II Kotak Mahindra Bank Limited by hedongchenchen

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									II   Kotak Mahindra Bank Limited
MACRO-ECONOMIC AND INDUSTRY DEVELOPMENTS                                           February 2008 indicates a gradual deceleration in housing and real estate
                                                                                   loans to 12.0% (25.8% last year) and 26.7% (79% last year) respectively.
India continued to grow at a rapid pace in 2007-08, albeit slightly slower         On the other hand, there was a sizeable increase in loans to areas such as
than in the previous financial year. The advance estimates from the Central        infrastructure, food processing and engineering.
Statistical Organization placed the rise in GDP for 2007-08 at 8.7%,
compared to a rise of 9.6% in 2006-07. Agriculture and allied activities           Reserve money increased by 30.9%, much higher than 23.7% in the
clocked a growth of 2.6% in 2007-08 (3.8% in the last year) while                  previous year. Among the sources of reserve money, the Reserve Bank’s
industry GDP slowed to 8.6% in 2007-08 (10.6% in 2006-07). Services                foreign currency assets (adjusted for revaluation) increased sharply by
sector grew by 10.6% in 2007-08 as against 11.2% a year ago.                       Rs. 3,70,550 crore as compared with the increase of Rs. 1,64,601 crore
                                                                                   in the previous year. RBI used a combination of LAF, Market Stabilization
The Index of Industrial Production (IIP) rose by 8.7% in April-February            Scheme and CRR increases (raised by 150 bps in 2007-08) to moderate
2007-08 as against 11.2% a year ago. The growth in output of the                   the huge surge in rupee liquidity resulting out of dollar buying by the RBI
manufacturing sector was at 9.1% in the first 11 months of FY08, slower            to prevent a significant appreciation in the Indian Rupee against the USD.
than 12.2% recorded in the same period last year. The industry groups that         Consequent to the use of instruments to moderate rupee liquidity, the
registered slower growth in 2007-08 were textiles, paper and products,             growth in the Money Supply (M3) was restricted to 20.7% in 2007-08 as
non-metallic mineral products and transport equipments and parts. On               against 21.5% rise in 2006-07.
the other hand, while mining grew by 5.1% (5.0% last year), electricity
generation rose by 6.6% (7.2% last year).                                          Inflation flared near to the close of FY08 to end the year at 7.4% compared
                                                                                   to 5.9% at end-March 2007. This was despite WPI inflation declining from
In terms of the use-based classification of industries, capital goods production   6.4% in the beginning of FY08 to a low of 3.1% in mid-October 2007. The
continued to expand at a rapid pace, rising 17.5% in April-February 2007-08        average WPI inflation for 2007-08 was at 4.7% compared to the average
on top of a rise of 18.3% a year ago. The basic, intermediate and consumer         of 5.4% in 2006-07. WPI inflation surged from around mid-February 2008
non-durable goods segments recorded lower growths of 7.4%, 9.2% and                due to a sharp increase in the prices of food articles and non-food articles
8.9%, respectively, as against 10.1%, 11.7% and 9.5% a year ago. On the            such as cotton and oilseeds on the primary side. On the manufactured
other hand, the production of consumer durables declined by 1% compared            articles side, a sharp rise in prices was evident in edible oils, oil cakes,
to a rise of 9.7% a year ago, mostly a result of the monetary policy tightening    basic metals, alloys and metal products and heavy inorganic chemicals.
and the consequent hardening of interest rates during 2007-08.                     Despite the average price of the Indian basket of international crude oil
                                                                                   increasing by 27.6% in 2007-08, domestic retail prices of petrol and diesel
The above indicates that aggregate demand conditions were dominated                were revised up only once in 2007-08 in February 2008. Indian inflation
by investment spending in 2007-08. Real private final consumption                  was thus anyways repressed to a large extent by administrative measures.
expenditure rose by 6.8% compared to 7.1% in the previous year while               Ex-fuel inflation (a measure for core inflation) ended 2007-08 at 7.6%
its share in GDP in nominal terms declined from 55.5% to 55.8% at                  compared to 7.4% a year ago.
