                                Rs. (in millions)

As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses related to the Bank's
interests in jointly controlled entities are disclosed below:
A:   Assets & Liabilities
                                                                                                           (Rs. in millions)
      CAPITAL & LIABILITIES                         March 31,   March 31,   March 31,   March 31,   March 31, September
                                                        2003        2004        2005        2006        2007    30, 2007

      Capital & Reserves                                1,511       2,830       4,422        338         521           582
      Deposits                                              -           -         71            -           -
      Borrowings                                        3,266       3,970       5,633          1           2             3
      Other Liabilities & Provisions                    1,037       2,655       6,822        136         206           287
      Total                                             5,814       9,455      16,948        475         729           872

                                                                                                           (Rs. in millions)
      ASSETS                                        March 31,   March 31,   March 31,   March 31,   March 31, September
                                                        2003        2004        2005        2006        2007    30, 2007
      Cash & Balances with RBI                            40         110         162            -           -             -
      Balances with Banks & Money at call                272        1,037        604          72          37            25
      Investments                                       1,413       2,853       8,479           -         25            25
      Advances                                          3,688       4,911       6,619           -           -             -
      Fixed Assets                                       112         152         159          96         197           199
      Other Assets                                       289         392         925         307         470           623
      Total                                             5,814       9,455      16,948        475         729           872
      Contingent Liabilities                              43          13           3            -           -
      Capital commitments                                 23          13          29            -           -




                                                            189
B.   Income and Expenditure
                                                                                                            (Rs. in millions)
     INCOME AND EXPENDITURE                    March 31,   March 31,     March 31,      March 31,    March 31, September
                                                   2003        2004          2005           2006         2007    30, 2007

     I.     Income
            Interest earned                        1,053        1,346           1650           3             -           28
            Other Income                            806         1,338           5,918        481          659           305
            Total                                  1,859        2,684           7,568        484          659           333
     II.    Expenditure
            Interest expended                       197           173            223            -            -             -
            Operating expenses                     1,330        1,909           6,546        339          382           235
            Provisions & contingencies              277           387            619          52          101            25
            Total                                  1,804        2,469           7,388        391          483           260
     III.   Profit                                   55           215            180          93          176            73

7.   Provisions, Contingent Liabilities & Contingent Assets
a)   Break up of Provisions
                                                                                                            (Rs. in millions)
     Year ending/half year ending              March 31,   March 31,     March 31,      March 31,    March 31, September
                                                   2003        2004          2005           2006         2007    30, 2007

     a)     Provision for Current Income Tax      21,489       15,661       24,472         16,827       29,793      17,262
     b)     Provision for Deferred Tax              133       (2,763)       (2,306)         3,579        (198)          151
     c)     Provision for Income Tax                   -            -               -       4,580         885           510
            Fringe Benefit Tax
     d)     Provision for other Taxes                 4         (454)              5           9            5              -
     e)     Provision for NPA                     25,924       36,935       12,040          1,478       14,295        4,898
     f)     Provision on Standard Assets           2,047          491           1,150       4,052        5,892          980
     g)     Provision for depreciation             4,195        4,855       23,384         38,985        3,792      (3,760)
            on investment
     h)     Provision for Other Assets/          (7,088)        4,000           8,114       (584)         122           333
            Contingencies
            Total                                 46,704       58,725       66,859         68,926       54,586      20,374
     (Figures in brackets indicate credit)

b)   Floating Provisions:
                                                                                                            (Rs. in millions)
     Year ending / half year ending                          March 31, 2006        March 31, 2007      September 30, 2007
     a)     Opening Balance                                             8,400                  NIL                     NIL
     b)     Addition during the year                                     NIL                   NIL                     NIL
     c)     Draw down during the year                                   8,400                  NIL                     NIL
     d)     Closing balance                                              NIL                   NIL                     NIL




                                                       190
                                                                                        State Bank of India

     c)   Description of Contingent Liabilities and Contingent Assets
            Sr. No.   Items                                Brief Description
            1         Claims against the Bank not          The Bank is a party to various proceedings in the normal
                      acknowledged as debts                course of business. The Bank does not expect the outcome
                                                           of these proceedings to have a material adverse effect on
                                                           the Bank's financial conditions, results of operations or cash
                                                           flows.
            2         Liability on account of exchange     The Bank enters into forward exchange contracts, currency
                      contracts                            options, forward rate agreements, currency swaps and
                                                           interest rate swaps with inter-bank participants on its own
                                                           account and for customers. Forward exchange contracts are
                                                           commitments to buy or sell foreign currency at a future date
                                                           at the contracted rate. Currency swaps are commitments to
                                                           exchange cash flows by way of interest/principal in one
                                                           currency against another, based on predetermined rates.
                                                           Interest rate swaps are commitments to exchange fixed and
                                                           floating interest rate cash flows. The notional amounts that
                                                           are recorded as contingent liabilities, are typically amounts
                                                           used as a benchmark for the calculation of the interest
                                                           component of the contracts.
            3         Guarantees given on behalf of        As a part of its commercial banking activities, the Ban
                      constituents, acceptances,           issues documentary credits and guarantees on behalf of its
                      endorsements and other               customers. Documentary credits enhance the credit
                      obligations                          standing of the customers of the Bank. Guarantees
                                                           generally represent irrevocable assurances that the Bank
                                                           will make payment in the event of the customer failing to fulfil
                                                           its financial or performance obligations.
            4         Other items for which the Bank is    The Bank is a party to various Bank taxation matters in
                      contingently liable                  respect of which appeals are pending. These are being
                                                           contested by the Bank and not provided for. Further, the
                                                           Bank has made commitments to subscribe to shares in the
                                                           normal course of business.
     d.   The contingent liabilities mentioned above are dependent upon the outcome of court/arbitration/out of court
          settlements, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement
          and rising demand by concerned parties, as the case may be.
8.   The disclosure requirements in respect of related party transactions, lease accounting and interest in jointly
     controlled entities have not been compiled for the half year ended on September 30, 2007.




                                                          191
                                                                                                               ANNEXURE 5
SUMMARY STATEMENT OF CASH FLOW (UNCONSOLIDATED)
                                                                                                              (Rs. in millions)
For the Year ended/ Half Year Ended            31-Mar-03     31-Mar-04     31-Mar-05     31-Mar-06    31-Mar-07    30-Sep-07
Cash flow from Operating Activities           (185,721.06)     2,548.36    (27,807.35)    56,023.07 (17,760.70)     27,100.05
Cash flow from Investing Activities             (3,316.77) (10,503.08)      (4,987.98)   (7,394.34)   (2,845.58)    (6,704.01)
Cash flow from Financing Activities             (7,066.56)   (8,421.75)     (9,692.55)     3,695.93    94,941.13    52,134.74
Cash flows on account of exchange               (1,387.03)      232.41          42.69         54.36     (247.96)    (2,229.49)
fluctuation
Net change in cash and cash equivalents (197,491.42) (16,144.06)           (42,445.19)    52,379.02    74,086.89    70,301.29
Cash and cash equivalents - Opening            649,301.66    451,810.24    435,666.18    393,220.99   445,600.01   519,686.90
Cash and cash equivalents - Closing            451,810.24    435,666.18    393,220.99    445,600.01   519,686.90   589,988.19
Cash flow from Operating Activities
Net Profit before taxes                         52,675.08     49,712.77     65,215.99     69,061.53    76,250.79    48,301.02
ADJUSTMENTS FOR:
Depreciation charge                              4,936.89      6,983.45      7,522.11      7,291.32     6,023.92     3,113.37
(Profit)/Loss on sale of fixed assets                 2.71          6.27        18.30       (19.39)     (121.27)         0.32
Provision for NPAs                              25,924.24     37,027.51     12,040.00      1,478.01    14,295.03     4,898.46
Provision for Standard Assets                    2,046.76        491.17      1,150.00      4,051.72     5,891.90       979.80
Provision for Leave Encashment                     382.00      1,112.20      1,100.70        781.90       850.00       425.00
Depreciation on Investments:
Depreciation/Revaluation of Investments /        4,195.57      4,874.95     23,383.64     34,560.74    14,889.52    (3,848.89)
Loss on revaluation of Investments
Provision for Subs/JVs/RRBs                        (34.20)      (20.19)              -   (1,447.48)      (84.94)     (130.80)
Provision on Other Assets and Other             (7,053.48)     3,448.38      8,113.95      (583.96)     (230.56)        38.63
Provisions
Deferred Revenue Expenditure w/o                 3,545.13      3,545.14      3,545.14             -            -             -
during the year
Dividend from subsidiaries                      (1,372.21)   (1,613.12)     (3,932.35)   (3,171.83)   (5,969.68)    (1,723.19)
(investing activity)
Interest paid on bonds (financing activity)      3,956.87      3,956.87      3,956.87      4,011.14     8,474.29     7,532.48
LESS: Direct Taxes                             (18,345.19) (25,899.37)     (18,016.45)   (5,251.61) (42,821.25)    (17,153.97)
Sub-Total                                       70,860.17     83,626.03    104,097.90    110,762.09    77,447.75    42,432.23
Other adjustments:
Increase/(Decrease) in Deposits                255,631.39    224,953.89    484,288.55    129,985.29   554,750.34   515,333.06
Increase/(Decrease) in Borrowings                (203.25)     41,277.14     57,529.80    114,569.31    90,620.91    52,345.53
(Increase)/Decrease in Investments            (275,644.48) (135,091.19) (137,051.84)     362,060.75    74,506.79 (304,573.02)
(Increase)/Decrease in Advances               (195,397.53) (238,769.57) (456,449.18) (595,742.82) (769,650.61) (217,682.65)
Increase/(Decrease) in Other Liabilities &     (10,261.64)    16,247.92    (71,223.26)   (5,254.01) (33,371.51)     29,022.53
Provisions
(Increase)/Decrease in Other Assets            (30,705.72)    10,304.14     (8,999.32) (60,357.54) (12,064.37)     (89,777.63)
Net Cash provided by Operating                (185,721.06)     2,548.36    (27,807.35)    56,023.07 (17,760.70)     27,100.05
activities



                                                              192
                                                                                           State Bank of India

                                                                                                              (Rs. in millions)
For the Year ended/ Half Year Ended                31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07                30-Sep-07
Cash flow from Investing Activities
(Increase)/Decrease in Investments in                 (16.17)   (2,560.82)    (854.15)    (2,741.81)   (2,253.28)   (1,687.35)
Joint Ventures/Associates
Income earned on investments in                      1,372.21     1,613.12    3,932.35     3,171.83     5,969.68     1,723.19
Joint Ventures/Associates
(Increase)/Decrease in Fixed Assets                (4,672.81)   (9,555.38)   (8,066.18)   (7,824.36)   (6,561.98)   (6,739.85)
Net Cash provided by Investing Activities          (3,316.77) (10,503.08)    (4,987.98)   (7,394.34)   (2,845.58)   (6,704.01)
Cash flow from Financing Activities
Net proceeds/ (repayment) of bonds                      46.64         8.73       16.46    15,223.30 111,817.00      68,287.63
(including subordinated debts)
Interest paid on Bonds                             (3,956.87)   (3,956.87)   (3,956.87)   (4,011.14)   (8,474.29)   (7,532.48)
Dividend paid                                      (3,156.33)   (4,473.61)   (5,752.14)   (7,516.23)   (8,401.58)   (8,620.41)
Net Cash provided by Financing Activities          (7,066.56)   (8,421.75)   (9,692.55)    3,695.93    94,941.13    52,134.74
Cash flows on account of
Exchange Fluctuation:
Reserves of foreign subsidiaries/foreign offices   (1,387.03)      232.41        42.69        54.36     (247.96)    (2,229.49)
Net cash flows on account of                       (1,387.03)      232.41        42.69        54.36     (247.96)    (2,229.49)
Exchange Fluctuation
Cash and Cash equivalents - Opening:
Cash in hand (including FC notes & gold)            10,525.83   11,362.04    12,849.81    14,361.60    20,802.31    25,301.19
Balances with Reserve Bank of India                208,199.51 116,022.64 177,563.04 153,741.70 195,724.73 265,463.06
Balances with Banks & MACSN                        430,576.32 324,425.56 245,253.33 225,117.69 229,072.97 228,922.65
Total                                              649,301.66 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90
Cash and Cash equivalents - Closing:
Cash in hand (including FC notes & gold)            11,362.04   12,849.81    14,361.60    20,802.31    25,301.19    23,760.02
Balances with Reserve Bank of India                116,022.64 177,563.04 153,741.70 195,724.73 265,463.06 438,257.99
Balances with Banks & MACSN                        324,425.56 245,253.33 225,117.69 229,072.97 228,922.65 127,970.18

Total                                              451,810.24 435,666.18 393,220.99 445,600.01 519,686.90 589,988.19




                                                            193
ANNEXURE 6
Major changes in the business activities of the Bank
The Bank is in the business of Corporate and Retail Banking, Treasury Operations and other miscellaneous banking
business. There has not been any change in the business activities of Bank which has had any material effect on the
statement of profit/loss for the five years, including discontinuance of lines of business, loss of agencies or markets and
similar factors.




                                                           194
                                                                                        State Bank of India

                                                                                                             ANNEXURE 7
Statement of Dividends Declared by the Bank
                                                                                                            (Rs. in millions)
For the year ending                            March 31,        March 31,      March 31,      March 31,         March 31,
                                                   2003             2004           2005           2006              2007
Number of Equity Shares                       52,62,98,878     52,62,98,878   52,62,98,878   52,62,98,878     52,62,98,878
Dividend (Rs)                                        4,474           5,789          6,579          7,368              7,368
Tax on Dividend (Rs)                                  573              742            938          1,033              1,252
Dividend Rate (%)                                       85             110            125            140                140
Note
1. The bank has not declared any dividend for the half year ended September 30, 2007.




                                                         195
                                                                                                             ANNEXURE 8
Summary Statement of Other Income (Unconsolidated)
                                                                                                            (Rs. in millions)
For the Financial year/                               March 31,   March 31,   March 31,   March 31,   March 31, September
Period Ended March 31                                     2003        2004        2005        2006        2007    30, 2007
Other Income
1         Commission, exchange and brokerage             29,773      31,207      35,447      39,962      48,045      20,525
2         Profit/ Loss on sale of investments (Net)      16,946      30,735      17,753      *5,872      *5,678       7,125
3         Profit/ Loss on revaluation of                 * (51)        *(2)           -           -    (16,775)     (7,403)
          investments (Net)

4         Profit on Exchange Transactions (Net)          *4,636      *5,030      *5,282      10,013      *3,734      *1,408

Notes :
a)   All items of "Other Income" are of recurring nature
b)   Those items identified with * are less than 20% of the profit before tax , however for comparison purposes, they
     have been disclosed.




                                                              196
                                                                                                      State Bank of India

ANNEXURE 9
Statement of Borrowings as on September 30, 2007
                                                                                                                                 (Rs. in millions)
S. No. Particulars                       Outstanding        Rate of Interest       Duration        Date of              Repayment Terms
                                         amount                                                    Borrowings
         Domestic Borrowings
1        Term Borrowings                            50   Fixed      8.50%          364 Days        1/9/2007             Bullet
2        CBLO*                                 32,999    Fixed      0-1%           1-3 days        28/9/2007            Bullet
3        Borrowing from Other Institutions/ Agencies
a        Refinance SIDBI                        6,500    Fixed      6.5% p.a                                            Monthly Instalment of
                                                                                                                        Rs 50.00 crores on
                                                                                                                        1st of Every Month
b        Refinance NHB                          5,000    Fixed      6.5% p.a       3 Years         23/12/2005           Bullet
c        Refinance NABARD                      17,917    Fixed      Various from   Various Terms and Date               Half Yearly due on 31st
                                                                                   4.25 to 14%                          January and July till
                                                                                                                        31.07.2019
d        Others                                    45
         Total Domestic
         Borrowings (A)                        62,511
         Overseas Borrowings
1        Bond Issues                           62,636    Fixed      3.50% to       5 Years         Various dates from   Bullet
         (Excluding Hybrid                                                         4.75%                                8.12.04 to 15.02.07
         Tier-I Bonds)
                                                         Floating   LIBOR+38bps to LIBOR+73.5bps
2        Foreign Currency Loans                47,217    Floating   LIBOR+12bps 364 days to     Various dates from      Bullet principal
                                                                                  to LIBOR+     5 years                 2.6.05 to 28.9.07
                                                                                  39bps                                 repayment, interest at
                                                                                                                        half yearly intervals
3        Money Market Borrowings              277,015               Various                        Term Ranging         Various datesBullet
                                                                    rates                          from 1 day to
                                                                                                   1 year
         Total (Overseas
         Borrowings) (B)                      386,868
         Tier I Capital
         Overseas                              16,282               Coupon         Perpetual non   Feb-07               Perpetual with call
                                                                    6.439%         call 10.25                           option to the Issuer
                                                                    after swap     years                                after 10.25 years
                                                                    LIBOR +
                                                                    120 BPS
                                                                    on semi
                                                                    annual
                                                                    basis
                                                9,159               Coupon         Perpetual non   Jun-07               Perpetual with call
                                                                    7.14%          call 10 years                        option to the Issuer
                                                                    after swap     1 Day                                after 10 years 1 day
                                                                    LIBOR +
                                                                    137 BPS
                                                                    on semi
                                                                    annual
                                                                    basis
         Total Tier I Capital (C)              25,441
         Subordinate Debts
1        Domestic                             204,246    Fixed      7.45% to       87 months to    Various dates from 1.1.2001 to 17.9.2007
                                                                                   11.90% p.a.     180 months
         Overseas                                 289    Fixed      6.50%          8 Years         12.04.2000
         Total Subordinate Debts
         (D)                                  204,535
         Grand Total (A+B+C +D)               679,355
* Secured Borrowings.



                                                                    197
                                                                                                       ANNEXURE 10
Summary Statement of Accounting Ratios
Sr.     Particulars                               31-Mar-      31-Mar-     31-Mar-     31-Mar-     31-Mar-     30-Sep-
No.                                                    03           04          05          06          07       2007*
1       Basic and Diluted Earning Per Share          59.00        69.94       81.79       83.73       86.29     115.42
2       Return on Avg Net Worth (%)                19.15%       19.67%      19.43%      17.04%      15.41%      18.57%
3       Net Asset Value per Share                  326.87       384.41      457.39      525.25      594.69      648.16
        Other Ratios
4       Interest Income As a percentage             9.10%        7.99%       7.70%       7.19%       7.34%       7.25%
        to working Funds (%)
5       Non Interest Income as a percentage         1.68%        1.99%       1.69%       1.48%       1.07%       1.02%
        to working Funds (%)
6       Operating Profit as percentage              2.27%        2.50%       2.61%       2.27%       1.86%       1.62%
        to working Funds (%)
7       Return on Assets (%)                        0.86%        0.94%       0.99%       0.89%       0.84%       0.97%
8       Net NPAs to Net Advances (%)                4.50%        3.48%       2.65%       1.88%       1.56%       1.63%
9       Capital to Risk -weighted Assets           13.50%       13.53%      12.45%      11.88%      12.34%      12.85%
        Ratio- Overall (%)
10      Capital to Risk -weighted Assets            8.81%        8.34%       8.04%       9.36%       8.01%       7.78%
        Ratio-Tier I (%)
11      Capital to Risk -weighted Assets            4.69%        5.19%       4.41%       2.52%       4.33%       5.07%
        Ratio-Tier II (%)
12      Operating Expenses / Average                2.33%        2.43%       2.39%       2.36%       2.20%       1.94%
        Working Funds (%)
13      Business (Deposits plus Advances)
        per employee (Rs. in thousands)          19,077.00    21,056.00   24,308.00   29,923.00   35,700.00   46,563.65
14      Profit per employee (Rs. in thousands)     147.83       176.61      207.50      216.76      236.81      339.00
* Ratios have been calculated on an annualised basis.