current market prices. On the other hand, real gross fixed capital formation
increased by 15.7% compared to 15.1% in the previous year with the                 Despite a moderation in growth, the Indian economy’s performance was
corresponding share in GDP in nominal terms increasing from 32.5% in               commendable given the sharply lower growth in the rest of the world
2006-07 to 34.6% in 2007-08.                                                       (the US economy is already thought to be exhibiting recessionary trends)
                                                                                   and also against the backdrop of the global financial markets witnessing
The overall moderation in real sector activity was also reflected in the           turbulent conditions. The genesis of the crisis in the global financial
monetary and banking developments of 2007-08. Non-food credit growth               markets was the sharp rise in defaults on US sub-prime mortgages as US
moderated to 22.3%, much lower than 28.5% in the previous year. The                housing prices started to correct sharply lower. This deepened over the
incremental non-food credit-deposit ratio for the banking system dropped           course of 2007-08 and spilled over to other asset categories. On the other
to 72.3% in 2007-08 from 83.2% in 2006-07, 109.3% in 2005-06 and                   hand, confidence between players in the financial markets waned and the
130% in 2004-05. Data on sectoral deployment of bank credit available till         uncertainties of the situation led to a seizing of the credit markets, leading

                                                                                                                          Kotak Mahindra Bank Limited          II
to a very sharp increase in the short-term money market rates. In August       8.00-9.25% in March 2008, while deposit rates for shorter term deposits
2007, central banks in US and other affected economies injected liquidity      of upto 1 year maturity moved lower from 2.75-8.75% to 2.75-8.50%
in various ways to stabilize the inter-bank market. Important among these      in the same period. Private Sector banks increased interest rates for
measures were an enhancement in the type of securities against which the       long-term deposits of > 1 year maturity from 6.75-9.75% to 7.25-9.75%
banks could borrow, including the mortgage back securities.                    in the above period. On the lending side, the benchmark PLR of PSU banks
                                                                               increased by 75 bps from a range of 12.25-12.75% to 12.25-13.50%
The significant volatility of the global financial markets, unlike previous    in 2007-08. The private sector banks increased their BPLR from a range
occasions, failed to translate in a too-severe impact on the financial         of 12.00-16.50% to 13.00-16.50% in the same period. The range of
markets in the Emerging Market Economies (EME). Between end-October            BPLRs for foreign banks, however, remained unchanged at 10.00-15.50%.
2007 and January 23 2008, the MSCI developed markets index declined by         The median lending rates for term loans (at which maximum business is
17% while the equity markets in the EMEs recorded gains in most part of        contracted) in respect of PSU banks moved from a range of 9.13-12.50%
2007-08 though with sharp intermittent corrections. However, some              in March 2007 to 10.00-13.00% by March 2008.
pronounced weakness in the EME equity markets was witnessed from
January 2008 as risk aversion took over and earning expectations reduced.      In the G-Sec market, primary market yields of 91-day, 182-day and
Overall in end-March 2007 to end-March 2008, the MSCI emerging market          364-day T-bills softened in 2007-08, declining by 63-84 bps to 7.23%, 7.36%
index rose by 18.9% but the MSCI developed markets index fell by 5.1%.         and 7.35% respectively by end-March 2008. In the secondary market, G-Sec
                                                                               yield with 1-year residual maturity declined from 7.55% at end-March 2007
The Indian equity market witnessed large swings in 2007-08 with the BSE        to 7.49% in March 2008. The yield on G-Sec with 10-year residual maturity
Sensex increasing by 19.7% to 15,644 at end-March 2008 but with the            declined marginally from 7.97% in March 2007 to 7.93% in March 2008.
intra-year peak at 20,873. Sound macroeconomic fundamentals, increase          Consequently, the yield spread between 10-year and 1-year G-sec increased
in corporate profitability and foreign fund inflows through the FIIs could     from 42 bps at end-March 2007 to 44 bps at end-March 2008.
be some of the reasons for the general positive sentiments that prevailed
in the Indian equity markets.                                                  The positive development on the external front included a sharp increase
                                                                               in the net capital inflows through Foreign Direct Investments, FII flows
On the other hand, 2007-08 saw alternating ease and tightness in rupee         to equity markets, short-term credit as also through External Commercial
liquidity conditions. To a large extent these fluctuations were conditioned    Borrowings. The inflows on the capital account side were more than enough
by policy changes by the monetary authority. On a net basis, average daily     to accommodate a significant rise in the trade deficit for 2007-08 to
LAF repo injections stood at Rs. 4,568 crore in Q1, 2007-08 and increased      USD 80 billion compared to around USD 59 billion in 2006-07, thereby
to Rs. 13,472 crore in Q2 but dropped significantly to Rs. 7,820 crore in      leading to a total accretion to foreign currency reserves of the RBI at
Q3 and further to Rs. 2,116 crore in the last quarter. The above alternating   around USD 110 billion (including valuation changes) for 2007-08.
rupee liquidity conditions also implied that the overnight money market
rates swung between the lower and the upper end of the LAF corridor.           The Indian foreign exchange market witnessed generally orderly conditions
The weighted average call market rates declined from 8.33% in April            in 2007-08 with the exchange rate exhibiting two-way movements. The
2007 to 0.73% in July 2007 on account of a ceiling of Rs. 3,000 crore          exchange rate of the Rupee against the USD was at Rs. 43.59 at end-March
placed on daily Reverse Repo from March 5, 2007. However, once this            2007 and appreciated by 5.6% to Rs. 41.29 at end-April 2007 and further
ceiling was removed, the overnight money market rate moved up in August        to Rs. 39.27 by January 8, 2008. In the subsequent period the exchange
but broadly stayed within the LAF corridor till December 2007. Liquidity       rate depreciated, easing to Rs. 39.97 per USD by end-March 2008. The
conditions tightened in the 4th quarter and overnight money market rates       Rupee-Euro exchange rate depreciated from Rs. 58.14 at end-March 2007 to
moved above the Repo Rate in the last fortnight of February and in March       Rs. 63.09 by end-March 2008. Overall, during 2007-08, the Rupee appreciated
2008. The CBLO rates and the market repo rates moved in tandem with the        by 9.1% against the USD and by 7.5% against Pound Sterling but depreciated
overnight money market rates.                                                  by 7.7% against the Japanese Yen and by 7.8% against the Euro.

The interest rates offered by the PSU banks on deposits for greater than       Source: “Macroeconomic and Monetary Developments in 2007-08”
1 year tenor moved from the range of 7.25-9.50% in March 2007 to               published by RBI on April 29, 2008

III   Kotak Mahindra Bank Limited
CONSOLIDATED FINANCIAL PERFORMANCE                                                In October 2007, the Bank raised Rs. 1,615 crore (approximately USD 410
                                                                                  million) by allotting 1,70,00,000 equity shares through a Qualified Institutional
Overview                                                                          Placement (QIP). The QIP issue was priced at Rs. 950 per equity share.
The Bank along with its subsidiaries continues to grow and this year saw
the Bank and the subsidiaries progressing well in terms of reach, customer        Consolidated Financials
acquisition, addition of employees and improving its market position in           The consolidated financial performance of the Bank for the year ended
the various new businesses. The Group continues to invest significantly in        March 31, 2008 including key ratios is summarized below:
building two of its key businesses - branch banking and retail liabilities, and
                                                                                                                                                          Rs. crore
life insurance. As on March 31, 2008, the Group employed around 20,000
                                                                                   Income and Profit                     2007-08        2006-07       Growth %
people (10,800 people as on March 31, 2007) in its various businesses
                                                                                   Total income *                        7,549.39      4,293.95             76%
and has a distribution network of branches, franchisees, representative
                                                                                   Operating profit                      1,770.94        931.19             90%
offices and satellite offices across 370 cities and towns in India and offices
                                                                                   Consolidated Profit                    991.23         538.24             84%
in New York, London, San Francisco, Dubai, Mauritius and Singapore. The
                                                                                   after tax (PAT)
Group services around 4.4 million customer accounts.
                                                                                  * Brokerage income is considered net of sub-brokerage

During the year Kotak Mahindra Bank was in the Top 5 for Corporate                                                                                        Rs. crore
Governance amongst companies by technical criteria in the IR Global Rankings       Key Financial Indicators -                       2007-08             2006-07
2008 for the Asia Pacific / Africa region and Kotak’s Investor Relation website    Consolidated
was adjudged the most voted company in Asia Pacific / Africa by IR Global          Net worth after minority interest                5,823.91           3,233.02
Rankings 2008 in five categories: Corporate Governance Practices, Financial        (Rs. crore)
Disclosure Procedures, IR Team, IR Program and IR Website.                         Earnings per share (diluted) (Rs. )                 29.18               16.47
                                                                                   Book value per share (Rs. )                        168.97               99.12
Kotak Mahindra Bank completed 5 years as a scheduled commercial bank               Net Interest Margins (NIMs) %                        5.6%               5.2%
in 2007-08. The Bank opened its 150th branch in January 2008. As on                Return on Average Net Worth %                      22.3%               19.6%
March 31, 2008, the Bank has built a network of 178 full fledged branches          (Rs. )
spread across 109 cities and towns and had 313 ATMs. The Bank proposes             Net NPA % excluding stressed assets                0.33%               0.17%
to open another 100 branches in the next year.                                     portfolio
                                                                                   Consolidated capital adequacy ratio (%)            20.2%               15.6%
Kotak Mahindra Capital Company and Kotak Securities continued to report
good financial performance on the back of strong capital markets and the          Consolidated profit after tax (after minority interest and share of profit in
robust overall economic growth.                                                   associates) was up 84% to Rs. 991.23 crore for 2007-08 from Rs. 538.24
                                                                                  crore in 2006-07 on account of strong growth shown by Bank, car finance
The life insurance subsidiary, Kotak Mahindra Old Mutual Life Insurance           business, investment banking and securities broking,
continued its growth momentum but posted an accounting loss.