                                                        198
                                                                                 State Bank of India

                                                                                          ANNEXURE 11
Capitalisation Statement as of September 30, 2007
                                                                                           (Rs. in millions)
Particulars                                         Pre Issue as of September 30, 2007         Post Issue
Loan Funds
Long Term                                                                      344,861             344,861
Short Term                                                                     334,494             334,494
Total Debt                                                                     679,355             679,355
Shareholders' Fund
Share Capital                                                                    5,263              6,316
Share Premium                                                                   35,106            201,416
Reserve and Surplus                                                            300,760            300,760
Total Equity                                                                  341,129            508,492
Long Term Debt/Equity Ratio                                                       1.01               0.68
1.   Loan Funds include Subordinate Debt and perpetual bonds




                                                      199
                                                                                                      ANNEXURE 12
STATEMENT OF TAX SHELTERS (UNCONSOLIDATED)
                                                                                                      (Rs. in millions)
Sr.   Particulars                                       31-Mar-      31-Mar-      31-Mar-      31-Mar-       31-Mar-
No.                                                          03           04           05           06            07

      Profit Before Tax                                52,671.40    49,707.77    65,211.19    64,472.73     75,360.89
      Tax Rate                                           36.75%       35.88%       36.59%       33.66%        33.66%
      Tax at actual Rate (A)                           19,356.74    17,832.66    23,862.40    21,701.52     25,366.48
      Permanent Difference
1     Income Exempt from Tax                           (1,659.97)   (1,747.74) (4,791.80)     (1,886.40)    (1,827.73)
2     Interest on Income Tax                                    -            -   (650.30)               -     2,699.85
3     Others                                                49.90        29.96     273.49          (0.04)        22.33
4     Taxes including wealth tax and                         3.64     (454.16)       4.80       4,588.80        889.90
      fringe benefit tax
                                                      (1,606.43) (2,171.94) (5,163.81)        2,702.36      1,784.35
      Timing Difference
1     Voluntary Retirement Scheme                          901.90      901.90     902.00          577.90     3,782.00
2     Provision for employees benefits                   3,682.00    1,112.20   2,000.70          781.90       850.00
3     Provision for doubtful debts                    (16,335.93) (10,374.80) (5,324.00)      (4,473.52)     5,891.90
4     Provision for other assets and contingencies          27.26     (62.39)     450.28      (1,292.70)     (233.23)
5     Provision for Investments                           (34.20)     (20.19)     514.78      (1,447.48)      (84.94)
6     Payment of Wage Arrears                                   -    4,000.00   7,500.00     (11,500.00)            -
7     Depreciation on Fixed assets                         181.35      560.61     914.40        1,255.40       872.70
                                                     (11,577.62) (3,882.67)      6,958.16 (16,098.50) 11,078.43
                                                     (13,184.05) (6,054.61)      1,794.35 (13,396.14) 12,862.78
      Tax Saving Thereon (B)                           (4,845.14)   (2,172.09)     656.60     (4,509.14)     4,329.61
      Tax liability on current year's profit          14,511.60 15,660.57 24,519.00          17,192.38 29,696.09
      Tax Adjustments relating to earlier years         6,977.20             -     (46.79)      (365.30)       450.05
      Tax liability                                   21,488.80 15,660.57 24,472.21          16,827.08 30,146.14




                                                      200
                                                                                      State Bank of India

ANNEXURE C-1
SUMMARISED STATEMENT OF ASSETS AND LIABILITIES (CONSOLIDATED)
                                                                                                         (Rs. in millions)
Sr.   Particulars                              31-Mar-        31-Mar-      31-Mar-      31-Mar-      31-Mar-      30-Sep-
No.                                                 03             04           05           06           07         2007
                                               Audited        Audited      Audited      Audited      Audited    Unaudited
                                                                                                                 Reviewed

A     Assets

1     CASH AND BALANCES WITH
      RESERVE BANK OF INDIA

I     Cash in hand (including foreign         14,305.71      16,475.12    17,956.54    25,194.41    31,472.50    29,757.89
      currency notes and gold)

II    Balances with Reserve Bank of India    177,194.90     247,292.93   238,201.72   286,093.45   419,188.51   626,758.56

      Total                                  191,500.61     263,768.05   256,158.26   311,287.86   450,661.01   656,516.45

2     BALANCES WITH BANKS & MONEY
      AT CALL & SHORT NOTICE

I     In India                               283,591.57     161,880.85   178,717.63   120,803.27    98,900.98    89,307.64

II    Outside India                           57,919.71      89,989.10    74,694.52   141,274.07   175,206.64    72,407.08

      Total                                  341,511.28     251,869.95   253,412.15   262,077.34   274,107.62   161,714.72

3     INVESTMENTS

I     Investments in India in               2,213,882.82 2,448,922.50 2,571,080.57 2,220,408.92 2,098,485.65 2,489,199.62

II    Investments outside India in            46,227.60      41,256.36    48,539.47    58,901.56    66,724.84    65,173.15

      Total                                 2,260,110.42 2,490,178.86 2,619,620.04 2,279,310.48 2,165,210.49 2,554,372.77

4     ADVANCES

I     Bills purchased and discounted         178,802.17     214,146.66   282,943.78   328,321.31   392,073.83   407,016.18

II    Cash Credits, overdrafts and loans     978,110.47 1,006,716.71 1,092,272.20 1,404,644.37 1,817,496.03 1,899,228.05
      repayable on demand

III   Term Loans                             749,977.58 1,005,860.99 1,494,649.55 2,011,796.72 2,663,289.79 2,891,209.47

      Total                                 1,906,890.22 2,226,724.36 2,869,865.53 3,744,762.40 4,872,859.65 5,197,453.70
5     Fixed Assets                            31,285.66      35,306.59    35,735.73    39,563.14    39,993.75    44,826.49

6     Other Assets                           246,262.01     241,996.21   250,984.00   332,917.01   348,911.59   453,594.66

      Total (A)                             4,977,560.20 5,509,844.02 6,285,775.71 6,969,918.23 8,151,744.11 9,068,478.79

B     LIABILITIES

1     DEPOSITS

I     Demand Deposits

i     From Banks                              78,634.53      80,771.77    84,613.14    80,657.61   124,082.45    75,526.48

ii    From Others                            483,873.77     546,838.76   617,881.41   764,777.24   866,085.47   843,800.34

II    Savings Bank Deposits                  879,944.56 1,069,039.39 1,264,363.36 1,504,538.88 1,726,084.57 1,847,647.14

III   Term Deposits

i     From Banks                              68,162.64      73,012.96    72,195.21    54,528.76    53,870.74    59,539.31

ii    From Others                           2,408,134.23 2,563,213.97 3,021,999.67 3,035,740.16 3,592,605.54 4,198,259.56

      Total                                 3,918,749.73 4,332,876.85 5,061,052.79 5,440,242.65 6,362,728.77 7,024,772.83




                                                      201
                                                                                                                             (Rs. in millions)
Sr.      Particulars                                             31-Mar-        31-Mar-      31-Mar-      31-Mar-        31-Mar-      30-Sep-
No.                                                                   03             04           05           06             07         2007
                                                                 Audited        Audited      Audited      Audited        Audited    Unaudited
                                                                                                                                     Reviewed

2        BORROWINGS

I        Borrowings in India                                    32,094.18     20,654.86     26,532.28    94,995.89    123,042.73    140,630.38
II       Borrowings outside India                               90,258.38    153,086.22    202,762.47   274,753.10    363,575.58    427,964.95

         Total                                                122,352.56     173,741.08    229,294.75   369,748.99    486,618.31    568,595.33

3        OTHER LIABILITIES & PROVISIONS

I        Other Liabilities & Provisions                       658,288.32     677,760.34    605,971.12   682,848.07    657,904.74    689,632.73
II       Subordinate Debts                                     44,361.06      40,985.14     50,898.41    90,708.12    202,236.44    304,072.83

         Sub Total                                            702,649.38     718,745.48    656,869.53   773,556.19    860,141.18    993,705.56
         Total (B)                                          4,743,751.67 5,225,363.41 5,947,217.07 6,583,547.83      7,709,488.26 8,587,073.72

C        NET ASSETS (C=A-B)                                   233,808.53     284,480.61    338,558.64   386,370.40    442,255.85    481,405.07

         Represented By

D        1       Share Capital                                   5,262.99      5,262.99      5,262.99     5,262.99      5,262.99      5,262.99
E        2       Reserve & Surplus
         I       Statutory Reserves                           128,813.71     143,306.06    172,555.65   207,026.02    247,088.86    247,088.86
         II      Capital Reserves #                             3,304.95       3,644.99      6,345.19     7,777.24      7,949.50      7,949.50
         III     Share Premium                                 38,839.69      35,105.73     35,105.73    35,105.73     35,105.73     35,105.73
         IV      Investment Fluctuation Reserve                32,874.31      62,128.81     71,277.02         5.90             -             -
         V       Foreign Currency Translation Reserve                  -              -      3,320.62     3,566.18      3,178.41        709.43
         VI      Revenue and Other Reserves                    13,574.15      22,574.86     31,516.62   109,459.25    125,580.84    125,580.84
         VII     Balance in Profit and Loss Account             2,502.69       2,340.72        134.16     3,863.76      1,190.17    41,289.38*

         Total                                                219,909.50     269,101.17    320,254.99   366,804.08    420,093.51    457,723.74

         # includes capital reserve on consolidation             1,695.13      1,774.25      1,774.25     1,732.90      1,732.90              -

G        MINORITY INTEREST                                       8,636.04      10,116.45    13,040.66    14,303.33     16,899.35     18,418.34

         Total                                                233,808.53     284,480.61    338,558.64   386,370.40    442,255.85    481,405.07

H        CONTINGENT LIABILITIES
I        Claims against the bank not                             9,765.57      9,554.42     10,027.67    18,902.29     40,541.96      7,449.22
         acknowledged as debts
II       Liability for partly paid investments                     443.69        674.94       554.31       373.18       1,138.66      1,122.97
III      Liability on account of outstanding
         forward exchange contracts                           781,647.91     901,934.08 1,212,093.19 1,835,987.20    2,587,355.44 2,565,777.37
IV       Guaranteed given on behalf of constituents:          179,605.66     194,246.77   233,851.48   325,492.48      467,463.46   560,677.61
(a)      India 119,496.07                                     139,577.26     176,155.62   262,342.98   321,439.44      558,898.26
(b)      Outside India                                         60,109.59      54,669.51    57,695.86    63,149.50      146,024.02     1,779.35
V        Acceptances, endorsements and
         other obligations                                    201,172.57     262,625.63    352,708.13   449,547.53    586,129.09    771,229.94
VI       Other items for which the bank is
         contingently liable                                  232,624.35     160,650.42    208,226.05   300,465.48    231,778.92 6,824,949.59

         Total                                              1,405,259.75 1,529,686.26 2,017,460.83 2,930,768.16      3,914,407.53 10,731,206.70

         Bills for collection                                 113,023.01     163,009.47    316,895.37   247,807.52    283,375.37           N/A

* Without appropriation to Statutory Reserves, Revenue and other reserves.




                                                                         202
                                                                                                            State Bank of India

                                                                                                                             ANNEXURE C-2
SUMMARISED STATEMENT OF PROFIT & LOSS ACCOUNT (CONSOLIDATED)
                                                                                                                               (Rs. in millions)
A   For the Financial Year/Half Year Ended                       31-Mar-          31-Mar-      31-Mar-      31-Mar-      31-Mar-       30-Sep-
                                                                      03               04           05           06           07          2007
                                                                 Audited          Audited      Audited      Audited      Audited     Unaudited
                                                                                                                                      Reviewed
    INCOME
1   INTEREST EARNED
    1.1 Interest / discount on advances/ bills                 161,584.48     164,542.52     191,806.30   258,992.72   368,328.11    242,471.05
    1.2 Income on Investments                                  199,751.72     211,088.07     215,336.49   193,136.21   168,261.14     80,516.67
    1.3 Interest on balances with Reserve Bank of India         34,459.09      27,313.45      20,212.98    24,402.76    31,229.38     10,176.13
        and other inter-bank funds
    1.4   Others                                                14,397.92      10,616.61      17,634.82    22,389.48     4,558.94      419.15@
          TOTAL                                                410,193.21     413,560.65     444,990.59   498,921.17   572,377.57    333,583.00
2   OTHER INCOME
    2.1   Commission, exchange and brokerage                    39,719.35      42,222.75      47,954.77    53,380.75    66,622.92     29,574.86
    2.2   Profit/ (Loss) on sale of investments (Net)           28,270.30      49,479.58      24,708.39    11,477.72     9,711.10     10,648.47
    2.3   Profit/ (Loss) on revaluation of investments (Net)     (189.76)            27.91       (6.23)      227.90    (23,031.53)    (1,751.96)
    2.4   Profit/(Loss) on sale of land, buildings and other       (5.23)             6.19       (9.67)         4.74       125.32        127.74
          assets and Leased Assets (Net)
    2.5   Profit on exchange transactions (Net)                  6,431.08         6,938.24     7,176.26    12,181.07     5,855.85      2,235.81
    2.6   Dividends from Associates/Joint ventures in             350.36           526.36         23.70      250.42         67.38        221.07
          India/ abroad
    2.7   Income from Financial Leasing                          2,676.97         2,163.62     1,893.70     1,393.82     1,057.60        364.44
    2.8   Credit Card membership/ service fees                    533.68           644.32      1,326.64     1,746.03     3,579.08      2,133.58
    2.9   Life Insurance Premium                                    15.47          365.32      5,992.99    10,730.93    29,234.39     13,765.05
    2.10 Share of earnings from associates                          58.66          717.10       579.67      (130.93)     1,888.55        491.30
    2.11 Miscellaneous income                                    4,317.06         8,189.58    10,726.21    20,477.12    16,280.05     11,674.62
          TOTAL                                                 82,177.94     111,280.97     100,366.43   111,739.57   111,390.71     69,484.98
          TOTAL INCOME                                         492,371.15     524,841.62     545,357.02   610,660.74   683,768.28    403,067.98
B   EXPENDITURE
1   INTEREST EXPENDED
    1.1   Interest on deposits                                 261,138.92     240,629.83     233,249.48   253,662.50   287,866.98    194,011.87
    1.2   Interest on Reserve Bank of India/ Inter-bank          2,341.66         2,671.38     5,335.09   14,957.77     22,289.86     15,931.64
          borrowings
    1.3   Others                                                 9,014.61      11,419.20      10,333.80    12,408.71    29,670.65    12,362.43@
          TOTAL                                                272,495.19     254,720.41     248,918.37   281,028.98   339,827.49    222,305.94
2   OPERATING EXPENSES
    2.1   Payments to and provisions for employees              69,638.72      83,777.69      86,329.45   107,637.97   105,974.61     55,305.32
    2.2   Rent, taxes and lighting                               7,706.29         8,693.15     9,952.60    11,169.05    12,676.72      6,374.55
    2.3   Printing & Stationery                                  1,691.77         2,030.74     2,305.39     2,398.20     2,293.13      1,275.00
    2.4   Depreciation                                           6,623.87         9,532.16    10,695.93    11,334.02      9,500.7      4,808.12
    2.5   Directors' fees, allowances and expenses                  22.07            25.84        32.69        38.38        40.80          9.83
    2.6   Auditors' fees and expenses (including branch           614.70           864.65       860.83       996.64      1,039.25        821.67
          auditors' fees and expenses)
    2.7   Law charges                                             636.90           770.65       982.75       672.50        759.76        336.79
    2.6   Postages, Telegrams, Telephones, etc.                   944.98          1,202.49     1,330.84     1,700.19     2,007.08      1,179.05
    2.7   Repairs and maintenance                                 939.14          1,254.70     1,700.62     2,142.12     2,397.28      1,261.54
    2.8   Insurance                                              1,948.10         2,238.82     3,385.17     4,651.19     5,137.32      2,868.58
    2.9   Amortisation of deferred revenue expenditure           5,143.31         4,281.08     5,053.86      179.03        132.80          0.03




                                                                            203
A   For the Financial Year/Half Year Ended                  31-Mar-          31-Mar-      31-Mar-      31-Mar-      31-Mar-      30-Sep-
                                                                 03               04           05           06           07         2007
                                                            Audited          Audited      Audited      Audited      Audited    Unaudited
                                                                                                                                Reviewed
    2.10 Operating Expenses relating to Credit Card          467.17             69.78      997.95      1,386.52     2,054.56            -
         Operations
    2.11 Operating Expenses relating to Life Insurance             -                -     4,914.24    11,707.77    28,434.27    18,361.48
    2.12 Other Expenditure                                 10,337.27         9,700.16    15,893.20    19,999.45    27,569.54    16,210.74
          TOTAL                                           106,714.29     124,441.91     144,435.52   176,013.03   200,017.82   108,812.70
          TOTAL EXPENDITURE                               379,209.48     379,162.32     393,353.89   457,042.01   539,845.31   331,118.64
          Gross Profit Before Provisions (including for   113,161.67     145,679.30     152,003.13   153,618.73   143,922.97    71,949.34
          income tax & extraordinary Items)
          Less: Extraordinary Items                                -                -            -            -            -            -
          Gross Profit Before Provisions                  113,161.67     145,679.30     152,003.13   153,618.73   143,922.97    71,949.34
          (including for income tax)
3   Provisions & Contingencies:
    3.1   Provision for Income Tax (Current tax)           30,665.25      28,865.93      27,941.91    21,016.76    41,112.95    23,762.62
    3.2   Provision for Income Tax (Deferred tax)           (386.17)     (4,291.25)     (1,585.42)     5,070.90     (775.60)   (1,039.86)
    3.3   Provision for Fringe Benefit Tax                         -                -            -     6,195.96     1247.60       727.61
    3.4   Provision for other taxes                          (18.50)             7.61      (38.71)        12.07      (14.53)         8.77
    3.5   Provision for NPAs                               36,698.30      53,384.88      14,033.75     4,140.64    17,758.92     9,170.94
    3.6   Provision for Standard Assets                     2,592.60         1,319.87     (741.29)     5,854.43     9,454.23     1,639.75
    3.7   Provision for depreciation on investments         6,031.92         4,355.47    4,4941.14    5,5395.51     8,294.86   (3,811.90)
    3.8   Provision on other assets/ Contingencies        (7,919.94)            21.40      589.13       586.96         57.40        29.93
    3.9   Other Provisions                                  2,189.22         4,421.73    10,882.94   (1,269.30)      589.16       179.54
          Total                                            69,852.68      88,085.64      96,023.45    97,003.93    77,724.99    30,667.40
          Net Profit for the year                          43,308.99      57,593.66      55,979.68    56,614.80    66,197.98    41,281.94
          Less: Minority Interests                          1,318.84         2,282.65     1,340.43     1,315.60     2,554.25     1,158.19
          Group Profit                                     41,990.15      55,311.01      54,639.25    55,299.20    63,643.73    40,123.75
          Add: Brought forward Profit attributable           341.47           692.27      2,340.72      134.16      3,863.76     1,190.17
          to the group
          Transfer from General Reserve                            -                -            -            -        28.86            -
          TOTAL                                            42,331.62      56,003.28      56,979.97    55,433.36    67,536.35    41,313.92
          APPROPRIATIONS:
          Transfer to Statutory Reserves                   14,832.08      14,518.81      29,249.59    34,537.00    40,062.84            -
          Transfer to Other Reserves                       19,800.00      32,612.71      20,079.98     8,631.03    17,662.94        24.54
          Dividend                                          4,473.59         5,789.29     6,578.74     7,368.18     7,368.18            -
          Corporate Tax on Dividend                          723.26           741.75       937.50      1,033.39     1,252.22            -
          Balance carried to Balance Sheet                  2,502.69         2,340.72      134.16      3,863.76     1,190.17    41,289.38
          Total                                            42,331.62      56,003.28      56,979.97    55,433.36    67,536.35    41,313.92
          Break up of Non-Recurring Items
          Included above:
          Income:
          Profit on sale of investments                            -         6,937.00     1,464.00            -            -            -
          Interest on Income tax refund                            -                -     7,452.80    17,018.10            -            -
          Write back of Depreciation                               -                -            -            -      174.70             -
          Write back of provisions                                 -                -            -     1,280.00            -            -
          Write back of provisions towards                  8,340.20                -            -            -            -            -
          securities transactions
          Exchange gain on India Millennium Deposits               -                -            -     5,315.40            -            -
          Miscellaneous Income - Unreconciled net                  -                -            -     5,169.70            -            -
          credit on inter-branch accounts




                                                                       204
                                                                                                 State Bank of India

A   For the Financial Year/Half Year Ended           31-Mar-           31-Mar-      31-Mar-      31-Mar-      31-Mar-       30-Sep-
                                                          03                04           05           06           07          2007
                                                     Audited           Audited      Audited      Audited      Audited     Unaudited
                                                                                                                           Reviewed
         Diminution in the value of Investments              -                -             -            -    1,582.30            -
         written back
         Sub-total (A)                               8,340.20          6,937.00     8,916.80    28,783.20     1,757.00            -
         Expenses:
         Voluntary Retirement Scheme                 5,081.90          5,099.30     5,053.90       722.40     4,783.00            -
         Reduction in Provision for depreciation             -                -   (29,853.40)    (868.60)             -           -
         on investments
         Payments to and provisions for employees            -                -             -    4,084.80             -           -
         Interest on Income Tax                              -                -             -            -    2,647.60            -
         Interest on India Millennium Deposits               -                -             -   (5,635.20)            -           -
         Sub-total (B)                               5,081.90          5,099.30   (24,799.50)   (1,696.60)    7,430.60            -
         Total (A-B)                                 3,258.30          1,837.70    33,716.30    30,479.80    (5,673.60)           -
         Tax impact thereon                          5,109.60           659.27     12,337.64    10,216.42    (1,018.55)           -
         Net impact on profit                       (1,851.30)         1,178.43    21,378.66    20,263.38    (4,655.05)           -

@ Interest on Swaps netted off.