                                                                                  For 2007-08 the consolidated earnings per share was Rs. 29.18 (Rs. 16.47
Assets under management (AUM) as on March 31, 2008 was over Rs.                   for 2006-07). The consolidated book value per share was Rs. 168.97 as on
36,500 crore comprising assets managed and advised by the Group. Of the           March 31, 2008 (Rs. 99.12 as on March 31, 2007).
above AUM, equity assets managed / advised by the Group as on March
31, 2008 were around Rs. 23,970 crore. AUM of Kotak Mahindra Mutual               The consolidated total income was Rs. 7,549.39 crore up 76% during
Fund (Kotak Mutual) was over Rs. 16,100 crore as on March 31, 2008.               2007-08. Other income grew 69% from Rs. 2,311.92 crore in 2006-07
                                                                                  to Rs. 3,901.10 crore in 2007-08. Consolidated “other income” had three
The stressed assets portfolio acquired from other banks/ NBFCs was                main components: Commission, fees, exchange & brokerage, profit-on-sale
Rs. 677 crore with principal outstanding of over Rs. 4,100 crore as on            of investments and premium on life insurance business. Commission, fees,
March 31, 2008.
exchange & brokerage net of sub brokerage increased by 59% to Rs. 1,676.29       relationships across the Group. The banking business model is directed
crore in FY08 from Rs. 1,052.77 crore in FY07, with key growth drivers being     towards maximising revenue generation from customers by offering a wide
fee income from the stock broking business, asset management/ advisory           range of products and services to address all their banking needs.
fees and investment banking. Premium income from life insurance business         The Bank has five broad business segments:
grew by over 75% to Rs. 1,661.99 crore reflecting significant momentum in
the business.
                                                                                        Retail liabilities
Operating expenses other than policy holders reserves increased from                    Corporate banking (including small and medium enterprises - SME)
Rs. 1,803.75 crore in 2006-07 to Rs. 2,929.22 crore in 2007-08, driven
                                                                                        Treasury and investments
primarily by an increase in employee costs by 74% from Rs. 688.08 crore
to Rs. 1,197.89 crore, expenses pertaining to rent taxes & lighting by                  Venture fund management (up to September 30, 2007)
83% to Rs. 150.54 crore and the expenses pertaining to advertisement,
publicity and promotion by 79% from Rs. 72.22 crore in 2006-07 to Rs.            The profit before tax of the Bank after taking a provision of Rs. 86 crore
129.26 crore in 2007-08.                                                         towards stressed cases in forex derivatives for 2007-08 was Rs. 397.78
                                                                                 crore up 96% as compared to Rs. 203.25 crore in 2006-07. The profit
Consolidated advances were up 41% from Rs. 15,573.44 crore as on                 after tax of the Bank was up 108% to Rs. 293.93 crore as compared to
March 31, 2007 to Rs. 21,984.68 crore as on March 31, 2008. As on                Rs. 141.37 crore in 2006-07.
March 31, 2008, consolidated net NPAs were 0.33% of net advances
(0.17% as on March 31, 2007) excluding stressed assets portfolio. The            From the year ended 31st March, 2008, the Bank has adopted RBI’s revised
breakup of the consolidated advances is given below:                             guidelines issued in April 2007 on segment reporting, however In order
                                                                     Rs. crore   to facilitate comparison, given below is the summary of the operating
 Advances                       March 31,        March 31,      Growth %         segments of the Bank for the year ended 31st March, 2007 in accordance
                                    2008             2007                        with Accounting Standard 17 (AS-17) on Segment Reporting issued by the
 Commercial Vehicles &           3,628.51         2,578.07            41%        Institute of Chartered Accountants of India & the comparative numbers for
 Construction Equipments                                                         the year ended 31st March, 2008:
 Auto Loans                      4,735.36         3,610.79            31%                                                                             Rs. crore
 Personal Loans                  3,112.65         1,976.29            58%         Segmental Results                    2007-08     2006-07      Growth %
 Home Loans                      2,639.98         1,753.32            51%         Lending                                339.95     112.41            202%
 Corporate Banking               2,386.69         2,378.49                –       Corporate Banking                      202.64     101.65             99%
 Agriculture Finance             1,664.25           677.63          146%          Retail liabilities                   (146.68)     (42.33)                 –
 Stressed Assets Portfolio         549.63           512.30             7%         Treasury and investments                (5.83)      23.61                 –
 Others                          3,267.60         2,086.55            57%         Venture Fund Management                  2.92        7.88                 –
 Total Advances                 21,984.68       15,573.44             41%         Un-allocable revenue (net)               4.78        0.03                 –
                                                                                  Profit before tax                      397.78     203.25             96%
                                                                                  Profit after tax                       293.93     141.37            108%
                                                                                 The capital adequacy of the Bank as on March 31, 2008 was 18.65%
The Bank along with its subsidiaries, offers wide range of financial products    (Previous year 13.46 %). Tier I ratio was 14.46% (Previous year 8.81%).
and services to its customers. The key businesses are commercial banking,
investment banking, stock broking, car finance, asset management and
life insurance.

Kotak Mahindra Bank (Commercial Banking)
Kotak Mahindra Bank completed 5 full years of operation as a commercial
bank in 2007-08. The Bank is the central platform for customer

V      Kotak Mahindra Bank Limited
The advances of the Bank as on March 31, 2008, stood at Rs. 15,552.22            loans and agri-finance. The Bank has a widespread geographical
crore up 42% YoY. As on March 31, 2008, the net NPAs of the Bank were            distribution network to distribute its retail lending products.
at 0.38% of net advances excluding stressed assets portfolio (0.18% of net
advances excluding stressed assets portfolio as on March 31, 2007). The Net      Commercial vehicles & construction equipments advances recorded a
NPAs of the Bank including stressed assets portfolio were at 1.78% (1.98%        growth of 41% to Rs. 3,628.52 crore in 2007-08. Margins continue to
of net advances excluding stressed assets portfolio as on March 31, 2007).       be under pressure due to the competitive nature of the industry. However,
                                                                                 the Bank has maintained operating economies and delinquency levels
As on March 31, 2008, the deposits of the Bank increased by 49% to               comparable to among the best in the industry. Now, commercial vehicles
Rs. 16,423.65 crore as compared to Rs. 11,000.09 crore as on March               & construction equipments division has become a one stop shop for the
31, 2007. Excluding the monies held as collection bankers, the deposits          needs of transportation industry through the unique set of products to
of the Bank increased by 56% to Rs. 16,004.80 crore as compared to               meet their specific requirements.
Rs. 10,251.41 crore as on March 31, 2007.
                                                                                 Saral loans which are essentially targeted at asset backed lending to
As on March 31, 2008, total deposits comprised of Rs. 3,152.36 crore of          customers, where organized credit does not reach easily, continued to
demand deposits (Rs. 2,108.68 crore as on March 31, 2007), Rs. 1,517.54          expand its scope during 2007-08 to prime category of customers through
crore of savings deposits (Rs. 887.70 crore as on March 31, 2007) and            business loans with or without asset backed security.
Rs. 11,753.74 crore of term deposits (Rs. 8,003.71 crore as on March 31,
2007). The demand and savings deposits as on March 31, 2008 (excluding           In 2006-07, personal loans grew by 48% to Rs. 2,896.24 crore and the Bank
monies held as collection banker) increased by 89% to Rs. 4,251.06 crore from    improved its presence across newer geographies. The Bank had launched
Rs. 2,247.70 crore as on March 31, 2007. The Bank had over 7,49,000              home loans in 2003, which has grown 51% YoY to Rs. 2,639.98 crore.
deposit accounts as on March 31, 2008 (3,50,000 as on March 31,
2007).                                                                           With a view to focus on the agricultural sector, the Bank has a full fledged agri
                                                                                 business division which has the required expertise and offers a range of project
Lending                                                                          finance and working capital funding to meet the financing requirements of
The Bank continues to leverage its experience in the field of retail lending     agricultural machinery, horticultural projects, storage warehouses and farmers
business and has shown a robust growth in disbursements and advances             implementing new farming techniques. The agriculture finance recorded a
in this area. The total advances of the Bank increased by 42% from               growth of 146% to Rs. 1,664.25 crore in 2007-08.
Rs. 10,924.07 crore in 2006-07 to Rs. 15,552.22 crore in 2007-08. The
break up of the advances of the Bank is given below:                             Asset reconstruction business is one of the key focus areas of the Bank,
                                                                     Rs. crore   and the Bank has a pre-eminent position in the industry. The asset
 Advances                            March 31,      March 31,      Growth        reconstruction division purchases NPAs from various banks, financial
                                         2008           2007           %         institutions, non-banking finance companies and corporates at prices that
 Commercial Vehicles & Con-           3,628.52       2,578.07         41%        it believes are at a significant discount to the recoverable amount. Besides
 struction Equipments                                                            purchasing stressed assets, Kotak Bank also engages in the recovery of
 Personal Loans                       2,896.24       1,955.34         48%        NPAs on behalf of other banks, NBFCs and financial institutions and
 Home Loans                           2,639.98       1,753.32         51%        provides advisory services to distressed companies.