                                                                 205
ANNEXURE C-3
Principal Accounting Policies for the Consolidated Financial Information for the year ended March 31, 2007
The principal accounting policies of the Group have been described in brief in the following paragraphs. The material
accounting policies which were followed in the financial year ended on March 31, 2003, 2004, 2005 and 2006 and which has
changed in subsequent years have been stated in italics at the appropriate places.
1.   Basis of Consolidation
     Consolidated financial statements of the Group (comprising subsidiaries, Joint Ventures and Associates) have been
     prepared on the basis of :
     a)    Audited accounts of State Bank of India (Parent).
     b)    Line by line aggregation of each item of asset/liability/income/expense of the subsidiaries with the respective
           item of the Parent, and after eliminating all material intra-group balances / transactions, unrealised profit/loss,
           and making necessary adjustments wherever required for non-uniform accounting policies as per AS 21 of
           The Institute of Chartered Accountants of India (ICAI).
     c)    Consolidation of Joint Ventures - full consolidation in respect of joint ventures which are also subsidiaries
           and 'Proportionate Consolidation' in respect of other Joint Ventures - as per AS 27 of ICAI.
     d)    Accounting for investment in 'Associates' under the 'Equity Method' as per AS 23 of ICAI.
     e)    Financial Statements of the Subsidiaries / Joint Ventures drawn up to the same reporting date as that of the
           Parent.
     Earlier Policy: During the financial years ended on March 31, 2003 and March 31, 2004, joint ventures were
     consolidated on proportionate consolidation method as per the then prevailing provisions of Accounting
     Standard 27.
     1.    The difference between cost to the group of its investment in the subsidiary entities and the group's portion
           of the equity of the subsidiaries is recognised in the financial statements as goodwill / capital reserve.
     2.    Minority interest in the net assets of the consolidated subsidiaries consists of :
           a)       The amount of equity attributable to the minority at the date on which investment in a subsidiary is
                    made.
           b)       The minority share of movements in revenue reserves/loss (equity) since the date the parent-
                    subsidiary relationship came into existence.
2.   Basis of Preparation
     The accompanying financial statements have been prepared under the historical cost convention. They conform to
     Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory provisions, Regulatory/
     RBI guidelines, Accounting Standards/guidance notes issued by the ICAI. In respect of foreign offices, statutory
     provisions and practices prevailing in respective countries are complied with.
3.   Advances and Provisions thereon
     3.1   Advances are shown net of provisions and unrealised interest on Non-Performing Assets (NPAs).
     3.2   A general provision is required to be made on Standard Assets on the global portfolio. The provision rates for
           the difference categories of Standard Assets are summarised below:
           a.    Direct advances to agricultural and SME Sectors                                                     0.25%
           b.    Residential housing loans beyond Rs. 20 lakhs                                                       1.00%



                                                            206
                                                                                     State Bank of India

      c.      Personal Loans, Loans and advances qualifying as capital market exposures,                       2.00%
              Commercial real estate loans, and Loans and advances to Systemically
              important NBFCs - Non Deposit Taking
      d.      All other loans and advances not included in (a), (b) & (c)                                      0.40%
      Earlier Policy: During the years 2002-03, 2003-04 and 2004-05, the general provision on standard assets
      on the global portfolio was 0.25%. In the year 2005-06, the general provision on standard assets on the
      global portfolio was 0.40% except on the advances to small and medium enterprises and direct agriculture
      which was at 0.25%.
3.3   Indian Offices
      3.3.1      All advances are classified under categories, viz. (a) Standard Assets, (b) Sub-standard Assets, (c)
                 Doubtful Assets and (d) Loss Assets.
      3.3.2      Provisions are made on outstanding non-performing advances (net of interest not realised) as below:
                       Sub Standard Assets                  : 10%
                       From the year ended 2004-05          : 20% (In case of ab initio unsecured exposures (where
                                                              realisable value of security is not more than 10 %)
                       Doubtful Assets
                       a)     Unsecured portion at 100 percent after netting retainable/realisable amount of guarantee
                              cover provided by Export Credit Guarantee Corporation / Credit Guarantee Trust for
                              Small Industries, wherever applicable.
                       b)     Secured portion
                              Period for which the advance has been considered as doubtful
                                                                                                     PERCENTAGE
                                   Up to one year                                                               20%
                                   One to three years                                                           30%
                                   More than three years                                                       100%
                       Loss Assets                                                                             100%
                 Earlier Policy:
                 a)    In the case of doubtful assets for more than three years as on March 31, 2004, the percentage
                       of provision on secured portion in the earlier years were 50% in 2002-03 and 2003-04, 60% in
                       2004-05 and 75% in 2005-06.
                 b)    In the case of advances guaranteed by the state governments the accounting policy for
                       classification of account and making provisions were as below in the earlier years:
                       i.     In the financial year ended March 31, 2005, advances guaranteed by State Governments
                              were classified as "sub-standard", "doubtful" or "loss", as the case may be, if the
                              amount due to the bank remains overdue for more than 180 days and attracted
                              appropriate provisioning as applicable to other advances.
                       ii.    In the financial years ended March 31, 2004 and March 31, 2003, advances where State
                              Government guarantee remained default for more than two quarters ended as of March
                              31, 2000 after it is invoked at provision was made at 30% of the secured portion and 100%
                              of the unsecured portion.


                                                           207
                          iii.   In the years 2003-04 and 2002-03, advances where State Government guarantee remain
                                 default for more than two quarters as on March 31, 2000 after it is invoked at provision
                                 was made at 30% of the secured portion and 100% of the unsecured portion.
                    c)    In the year 2002-03, the advances were considered as non-performing if they remain overdue or
                          out of order for more than 180 days as against 90 days at present.
                          Financial Assets sold are recognised as follows:
                          i)     In case the sale is at a price lower than the Net Book Value (NBV), the difference is
                                 charged to the Profit and Loss Account.
                          ii)    In case the sale is at a price higher than the NBV, the surplus provision is not reversed
                                 and is utilised to meet the shortfall on sale of other such non-performing financial assets.
           3.3.3    Unrealised Interest recognised in the previous year on advances which have become non-performing
                    during the current year is provided for.
           3.3.4    In case of restructuring / rescheduling of advances, the difference between the present value of the
                    future interest as per the original agreement and the present value of the future interest as per the
                    revised agreement is provided for at the time of restructuring / rescheduling.
     3.4   Foreign Offices
           3.4.1    Advances are classified under four categories in line with those of India Offices.
           3.4.2    Provisions in respect of non-performing advances are made as per the local law or as per the norms
                    of RBI, whichever is higher.
4.   Investments
     4.1   Investments are classified into 3 categories, viz. 'Held for Trading', 'Available for Sale' and 'Held to Maturity'.
           Under each of these categories, investments are further classified under the following six groups:
           1.       Government Securities;
           2.       Other Approved Securities;
           3.       Shares;
           4.       Debentures and Bonds;
           5.       Investments in Subsidiaries/Joint Ventures/Associates; and
           6.       Other Investments.
           4.1.1    Investments that are acquired by the Group with the intention to trade by taking advantage of short
                    term price / interest rate movement are classified under 'Held for Trading'. These investments are held
                    under this category up to 90 days from the date of acquisition.
           4.1.2    Investments which are intended to be held up to maturity are classified as 'Held to Maturity'.
           4.1.3    Investments which are not classified in either of the above categories are classified as 'Available for
                    Sale'.
     4.2   Valuation
           4.2.1    In determining the acquisition cost of an investment:
                    a)    Brokerage/commission received on subscriptions is deducted from the cost of securities.
                    b)    Brokerage, commission and stamp duty paid in connection with acquisition of securities are
                          treated as revenue expenses.

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                                                                              State Bank of India

        c)    Interest accrued up to the date of acquisition of securities i.e. broken-period interest, is
              excluded from the acquisition cost and recognised as interest expense. Broken-period interest
              received on sale of securities is recognised as interest income.
        d)    Cost is determined on the weighted average cost method.
        e)    The transfer of the security (from one category to another) is accounted for at the least of
              acquisition cost / book value / market value on the date of transfer and the depreciation, if any,
              on such transfer is charged to Profit and Loss Account - "Profit on Revaluation of
              Investments" as a deduction.
        Earlier Policy : In the year 2002-03, the weighted average cost was determined at the end of year
        after considering transactions during the year.
4.2.2   Individual scrips classified under 'Held for Trading' category are valued at lower of book value or
        market value. Securities are valued scrip-wise and depreciation / appreciation is aggregated for each
        classification. Net depreciation in each classification, if any, is provided for while net appreciation is
        ignored. The book value of the scrips continues to remain unchanged.
4.2.3   Investments under 'Held to Maturity' (HTM) category are carried at acquisition cost. Wherever the
        book value is higher than the face value/redemption value, the premium on acquisition or on transfer
        from another category is amortised over the remaining period to maturity of the security using
        Constant Yield Method (CYM). Amortisation loss is charged to Profit & Loss Account - "Profit on
        Revaluation of Investments" as a deduction. The book value of the security is reduced to the extent
        of the amount amortised.
        Earlier Policy: In the financial years ended March 31, 2003 & March 31, 2004, the premium
        amount was amortised equally over the remaining period of maturity.
4.2.4   Investments under 'Available for Sale' category are valued at cost or market value, whichever is
        lower. Where market quotations are not available, market value for this purpose is arrived at on the
        basis of realisable market price computed as per the guidelines of the Fixed Income Money Market
        and Derivatives Association of India (FIMMDA) / Primary Dealers Association of India (PDAI) /
        RBI. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each
        classification. Net depreciation in each classification, if any, is provided for while net appreciation is
        ignored. The book value of the scrips continues to remain unchanged.
        Earlier Policy: In the years 2002-03 and 2003-04, depreciation was recognised scrip-wise and
        appreciation ignored.
4.2.5   Treasury Bills and Commercial Papers are valued at cost.
4.2.6   Non-Performing Investments are recognised as per RBI guidelines and provision is made as per RBI
        norms applicable to Non-Performing Advances.
4.2.7   Investments in Regional Rural Banks (RRBs) are valued at carrying cost (i.e. book value).
        Earlier Policy: During the financial year ended March 31, 2007, the group has recognised
        diminution in the value of investments in RRBs to the extent of its capital contribution which
        hitherto was being recognised by the group without restricting to its capital contribution.
4.2.8   The Group has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of
        Repo and Reverse Repo transactions other than transactions under the Liquidity Adjustment facility
        (LAF) with the RBI. Accordingly, the securities sold/purchased under Repo/Reverse Repo are treated
        as outright sales/purchases and accounted for in the Repo/Reverse Repo Accounts and the entries
        are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/
        income, as the case may be. Balance in Repo/Reverse Repo Account is adjusted against the balance
        in the Investment Account.
                                               209
           Securities purchased/sold under LAF with RBI are debited/credited to Investment Account and reversed on
           maturity of the transactions. Interest expended/earned thereon is accounted for as expenditure/revenue.
5.   Derivatives
     5.1   The Group presently deals in Interest Rate Derivatives viz. Rupee Interest Rate Swaps, Cross Currency
           Interest Rate Swaps and Forward Rate Agreements, and Currency Derivatives viz. Options and Currency
           Forwards. The Group also deals in a mix of these generic instruments, under the portfolio of Structured
           Products.
     5.2   Based on RBI guidelines, Derivatives are valued as follows:
           a)       Derivatives used for trading are marked to market and net appreciation/depreciation is recognised in
                    the Profit and Loss Account.
           b)       Derivatives used for hedging are :
                    i)    Marked to market in cases where the underlying Assets/Liabilities are marked to market. The
                          resultant gain/loss is recognised in the Profit & Loss Account.
                    ii)   Accounted on accrual basis in cases where the underlying Assets/Liabilities are not marked to
                          market.
                    The net outstanding marked to market position of each type of derivative is shown either under
                    Asset or Liability, as the case may be.
6.   Fixed Assets and Depreciation
     6.1   Premises and other fixed assets are accounted on historical cost basis.
     6.2   Depreciation is provided on the written down value method at the rates prescribed under the Income Tax Rules,
           1962, which are considered appropriate by the management. In respect of computers, depreciation is provided
           on straight line method at 33.33% per annum, as per RBI guidelines. Computer software not forming an
           integral part of hardware is depreciated fully in the year of purchase.
     6.3   Assets costing up to Rs. 1,000 are charged off to the Profit and Loss Account.
     6.4   In respect of fixed assets held at Foreign Offices, depreciation is provided as per the laws/norms of the
           respective countries.
     6.5   In respect of leasehold premises, the lease amount is amortised over the period of lease.
7.   Assets given on Lease
     7.1   In respect of assets given on lease by the Group on or before March 31, 2001, the value of the assets given on
           lease and the amounts paid as advance for assets to be given on lease are disclosed as "Leased Assets" and
           "Capital Work-in-progress (Leased Assets)" respectively under fixed assets. Depreciation is provided on
           straight line method as per the Companies Act, 1956 and the difference between the annual lease charge
           (capital recovery) and the depreciation is taken to Lease Equalisation Account as per the guidelines issued by
           the ICAI.
     7.2   Assets given on lease by the Group on or after April 1, 2001 are accounted as per Accounting Standard 19
           (Leases) issued by the ICAI. Such assets are included under "Other Assets".
     7.3   Provisions on non-performing leased assets are made on the basis of RBI guidelines applicable to advances.
8.   Impairment of Assets
     8.1   Impairment losses (if any), are recognised in accordance with Accounting Standard 28 issued by the ICAI and
           charged off to Profit and Loss Account.


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                                                                                          State Bank of India

9.    Foreign Currency Transactions
      9.1   In conformity with Accounting Standard 11 (The effects of changes in foreign exchange rates) of the ICAI,
            Foreign Branches of the Group and Offshore Banking Units ("OBUs") have been classified as Non-integral
            Operations and Representative Offices classified as Integral Operations.
      9.2   a)       Foreign currency transactions are recorded on initial recognition in the reporting currency by
                     applying to the foreign currency amount the exchange rate between the reporting currency and the
                     foreign currency on the date of transaction.
            b)       Foreign currency monetary items are reported using the FEDAI closing spot rates.
            c)       Exchange differences arising on the settlement of monetary items at rates different from those at
                     which they were initially recorded are recognised as income or as expense in the period in which
                     they arise.
      9.3   Non-integral Operations
            a)       All monetary/non-monetary assets and liabilities as well as contingent liabilities are translated at the
                     closing rate notified by FEDAI.
            b)       Income and expenditure are translated using the quarterly average rate notified by FEDAI at the end
                     of the respective quarter.
            c)       All resulting exchange differences are accumulated in a separate "Foreign Currency Translation
                     Reserve" account till the disposal of the net investment.
      9.4   Integral Operations
            a)       All income and expenditure of integral operations are recorded at the rates prevalent on the date of
                     transaction.
            b)       All foreign currency monetary items are reported using the FEDAI closing rates.
            Earlier Policy: In the years 2002-03 and 2003-04, items of income and expenditure as well as assets and
            liabilities in foreign currencies in respect of foreign offices, foreign subsidiaries and foreign Joint Ventures,
            and assets and liabilities in foreign currencies held in the books of domestic offices were converted at the
            rate of exchange prevailing at the close of the year as per RBI guidelines. Items of income and expenditure
            in foreign currencies at domestic offices were converted at the exchange rate prevailing on the date of
            transactions.
      9.5   Forward Exchange Contracts
            In accordance with the guidelines of the FEDAI and the provisions of AS - 11, net outstanding forward
            exchange contracts in each currency are revalued at the Balance Sheet date at the corresponding forward
            rates for the residual maturity of the contracts. The difference between the revalued amount and the
            contracted amount is recognised as profit or loss, as the case may be.
10.   Revenue Recognition
      10.1 Income and Expenditure are accounted on accrual basis. In case of foreign offices, income is recognised as
           per the local laws of the country in which the respective foreign office is located
      10.2 The following items of income are recognised on realisation basis:
            a)       Commission (other than commission on deferred payment guarantees and government transaction),
                     exchange and brokerage.
            b)       Dividend on investments.



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     c)       Income on Rupee Derivatives designated as "Trading".
     d)       Interest on application money on investments and overdue interest on investments.
10.3 The following items of income are recognised on realisation basis, owing to significant uncertainty in
     collection thereof:
     a)       Income on non-performing advances, Overdue bills and leased assets.
     b)       Interest on non-performing investments.
10.4 Income (other than interest) on investments in "Held to Maturity" (HTM) category acquired at a discount to
     the face value, is recognised as follows:
     10.4.1   a)    On Interest bearing securities, it is recognised only at the time of sale.
              b)    On zero-coupon securities, it is accounted for over the balance tenor of the security on a
                    constant yield basis.
     10.4.2   Profit on sale of investments in this category is first credited to the Profit and Loss Account and
              thereafter appropriated to the "Capital Reserve Account". Loss on sale is recognised in the Profit and
              Loss Account.
10.5 Non-banking entities
     10.5.1   Merchant Banking :
              a)    Issue management and advisory fees are recognised as per the terms of agreement with the
                    client.
              b)    Fees for private placement are recognised on completion of assignment.
              c)    Underwriting commission relating to public issues is accounted for on finalisation of allotment
                    of the public issue. Brokerage income relating to public issues/mutual fund/other securities is
                    accounted for based on mobilisation and intimation received from clients/intermediaries.
              d)    Brokerage income in relation to stock broking activity is recognised on settlement date of the
                    transaction.
     10.5.2   Asset Management:
              Management fee is recognised at specific rates agreed with the relevant scheme applied on the
              average daily net assets of each scheme (including inter-scheme investments, where applicable, and
              investments made by the company in the respective scheme).
     10.5.3   Credit Card Operations:
              a)    Joining membership fee and first annual fee has been recognised over a period of one year as
                    this more closely reflects the period to which the fee relates to.
              b)    Visa interchange income is recognised on accrual basis.
              c)    All other service fees are recorded at the time of recording the respective transaction.
     10.5.4   Factoring:
              Factoring service charges are accounted on accrual basis except in the case of non-performing
              assets, where income is accounted on realisation.
     10.5.4   Life Insurance:
              a)    Life insurance premium (net of service tax) is recognised as income when due from
                    policyholders. Uncollected premium from lapsed policies is not recognised as income until

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                                                                                          State Bank of India

                            such policies are revived. In respect of linked business, premium income is recognised when
                            the associated units are allotted.
                     b)     Premium ceded on reinsurance is accounted in accordance with the terms of the treaty or in-
                            principle arrangement with the reinsurer.
                     c)     Life insurance claims by death are accounted when intimated. Intimations up to the end of the
                            year are considered for accounting of such claims. Claims by maturity are accounted on the
                            policy maturity date. Annuity benefits are accounted when due. Surrenders are accounted as
                            and when notified. Claims cost consist of the policy benefit amounts and claims settlement
                            costs, where applicable. Amounts recoverable from re-insurers are accounted for in the same
                            period as the related claims and are reduced from claims.
                     d)     The estimation of liability against life policies is determined by the Appointed Actuary
                            pursuant to an annual review of the life insurance business of the company.
      10.6 Foreign Offices/Foreign Subsidiaries
            Income is recognised as per the local laws of the countries.
11.   Retirement Benefits
      11.1 Contributions payable to Bank's Provident Fund Trust in terms of its Provident Fund Scheme are charged to
           Profit and Loss account on accrual basis.
      11.2 Liability for gratuity, pension and leave encashment (which are defined benefits) is determined on the basis of
           actuarial valuations carried out at the year end and incremental liability is provided for by charging to the
           Profit and Loss Account.
12.   Provision for Taxation
      Provision for tax comprises of current tax for the period determined in accordance with the relevant laws, fringe
      benefit tax and deferred tax charge or credit reflecting the tax effect of timing differences between accounting income
      and taxable income for the period, in conformity with Accounting Standard 22 (Accounting for Taxes on Income) of
      the Institute of Chartered Accountants of India. The deferred tax charge or credit and the corresponding deferred tax
      liabilities or assets are recognised using the tax rates that have been enacted or substantively enacted by the
      balance sheet date. Deferred tax assets are not recognised unless there is virtual certainty that sufficient future
      taxable income will be available against which such deferred tax assets will be realised.




                                                            213
ANNEXURE C-4
Material Notes to Summarised Consolidated Financial Information and Accounting Standard Disclosures
(A)   Material Notes to Summarised Consolidated Financial Information
1.    List of Subsidiaries/Joint Ventures/Associates considered for preparation of consolidated financial statements:
      The Subsidiaries, Joint Ventures and Associates (which along with State Bank of India, the parent, constitute the
      Group), considered in the preparation of the consolidated financial statements, are:
A)    Subsidiaries
S.     Name of the Subsidiary             Country of                     Year wise Group's Stake (%)
No                                        Incorporation
                                                             As of    As of      As of      As of    As of    As of
                                                           March    March      March      March    March September
                                                          31, 2003 31, 2004   31, 2005   31, 2006 31, 2007 30, 2007
1)     State Bank of Bikaner & Jaipur     India             75.07     75.07     75.07      75.07    75.07        75.07
2)     State Bank of Hyderabad            India            100.00    100.00    100.00     100.00   100.00       100.00
3)     State Bank of Indore               India             98.05     98.05     98.05      98.05    98.05        98.05
4)     State Bank of Mysore               India             92.33     92.33     92.33      92.33    92.33        92.33
5)     State Bank of Patiala              India            100.00    100.00    100.00     100.00   100.00       100.00
6)     State Bank of Saurashtra           India            100.00    100.00    100.00     100.00   100.00       100.00
7)     State Bank of Travancore           India             75.01     75.01     75.01      75.01    75.01        75.01
8)     SBI Commercial & International     India            100.00    100.00    100.00     100.00   100.00       100.00
       Bank Ltd
9)     SBI Capital Markets Ltd            India             86.16     86.16     86.16      86.16    86.16        86.16
10)    SBICAP Securities Ltd              India                 -         -          -     86.16    86.16        86.16
11)    SBICAP Trustee Company Ltd         India                 -         -          -     86.16    86.16        86.16
12)    SBICAPS Ventures Ltd               India                 -         -          -     86.16    86.16        86.16
13)    SBI DFHI Ltd                       India             58.83     66.00     65.95      65.95    65.95        65.95
14)    SBI Factors & Commercial           India             69.88     69.88     69.88      69.88    69.88        69.88
       Services Pvt Ltd
15)    SBI Mutual Fund Trustee            India                 -         -    100.00     100.00   100.00       100.00
       Company Pvt Ltd
16)    State Bank of India (Canada)       Canada           100.00    100.00    100.00     100.00   100.00       100.00
17)    State Bank of India (California)   USA              100.00    100.00    100.00     100.00   100.00       100.00
18)    SBI International (Mauritius)      Mauritius         98.00     98.00     98.00      98.00    98.00        98.00
       Ltd
19)    Indian Ocean International         Mauritius             -         -          -     51.00    56.84        61.93
       Bank Ltd
20)    PT Bank Indomonex                  Indonesia             -         -          -         -    76.00        76.00
21)    SBICAP (UK) Ltd                    U.K.                  -         -          -     86.16    86.16        86.16
22)    SBI Fund Management Pvt Ltd        India            100.00    100.00          -         -         -              -




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                                                                                       State Bank of India