 Corporate Banking                    2,386.69       2,382.54             –
 Agriculture Finance                  1,664.25         677.63        146%        The profit before tax for the lending segment grew by more than 200%
 Others                               2,336.55       1,577.17         48%        from Rs. 112.41 crore in 2006-07 to Rs. 339.95 crore in 2007-08.
 Total Advances                      15,552.22     10,924.07          42%
                                                                                 Retail Liabilities
Retail and commercial advances grew 54% from Rs. 8,541.53 crore in               As on March 31, 2008, the Bank had 178 full-fledged branches across 109
2006-07 to Rs. 13,165.53 crore in 2007-08. The Bank has witnessed                towns and cities (105 branches across 69 cities as on March 31, 2007)
significant traction in some of the products like home finance, personal         and 313 ATMs.

                                                                                                                         Kotak Mahindra Bank Limited           VI
The Bank offers a very wide range of products and services targeted at retail      Corporate Banking
customers, delivered through a state-of-the-art technology platform. In            Kotak Bank’s corporate banking revenues are derived from loan products
addition to branch banking, it offers a wide range of products and advisory        and other value-added services offered by Kotak Bank to large and
services from everyday banking to long-term investments which are delivered        medium-sized corporations, financial institutions and public sector
with a genuine understanding of the specific needs of the customer. The focus      undertakings. These products include working capital facilities,
is on establishing a wider distribution network and operational efficiency         medium-term financing, trade services, transaction banking, fixed-income
thereby ensuring a controlled and profitable growth in business. In line with      and foreign exchange services, as well as cash management services and
the concept of instant banking, the Bank has developed fully integrated free       the distribution of third party products.
of cost Internet Banking Services with a host of value-added services. Kotak
Internet Banking permits transfer of funds to accounts with the Bank as well       The Bank offers the entire range of debt and fixed-income products with
as other banks across the country through savings and current accounts and         a team of experienced and highly qualified professionals who structure
complete access to Investment accounts and demat accounts. Kotak Bill Pay          products to suit the dynamic and varied needs of customers across
- a value added service, offers the convenience of paying over 115 service         segments. The Bank’s strength lies in its ability to customise instruments
providers across the country. This includes telephone service providers,           & structures, develop innovative products and then deliver these through
insurance, charities and many more.                                                high level of execution capabilities and a wide distribution network
                                                                                   across the country.
As part of its platform, Kotak Bank offers depository services that allow
customers to hold equity shares, Government securities, bonds and other            The Bank’s strategy in this business is to align the resources with the
securities in electronic form or DMAT form. Kotak Bank offers certified gold       sectors where it can deliver value-added financial advisory solutions to the
coins and bars, locker facilities, home banking, telephone banking, mobile         clients. The focus is on orientation of all organisational silos to customer
banking, internet banking, SMS banking, direct pay services for online             service through greater cross-functional synergies. The Bank has managed
payments and debit cards, which are aided by a toll free, multi-product            to improvise the ‘solutions approach’ to meet varied needs of the clients.
and multi-service contact centre that allows customers ease of accessing
various products made available through Kotak Bank.                                In spite of intense competition, the Bank witnessed a significant growth
                                                                                   in corporate bank advances (including SME). The profit before tax for
Kotak Bank offers home banking services to its customers which allows a            the Corporate Banking segment was up 99% from Rs. 101.65 crore in
customer to have cash or instruments picked up or delivered to the customer.       2006-07 to Rs. 202.64 crore in 2007-08.
Kotak Bank was among the first banks in India to offer home banking
services. Kotak Bank also offers beat services which provides customers the        Treasury
facility of predefining the services and the time at which such services are       Global financial markets witnessed significant volatilities in 2007-08,
required and unlike in home banking services the customer does not need            precipitated mainly by the emergence of sub-prime mortgage crisis in the
to call Kotak Bank on need. Kotak Bank also has customised offerings for           US. Credit markets were in the danger of seizing up and major central
its corporate salary customers under the office banking services.                  banks injected liquidity in a collaborated manner. As the risks to economic
                                                                                   growth increased, US Federal Reserve Board started to reduce the
Kotak Bank’s online platform also offers a number of services and payment          Fed Funds Target Rate in September 2007. Bank of England and Bank of
solutions. The online trading platform of Kotak Bank is integrated with Kotak      Canada reduced policy rates in December 2007. In contrast, economies
Securities. Kotak Bank also offers an online remittance service for non-resident   such as China and India faced pressures of foreign capital flows and
Indians, called ‘Funds to Home’, along with other remittance services.             maintained a tight monetary policy. The RBI increased the Repo Rate by 25
                                                                                   bps to 7.75% on 3rd April 2007 and also increased CRR from 6.50% to
The retail liabilities segment reported a loss of Rs. 146.68 crore in 2007-08
as compared to a loss of Rs. 42.33 crore in 2006-07. The Bank continues
to invest in this segment and expand its branch network with the objective
of building a long-term, low-cost and stable deposit base.

The Bank proposes to have around 275 full-fledged branches by next year.

VII    Kotak Mahindra Bank Limited
7.50% in August and November 2007. Market Stabilization Scheme was             Venture Fund Management
used to a significant extent in 2007-08 to moderate rupee liquidity.           The Bank has co-sponsored Kotak SEAF India Fund which has been set
                                                                               up as a Trust registered with the Securities and Exchange Board of India
Consequently, 2007-08 saw alternating ease and tightness in rupee              (SEBI) as a Venture Capital Fund. India Growth Fund (the Fund) was set
liquidity conditions dependant on policy changes of the RBI. On a net          up as a unit scheme of Kotak SEAF India Fund. The Private Equity division
basis, average daily LAF repo injections stood at Rs. 4,568 crore in Q1,       has an experienced investment management team with a successful track
2007-08 and increased to Rs. 13,472 crore in Q2 but dropped significantly to   record in the venture capital industry. With effect from October 1, 2007
Rs. 7,820 crore in Q3 and further to Rs. 2,116 crore in Q4. Overnight          the investment management function for private equity funds has been
money market rates swung between the lower and the upper end of the            assigned by the Bank to Kotak Investment Advisors Limited (erstwhile
LAF corridor to reflect the conditions on rupee liquidity. The weighted        Kotak Mahindra Securities Limited), which is 100% beneficially owned by
average call market rates declined from 8.33% in April 2007 to 0.73% in        Bank.
July 2007 on account of a ceiling of Rs. 3,000 crore placed on daily Reverse
Repo from March 5, 2007. However, once this ceiling was removed, the call      Kotak Mahindra Capital Company
money rate moved up in August and broadly stayed within the LAF corridor       (Investment Banking)
till December 2007. Liquidity conditions tightened in the Q4 and overnight     Kotak Mahindra Capital Company (KMCC) primarily operates as a full
money market rates moved above the Repo Rate in the last fortnight of          service Investment Bank. KMCC is also a trading cum Clearing Member
February and in March 2008. The CBLO rates and the market Repo Rates           of the National Stock Exchange on all three segments viz. Cash, F&O
moved in tandem with the overnight money market rates.                         and WDM. KMCC has two main segments of business (a) Advisory and
                                                                               Transactional Services (b) Trading and Principal Investments.
In the G-Sec market, primary market yields of 91-day, 182-day and                                                                                 Rs. crore
364-day T-bills softened in 2007-08, declining by 63-84 bps to 7.23%, 7.36%     Segment Results                      2007-08      2006-07      Growth %
and 7.35% respectively by end-March 2008. In the secondary market, G-Sec        Advisory and Transactional            160.36         64.72        148%
yield with 1-year residual maturity declined from 7.55% at end-March 2007       Services
to 7.49% in March 2008. The yield on G-Sec with 10-year residual maturity       Trading and Principal Investments        13.55       28.58             –
declined marginally from 7.97% in March 2007 to 7.93% in March 2008.            Add Unallocated Income                     1.58       0.60             –
Consequently, the yield spread between 10-year and 1-year G-sec increased       Less Unallocated expenses                  0.30           –            –
from 42 bps at end-March 2007 to 44 bps at end-March 2008.                      Profit before tax                     175.19         93.90        175%
                                                                                Profit after tax                      115.31         67.88         70%
A sharp rise was witnessed in net capital inflows through FDI, FII flows
to equity markets, short-term credit and through ECBs. These inflows           The year under review saw KMCC regaining its top slot for IPOs in India
were more than enough to accommodate a trade deficit of the size of            with a market share of 79% in a market which saw 85 IPOs (previous year
USD 80 billion. The accretion to FX reserves of RBI was at USD 110 billion     76) worth Rs. 41,358 crores. KMCC also retained its number one position
(including valuation changes) in 2007-08. The Indian rupee exhibited           in QIPs (including Government divestments) for the third year in a row with
two-way movements in 2007-08. Rupee was at Rs. 43.59 per USD at                a market share of 58% of the total value of issuances. Notable deals where
end-March 2007 and appreciated by 5.6% to Rs. 41.29 by end-April               Kotak Investment Banking played the book runner role were:
2007 and further to Rs. 39.27 by January 8, 2008. The Rupee depreciated
thereafter to Rs. 39.97 per USD by end-March 2008. The Rupee-Euro              IPOs
exchange rate depreciated from Rs. 58.14 at end-March 2007 to Rs. 63.09 by
                                                                                      Rs. 10,123 crore Reliance Power
end-March 2008. Overall, in 2007-08, the Rupee appreciated by 9.1% against
USD and by 7.5% against Pound Sterling but depreciated by 7.7% against                Rs. 9,188 crore DLF
the Japanese Yen and by 7.8% against the Euro.                                        Rs. 2,984 crore Power Grid

                                                                                      Rs. 1,771 crore Mundra Port & Special Economic Zone Ltd.