B)    Joint Ventures
S.     Name of the Joint Venture        Country of                     Year wise Group's Stake (%)
No                                      Incorporation
                                                           As of    As of      As of      As of    As of    As of
                                                         March    March      March      March    March September
                                                        31, 2003 31, 2004   31, 2005   31, 2006 31, 2007 30, 2007
1)     C Edge Technologies Pvt Ltd      India                 -         -          -     49.00   49.00      49.00
2)     GE Capital Business Process      India             40.00     40.00     40.00      40.00   40.00      40.00
       Management Services Pvt Ltd
3)     SBI Cards and Payment            India             60.00     60.00     60.00      60.00   60.00      60.00
       Services Pvt Ltd
4)     SBI Fund Management Pvt Ltd      India                 -         -     63.00      63.00   63.00      63.00
5)     SBI Life Insurance Company Ltd   India             74.00     74.00     74.00      74.00   74.00      74.00
6)     Commercial Bank of India LLC     Russia                -     60.00     60.00      60.00   60.00      60.00
7)     SBI Funds Management             Mauritius             -         -          -         -   63.00      63.00
       (International) Private Ltd
C)      Associates
S.     Name of the Associate            Country of                     Year wise Group's Stake (%)
No                                      Incorporation
                                                           As of    As of      As of      As of    As of    As of
                                                         March    March      March      March    March September
                                                        31, 2003 31, 2004   31, 2005   31, 2006 31, 2007 30, 2007
1)     Andhra Pradesh Grameena          India                 -         -          -     35.00   35.00      35.00
       Vikas Bank
2)     Arunachal Pradesh Rural Bank     India             35.00     35.00     35.00      35.00   35.00      35.00
3)     Chhatisgarh Gramin Bank          India                 -         -          -         -   35.00      35.00
4)     Ellaquai Dehati Bank             India             35.00     35.00     35.00      35.00   35.00      35.00
5)     Ka Bank Nongkyndong              India             35.00     35.00     35.00      35.00   35.00      35.00
       Ri Khasi Jaintia
6)     Krishna Grameena Bank            India             35.00     35.00     35.00      35.00   35.00      35.00
7)     Langpi Dehangi Rural Bank        India             35.00     35.00     35.00      35.00   35.00      35.00
8)     Madhya Bharat Gramin Bank        India                 -         -          -         -   35.00      35.00
9)     Mizoram Rural Bank               India             35.00     35.00     35.00      35.00   35.00      35.00
10)    Nagaland Rural Bank              India             35.00     35.00     35.00      35.00   35.00      35.00
11)    Parvatiya Gramin Bank            India             35.00     35.00     35.00      35.00   35.00      35.00
12)    Purvanchal Kshetriya             India                 -         -          -     35.00   35.00      35.00
       Gramin Bank
13)    Samastipur Kshetriya             India             35.00     35.00     35.00      35.00   35.00      35.00
       Gramin Bank
14)    Utkal Gramya Bank                India                 -         -          -         -   35.00      35.00
15)    Uttaranchal Gramin Bank          India                 -         -          -         -   35.00      35.00
16)    Vananchal Gramin Bank            India                 -         -          -         -   35.00      35.00
17)    Marwar Ganganagar Bikaner        India                 -         -          -         -   26.27      26.27
       Gramin Bank



                                                        215
S.     Name of the Associate                   Country of                      Year wise Group's Stake (%)
No                                             Incorporation
                                                                  As of    As of       As of      As of    As of    As of
                                                                March    March       March      March    March September
                                                               31, 2003 31, 2004    31, 2005   31, 2006 31, 2007 30, 2007
18)        Vidisha Bhopal Kshetriya            India             34.32     34.32      34.32      34.32     34.32        34.32
           Gramin Bank
19)    Deccan Grameena Bank                    India                  -         -          -     35.00     35.00        35.00
20)    Cauvery Kalpatharu                      India                  -         -          -         -     32.32        32.32
       Grameena Bank
21)        Malwa Gramin Bank                   India             35.00     35.00      35.00      35.00     35.00        35.00
22)    Saurashtra Grameena Bank                India                  -         -          -     35.00     35.00        35.00
23)        Clearing Corporation of India Ltd   India             26.82     28.97      28.97      28.97     28.97        28.97
24)        SBI Home Finance Ltd                India             25.05     25.05      25.05      25.05     25.05        25.05
25)    UTI Asset Management                    India             25.00     25.00      25.00      25.00     25.00        25.00
       Company Pvt Ltd
26)        Bank of Bhutan                      Bhutan            20.00     20.00      20.00      20.00     20.00        20.00
27)        Nepal SBI Bank Ltd                  Nepal             50.00     50.00      50.00      50.00     50.00        50.00

1.    Year Ended on March 31, 2003
      a)       The expenses on encashment of leave of employees were hitherto accounted for on cash basis. However, in
               order to comply with the Accounting Standard 15 issued by the Institute of Chartered Accountants of India
               and guidelines issued by RBI, during the current year, the liability towards encashment of leave is accounted
               for on the basis of actuarial valuation. Accordingly, an amount of Rs. 1,113 million representing current's year
               liability has been charged to Profit and Loss Account and an amount of Rs. 8,157 million representing the
               accrued liability up to March 31, 2002 has been debited to the Revenue Reserve.
      b)       During the year an amount of Rs. 5,082 million has been charged to revenue on account of Voluntary
               Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred revenue
               expenditure. Unamortised amount of Rs. 10,085 million is to be amortised over a further period of two years in
               accordance with RBI guidelines.
      c)       Two of the subsidiaries - SBI Cards and Payment Services Pvt. Ltd. and SBI Life Insurance Co. Ltd. - being
               joint ventures, were consolidated on proportionate basis as per Accounting Standard 27 instead of being
               consolidated as subsidiaries as was done in 2001-02.
      d)       GE Capital Business Process Management Services Pvt. Ltd. and Credit Information Bureau of India Ltd were
               included for consolidation on proportionate basis as per Accounting Standard 27. In 2001-02, the Bank's
               investment in these entities was accounted for at cost.
      e)       Two of the bank's subsidiaries - SBI Securities Ltd. and SBI Servicos Limitada - are in the process of being
               liquidated. While figures of these Companies have not been taken for the purpose of consolidation, the Bank's
               investment in these subsidiaries have been shown as receivable under the head "Other assets - Others" in
               Schedule 11. Another subsidiary - SBI Finance Inc. - has also been liquidated during the year.
      f)       Two of the associates - Bank of Bhutan (December 31) and Nepal SBI Bank Ltd (Hindu Calendar Year) follow
               accounting years different from that of the parent.
2.    Year Ended on March 31, 2004
      a)       During the year an amount of Rs. 5,099 million has been charged to revenue on account of Voluntary
               Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred revenue

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                                                                                       State Bank of India

          expenditure. Unamortised amount of Rs. 5,054 million is to be amortised next year in accordance with RBI
          guidelines.
     b)   SBI Gilts Ltd was merged with Discount & Finance House of India Ltd in terms of the order of the Mumbai
          High Court dated February 26, 2004. The effective date of merger was April 1, 2003. For the purpose of
          preparing the statement, the figures of the merged entity have been considered.
     c)   Commercial Bank of India LLC, a joint venture with Canara Bank, incorporated in Russia as a joint stock
          company on November 5, 2003, commenced operation effective from December 4, 2003.
     d)   SBI Servicos Limitada, a subsidiary incorporated in Brazil, was in the process of being liquidated. While
          figures of these Companies were not taken for the purpose of consolidation, the bank's investment in this
          subsidiary have been shown as receivable under the head "Other Investment" in Schedule 8.
     e)   SBI Securities Ltd, a subsidiary which was under voluntary liquidation, was liquidated. The group's equity
          investment of Rs. 456 million has been fully realised.
3.   Year Ended on March 31, 2005
     a)   During the year final instalment of Rs. 5,054 million has been charged to revenue on account of Voluntary
          Retirement Scheme (VRS) implemented during the year 2000-01, which was treated as deferred revenue
          expenditure.
     b)   State Bank of India divested 37% of its stake in its fully owned subsidiary SBI Funds Management Pvt Ltd to
          Société Générale Asset Management, France. However, the interest in the assets, liabilities, income and
          expenses of the entity was consolidated as per procedure for consolidation of investments in subsidiaries set
          out in Accounting Standard 21.
     c)   The stake of SBI in Asset Reconstruction Company came down to 19.95% (24.50% up to October 15, 2004).
          Consequently, in the 2004-05, the entity was not treated as an Associate of the State Bank Group.
     d)   A new Subsidiary, SBI Mutual Fund Trustee Company Pvt. Ltd, promoted by State Bank of India, took over
          the trusteeship function of the SBI mutual fund from December 29, 2004 and the assets, liabilities; income and
          expense of the entity were consolidated as per procedure for consolidation of investments in subsidiaries, as
          set out in Accounting Standard 21.
     e)   The investments in ' Available for Sale (AFS) and 'Held For Trading' (HFT) categories were being valued scrip-
          wise and depreciation if any, was provided scrip wise while ignoring appreciation. From the current financial
          year investment in 'Available for Sale'(AFS) and 'Held For Trading' (HFT) categories have been valued in
          conformity with RBI guidelines after netting-off classification-wise depreciation and appreciation, computed
          scrip-wise and providing for net depreciation in each classification while ignoring net appreciation.
     f)   During the year, loss on redemption of securities in AFS category has been recognised after adjusting the
          underlying specific provisions held against these securities as against accounting of the same on gross basis
          in "Income from Investments" in earlier years. However there is no impact on the net profit for financial year
          2004-05.
     g)   During the year, the Accounting Standard 11 - Effects of change in Foreign Exchange Rate (2003-Revised)
          has come into effect. The net profit of the Bank for the year is arrived at in conformity with the provisions of
          the said Accounting Standard. Consequent upon this, net exchange difference arising on translation of
          monetary items of non integral operations amounting to Rs. 3,321 million shown under Other Liabilities &
          Provisions in earlier years has been transferred to Foreign Currency Translation Reserve.
4.   Year Ended on March 31, 2006
     a)   State Bank of India acquired 51% stake in Indian Ocean International Bank Ltd at a cost of U.S.$ 7.35 million
          (Rs. 322 million) w.e.f. April 20, 2005. As such the assets, liabilities, income and expenses of IOIB were


                                                          217
     consolidated from April 20, 2005. A sum of Rs. 8 million was recognised as goodwill in the consolidated
     financial statements.
b)   SBI Capital Market Ltd, a subsidiary of State Bank of India, promoted four wholly owned subsidiaries viz.
     SBICAP Securities Ltd, SBICAPS Ventures Ltd, SBICAP Trustee Company Ltd and SBICAP (UK) Ltd. The
     consolidated financials of SBI Capital Markets Ltd were used in the preparation of consolidated financial
     statements of State Bank of India.
c)   State Bank of India promoted a new company as a joint venture - C Edge Technologies Ltd - with Tata
     Consultancy Ltd. The company commenced operations w.e.f. March 28, 2006.
d)   INMB Bank Ltd ceased to be a subsidiary w.e.f. January 1, 2006 pursuant to its merger with Sterling Bank Plc
     in compliance with Nigerian Regulatory requirements. As per the merger scheme, State Bank of India's stake
     in Sterling Bank Plc is 9.24%. As per Accounting Standard 21, a sum of Rs. 63 million was charged off as loss
     on disposal of subsidiary. Income (Rupee equivalent 231 million) / Expenses (Rupee equivalent 278 million) of
     INMB Bank Ltd up to December 31, 2005 were consolidated.
e)   State Bank of India brought down its equity stake in Credit Information Bureau of India Ltd from 40% as of
     March 31, 2005 to 10% in stages starting from May 17, 2005. As Credit Information Bureau of India Ltd ceased
     to be a joint venture it has not been consolidated for the year 2005-06. A sum of Rs. 91 million was recognised
     as profit on disposal of subsidiary/joint venture.
f)   During the year the Bank has paid Rs. 3,092 million to the Government, being its share (25%) of the
     consideration for purchase of UTI Asset Management Company Pvt. Ltd. As per Accounting Standard 23,
     this amount has been identified as goodwill and included in the carrying amount of investment.
g)   As of March 31, 2005, the group had 44 RRBs as associates, which as of March 31, 2006 came down to 34 due
     to amalgamation of 14 RRBs details of which are as follows.
      Name of the amalgamated RRB                Name of the                  Name of the                  Date of
                                                 new RRB                      sponsor bank                 merger
      1.    Basti Gramin Bank                    Purvanchal Kshetriya         State Bank of India         12.09.05
      2.    Gorakhpur Kshetriya Gramin Bank      Gramin Bank
      3.    Kakathiya Grameena Bank              Andhra Pradesh               State Bank of India         31.03.06
      4.    Manjira Grameena Bank                Grameena Vikas Bank
      5.    Nagarjuna Grameena Bank
      6.    Sangameshwara Grameena Bank
      7.    Sri Vishaka Grameena Bank
      8.    Golconda Grameena Bank               Deccan Grameena Bank         State Bank of Hyderabad     24.03.06
      9.    Sri Rama Grameena Bank
      10.   Sri Saraswathi Grameena Bank
      11.   Sri Sathavahana Grameena Bank
      12.   Jamnagar Rajkot Gramin Bank          Saurashtra Gramin Bank       State Bank of Saurashtra    02.01.06
      13. Junagarh Amreli Gramin Bank
      14. Surendranagar Bhavnagar
          Gramin Bank
h)   As a one time measure, in terms of RBI Guidelines, unreconciled net credit balances in the inter-branch
     accounts up to March 31, 1999 aggregating to Rs. 3,166 million has been credited to Profit and Loss account
     under the head Miscellaneous Income. Consequently, profit (net of tax) for the year is higher by Rs. 2100
     million.

                                                    218
                                                                                        State Bank of India

     i)   Interest Earned-Others includes an amount of Rs. 17,018 million, being interest on refund of Income Tax.
     j)   Other Income includes an amount of Rs. 5,315 million being Exchange Gain on India Millennium Deposits
          ("IMDs") redemption. Consequently, profit (net of tax) for the year is higher by Rs. 3526 million.
     k)   An amount of Rs. 5,635 million paid to RBI for maintenance of value (MOV) by debit to Interest Expended
          Account in the years 2001 and 2002 was received back during the year on redemption of IMDs and credited
          to Interest Expended account. Consequently, profit (net of tax) for the year is higher by Rs. 3,738 million.
     l)   Payments to and provisions for employees, under Operating Expenses includes an amount of Rs. 4,085 million,
          being arrears of salary paid for the previous financial years.
     m)   In terms of RBI letter No.DBS.CO.SMC.No. 8804/22.09.001/2005-06 dated December 19, 2005, the unreconciled
          net credit balances (net value of debit and credit entries) in Inter Branch Account up to March 31, 1999
          aggregating Rs5,170 million has been credited to Profit and Loss Account.
5.   Year Ended on March 31, 2007
     a)   State Bank of India has acquired 76% stake in PT Bank Indomonex, a commercial bank incorporated and
          operating in Indonesia, at a cost of U.S.$ 5.00 million (Rs. 223 million) w.e.f. December 14, 2006. As such the
          assets, liabilities, income and expenses of this bank have been consolidated from December 14, 2006. A sum of
          Rs. 131 million has been recognised as goodwill in the consolidated financial statements.
     b)   SBI Funds Management (Pvt) Ltd, a company in which SBI holds 63% stake, has promoted a new wholly
          owned subsidiary - SBI Funds Management (International) Private Limited. The new subsidiary, incorporated
          on January 17, 2006, has commenced operations on April 1, 2006.
     c)   The parent and its constituent banks had hitherto been following a policy of amortisation of premium in
          respect of securities held in the 'Held to Maturity' (HTM) category by an adjustment to the account head
          'Provision and Contingencies'. From the current financial year and in accordance with RBI directive dated April
          20, 2007, the Group has charged the amortisation amount as well as mark to market losses on transfer of
          securities from 'Available for Sale' (AFS) to HTM category by an adjustment to the account head Other
          Income "Profit on revaluation of Investments" as a deduction. As a result of this change in accounting policy,
          the Operating Profit for the year stands reduced by Rs. 23,031 million for the current year. However, there is no
          impact on the Net Profit for the year.
     d)   During the year, the group has recognised diminution in the value of investments in RRBs to the extent of its
          capital contribution which hitherto was being recognised by the group without restricting to its capital
          contribution. This has resulted in the increase in the profit of the group for the year by Rs. 1,582 million.
     e)   As of March 31, 2006, the group had 34 Regional Rural Banks (RRBs) as associates, which as of March 31,
          2007 has come down to 22 due to amalgamation of 19 RRBs into seven new RRBs, details of which are as
          follows.
           Name of the amalgamated RRB                 Name of the                  Name of the                   Date of
                                                       new RRB                      sponsor bank                  merger
           1.   Bastar Kshetriya Gramin Bank           Chhatisgarh Gramin Bank State Bank of India             30.06.2006
           2.   Bilaspur Raipur Kshetriya
                Gramin Bank
           3.   Raigarh Kshetriya Gramin Bank
           4.   Bundelkhand Kshetriya                  Madhya Bharat                State Bank of India        30.06.2006
                Gramin Bank                            Gramin Bank
           5.   Damoh Sagar Panna Kshetriya
                Gramin Bank
           6.   Shivpuri Guna Kshetriya
                Gramin Bank

                                                          219
           Name of the amalgamated RRB                 Name of the                  Name of the                   Date of
                                                       new RRB                      sponsor bank                  merger
           7.   Bolangir Anchalika Gramya Bank         Utkal Gramya Bank            State Bank of India
                31.07.2006
           8.   Kalahandi Anchalika Gramya Bank
           9.   Koraput Panchbati Gramya Bank
           10. Palamau Kshetriya Gramin Bank           Vananchal Gramin Bank        State Bank of India        30.06.2006
           11. Santhal Parganas Gramin Bank
           12. Alaknanda Gramin Bank                   Uttaranchal Gramin Bank      State Bank of India        30.06.2006
           13. Ganga Yamuna Gramin Bank
           14. Pithoragarh Kshetriya Gramin Bank
           15. Bikaner Kshetriya Gramin Bank           Marwar Ganganagar            State Bank of Bikaner      12.06.2006
                                                       Bikaner Bank                 & Jaipur
           16. Marwar Gramin Bank
           17. Sriganganagar Kshetriya
               Gramin Bank
           18. Cauvery Grameena Bank                   Cauvery Kalpatharu           State Bank of Mysore       24.05.2006
                                                       Grameena Bank
           19. Kalpatharu Grameena Bank
          Since the assets/liabilities of the merged RRBs have been taken over by the new entities at their respective
          book values, there is no goodwill/capital reserve on account of these mergers.
6.   Half Year Ended on September 30, 2007
     a.   Accounting Standard 15 "Employee Benefits" (revised 2005) is effective for accounting periods commencing
          on or after 07.12.2006. As per this Standard, the difference (as adjusted by any related tax expense) between
          the transitional liability and the liability that would have been recognised at the same date, as per pre revised
          Accounting Standard (AS) 15, 'Accounting for Retirement Benefits in the Financial Statements of Employers',
          should be adjusted immediately against opening balance of revenue reserves and surplus. The Institute of
          Chartered Accountants of India has made a limited revision to this provision, which has been notified on
          October 17, 2007. This revision provides the Bank with another option to charge additional liability arising
          upon the first application of the standard as an expense over a period up to five years. The Bank is currently
          examining both the alternatives. The impact of the Accounting Standard 15 "Employee Benefits" (revised
          2005) has not been ascertained for transitional provision and current period(s). In the interregnum, the Bank
          has made adequate provisions as per pre-revised Accounting Standard 15, 'Accounting for Retirement
          Benefits in the Financial Statements of Employers'.
     b.   During the quarter ended September 30, 2007, the Central Board of the Bank and the Board of State Bank of
          Saurashtra ("SBS") have accorded approval for merger of SBS with SBI. The matter has further been referred
          to RBI and the Government for approval. As the merger process has not yet been crystallised, there is no
          impact on the Bank's results.
     c.   During the half-year ended September 30, 2007, the entire share holding of RBI in State Bank of India
          aggregating 31,43,39,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been transferred to the
          Central Government.




                                                          220
                                                                                          State Bank of India

      d.     During the half-year ended September 30, 2007, the Bank has shifted SLR investments having aggregate Face
             Value of Rs. 90,816 million from 'Available for Sale' (AFS) category to 'Held to Maturity' (HTM) category,
             resulting in a net revaluation loss of Rs. 2,977 million.
      e.     In terms of RBI circular dated April 20, 2007, the Bank had accounted for amortisation of premium in respect of
             securities included in the 'Held to Maturity' (HTM) category as an adjustment against 'Other Income'. Based
             on the clarification issued by RBI on July 11, 2007, Banks are required to reflect the amortisation of premium
             held in HTM category by an adjustment to the 'Interest Earned'. Accordingly, the Bank has carried out the
             reclassification of the same for the period ended September 30, 2007. This change in accounting procedure
             does not have any impact on the net profit for the period(s) under review.
(B)   Accounting Standard Disclosures
1.    Segment Reporting
      i)     Segment identification
               PRIMARY
               (Business Segment)                                 Treasury Operations
                                                                  Banking Operations
                                                                  Non-Banking Operations
               SECONDARY
               (Geographical Segment)                             Domestic Operations
                                                                  Foreign Operations
      ii)    Accounting Policy
             The accounting policies adopted for segment reporting are in line with the accounting policies adopted in the
             parent's financial statements with the following additional features.
      iii)   Pricing of Inter-segmental transfers
             During the year, the parent and its constituent banks have changed the segmental pricing methodology for
             presenting more meaningful segmental results. The Group has hitherto been following the pricing of inter-
             segment transactions between the Non Banking Operations segment and other segments are market led. In
             respect of transactions between treasury and banking segments, compensation for the use of funds is
             reckoned based on interest and other costs incurred by the lending segment. The financial effect of change
             on the segment results cannot be reasonably determined. However, this change does not have any impact on
             the financials of the Group.
      iv)    Allocation of Revenue and Expenses
             Revenue and expenses have been identified to segments based on their relationship to the operating activities
             of the segment. Revenue and expenses, which relate to the enterprise as a whole and are not allocable to
             segments on a reasonable basis, have been included under "Unallocated Expenses" net of unallocated
             corporate revenue.




                                                            221
v)   Segmental Results
     Part A: Primary Segment
                                                                                           (Rs. in millions)
     For the Year Ended                       March 31, March 31, March 31, March 31, March 31,
                                                  2003      2004      2005      2006      2007
     1.   REVENUE
          i)    Banking Operations              396,671       408,804     432,896     481,932      615,514
          ii)   Treasury Operations             271,835       289,963     265,000     233,631      153,293
          iii) Non Banking Operations                5,635       8,380     12,756      21,872       46,116
          iv) Elimination                       183,229       183,962     177,093     148,747      132,090
          v)    Total (i+ii+iii-iv)            490,912       523,185     533,559     588,688     682,833
     2.   RESULTS
          i)    Banking Operations                  39,640     23,896      72,995      77,648      119,411
          ii)   Treasury Operations                 41,636     65,240        8,660     -18,429       1,264
          iii) Non Banking Operations                1,384       4,159        992        1,528       5,607
          iv) Elimination                               --          --          --          --           --
          v)    Total (i+ii+iii-iv)              82,660        93,295      82,647      60,747    126,282
     3.   Unallocated Income/(Expenses) Net          8,820     11,578         349      -18,799      18,513
     4.   Operating Profit(2-3)                     73,840     81,717      82,298      79,546      107,769
     5.   Income Taxes                              30,531     24,123      26,318      32,296       41,571
     6.   Extraordinary Profit/Loss                     --          --          --       9,365           --
     7.   Net Profit (4-5+6)                     43,309        57,594      55,980      56,615      66,198
     OTHER INFORMATION
     8.   Segment Assets
          i)    Banking Operations             4,042,040     4,417,534   5,171,650   5,058,176   5,856,492
          ii)   Treasury Operations            2,499,023     2,713,238   2,889,582   2,895,586   2,853,433
          iii) Non Banking Operations               55,122     39,709      49,362      77,651      111,492
          iv) Elimination                      1,819,493     1,713,629   1,881,150   1,104,803     712,593
          v)    Total (i+ii+iii-iv)           4,776,692 5,456,852 6,229,444 6,926,610 8,108,824
     9.   Unallocated Assets                    200,868        52,992      56,332      43,308       42,920
     10. Total Assets (8+9)                   4,977,560 5,509,844 6,285,776 6,969,918 8,151,744
     11. Segment Liabilities
          i)    Banking Operations             4,454,654     4,632,956   5,165,863   5,065,929   5,997,920
          ii)   Treasury Operations            2,016,313     2,234,744   2,578,610   2,594,858   2,241,805
          iii) Non Banking Operations               54,547     22,563      29,834      56,965       87,840
          iv) Elimination                      1,797,378     1,672,962   1,841,307   1,159,870     869,711
          v)    Total (i+ii+iii-iv)           4,728,136 5,217,301 5,933,000 6,557,882 7,457,854
     12. Unallocated Liabilities                    24,255     18,179      27,258      39,969      268,534
     13. Total Liabilities (11+12)            4,752,391 5,235,480 5,960,258 6,597,851 7,726,388


                                              222
                                                                                          State Bank of India

           Part B: Secondary Segments-
                                                                                                          (Rs. in millions)
           For the Year Ended                                 March 31, March 31, March 31, March 31, March 31,
                                                                  2003      2004      2005      2006      2007
           1.      Revenue
                   i)    Domestic Operations                    478,854       511,553     518,063     559,348     641,289
                   ii)   Foreign Operations                         12,058     11,632      15,496      29,340       41,544
                   iii) Total (i+ii)                           490,912       523,185     533,559     588,688     682,833
           2.      Assets
                   i)    Domestic Operations                   4,752,418     5,249,127   5,949,709   6,494,272   7,569,088
                   ii)   Foreign Operations                     225,142       260,717     336,067     475,646     582,656
                   iii) Total (i+ii)                          4,977,560 5,509,844 6,285,776 6,969,918 8,151,744
2.   Related Party Disclosures
     As identified by the management and relied upon by the auditors.
     2.1   Related Parties:
           2.1.1         Joint Ventures:-
                         1.    C Edge Technologies Ltd
                         2.    GE Capital Business Process Management Services Private Limited.
           2.1.2         Associates:-
                         1.    Andhra Pradesh Grameena Vikas Bank
                         2.    Arunachal Pradesh Rural Bank
                         3.    Chhatisgarh Gramin Bank
                         4.    Cauvery Kalpatharu Grameena Bank
                         5.    Deccan Grameena Bank
                         6.    Ellaquai Dehati Bank
                         7.    Ka Bank Nongkyndong Ri Khasi Jaintia
                         8.    Krishna Grameena Bank
                         9.    Langpi Dehangi Rural Bank
                         10.   Madhya Bharat Gramin Bank
                         11.   Malwa Gramin Bank
                         12.   Marwar Ganganagar Bikaner Bank
                         13.   Mizoram Rural Bank
                         14.   Nagaland Rural Bank
                         15.   Parvatiya Gramin Bank
                         16.   Purvanchal Kshetriya Gramin Bank
                         17.   Samastipur Kshetriya Gramin Bank


                                                              223
        18.   Saurashtra Grameena Bank
        19.   Utkal Gramya Bank
        20.   Uttaranchal Gramin Bank
        21.   Vananchal Gramin Bank
        22.   Vidisha Bhopal Kshetriya Gramin Bank
        23.   SBI Home Finance Limited.
        24.   Clearing Corporation of India Ltd
        25.   Nepal SBI Bank Ltd.
        26.   Bank of Bhutan
        27.   UTI Asset Management Company Pvt. Ltd.
2.1.3   Key Management Personnel of the Bank:-
        1.    Shri O.P. Bhatt (Managing Director from 26.04.2006 to 30.06.06 and from 01.07.2006 onwards as
              Chairman)
        2.    Shri A.K. Purwar, Chairman (up to 31.05.2006)
        3.    Shri T. S. Bhattacharya, Managing Director
        4.    Shri Yogesh Agrawal, Managing Director (from 10.10.2006 to 30.06.2007)
2.1.4   Related Parties with whom transactions were entered :
        No disclosure is required in respect of related parties which are "state controlled enterprises" as per
        paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18, transactions
        in the nature of banker-customer relationship are not required to be disclosed in respect of Key
        Management Personnel. Other particulars are:
        1.    C Edge Technologies Ltd. (from 28.03.2006)
        2.    GE Capital Business Process Management Services Pvt. Ltd.
        3.    SBI Home Finance Ltd.
        4.    Bank of Bhutan
        5.    Nepal SBI Bank Ltd.
        6.    Shri O.P.Bhatt (from 26.04.2006)
        7.    Shri A.K. Purwar (from 13.11.2002 to 31.05.2006)
        8.    Shri T. S. Bhattacharya (from 28.02.2005)
        9.    Shri Yogesh Agrawal (from 10.10.2006 to 30.06.2007)
        10.   Shri Ashok Kini (from 01.04.2004 to 31.12.2005)
        11.   Shri C. Bhattacharya (from 17.12.2003 to 31.01.2005)
        12.   Shri A.K. Batra (from 28.02.2002 to 07.07.2003)
        13.   Shri P.N. Venkatachalam (from 28.02.2002 to 31.03.2004)
        14.   Shri Janki Ballabh (up to 31.10.2002)
        15.   Shri Y. Radhakrishnan (up to 30.06.2002)
        16.   Shri S. Govindarajan (up to 31.07.2002)
        17.   Credit Information Bureau of India Ltd (up to 31.03.2005)
        18.   Asset Reconstruction Company (India) Ltd (up to 31.03.2004)

                                              224
                                                                               State Bank of India

Transactions / Balances:
                                                                                                 (Rs. in millions)
Item/Related party                                  March         March        March          March      March
                                                  31, 2003      31, 2004     31, 2005       31, 2006   31, 2007
1.   Borrowings
     Associates                                          48             -               -          -            -
2.   Deposits
     Associates                                         848         1,457       17,703         5,253       2,954
3.   Placement of Deposit
     Associates                                            -            -             117          -            -
4.   Advances
     Associates                                        3360           105             266          -            -
5.   Investments
     Associates                                         465         2703              400       345          198
6.   Non funded commitments
     Associates                                            -            -               -      5601             -
7.   Interest Paid
     Associates                                          22             1             282        72           66
8.   Interest Received
     Associates                                         337            26             112          -           2
9.   Rendering of services
     Associates                                            7            5              45          -            -
10. Receiving of services of services
     Associates                                         481           162               -       856           17
11. Management Contracts
     i)    Associates                                      -            -               -          -           7
     ii)   Key management Personnel *                      1            1               1         2            2
Items 1 to 6 are as of March 31 and items 7 to 11 are total for the financial year.
* Transactions which are not in the nature of banker-customer relationship.
The above disclosures are as identified by the management and relied upon by the Auditors.




                                                 225
3.   Leases:
     Assets given on Financial Leases on or after April 1, 2001. The details of financial leases are given below.
                                                                                                                      (Rs. in millions)
      For the Year Ended                                         March            March           March          March            March
                                                               31, 2003         31, 2004        31, 2005       31, 2006         31, 2007
      Total gross investment in the leases                            1,647         1,647           1,647          1,647            1,647
      Present value of minimum lease payments                          263               313         313             176              89
      receivable Less than 1 year
      1 to 5 years                                                     619               447         289             205             150
      5 years and above                                                 85                40              -                -            -
      Total                                                            967           800             602            381              239
      Present value of unearned finance income                         219               159         103              68              50
4.   Earnings per Share:
     The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard 20 -
     "Earnings per Share". "Basic earnings" per share is computed by dividing net profit after tax by the weighted
     average number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares
     outstanding during the year.
      For the Year/Half Year Ended             March       March               March            March           March          September
                                              31, 2003    31, 2004            31, 2005         31, 2006        31, 2007          30, 2007
      a. Net Profit (Group)                    41,990       55,311             54,639           55,299           63,644            40,124
         (Rs. in million)
      b. Weighted average number         526,298,878 526,298,878 526,298,878 526,298,878 526,298,878 526,298,878
         of shares
      c. Earnings Per Share (Basic          Rs. 79.78    Rs. 105.09      Rs. 103.82        Rs. 105.07         Rs. 120.93       Rs. 152.48
         and diluted Annualised)
5.   Accounting for taxes on Income:
                                                                                                                      (Rs. in millions)
      For the Year Ended                                         March            March           March          March            March
                                                               31, 2003         31, 2004        31, 2005       31, 2006         31, 2007
      A. Deferred Tax Assets
           i)    Provision for Non Performing Assets                  5,223         7,350           6,231          4,286            4,152
           ii)   Ex Gratia Paid under Exit Option                         -                -              -          195            1,478
           iii) Provision for wage revision                               -         1,435           4742                  -             -
           iii) Others                                                 907               815        1,570          2,804            5,427
           Total                                                  6,130            9,600          12,543          7,285           11,057




                                                           226
                                                                                   State Bank of India


      For the Year Ended                                    March       March       March       March       March
                                                          31, 2003    31, 2004    31, 2005    31, 2006    31, 2007
      B. Deferred Tax Liabilities
           i)    Depreciation on Fixed Assets                   397         402        308        1459        1,167
           ii)   Interest on Securities                       6,214
           iii) Depreciation on Investments                     685         464       1,777       2093        5,263
           iv) Interest Accrued on Investments                  511          72           -           -            -
           v) VRS expenses                                      794         357           -           -            -
           vi) Provisions relating to securities                704        1267        667            -            -
               transactions
           vii) Depreciation of Leased Assets                 2,294       2,039       1,745           -            -
           iv) Others                                            38           8          1         752          794
                 Total                                        5,423      4,609       4,498       4,304      13,438
      C. Net DTA/(DTL)(A-B)                                    707        4991       8045        2981       (2381)
6.   Investments in jointly controlled entities:
     As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses related to the Bank's
     interests in jointly controlled entities are disclosed as under:
     A: Assets & Liabilities
                                                                                                    (Rs. in millions)
      Capital and Liabilities                               March       March       March       March       March
                                                          31, 2003    31, 2004    31, 2005    31, 2006    31, 2007
      Capital & Reserves                                      1,511       2,830       4,422        338          509
      Deposits                                                   71
      Borrowings                                              3,266       3,971       5,633          1            2
      Other Liabilities & Provisions                          1,037       2,654       6,822        136          206
      Total                                                   5,814      9,455      16,948        475          717
      Assets
      Cash & Balances with RBI                                   40         110         162          0            0
      Balances with Banks & Money at call                       272       1,037         604         72           37
      Investments                                             1,413       2,853       8,479          0           24
      Advances                                                3,688       4,911       6,619
      Fixed Assets                                              112         152         159         96          186
      Other Assets                                              289         392         925        307          470
      Total                                                   5,814      9,455      16,948        475          717
      Contingent Liabilities                                     43          13          3          Nil         Nil
      Capital commitments                                        23          13         29          Nil         Nil



                                                       227
     B: Income and Expenditure
                                                                                                               (Rs. in millions)
      Income and Expenditure                               March 31, 2005            March 31, 2006          March 31, 2007
      I.   Income
           Interest earned                                             1650                            3                      -
           Other income                                                5918                          481                   659
           Total                                                      7568                       484                      659
      II. Expenditure
           Interest expended                                               222                         -                      -
           Operating expenses                                         6,546                          339                   415
           Provisions & contingencies                                      619                        53                   101
           Total                                                     7,387                       392                      516
      III Profit                                                           181                        92                   143
7.   Provisions, Contingent Liabilities & Contingent Assets
     a)    Break up of provisions:
                                                                                                               (Rs. in millions)
      For the Year Ended                              March    March    March    March    March September
                                                    31, 2003 31, 2004 31, 2005 31, 2006 31, 2007  30, 2007
      a)   Provision for Income Tax (Current Tax)     30,665     28,866          27,942    21,017          41,113       23,763
      b) Provision for Income Tax (deferred Tax)       (386)     (4,291)         (1,585)    5,071           (775)      (1,040)
      c)   Fringe Benefit Tax                                -         -               -    6,196           1,248          728
      d) Provision for other Taxes                       (18)         8             (39)       12            (15)            9
      e)   Amount of provisions made against          36,698     53,385          14,034     4,141          17,759        9,171
           NPA (including Write back)
      f)   General Provision on Standard Assets        2,593      1,320           (741)     5,854           9,454        1,640
           in the global loan portfolio
      g) Provision for investments in India            6,032      4,432          44,345    56,213           8,345      (3,911)
      h) Provision for investments outside India             -      (77)             81       105              35          100
      i)   Provision for RRBs                                -         -            515     (923)            (85)             -
      j)   Provision on other assets/                 (7,920)        21             589       587              57           30
           Contingencies
      k)   Others (net of write back)                  2,189      4,422          10,883    (1,269)            589          180
           Total                                     69,853      88,086      96,024        97,004          77,725      30,670
     (Figures in brackets indicate credit)




                                                       228
                                                                                       State Bank of India

     b)    Floating provisions:
                                                                                                        (Rs. in millions)
            For the Year Ended                                               March 31, 2006            March 31, 2007
            a)     Opening Balance                                                      11652                       7530
            b)     Addition during the year                                              5076                        631
            c)     Draw down during the year                                             9198                       3000
            d)     Closing balance                                                       7530                       5161
      c)   Description of contingent liabilities and contingent assets:
           Sr. No Items                              Brief Description
           1        Claims against the Group not     The parent and its constituents are parties to various proceedings
                    acknowledged as debts            in the normal course of business. It does not expect the outcome
                                                     of these proceedings to have a material adverse effect on the
                                                     Group's financial conditions, results of operations or cash flows.
           2        Liability on account of      The Group enters into foreign exchange contracts, currency
                    outstanding forward exchange options, forward rate agreements, currency swaps and interest
                    contracts                    rate swaps with inter-bank participants on its own account and for
                                                 customers. Forward exchange contracts are commitments to buy
                                                 or sell foreign currency at a future date at the contracted rate.
                                                 Currency swaps are commitments to exchange cash flows by way
                                                 of interest/principal in one currency against another, based on
                                                 predetermined rates. Interest rate swaps are commitments to
                                                 exchange fixed and floating interest rate cash flows. The notional
                                                 amounts that are recorded as contingent liabilities, are typically
                                                 amounts used as a benchmark for the calculation of the interest
                                                 component of the contracts.
           3        Guarantees given on behalf of    As a part of its commercial banking activities, the Group issues
                    constituents, acceptances,       documentary credits and guarantees on behalf of its customers.
                    endorsements and other           Documentary credits enhance the credit standing of the customers
                    obligations                      of the Group. Guarantees generally represent irrevocable
                                                     assurances that the Bank will make payment in the event of the
                                                     customer failing to fulfil its financial or performance obligations.
           4        Other items for which the        The Group is a party to various taxation matters in respect of
                    Group is contingently liable     which appeals are pending. These are being contested by the
                                                     Group and not provided for. Further the Group has made
                                                     commitments to subscribe to shares in the normal course of
                                                     business.
     d)    The contingent liabilities mentioned above are dependent upon the outcome of court/arbitration/out of court
           settlements, disposal of appeals, and the amount being called up, terms of contractual obligations,
           devolvement and raising of demand by concerned parties, as the case may be.
8.   The disclosure requirements in respect of segment information, related party disclosures, lease accounting,
     accounting for taxes on income and interest in jointly controlled entities have not been compiled for the half year
     ended on September 30, 2007.



                                                          229
                                                                                                                     ANNEXURE C-5
                                    SUMMARY STATEMENT OF CASH FLOW (CONSOLIDATED)
                                                                                                                        (Rs in millions)
For the Year ended/ Half Year Ended           31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07
Cash flow from Operating Activities             (187,463.61)      5,366.73        6,697.77      55,432.14      50,815.63      43,650.71
Cash flow from Investing Activities               (5,787.19)    (13,312.91)     (11,628.55)    (18,256.88)     (9,653.67)     (8,841.16)
Cash flow from Financing Activities              (10,399.13)    (10,225.27)      (4,346.87)     26,372.23     110,629.26      61,060.09
Cash flows on account of exchange                  (715.23)         797.56        3,210.06         247.30        (387.79)     (2,407.11)
fluctuation
Net change in cash and cash                   (204,365.16) (17,373.89)         (6,067.59)      63,794.79 151,403.43         93,462.53
equivalents
Cash and cash equivalents - Opening              737,377.05     533,011.89      515,638.00     509,570.41     573,365.20     724,768.63
Cash and cash equivalents - Closing              533,011.89     515,638.00      509,570.41     573,365.20     724,768.63     818,231.16
Cash flow from Operating Activities
Net Profit before taxes                           76,913.08      83,682.11       80,957.04      87,594.89     105,567.17      63,581.19
ADJUSTMENTS FOR:
Depreciation charge                                6,658.29       9,489.64       10,695.92      11,334.02        9,500.70      4,808.12
(Profit)/Loss on sale of fixed assets                   0.00          (6.19)         (9.67)          4.75        (125.32)           0.00
Provision for NPAs                                36,608.33      53,471.40       14,033.75       4,140.64      17,758.92       9,172.65
Provision for Standard Assets                      2,592.59       1,319.87        (741.29)       5,854.43        9,454.23      1,639.74
Provision for Subs/JVs/RRBs                          (34.20)        (20.19)            0.00      (922.49)         (84.94)      (130.78)
Depreciation/Revaluation of                        4,972.76       5,562.64       44,941.14      44,612.38      21,700.22      (3,681.12)
Investments / Loss on revaluation
of Investments
Provision on Other Assets                         (7,919.94)        192.71          589.13         586.96        (295.60)        (12.07)
Other Provisions                                   2,189.22       4,271.11       10,882.94      (1,269.30)        589.16         221.54
DRE written off during the year                    5,181.86       4,284.54        5,053.86         179.03         132.80            0.00
Interest paid on bonds
(financing activity)                               4,890.64       4,683.23        4,979.12       5,921.23      12,221.49       9,755.13
Dividend/Earnings from Associates                 (1,372.21)           0.00            0.00        (57.34)     (1,955.93)      (491.30)
LESS: Direct Taxes                               (31,185.63)    (40,826.19)     (26,688.86)    (17,298.37)    (54,339.54)    (24,497.28)
Other adjustments                                 (2,132.36)     (3,116.22)          28.71           0.00            0.00           0.00
Sub - Total                                     97,362.43 122,988.46 144,721.79               140,680.83 120,123.36         60,365.82
Increase/(Decrease) in Deposits                  404,525.85     413,615.10      706,719.47     379,189.87     922,486.12     662,044.09
Increase/(Decrease) in Borrowings                  6,656.22      51,388.53       55,556.03     140,454.24     116,869.32      81,977.03
(Increase)/Decrease in Investments              (392,760.88)   (239,491.54)    (174,591.20)    299,610.61      94,288.31    (385,481.16)
(Increase)/Decrease inAdvances                  (280,858.42)   (373,441.97)    (657,174.93)   (877,443.47) (1,145,856.18)   (333,766.70)


                                                                230
                                                                                             State Bank of India

                                                                                                                   (Rs in millions)
For the Year ended/ Half Year Ended        31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07
Increase/(Decrease) in Other                    (540.32)       9,979.93    (54,846.99)     70,636.37     (53,679.64)     63,182.55
Liabilities & Provisions
(Increase)/Decrease in Other Assets           (21,848.49)     20,328.22    (13,686.40)    (97,696.31)     (3,415.66)   (104,670.92)
Net Cash provided by                       (187,463.61)      5,366.73       6,697.77     55,432.14      50,815.63      43,650.71
Operating activities
Cash flow from Investing Activities
(Increase)/Decrease in Investments              (182.52)         236.20           0.00     (2,990.93)     (1,803.60)        308.40
in Joint Ventures/Associates
Income earned on such investments               1,371.37           0.00           0.00        (99.77)      1,955.93         491.30
(Increase)/Decrease in Fixed Assets            (6,976.04)    (13,549.11)   (11,628.55)    (15,166.18)     (9,806.00)     (9,640.86)
Net Cash provided by                           (5,787.19)    (13,312.91)   (11,628.55)    (18,256.88)     (9,653.67)     (8,841.16)
Investing Activities
Cash flow from Financing Activities
Minority Interest                                  69.50           0.00           0.00          0.00           0.00            0.00
Net proceeds/ (repayment) of bonds              (815.54)       (345.19)       7,163.29     39,809.70     131,252.32      79,435.63
(including subordinated debts)
Interest paid on Bonds                         (4,890.65)     (4,683.23)    (4,979.12)     (5,921.23)    (12,221.49)     (9,755.13)
Dividend paid                                  (4,762.44)     (5,196.85)    (6,531.04)     (7,516.24)     (8,401.57)     (8,620.41)
Net Cash provided by                        (10,399.13) (10,225.27)        (4,346.87)     26,372.23     110,629.26     61,060.09
Financing Activities
Cash flows on account of
Exchange Fluctuation:
Reserves of foreign
subsidiaries/foreign offices                    (715.23)         797.56       3,210.06        247.30       (387.79)      (2,407.11)
Net cash flows on account of                  (715.23)         797.56       3,210.06        247.30        (387.79)     (2,407.11)
Exchange Fluctuation
Cash and Cash equivalents-Opening:
Cash in hand                                   13,701.50      14,305.71      16,475.12     17,956.54      25,194.41      31,472.50
(including FC notes & gold)
Balances with Reserve Bank of India           259,789.43     177,194.90     247,292.93    238,201.72     286,093.45     419,188.51
Balances with Banks & MACSN                   463,886.12     341,511.28     251,869.95    253,412.15     262,077.34     274,107.62
Total                                       737,377.05      533,011.89 515,638.00        509,570.41 573,365.20 724,768.63
Cash and Cash equivalents - Closing:
Cash in hand (including FC notes & gold)       14,305.71      16,475.12      17,956.54     25,194.41      31,472.50      29,757.89
Balances with Reserve Bank of India           177,194.90     247,292.93     238,201.72    286,093.45     419,188.51     626,758.56
Balances with Banks & MACSN                   341,511.28     251,869.95     253,412.15    262,077.34     274,107.62     161,714.71
Total                                       533,011.89 515,638.00 509,570.41             573,365.20 724,768.63 818,231.16


                                                             231
                                                                                        ANNEXURE C-6
                    SUMMARY STATEMENT OF ACCOUNTING RATIOS (CONSOLIDATED)

 Sr    For the year Ending/            31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07 *
 No.   Half Year ending
 1     Basic Earning Per Share               79.78     105.09   103.82   105.07     120.93     152.48
 2     Return on Average
       Net Worth (%)                       20.02%      22.14%   18.22%   15.85%    15.96%     18.07%
 3     Net Asset Value per Share            427.84     521.31    618.5   706.95      808.2      879.7

* Ratios have been calculated on an annualised basis




                                                       232
                                                                                        State Bank of India

                  STOCK MARKET DATA FOR EQUITY SHARES OF THE BANK

As the Bank's shares are actively traded on the BSE and NSE, the Bank's stock market data have been given separately for
each of these Stock Exchanges.
The high and low closing prices recorded on the BSE and NSE for the preceding three years and the number of Equity
Shares traded on the days the high and low prices were recorded are stated below:
BSE
 Year ended         High    Date of High           Volume on          Low     Date of Low       Volume on      Average
 March 31           (Rs.)                         date of high       (Rs.)                      date of low   price for
                                                        (no. of                                     (no. of    the year
                                                      shares)                                      shares)        (Rs.)
 2005              742.50   March 10, 2005           2,413,606      408.90    June 23, 2004      4,497,898      542.57
 2006              987.20   March 27, 2006             829,777       84.80    April 29, 2005     1,504,178      811.67
 2007            1,360.20   December 1, 2006           570,209      689.50    July 19, 2006        616,699      997.31
The average price has been computed based on the daily closing price of Equity Shares.
NSE
 Year ended         High    Date of High           Volume on          Low     Date of Low       Volume on      Average
 March 31           (Rs.)                         date of high       (Rs.)                      date of low   price for
                                                        (no. of                                     (no. of    the year
                                                      shares)                                      shares)        (Rs.)
 2005              742.10   March 10, 2005           4,445,800      408.70    June 23, 2004      8,785,496      542.60
 2006              987.80   March 27, 2006           1,601,136      584.85    April 29, 2005     2,755,033      811.80
 2007            1,360.25   December 1, 2006         1,612,467      690.50    June 19, 2006        953,135      997.58
The average price has been computed based on the daily closing price of Equity Shares.
The high and low prices and volume of Equity Shares traded on the respective dates during the last six months are as
follows:
BSE
 Month,                 High Date of High           Volume on         Low Date of Low           Volume on     Average
 Year                   (Rs.)                      date of high      (Rs.)                      date of low  price for
                                                         (no. of                                    (no. of the month
                                                       shares)                                     shares)       (Rs.)
 July, 2007          1,624.50 July 31, 2007           1,744,850    1,500.05 July 27, 2007          955,457     1,567.34
 August, 2007        1,705.95 August 8, 2007            473,284    1,415.05 August 23, 2007        846,614     1,571.81
 September, 2007     1,950.70 September 28, 2007        748,727    1,594.45 September 5, 2007      546,578     1,713.90
 October, 2007       2,117.85 October 29, 2007          970,131    1,667.60 October 19, 2007       637,197     1,897.03
 November, 2007      2,346.15 November 14, 2007         446,666    2,070.85 November 1, 2007     1,051,347     2,248.58
 December, 2007      2,445.85 December 11, 2007         247,361    2,258.30 December 19,2007       271,787     2,368.46
 The average price has been computed based on the daily closing price of Equity Shares.


                                                           233
NSE
 Month,                High Date of High           Volume on         Low Date of Low           Volume on     Average
 Year                  (Rs.)                      date of high      (Rs.)                      date of low  price for
                                                        (no. of                                    (no. of the month
                                                      shares)                                     shares)       (Rs.)
 July, 2007         1,623.85 July 31, 2007           3,673,699    1,498.75 July 27, 2007        2,150,967     1,567.70
 August, 2007       1,706.85 August 8, 2007          1,106,862    1,414.75 August 23, 2007      2,113,602     1,571.66
 September, 2007    1,945.85 September 28, 2007      2,672,350    1,594.25 September 5, 2007    1,265,135     1,713.67
 October, 2007      2,116.70 October 29, 2007        2,207,285    1,667.10 October 19, 2007     1,774,173     1,896.68
 November, 2007     2,353.85 November 14, 2007       1,368,083    2,075.35 November 1, 2007     2,143,188     2,249.98
 December, 2007     2,447.75 December 11, 2007         681,531    2,256.55 December 19,2007       647,234     2,366.13
The average price has been computed based on the daily closing price of Equity Shares.
The closing market price was Rs. 2,371.00 on the BSE and Rs. 2,371.15 on the NSE on December 31, 2007.
The market price was Rs. 2,414.35 on BSE on January 15, 2008, the trading day immediately following the day on which the
Central Board meeting was held to finalize the offer price for the Issue.
The market price was Rs. 2,423.45 on NSE on January 15, 2008, the trading day immediately following the day on which
the Central Board meeting was held to finalise the offer price for the Issue.




                                                          234
                                                                                          State Bank of India

      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of the Bank's financial condition and results of operations
together with the Bank's audited unconsolidated financial statements. The following discussion is based on the Bank's
unconsolidated financial statements and accompanying notes, which have been prepared in accordance with Indian
GAAP, with the exception of the Bank's recognition of employee benefits under Accounting Standard 15. This discussion
should be read together with "Selected Financial and Operating Data" and the financial statements in accordance
with prevailing practices within the banking industry in India and Indian GAAP, which differs in some respects from
U.S. GAAP. See "Summary of Certain Differences in Accounting Policies under Indian GAAP and U.S. GAAP."
This Management's Discussion and Analysis of Financial Condition and Results of Operations also includes a
discussion of the Group's financial performance which should be read together with the Group's audited consolidated
financial statements and accompanying notes, which have been prepared in accordance with Indian GAAP and are also
included elsewhere in this Letter of Offer.
There were certain changes in the Bank's and the Group's principal accounting policies in 2007 and as a result,
certain line items relating to the both the Bank's and the Group's audited financial statements for the year ended March
31, 2006 have been regrouped to reflect these changes. The Bank's and the Group's audited financial statements for the
year ended March 31, 2005, however, were not regrouped to reflect the changes in accounting policies and investors
should therefore understand that certain line items contained in the annual financial statements for 2005 are not
strictly comparable to its financial statements for the years ended March 31, 2006 and 2007. For further information
regarding changes in the Group's accounting policies, investors should see "Note on Reformatting and Regrouping" in
the financial Statements contained in the audited consolidated financial statements for the year ended March 31, 2007.
Overview
The Bank is India's largest bank, with 10,072 domestic branches and 84 international offices in 32 countries with over 100
million accounts. The Bank is also India's largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2
billion, and approximately 71 million accounts, as on September 30, 2007. As on December 21, 2007 (being the last reporting
Friday of December 2007), based on RBI data, the Bank's estimated market share of aggregate deposits of all scheduled
commercial banks in India was 15.45% and the Bank's estimated market share of domestic advances was 15.53%. In
addition, as on September 30,2007, based on trade data from the Directorate General of Commercial Intelligence and
Statistics ("DGCIS") the Bank had an estimated 31.9% market share of Indian merchandise foreign exchange transactions
for foreign trade.
The Bank organizes its client relationships, marketing and product development, as well as non-customer facing activities,
through business groups and strategic business units. The Bank's primary strategic business groups are the Corporate
Banking Group, the National Banking Group and the Rural Business Group. The Corporate Banking Group provides
corporate banking services to many of India's most significant corporations and institutions, including state-owned
enterprises. The National Banking Group and the Rural Business Groups service the Bank's remaining corporate
customers, small scale industries, agriculture and personal banking customers, including other state-owned enterprises,
throughout India. The National Banking Group also provides financial services to the Government and the state
governments, including tax collection and payment services.
The range of products offered by the Bank include fund-based products, non-fund-based products, fee and commission-
based products and services, deposits and foreign exchange and derivatives products. In the retail market, the Bank's
products and services include retail lending and deposits, fee and commission-based products and services, as well as
alternative payment products.
The Bank is present, through its subsidiaries and joint ventures, in diverse segments of the Indian financial sector,
including asset management, factoring and commercial services, treasury operations, credit cards, payment services and
life insurance. See "Business - Non-Bank Subsidiaries and Joint Ventures" and "Insurance Activities."


                                                            235
The Bank is the largest constituent part of the Group by assets and net income, representing 70.0% of consolidated
Group assets as on September 30, 2007 and 75.7% of consolidated net profit for the six-month period ended September 30,
2007. The Group includes the Bank, its Associate Banks, which operate in India, and its subsidiaries and joint ventures,
operating both within India and internationally. Associate Banks have a domestic network of approximately 4,867
branches, with strong regional ties. The Bank also has subsidiaries and joint ventures outside India, including in Europe,
the United States, Canada, Mauritius, Nepal and Bhutan.
As on September 30, 2007, the Bank's unconsolidated deposits, advances and total assets were Rs. 4,870.5 billion, Rs.
3,586.1 billion and Rs. 6,351.4 billion, respectively. For the six-month period ended September 30, 2007, the Bank's
unconsolidated net profit amounted to Rs. 30.4 billion, an increase of Rs. 10.5 billion, or 53.2%, from the six-month period
ended September 30, 2006.
As on September 30, 2007, the Group's consolidated deposits, advances and total assets were Rs. 7,024.8 billion, Rs.
5,197.5 billion and Rs. 9,068.5 billion, respectively. For the six-month period ended September 30, 2007, the Group's
consolidated net profit amounted to Rs. 40.1 billion, an increase of Rs. 13.1 billion, or 48.8%, from the six-month period
ended September 30, 2006.
Factors Affecting the Bank's Results of Operations and Financial Condition
The Bank's loan portfolio, financial condition and results of operations have been, and are expected to be, influenced by
economic conditions in India, expected growth in retail credit in India and certain global developments, particularly in
commodity prices relating to the business activities of the Bank's corporate customers. To facilitate the understanding of
the discussion of the Bank's results of operations that follows, you should consider the introductory discussion of these
macroeconomic factors.
Growth of the Indian economy
As a bank with the vast majority of its operations in India, the Bank's financial position and results of operations have
been and will continue to be significantly affected by general economic and political conditions in India. See "Risk Factors
- Risks Relating to India - A slowdown in economic growth, increased volatility of commodity prices or rise in interest rates
in India could cause the Bank's business to suffer." India had a GDP growth of 7.5% in fiscal year 2005, 9.0% in fiscal year
2006 and 9.4% in fiscal year 2007. The continued momentum in growth has been primarily due to the resurgence of the
industrial sector and sustained growth of the services sector. The agricultural sector, which did not grow in fiscal year
2005, registered 6.0% growth in fiscal year 2006 and 2.7% growth in fiscal year 2007. The industrial sector grew by 8.4% in
fiscal year 2005,8.0% in fiscal year 2006 and 11.0% in fiscal year 2007. Industrial growth during this period was supported
primarily by sustained growth in manufacturing activities. The services sector grew by 10.0% in fiscal year 2005, 10.3% in
fiscal year 2006 and 11.0% in fiscal year 2007. During the first half of fiscal year 2008, India's GDP grew by 9.1%,
agricultural growth was at 3.7%, while industry and services sectors grew by 9.5 % and 10.5% respectively.
This economic growth has contributed to increased demand for loans, by Indian corporations and SMEs as well as
increased demand for consumer products generally and consumer banking services. Due to the increasing demand for
loans, lending volume by Indian banks grew by approximately 27% over the last year.
During fiscal year 2007, there was an increase in inflationary trends in India, primarily due to the increase in prices of
primary articles as well as the increase in oil prices over the last several years. See also "Risk Factors - Risks Relating to
India - A significant increase in the price of crude oil could adversely affect the Indian economy, which could adversely
affect the Bank's business." The annual average rate of inflation measured by the Wholesale Price Index was 5.4% during
fiscal year 2007 compared to 4.4% during the previous year. Inflationary pressures eased in the first quarter of fiscal year
2008. The average annual rate of inflation reduced to 3.3% during fiscal year 2008 (through September 29, 2007) from 5.4%
during the corresponding period in the previous year. The RBI's stated policy objective is to contain inflation in the range
of 4.0% to 4.5% over the medium term. Disruptions in the growth of the Indian economy could have a direct impact on the
Bank's consumer and corporate banking services and could lead to an increase in NPAs.
During fiscal year 2007, the Rupee appreciated by 2.3% against the U.S. dollar. The Rupee depreciated against the pound
sterling, euro and against the Japanese yen. The Rupee appreciated by 7.7% against the U.S. dollar during fiscal year 2008


                                                             236
                                                                                           State Bank of India

(through September 30, 2007), moving from Rs. 43.10 per U.S.$ 1.00 as of the end of fiscal year 2007 to Rs. 39.75 per U.S.$
1.00 on September 30, 2007. Foreign exchange reserves were approximately U.S.$ 247.8 billion as on September 28, 2007.
The impact of these and other factors and the overall growth in industry, agriculture and services during fiscal year 2007
has affected the banking sector and is expected to affect the level of credit disbursed by the Bank. In addition, these
factors are expected to affect the overall growth prospects of the Bank, including its ability to expand its deposit base, the
quality of its assets, the value of its investment portfolio and its ability to implement its strategy.
Government monetary policy is also heavily influenced by the condition of the Indian economy. Changes in monetary
policy will affect the interest rates of the Bank's loans and deposits. As described above, the recent growth in the Indian
economy has contributed to a rise in interest rates as the Government has instituted a tighter monetary policy to combat
inflation. Changes in this policy could result in lower interest rates on the Bank's asset products, which could reduce its
margins and thus its net interest income. In addition, high rates of inflation in the Indian economy could also impact the
Bank's ability to sustain profitable net interest margins because it could lower the demand for loans, discourage
diversification of the Bank's loan portfolio or require the Bank to increase the costs of its deposits.
Health of the Indian banking sector
As the largest bank in India, the performance of the Indian banking sector is a critical factor to the Bank's financial
success. According to RBI data, total deposits of all scheduled commercial banks increased by 13% in fiscal year 2005,
18.1% in fiscal year 2006 and 23.7% in fiscal year 2007. Bank credit of scheduled commercial banks grew by 30.9% in fiscal
year 2005, 30.8% in fiscal year 2006 and 28.0% in fiscal year 2007. The increase in credit growth for fiscal year 2007 was
driven by the continued growth in both retail credit and credit to industry. Credit to industry accounted for 35.3% of the
total expansion in non-food credit for fiscal year 2007. During the first half of fiscal year 2008, deposits of scheduled
commercial banks increased by 23.9% on a year-on-year basis while bank credit grew by 21.9% on a year-on-year basis.
As of September 28, 2007, there has been a 9.8% growth in deposits while bank credit has grown by 5.0%. The positive
trends in each of the data points discussed above are reflected in the Bank's strong financial performance over the past
three years.
Until fiscal year 2005, there was a downward movement in interest rates, barring intra-year periods when interest rates were
higher temporarily due to extraneous circumstances. This movement was principally due to RBI's policy of assuring
adequate liquidity in the banking system and generally lowering the rate at which it would lend to Indian banks to ensure
that borrowers had access to funding at competitive rates. Banks generally followed the direction of interest rates set by
the RBI and adjusted both their deposit rates and lending rates downwards until fiscal year 2005. The inflationary trends
since fiscal year 2005 resulted in a change in the monetary policy stance. In response to inflationary pressures in the
economy, the RBI has, over time, increased the cash reserve ratio ("CRR") as follows:
 Effective Date                              Rate
 October 2, 2004                            5.00%
 December 23, 2006                          5.25%
 January 06, 2007                           5.50%
 February 17, 2007                          5.75%
 March 3, 2007                              6.00%
 April 14, 2007                             6.25%
 April 28, 2007                             6.50%
 August 4, 2007                             7.00%
Source: RBI Statistics




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The RBI increased the reverse repo rate (which is the annualised interest earned by the lender in a repurchase transaction
between a bank and the RBI) six times by 25 basis points, each time resulting in the reverse repo rate increasing from 4.5%
to 6.0% between October 2004 and July 2006. Between January 2006 and April 2007, the RBI also increased the repo rate
six times by 25 basis points, each time to the current rate of 7.75% (see chart below). As a result of these increases, banks,
including the Bank, have also raised their deposit and lending rates. The Bank's large and diverse customer base has
allowed it to capitalise on these higher rates resulting in increased interest income. See "Risk Factors - Risks Relating to
India - A slowdown in economic growth, increased volatility of commodity prices or rise in interest rates in India could
cause the Bank's business to suffer."
The RBI has also instituted several prudential measures to moderate credit growth including increase in risk weights for
capital adequacy computation and general provisioning for various Asset classes. See also "Industry Overview - Credit
Policy Measures."
Interest rates, allocation of funds and costs of funding
Interest earned has historically been the most significant component of the Bank's revenue. In the year ended March 31,
2007 and the six-months ended September 30, 2007, interest earned represented 68.8% and 71.5%, respectively, of the
Bank's unconsolidated operating income. Interest earned is determined by the amount of interest-earning assets, the
difference between the rate of interest earned on interest-earning assets and the rate of interest paid on interest-bearing
liabilities and the proportion of interest-earning assets financed by a non-interest bearing liabilities and equity. The Bank's
net interest earned is affected by a number of factors including the general level of interest rates, its ability to allocate its
funds to assets that provide high interest rates and its cost funding.
Interest rates
The majority of the Bank's corporate and commercial loans are priced at a floating rate based on the Bank's prime lending
rate. This rate is primarily determined by the RBI's lending rate. The RBI lending rate has risen steadily since 2004, partly
to reduce the money supply and partly to reduce liquidity at Indian banks. The table below shows the average monthly
RBI bid (reverse repo rates) and ask (repo rates) as on the dates indicated:
The following table sets forth the bank rate and the reverse repo rate for the last six fiscal years.
                                                                 Bank Rate            Reverse Repo Rate             Repo Rate
 As of year ended March 31,                                                                (percentages)
 2003                                                                  6.25%                        5.00%                7.00%
 2004                                                                  6.00%                        4.50%                6.00%
 2005                                                                  6.00%                        4.75%                6.00%
 2006                                                                  6.00%                        5.50%                6.50%
 2007                                                                  6.00%                        6.00%                7.75%
 2008 (through September 30, 2007)                                     6.00%                        6.00%                7.75%
Source: RBI: Handbook of Statistics on Indian Economy, 2006, Annual Report 2005-2006 and Weekly Statistical Supplements and Annual
Policy Statement 2007-08, First Quarter review of Policy Statement 2007-08.

Increases in the RBI lending rate allow the Bank to receive higher rates of return on its loans. Any subsequent reductions
in the RBI lending rate would reduce the Bank's prime lending rate and could reduce net interest income despite
supporting loan growth and NPA reduction. Conversely, increases in the RBI lending rate could affect the ability of
potential borrowers to take out loans despite partly mitigating higher deposit costs. See "Risk Factors - Risks Relating to
the Bank's Business - The Bank's business is particularly vulnerable to interest rate risk and volatility in interest rates could
adversely affect its net interest margin, the value of its fixed income portfolio, its income from treasury operations and its
financial performance."


                                                              238
                                                                                              State Bank of India

Since interest rates in the banking system have continually increased over the last two years and the Bank's liabilities,
which are much higher than its loan assets, have been re-priced, the Bank's net interest income has been adversely
effected. During the last quarter of fiscal year 2007, the Indian financial markets experienced volatility and sharp increases
in interest rates and the Bank experienced a sharp increase in its funding costs, which adversely impacted its net interest
margin. The Bank expects that this trend will continue until the yield on its interest earning assets increases to a level
which will offset its increase in funding costs. Further, it cannot be assured that the Bank will be able to pass through
increases in funding costs to its customers. Any failure to pass higher funding costs to its customers will adversely impact
the Bank's net interest margin.
Allocation of funds
The Bank's ability to take advantage of increases in RBI lending rates depends largely on its loan volume. Recent growth
in the Indian economy has led to increased demand for funding across many sectors of the economy. This growth has
contributed to the Bank's ability to reallocate its funds from Government securities to loans, which offer the Bank higher
returns. However, asset mix also has an effect on profitability as the Bank's loans bear different interest rates reflecting
different credit ratings. For example, net interest income increases to the extent that the Bank increases the proportion of
consumer loans, which generally bear a higher interest rate than other loans, but decreases to the extent that the Bank
increases the proportion of international loans, which generally bear a lower interest rate than domestic loans. If the
volume of the Bank's loans decreases due to a general slowdown in the economy, increased competition or other factors,
the Bank's net interest income will decrease as well. In addition, the Bank may not be able to reallocate its funds to more
profitable assets in the event that interest rates decrease.
Cost of funding
The Bank is able to increase its net interest income to the extent that it does not increase the cost of its interest-bearing
liabilities to the same extent, or at the same time, as its interest-bearing assets. The Bank's primary interest-bearing liability
is its deposit base. The Bank's ability to offer low interest rates for customers' deposit accounts depends significantly on
its ability to provide customers with convenient banking services that compensate for the lower returns on deposits. As
on September 30, 2007, the average deposit amount of the Bank's customers was approximately Rs. 50,000 per customer.
Depositors with low balances tend to choose their banks based upon proximity and convenience rather than deposit
rates. To continue to source low-cost funding through deposits, the Bank must, among other things, continue to develop
its information technology systems to offer modern banking services and develop products and services to distinguish
itself in an increasingly competitive industry. See "Risk Factors - Risks Relating to the Bank's Business - If the Bank is
unable to adapt to rapid technological changes, its business could suffer." However, increasing sophistication of
customers, competition for funding, increasing interest rates and changes to the RBI's liquidity and reserve requirements
may increase the rates the Bank pays on its deposits. In addition to a higher proportion of higher cost deposits forming
part of the Bank's funding, in order to meet the growing needs of its Retail and Corporate Banking groups and to further
enhance its capital adequacy ratios, the Bank has and may continue to issue subordinated debt which increases the
Bank's cost of funding.
Provisioning policies
The Bank's profit is adversely affected by the amount of provisions against loans. While the Bank has been able to reduce
its portfolio of NPAs, total provisions have continued to increase due to increases in volumes of loans and changes in
regulatory and internal provisioning policies. See "Risk Factors - Further deterioration of the Bank's NPA portfolio and an
inability to improve its provisioning coverage as a percentage of gross NPA could adversely affect the price of the Equity
Shares."
Non-interest expenses
The level of the Bank's non-interest expenses impacts its profitability. Staff costs comprise a significant proportion of the
Bank's administrative costs and wage inflation. In addition, the Bank is continuing its business process re-engineering,
which involves retraining and reallocating staff, as well as acquiring new IT systems. See "Business - Business Process
Re-engineering." As a result, the Bank expects that the business process re-engineering will also increase administrative
costs in the short term.

                                                               239
Corporate tax rates applicable to the Bank
Corporate tax rates applicable to the Bank impact the Bank's profitability. The effective corporate tax rate to the Bank has
come down from 41.03% in the financial year 1996-97 to 39.25% in the financial year 2006-07. The tax rate for the current
financial year is 33.99%. Any increase in tax rates could have a material adverse effect on the Bank's financial results.
Government policies and regulations in relation to the Indian banking system
The Indian banking industry is regulated by the RBI and operates within a framework that provides guidelines on capital
adequacy, corporate governance, management, anti-money laundering and provisioning for NPAs. The RBI can alter any
of these policies at any time and can introduce new regulations to control any particular line of business. The banking
system in India is expected to adopt a capital adequacy framework in line with the Basel II framework in March 2008. See
"Industry Overview - New Initiatives in the Banking Sector - Risk Management and Basel-II." This will cause an increase
in capital requirements, which will in turn have an impact on the Bank's results of operations. In addition to more stringent
capital adequacy requirements, the RBI has increased the CRR for Indian banks. Despite these increases, the RBI has
decided to suspend interest payments on CRR balances. Any further increases in the CRR could have a negative impact
on the Bank's results from operations. Any other changes in the regulatory environment as pertaining to the Indian
banking industry could have a material impact on the Bank's operations and financial condition. See "Risk Factors - Risks
Relating to the Bank's Business - Banking is a heavily regulated industry and material changes in the regulations which
govern the Bank could cause its business to suffer and the price of the Equity Shares to decline."
Unconsolidated Results for the Six-Months Ended September 30, 2007 Compared to the Six-Months Ended September
30, 2006
Interest Earned
Interest earned increased by 31.4% to Rs. 227.1 billion in the six-months ended September 30, 2007 from Rs. 172.8 billion
in the six-months ended September 30, 2006. This increase was primarily the result of a 43.8% increase in the interest
earned on advances and bills to Rs. 163.5 billion in the six-months ended September 30, 2007 from Rs. 113.7 billion in the
six-months ended September 30, 2006. This increase was primarily caused by an increase in the prime lending rate ("PLR")
of the Bank during the period by 175 basis points as well as increases in the rates charged by the Bank above the PLR on
renewal of loans and new loans. The increase in interest earned was also the result of a 26.7% increase in the Bank's loan
volume which was driven by continued growth in the Indian economy as well as increased marketing efforts by the Bank.
The increase in interest earned was partially aided by a 7.6% increase in income earned on investments to Rs. 54.6 billion
in the six-months ended September 30, 2007 from Rs. 50.8 billion in the six-months ended September 30, 2006. This was due
to an increase in the investments held by the Bank during the period
Other Income
Other income increased by 25.9% to Rs. 31.8 billion in the six-months ended September 30, 2007 from Rs. 25.3 billion in the
six-months ended September 30, 2006. The increase was primarily attributable to a 27.8% increase in commission,
exchange and brokerage income to Rs. 20.5 billion in the six-months ended Sept 30, 2007 from Rs. 16.1 billion in the six-
months ended September 30, 2006 as a result of an increase in the volume of transactions with the Government. The
higher income was due to a one time profit of Rs. 2.19 billion on account of divestment of promoters' stake by the Bank in
the NSE. The remaining increase in profit was largely from the Bank's own account trading. The Bank also saw an increase
of 222.7% in the profit on sale of investment to Rs. 7.1 billion in the six-months ended September 30, 2007 from Rs. 2.2
billion in the six-months ended September 30, 2006 mainly due to higher income from equity trading. The increase was
partially offset by a decrease of 52.4% in dividends from subsidiaries and joint ventures to Rs. 1.7 billion in the six-months
ended September 30, 2007 from Rs. 3.6 billion in the six-months ended September 30, 2006. This decrease was due to
several of the Bank's subsidiaries and joint ventures paying an interim dividend to the Bank in the fourth quarter of the
year ended March 31, 2007, a change from the typical first quarter payment. In addition, leasing income decreased by
55.6% to Rs. 308.0 million in the six-months ended September 30, 2007 from Rs. 693.0 million in the six-months ended
September 30, 2006 as a result of the Bank's decision to continue to wind down its leasing portfolio. This was partially
offset by an increase of 10% in loss on revaluation of investment to Rs. 7.4 billion in the six-months ended September 30,
2007 from Rs. 6.7 billion in the six-months ended September 30, 2006 .
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                                                                                            State Bank of India

Interest Expended
Interest expended increased 44.5% to Rs. 147.4 billion in the six-months ended September 30, 2007 from Rs. 102.1 billion in
the six-months ended September 30, 2006. This was primarily due to an increase in interest expended in respect of interest
on RBI and inter-bank borrowings of 93.9% to Rs. 14.4 billion in the six-months ended September 30, 2007 from Rs. 7.4
billion in the six-months ended September 30, 2006. This increase was the result of the Bank's greater borrowing needs as
well as increased interest rates. This Bank also saw a 65.6% increase in other interest expended to Rs. 7.5 billion in the six-
months ended September 30, 2007 from Rs. 4.5 billion in the six-months ended September 30, 2006 caused by an increase
in interest paid on the Bank's Tier II capital bonds issued by the Bank. Interest expended on deposits increased 39.3% to
Rs. 125.5 billion in the six-months ended September 30, 2007 from Rs. 90.0 billion in the six-months ended September 30,
2006. This increase in interest expended on deposits was due to a 29.7% increase in fixed deposits, most of which were
interest-bearing deposits, as well as increased interest rates over the period. Total deposits increased by Rs. 865.5 billion
in the six-months ended September 30, 2007, while the cost of deposits (domestic) increased to 5.48% in the six-months
ended September 30, 2007 from 4.51% in the six-month period ended September 30, 2006.
As a result of the higher cost of funds due to increased interest rates and the additional CRR requirement, the Bank's net
interest margin decreased to 2.84% in the six-months ended September 30, 2007 as compared to 3.02% in the six-months
ended September 30, 2006. Investors should note that, for the purpose of public disclosure, the net interest margin figure
calculated here is based on weekly averages of interest earning assets as per Indian market convention.
Operating Expenses
Operating expenses saw a modest increase of 6.9% to Rs. 60.7 billion in the six-months ended September 30, 2007 from Rs.
56.8 billion in the six-months ended September 30, 2006. This increase was primarily attributable to a 13.7% increase in other
operating expenditures to Rs. 20.5 billion in the six-months ended September 30, 2007 from Rs. 18.0 billion in the six-
months ended September 30, 2006. Other expenditures increased as a result of an increase in mandatory deposit insurance
related to an increase in deposits. Rent, taxes and lighting increased by 9.8% to Rs. 4.5 billion in the six-months ended
September 30, 2007 from Rs. 4.1 billion in the six-months ended September 30, 2006. This increase reflects the overall
growth of the Bank's branch and office facilities over the period. The Bank also experienced a 3.7% increase in payments
and provisions for employees to Rs. 40.2 billion in the six-months ended September 30, 2007 from Rs. 38.8 billion in the six-
months ended September 30, 2006. This increase was the result of employees taking advantage of the Bank's "Exit Option,"
which is a voluntary early retirement scheme introduced by the Bank. This increase was the result of employees taking
advantages of the Bank's 'Exit Option' which was a voluntary early retirement scheme introduced by the Bank during the
fiscal year ended March 31, 2007 and which was extended to all the non-officer bank employees during the period from
September 1, 2006 to March 31, 2007. As of March 31, 2007 approximately 8,000 employees had opted for voluntary early
retirement scheme.
Provisions and Contingencies (excluding provisions for tax)
The Bank classifies its loans in accordance with RBI guidelines. Provisions and contingencies (excluding provisions for
tax) decreased 57.2% to Rs. 2.5 billion in the six-months ended September 30, 2007 from Rs. 5.7 billion in the six-months
ended September 30, 2006. This decrease in provisions and contingencies (excluding provisions for tax) was primarily
attributable to moderation of the Government securities yield in the one to five year range, where the bank holds a high
concentration. This resulted in a decrease of provisions for depreciation on investments of 375.4% or a write back of Rs.
3.8 billion from provisions for depreciation on investments as against provision of Rs. 1.4 billion in September 2006. The
decrease was partially offset by a significant increase in NPA provisions in the six-months ended September 30, 2007 to
Rs. 4.9 billion from Rs. 2.8 billion in the six-months ended September 30, 2006. This increase was the result of gross NPAs
increasing to Rs. 106.3 billion in the six-months ended September 30, 2007 from Rs. 97.4 billion in September 30, 2006 as a
result of an increase in the Bank's loan portfolio as well as an increasing interest rate environment.
In May 2006, the general provisioning requirement for personal loans, loans and advances qualifying as capital market
exposure, residential housing loans in an amount exceeding Rs. 2.0 million and commercial real estate loans was increased
by the RBI to 1.0% from 0.4%. In January 2007, the general provisioning requirement for personal loans, credit card
receivables, loans and advances qualifying as capital market exposure, commercial real estate and advances to non-


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deposit taking systemically important non-banking financial companies ("NBFCs") was increased to 2.0%. All additional
liability on account of higher general provisioning rates on existing loans was fully provided in the year ended March 31,
2007. The general provision for higher rates is now required to be provided only on incremental loans made in the six-
months ended September 30, 2007. As a result, the general provision on standard assets decreased by 37.4% to Rs. 979.8
million in the six-months ended September 30, 2007 from Rs. 1,564.9 million in the six-months ended September 30, 2006.
Tax Expense
Total taxation expenses increased by 31.5% to Rs. 17.9 billion in the six-months ended September 30, 2007 as compared to
Rs. 13.6 billion in the six-months ended September 30, 2006.
Current income tax expenses increased by 48.41% to Rs. 17.3 billion in the year ended September 30, 2007 as compared to
Rs. 11.6 billion in the six-months ended September 30, 2006 primarily because of the Bank's provisions for expenditure
items where income tax levels are uncertain, leading to an effective tax rate of 36.24% which was 225 basis points higher
than the statutory tax rate of 33.99%.
Net Profit
As a result of the above, net profit increased by 53.2% to Rs. 30.4 billion in the six-months ended September 30, 2007 from
Rs. 19.8 billion in the six-months ended September 30, 2006.
Financial Condition
Total assets amounted to Rs. 6,351.4 billion as on September 30, 2007 compared to Rs. 5,465.3 billion as on September 30,
2006, an increase of 16.2%. Cash and balances with RBI increased 46.0% to Rs. 462.0 billion as on September 30, 2007 from
Rs. 316.4 billion as on September 30, 2006. The primary reason for this increase was a 2.0% statutory increase in CRR held
by RBI to 7.0% as on September 30, 2007 from 5.0% as on September 30, 2006. Balances with banks and money at call and
short notice decreased to Rs. 128.0 billion as on September 30, 2007 from Rs. 233.1 billion as on September 30, 2006.
Advances for term loans increased 22.0% to Rs. 1,950.4 billion as on September 30, 2007 from Rs. 1,599 billion as on
September 30, 2006. This increase was in line with the Bank's overall increase in business and was supported by continued
growth in deposits. The increase in total assets was partially the result of a 22.8% increase in government securities held
to Rs. 1,438.6 billion as on September 30, 2007 from Rs. 1,171.4 billion as on September 30, 2006.
The table below sets out the principal components of the Bank's assets as on the dates indicated.
                                                                                        As on September 30,
                                                                             2006              2007           % change
                                                                                (Rs. in millions, except percentages)
 Cash and balances with the RBI                                            316,420           462,018               46.0%
 Balance with banks and money at call and short notice                     233,066           127,970             (45.1%)
 Total Cash and cash equivalents                                          549,486           589,988                7.4%
 Government securities                                                   1,171,381         1,438,627               22.8%
 Other investments                                                         293,514           362,971               23.7%
 Total investments                                                      1,464,895         1,801,598              23.0%
 Term loans                                                              1,598,973         1,950,400               22.0%
 Other advances                                                          1,231,557         1,635,749               32.8%
 Total advances                                                         2,830,530         3,586,149              26.7%
 Fixed assets                                                               26,701            31,815               19.2%
 Other assets                                                              593,702           341,841             (42.4%)
 Total assets                                                           5,465,314         6,351,391              16.2%



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                                                                                              State Bank of India

Total liabilities and shareholders' funds amounted to Rs. 6,351.4 billion as on September 30, 2007 compared to Rs. 5,465.3
billion as on September 30, 2006, an increase of 16.2%. Capital remained unchanged over the period, while reserves and
surplus increased 15.0% to Rs. 335.9 billion as on September 30, 2007 from Rs. 292.0 billion as on September 30, 2006. The
increase in reserves was primarily attributable to the retention of Rs. 47.3 billion out of the Rs. 56.0 billion, or 84.6%, of net
profit earned in the period. Deposits increased 21.6% to Rs. 4,870.5 billion as on September 30, 2007 from Rs. 4,005.1 billion
as on September 30, 2006 as a result of a 13.4% increase in demand deposits over the period caused by the overall growth
in the Indian economy, new marketing efforts and new product initiatives. Borrowings increased 39.2% to Rs. 449.4 billion
as on September 30, 2007 from Rs. 322.8 billion as on September 30, 2006. The increase in the Bank's borrowings is
primarily attributable to the Bank's domestic and international capital fundraising activities.
The table below sets out the principal components of the Bank's shareholders' funds and liabilities as on the dates
indicated.
                                                                                              As on September 30,
                                                                                 2006                2007           % change
                                                                                     (Rs. in millions, except percentages)
 Capital                                                                          5,263              5,263                0.0%
 Reserves and surplus                                                          292,018             335,865               14.7%
 Total shareholders' funds                                                    297,281             341,128               14.7%
 Deposits                                                                    4,005,090           4,870,544               21.6%
 Borrowings                                                                    322,844             449,379               39.2%
 Other liabilities and provisions                                              840,099             690,340              (17.8%)
 Total liabilities and shareholders' funds                                  5,465,314          6,351,391                16.2%
Unconsolidated Results for the Year Ended March 31, 2006 Compared to the Year Ended March 31, 2007
Interest Earned
Interest earned increased by 9.8% to Rs. 394.9 billion in the year ended March 31, 2007 from Rs. 359.8 billion in the year
ended March 31, 2006. This increase was primarily the result of a 28.9% increase in the Bank's loan volume which was
driven by the buoyant economic conditions in India as well as increased marketing efforts. The increase in interest earned
was also the result of a 40.4% increase in the interest earned on advances and bills to Rs. 248.4 billion in the year ended
March 31, 2007 from Rs. 177 billion in the year ended March 31, 2006. This increase was primarily the result of a 200 basis
point increase in the prime lending rate charged by the Bank.
The increase in interest earned was partially offset by the 17.8% decrease in income earned on investments to Rs. 114.9
billion in the year ended March 31, 2007 from Rs. 139.8 billion in the year ended March 31, 2006 which was due to (a) higher
CRR requirements, (b) replacement of higher coupon bonds by lower coupon bonds (primarily Government securities) to
reduce the average duration of the investment portfolio and (c) reduction of the Bank's investment portfolio held in the
assets-held-for-sale category. Also, offsetting the increase in interest earned, there was an 79.9% decrease in other interest
earned to Rs. 4.4 billion in the year ended March 31, 2007 from Rs. 21.8 billion in the year ended March 31, 2006. This
decrease in other interest earned during the year ended March 31, 2007, reflects a one-off receipt of interest recorded on
an income tax refund during the year ended March 31, 2006.
Other Income
Other income decreased by 22.4% to Rs. 57.7 billion in the year ended March 31, 2007 from Rs. 74.4 billion in the year
ended March 31, 2006. This decrease was primarily attributable to the loss on revaluation of investments of Rs. 16.8 billion
in the year ended March 31, 2007 compared to no such loss in the year ended March 31, 2006 which was related to an
accounting change in the Bank's amortisation policy for held to maturity investments. In addition, the Bank saw a 62.7%


                                                               243
decrease in the profit on exchange transactions to Rs. 3.7 billion in the year ended March 31, 2007 from Rs. 10.0 billion in
the year ended March 31, 2006 which was caused by a one-time gain in the year ended March 31, 2006 related to the
redemption of Indian Millennium Deposits which was not recorded in 2007. This decrease was partially offset by a 20.2%
increase in exchange and brokerage commission to Rs. 48.0 billion in the year ended March 31, 2007 from Rs. 40 billion in
the year ended March 31, 2006, as well as a 88.2% increase in income earned from dividends from subsidiaries and joint
ventures to Rs. 6.0 billion in the year ended March 31, 2007 from Rs. 3.2 billion in the year ended March 31, 2006. This gain
was the result of generally improved performances across all of the Bank's subsidiaries and joint ventures
Interest Expended
Interest expended increased 14.9% to Rs. 234.4 billion in the year ended March 31, 2007 from Rs. 203.9 billion in the year
ended March 31, 2006. This increase in interest expended was primarily due to a 136.1% increase in other interest expended
to Rs. 22.1 billion in the year ended March 31, 2007 from Rs. 9.4 billion in the year ended March 31, 2006 caused by interest
paid on Tier I and Tier II capital bonds. Interest expended in respect of interest on RBI and inter-bank borrowings also saw
a 62.1% increase to Rs. 21.4 billion in the year ended March 31, 2007 from Rs. 13.2 billion in the year ended March 31,
2006. This increase was the result of greater borrowing needs as well as increased interest rates. Interest expended on
deposits increased 5.2% to Rs. 190.8 billion in the year ended March 31, 2007 from Rs. 181.3 billion in the year ended
March 31, 2006. This increase in interest expended on deposits was due to 14.6% increase in deposits, partially offset by
an expansion of lower cost current and savings account deposits, as well as interest rate revisions over the period. Total
deposits increased to Rs. 4,355.2 billion in the year ended March 31, 2007 from Rs. 3,800.5 billion in the year ended March
31, 2006.
As a result of growth in the lower cost current and savings account deposits, the Bank's net interest margin decreased to
3.3% in the year ended March 31, 2007, as compared to 3.4% in the year ended March 31,2006. Investors should note that
for the purpose of public disclosure, the net interest margin figure calculated here is based on weekly averages of interest
earning assets as per Indian market convention.
Operating Expenses
Operating expenses saw a modest increase of 0.8% to Rs. 118.2 billion in the year ended March 31, 2007 from Rs. 117.3
billion in the year ended March 31, 2006. This increase was primarily attributable to a 22.3% increase in other expenditures
to Rs. 14.3 billion in the year ended March 31, 2007 from Rs. 11.7 billion in the year ended March 31, 2006. Other
expenditures increased as a result of an increase in mandatory deposit insurance reflecting continued growth in the
number of deposits. Rent, taxes and lighting increased 12.6% to Rs. 9.0 billion in the year ended March 31, 2007 from Rs.
8.0 billion in the year ended March 31, 2006. This increase reflects the overall growth of the Bank's branch and office
facilities over the period. These increases were partially offset by a 12.6% decrease in directors' fees, allowances and
expenses to Rs. 11.0 million in the year ended March 31, 2007 from Rs. 12.0 million in the year ended March 31, 2006. The
Bank also experienced a 2.3% decrease in payments and provisions for employees to Rs. 79.3 billion in the year ended
March 31, 2007 from Rs. 81.2 billion in the year ended March 31, 2006 which was a result of lower contributions made to
the pension and gratuity funds for employees based on an actuarial valuation.
Provisions and Contingencies (excluding provisions for tax)
The Bank classifies its loans in accordance with RBI guidelines. Provisions and contingencies (excluding provisions for
tax) decreased 45.1% to Rs. 24.1 billion in the year ended March 31, 2007 from Rs. 43.9 billion in the year ended March 31,
2006. This decrease in provisions and contingencies (excluding provisions for tax) was primarily attributable to a RBI-
mandated accounting change whereby amortisation and redemption on held to maturity investments must now be
accounted for as an operating expense instead of as an adjustment in the "Provision and Contingencies" account. This
change resulted in a decrease in Provisions for Depreciation on Investments of 90.3% or Rs. 35.2 billion. The decrease
was partially offset by a significant increase in NPA provisions in the year ended March 31, 2007 to Rs. 14.3 billion from
Rs. 1.5 billion in the previous year. The lower provisioning in the year ended March 31, 2006 was the result of the write
back of a provision in respect of a significant NPA account that became a standard asset during the period.
Under the RBI guidelines issued in September 2005, banks were required to make general provision at 0.4% on standard
loans (excluding loans to the agricultural sector and to small and medium enterprises). In May 2006, the general

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                                                                                         State Bank of India

provisioning requirement for personal loans, loans and advances qualifying as capital market exposure, residential housing
loans beyond Rs. 2.0 million and commercial real estate was further increased to 1.0% from 0.4%. In January 2007, the
general provisioning requirement for personal loans, credit card receivables, loans and advances qualifying as capital
market exposure, commercial real estate and advances to non-deposit taking systemically important non-banking financial
companies ("NBFCs") was increased to 2.0%. As a result, a general provision on standard assets increased by 45.4% to
Rs. 5.9 billion in the year ended March 31, 2007 from Rs. 4.1 billion in the year ended March 31, 2006.
Tax Expense
Total taxation expenses increased by 22% to Rs. 30.5 billion in the year ended March 31, 2007 from Rs. 25.0 billion in the
year ended March 31, 2006.
Current income tax increased by 77.1% to Rs. 29.8 billion in the year ended March 31, 2007 as compared to Rs. 16.8 billion
in the year ended March 31, 2006, primarily due to a disallowance of expenditure incurred on ex gratia payments to
employees who exercised the Exit Option in the year ended March 31, 2007, leading to an effective tax rate of 39.62%
which was 596 basis points higher than the statutory tax rate of 33.66%.
Net Profit
As a result of the above, net profit increased by 3.1% to Rs. 45.4 billion in the year ended March 31, 2007 from Rs. 44.1
billion in the year ended March 31, 2006.
Financial Condition
Total assets amounted to Rs. 5,665.7 billion as on March 31, 2007 compared to Rs. 4,940.3 billion as on March 31, 2006, an
increase of 14.7%. Cash and balances with RBI increased 34.3% to Rs. 290.8 billion as on March 31, 2007 from Rs. 216.5
billion as on March 31, 2006. The primary reason for this increase was a 1.0% RBI-mandated increase in the CRR held by
the RBI from 5.0% as on March 31, 2006 to 6.0% as on March 31, 2007. Balances with banks and money at call and short
notice saw a slight decrease to Rs. 228.9 billion as on March 31, 2007 from Rs. 229.1 billion as on March 31, 2006.
Advances for term loans increased 28.3% to Rs. 1,810.7 billion as on March 31, 2007 from Rs. 1,410.9 billion as on March
31, 2006 which was in line with the Bank's overall increase in business and was supported by continued growth in
deposits. These increases were partially offset by a 12.6 % decrease in government securities held to Rs. 1,182.7 billion as
on March 31, 2007 from Rs. 1,352.9 billion as on March 31, 2006.
The table below sets out the principal components of the Bank's assets as on the dates indicated.
                                                                                           As on March 31,
                                                                              2006              2007           % change
                                                                                 (Rs. in millions, except percentages)
 Cash and balances with the RBI                                            216,527            290,764               34.3%
 Balance with banks and money at call and short notice                     229,073            228,922             (0.01%)
 Total Cash and cash equivalents                                          445,600            519,686              16.6%
 Government securities                                                   1,352,913          1,182,709             (12.6%)
 Other investments                                                         272,429            308,780               13.3%
 Total investments                                                      1,625,342          1,491,489              (8.2%)
 Term loans                                                              1,410,904          1,810,732               28.3%
 Other advances                                                          1,207,105          1,562,633               29.5%
 Total advances                                                         2,618,009          3,373,365              28.9%
 Fixed assets                                                               27,530             28,189                2.4%
 Other assets                                                              223,809            252,923               13.0%
 Total assets                                                           4,940,290          5,665,652              14.7%

                                                            245
Total liabilities and shareholders' funds amounted to Rs. 5,665.7 billion as on March 31, 2007 compared to Rs. 4,940.3 billion
as on March 31, 2006, an increase of 14.7%. Capital remained unchanged over the period, while reserves and surplus
increased 13.5% to Rs. 307.7 billion as on March 31, 2007 from Rs. 271.2 billion as on March 31, 2006. The increase in
reserves was primarily as attributable to the retention of Rs. 36.8 billion out of the Rs. 45.4 billion, or 81%, of net income
earned in the period. This retention was the result of the Bank's low dividend payout ratio of 19%. Deposits increased
14.6% to Rs. 4,355.2 billion as on March 31, 2007 from Rs. 3,800.5 billion as on March 31, 2006 as a result of a 20.6%
increase in demand deposits over the period caused by the overall growth in the Indian economy, new marketing efforts
and new product initiatives. Borrowings increased 29.6% to Rs. 397.0 billion as on March 31, 2007 from Rs. 306.4 billion as
on March 31, 2006. The increase in the Bank's borrowings is primarily attributable to the Bank's domestic and
international capital fundraising activities.
The table below sets out the principal components of the Bank's shareholders' funds and liabilities as on the dates
indicated.
                                                                                              As on March 31,
                                                                                2006               2007          % change
                                                                                   (Rs. in millions, except percentages)
 Capital                                                                        5,263              5,263                0.0%
 Reserves and surplus                                                        271,178            307,722               13.5%
 Total shareholders' funds                                                  276,441            312,985               13.2%
 Deposits                                                                  3,800,461          4,355,211               14.6%
 Borrowings                                                                  306,412            397,033               29.6%
 Other liabilities and provisions                                            556,976            600,423                 7.8%
 Total liabilities and shareholders' funds                                4,940,290          5,665,652               14.7%

Unconsolidated Results for the Year Ended March 31, 2005 Compared to the Year Ended March 31, 2006
In accordance with RBI directions, as well as recommendations of its statutory auditors, the Bank made certain changes
to its accounting policies in the year ended March 31, 2007. The figures contained in this Letter of Offer relating to the year
ended March 31, 2006 have been regrouped to reflect these changes. The figures relating to the year ended March 31,
2005, however, have not been regrouped. Because of this, investors should be aware that the line items relating to Other
Income as well as Provisions and Contingencies from the years ended March 31, 2006 and 2007 are not strictly comparable
to those items in the year ended March 31, 2005. For a more detailed discussion of these changes, see "- Changes in
Accounting Policies."
Interest Earned
Interest earned increased by 11% to Rs. 359.8 billion in the year ended March 31, 2006 from Rs. 324.3 billion in the year
ended March 31, 2005. This increase was primarily the result of a 35.7% increase in the interest earned on advances and
bills to Rs. 177 billion in the year ended March 31, 2006 from Rs. 130.4 billion in the year ended March 31, 2005 which was
primarily the result of increased disbursements of cash credits, overdrafts, loans repayable on demand and term loans
reflecting the continued growth of the Bank's business. In addition, the Bank saw a 39.1% increase in other interest earned
to Rs. 21.8 billion in the year ended March 31, 2006 from Rs. 15.7 billion in the year ended March 31, 2005 reflecting a one-
off interest received on an income tax refund of Rs. 16.4 billion recognised in 2006 against Rs. 7.5 billion recognised in
2005. These increases were partially offset by the 12.8% decrease in income earned on investments to Rs. 139.8 billion in
the year ended March 31, 2006 from Rs. 160.3 billion in the year ended March 31, 2005. The decrease in income earned on
investments in the year ended March 31, 2006 was related to the replacement of high coupon investments with lower
coupon investments (primarily Government securities) with the intention to reduce the average duration of the investment
portfolio.

                                                             246
                                                                                           State Bank of India

Other Income
Other income increased to Rs. 74.4 billion in the year ended March 31, 2006 from Rs. 71.2 billion in the year ended March
31, 2005. The Bank saw an increase in profit on exchange transactions to Rs. 10.0 billion in the year ended March 31, 2006
from Rs. 5.3 billion in the year ended March 31, 2005 which was mainly the result of a one-time gain related to the
redemption of Indian Millennium Deposits. Miscellaneous income also saw a substantial increase of Rs. 6.7 billion to Rs.
14.1 billion in the year ended March 31, 2006 from Rs. 7.4 billion in the year ended March 31, 2005. Contributing factors to
this increase were a higher recovery amount from written-off loan accounts as well as a one-time recognition of non-
reconciled net-credit entries held on the Bank's inter-office accounts up to March 31, 1999. The Bank saw a decrease in
profits on sale of investments to Rs. 5.9 billion in the year ended March 31, 2006 from Rs. 17.8 billion in the year ended
March 31, 2005. Increasing yields on investments in the year ended March 31, 2006 contributed to the decrease in the
profit on sale of such investments.
Interest Expended
Interest expended increased by 10.3% to Rs. 203.9 billion in the year ended March 31, 2006 from Rs. 184.8 billion in the year
ended March 31, 2005. This increase in interest expended was primarily due to a 5.5% increase in interest on deposits to
Rs. 181.3 billion in the year ended March 31, 2006 from Rs. 171.9 billion in the year ended March 31, 2005 as a result of the
3.5% increase in deposits over the same period. Interest expended in respect of interest on RBI and interbank borrowings
also saw a 223.3% increase to Rs. 13.2 billion in the year ended March 31, 2006 from Rs. 4.1 billion in the year ended March
31, 2005. This increase was related to interest paid on domestic borrowings and Medium Term Note Programme used to
increase the Bank's international resources. Other interest expended increased 5.5% to Rs. 9.4 billion in the year ended
March 31, 2006 from Rs. 8.9 billion in the year ended March 31, 2005 primarily as a result of interest paid on Tier I and Tier
II capital bonds. Total deposits increased to Rs. 3,800.5 billion in the year ended March 31, 2006 from Rs. 3,670.5 billion in
the year ended March 31, 2005, while the cost of deposits (domestic) decreased to 4.7% from 5.1% over the same period.
Net interest margin for the year ended March 31, 2006 remains constant at 3.4% as compared to March 31, 2005 as
increases in average interest earning assets were offset by an increase in the cost of borrowings and a decrease in the
yield on investments. Investors should note that, for the purpose of public disclosure the net interest margin figure
calculated here is based on weekly averages of interest earning assets as per Indian market convention.
Operating Expenses
Operating expenses saw an increase of 16.4% to Rs. 117.3 billion in the year ended March 31, 2006 from Rs. 100.7 billion in
the year ended March 31, 2005. This increase was primarily attributable to a 17.6% increase in payments and provisions for
employees to Rs. 81.2 billion in the year ended March 31, 2006 from Rs. 69.1 billion in the year ended March 31, 2005. This
increase reflects a payment of wage revision arrears and an increased contribution to superannuation benefits. Directors'
fees, allowances and expenses also increased 24% to Rs. 12.3 million in the year ended March 31, 2006 from Rs. 9.9 million
in the year ended March 31, 2005.
Provisions and Contingencies (excluding provisions for tax)
Provisions and contingencies (excluding provisions for tax) increased to Rs. 43.9 billion in the year ended March 31, 2006
from Rs. 44.7 billion in the year ended March 31, 2005. The Bank saw higher general provisions for standard assets, higher
investment depreciation, provision for fringe benefit tax as well as a lower provision for loan loss. Starting in the third
quarter of 2005, the RBI increased the requirement of general provisioning on standard loans (excluding loans to the
agricultural sector and small and medium enterprises) to 0.40% compared to 0.25% applicable until September 30, 2005. In
accordance with these guidelines, the Bank made general provisions of Rs. 4.1 billion in the year ended March 31, 2006.
Tax Expense
Total taxation expense increased by 12.7% to Rs. 25.0 billion in the year ended March 31, 2006 from Rs. 22.2 billion in the
year ended March 31, 2005.
Current income tax expense decreased 31.2% to Rs. 16.8 billion in the year ended March 31, 2006 as compared to Rs. 24.5
billion in the year ended March 31, 2005 primarily due to provisions made towards wage in arrears form earlier years. These


                                                             247
provisions were allowed as a deduction from taxable income during the year ended March 31, 2006, leading to an effective
tax rate of 27.63% which was 603 basis points lower than the statutory tax rate of 33.66%.
Net Profit
As a result of the above, net profit after tax increased by 2.4% to Rs. 44.1 billion in the year ended March 31, 2006 from Rs.
43.0 billion in the year ended March 31, 2005.
Financial Condition
Total assets amounted to Rs. 4,940.3 billion as on March 31, 2006 compared to Rs. 4,598.8 billion as on March 31, 2005, an
increase of 7.4%. Cash and balances with the RBI increased 28.8% to Rs. 216.5 billion as on March 31, 2006 from Rs. 168.1
billion as on March 31, 2005, primarily due to higher CRR balances as a result of an increase in deposits. Balances with
banks and money at call and short notice saw a modest increase of 1.8% to Rs. 229.1 billion as on March 31, 2006 from Rs.
225.1 billion as on March 31, 2005. Advances for term loans increased 31.9% to Rs. 1,410.9 billion as on March 31, 2006
from Rs. 1,069.9 billion as on March 31, 2005. This increase in term loans was consistent with growth in the Bank's overall
loan portfolio. These increases were partially offset by a 21.3% decrease in Government securities to Rs. 1,352.9 billion as
on March 31, 2006 from Rs. 1,719.4 billion as on March 31, 2005 as a result of the Bank's strategy during the period to
liquidate investments in Government securities to fund loan growth as well as to meet the redemption requirements of
Indian Millennium Deposits.
The table below sets out the principal components of the Bank's assets as on the dates indicated.
                                                                                             As on March 31,
                                                                               2005               2006           % change
                                                                                  (Rs. in millions, except percentages)
 Cash and balances with the RBI                                              168,103            216,527              28.8%
 Balance with banks and money at call and short notice                       225,118            229,073                1.8%
 Total Cash and cash equivalents                                            393,221           445,600               13.3%
 Government securities                                                     1,719,435          1,352,913             (21.3%)
 Other investments                                                           251,544            272,429                8.3%
 Total investments                                                       1,970,979          1,625,342              (17.5%)
 Term loans                                                                1,069,885          1,410,904              31.9%
 Other advances                                                              953,860          1,207,105              26.5%
 Total advances                                                          2,023,745          2,618,009               29.4%
 Fixed assets                                                                 26,977             27,530                2.0%
 Other assets                                                                183,907            223,809              21.7%
 Total assets                                                            4,598,829          4,940,290                7.4%
Total liabilities and shareholders' funds amounted to Rs. 4,940.3 billion as on March 31, 2006 compared to Rs. 4,598.8 billion
as on March 31, 2005, an increase of 7.4%. Capital remained unchanged over the period, while reserves and surplus
increased 15.2% to Rs. 271.2 billion as on March 31, 2006 from Rs. 235.5 billion as on March 31, 2005. The increase in
reserves was primarily attributable to the retention of Rs. 35.7 billion, or 80.9%, of net income earned in the period.
Deposits increased 3.5% to Rs. 3,800.5 billion as on March 31, 2006 from Rs. 3,670.5 billion as on March 31, 2005 as a result
of a 20.1% increase in demand deposits partially offset by the repayment of Indian Millennium Deposits during the year
ended March 31, 2006. Borrowings increased 59.7% to Rs. 306.4 billion as on March 31, 2006 from Rs. 191.8 billion as on
March 31, 2005. The increase in the Bank's borrowings is primarily attributable to the Bank's efforts to increase its capital


                                                             248
                                                                                              State Bank of India

adequacy through offshore borrowings by way of drawdown from its Medium Term Note Programme as well as
borrowings within India. Other liabilities and provisions increased 12.3% to Rs. 557 billion as on March 31, 2006 from Rs.
495.8 billion as on March 31, 2005. The increase was primarily a result of a 152.4% increase in bills payable as well as a
50.0% increase in other liabilities, including provisions.
The table below sets out the principal components of the Bank's shareholders' funds and liabilities as on the dates
indicated.
                                                                                                As on March 31,
                                                                                2005                  2006               % change
                                                                                     (Rs. in millions, except percentages)
 Capital                                                                        5,263                   5,263                0.0%
 Reserves and surplus                                                        235,458              271,178                   15.2%
 Total shareholders' funds                                                  240,721              276,441                   14.8%
 Deposits                                                                  3,670,476            3,800,461                    3.5%
 Borrowings                                                                  191,843              306,412                   59.7%
 Other liabilities and provisions                                            495,789              556,976                   12.3%
 Total liabilities and shareholders' funds                                4,598,829            4,940,290                    7.4%

Liquidity
The following table sets forth the Bank's unconsolidated statement of cash flows for the years ended March 31, 2005, 2006
and 2007 and the six-month periods ended September 30, 2006 and 2007:
                                                          Year ended March 31,              Six-months ended September 30,
                                                             2005           2006              2007              2006         2007
                                                                                    (Rs. in millions)
 Net cash (used in)/from operating activities             (27,807)         56,023          (17,761)             59,120      27,100
 Net cash (used in)/from investing activities              (4,988)        (7,394)           (2,846)              (137)      (6,704)
 Net cash (used in)/from financing activities              (9,693)          3,696            94,941             43,893      52,134
 Net increase (decrease) in cash & equivalents            (42,488)         52,325            74,334         102,876         72,530
 Cash & equivalents, beginning of period                  435,666        393,221           445,600          445,600        519,687
 Effect of foreign exchange rate changes                        43             54             (247)              1,010      (2,229)
 Cash & equivalents, end of period                        393,221        445,600           519,687          549,486        589,988

Cash Flows from Operating Activities
The Bank recorded a net cash inflow from operating activities of Rs. 27.1 billion in the six-months ended September 30,
2007. The primary reasons for the net cash inflow during the period was an inflow of deposits of Rs. 515.3 billion as well
as a Rs. 52.3 billion increase in borrowings. The net cash inflow during the period was partially offset by a Rs. 304.6 billion
increase in investments as well as a Rs. 217.7 billion increase in loans.
The Bank recorded a net cash inflow from operating activities of Rs. 59.1 billion in the six-months ended September 30,
2006. The primary reasons for the net cash inflow during the period was an increase in deposits of Rs. 204.6 billion and a
Rs. 16.4 billion increase in borrowing. In addition, the Bank saw a Rs. 108.7 billion decrease in investments as a result of

                                                             249
the Bank winding down its investment portfolio. The net cash inflow during the period was partially offset by a Rs. 215.3
billion increase in advances.
The Bank recorded a net cash outflow from operating activities of Rs. 17.8 billion in the year ended March 31, 2007. The
primary reason for the net cash outflow was an increase in advances of Rs. 769.7 billion that was partially offset by a Rs.
74.5 billion decrease in investments as well as a Rs. 90.6 billion increase in borrowings. The net cash outflow during the
period was also partially offset by an increase in deposits of Rs. 554.8 billion, reflecting the Bank's strategy of attracting
new depositors to fund future advances.
The Bank recorded a net cash inflow from operating activities of Rs. 56.0 billion in the year ended March 31, 2006. The
primary reasons for this increase in cash flow were a Rs. 362.1 billion decrease in investments, a Rs. 114.5 billion increase
in borrowings and a Rs. 130.0 billion increase in deposits. Cash from operations was primarily used to fund the Bank's
expanding loan portfolio resulting in an outflow of Rs. 595.7 billion for advances.
The Bank recorded a net cash outflow from operating activities of Rs. 27.8 billion in the year ended March 31, 2005. Cash
was used during the period primarily to fund new loans, causing an increase in advances of Rs. 456.4 billion. A significant
source of cash for the period came from a Rs. 484.3 billion increase in deposits.
Cash Flows from Investing Activities
The Bank recorded a net cash outflow from investing activities of Rs. 6.7 billion in the six-months ended September 30,
2007. The cash was used primarily to purchase Rs. 6.7 billion worth of fixed assets relating to upgrading the interiors of
the Bank's branches as well as purchases of computers and other IT related equipment and services. The Bank also
recorded an outflow of Rs. 1.7 billion relating to investment in its joint ventures and subsidiaries. The net cash outflow
during the period was partially offset by income received from joint ventures and subsidiaries of Rs. 1.7 billion.
The Bank recorded a net cash outflow from investing activities of Rs. 0.1 billion in the six-months ended September 30,
2006. The cash was used primarily to purchase fixed assets of Rs. 2.8 billion as well as Rs. 0.9 billion to fund the Bank's
joint ventures and subsidiaries. The net cash outflow during the period was partially offset by Rs. 3.6 billion received from
the Bank's joint ventures and subsidiaries.
The Bank recorded a net cash outflow from investing activities of Rs. 2.8 billion in the year ended March 31, 2007. The
cash was used primarily to fund investments in fixed assets of Rs. 6.6 billion as well as investments in joint ventures and
subsidiaries, which saw an increase of Rs. 2.3 billion. The cash outflow from these activities was partially offset by an
increase in income earned by joint ventures and subsidiaries of Rs. 6 billion.
The Bank recorded a net cash outflow from investing activities of Rs. 7.4 billion in the year ended March 31, 2006. This
outflow was primarily attributable to an increase of Rs. 7.8 billion in fixed assets as well as a Rs. 2.7 billion increase in
investments in subsidiaries and joint ventures. The primary source of cash inflow from investing activities was income
earned on investments in subsidiaries and joint ventures of Rs. 3.2 billion.
The Bank recorded a net cash outflow from investing activities of Rs. 5 billion in the year ended March 31, 2005. The cash
was primarily used to fund a Rs. 8.1 billion increase in fixed assets.
Cash Flows from Financing Activities
Net cash inflow from financing activities was Rs. 52.1 billion in the six-months ended September 30, 2007. The cash inflow
was primarily attributable to Rs. 68.3 billion raised through the issuance of Tier II capital bonds by the Bank. This inflow
was partially offset by Rs. 8.6 billion in dividend paid by the Bank to its shareholders (including related taxes) as well as
Rs. 7.5 billion in interest payments on bonds.
Net cash inflow from financing activities was Rs. 43.9 billion in the six-months ended September 30, 2006. The cash inflow
was primarily attributable to the issuance of domestic bonds equalling Rs. 55.4 billion. This inflow was partially offset by
Rs. 8.4 bill