The Bank Treasury continued its endeavour of diversifying revenue sources.
Bullion desk and Custodial services consolidated its operation during the             Rs. 1,708 crore HDIL
year and contributed towards treasury revenues.                                       Rs. 856 crore Purvankara Projects

                                                                                                                     Kotak Mahindra Bank Limited       VIII
        Rs. 816 crore Central Bank of India                                           Pioneer Asset Management Company Limited Joint Venture with
                                                                                        BOB AMC
        Rs. 778 crore IVR Prime Urban Developers Ltd.
                                                                                       CAMS - sale of 30% equity stake to Private Equity investor Advent
        Rs. 692 crore Edelweiss Capital Ltd.
        Rs. 494 crore Fortis Healthcare Ltd.
                                                                                       Mahindra & Mahindra - merger of all its forging entities into
        Rs. 491 crore Future Capital Holdings Ltd.                                     Mahindra Forgings Limited creating the 2nd largest forging
                                                                                        company in India.
        Rs. 439 crore BGR Energy Systems Ltd.
                                                                                       Wadhawan Retail - acquisition of “Sabka Bazaar” and “Home
                                                                                        Store” chains of retail operations
                                                                                       Private Equity Placement of Luminous Power Technologies Limited
        Rs. 3,966 crore GMR Infrastructure Ltd.
                                                                                       The following deals were announced and are expected to close in
        Rs. 2,100 crore IDFC Ltd.                                                      the first quarter of FY 09.
        Rs. 1,615 crore Kotak Mahindra Bank Ltd.                                      CRH Plc - acquisition of MyHome Industries for a transaction value
        Rs. 1,360 crore Bank of India                                                  of Rs. 1,850 crore

        Rs. 1,221 crore GVK Power & Infrastructure Ltd.                               Thomas Cook- acquisition of Thomas Cook (India) & Thomas Cook
                                                                                        Egypt etc for a transaction value of Rs. 1,500 crore.
        Rs. 1,200 crore PTC India Ltd.
                                                                                KMCC has a healthy pipeline of mandates in various sectors for both equity
        Rs. 814 crore Punj Lloyd Ltd.
                                                                                offerings and Mergers & Acquisitions which are expected to be closed in 2008-09.
KMCC was also awarded the “Best Investment Bank” in the domestic
category in India by Finance Asia for the second year in a row. KMCC also       Kotak Securities (Stock broking)
successfully completed the divestment of the Government stake in Maruti         Kotak Securities (KS) is India’s leading stock broking company and accounted for
Udyog Limited valued at USD 582 million through an innovative French            7.3% of total average daily market volumes in 2007-08 (9.0% in2006-07).
auction sale. KMCC helped corporates raise over ~USD 1,600 million of
private equity funding with 18% market share.                                   Whereas the year 2006-07 was an historic year for the Indian economy, as
                                                                                the benchmark BSE Sensex crossed the 14,800 mark, the year 2007-08,
During the year 2007-08, Kotak Investment Banking was very active in the        saw the benchmark BSE Sensex crossing the 21,200 mark on 10th January,
M&A space and was ranked no. 1 in the India Advisory Partners League Tables     2008. Similarly the benchmark Nifty which had touched the year’s high of
for India Deals and ranked no. 4 in the Bloomberg M&A Financial Advisory        4,200 in 2006-07 crossed the 6,300 mark in the year 2007-08.
League Tables for India Announced deals with a 22.9% market share. Some of
the notable deals where KMCC was exclusive Financial Advisor were :             KS clocked average daily volumes of over Rs. 5,300 crore during FY08 as
                                                                                compared to around Rs. 3,700 crore during FY07.
        SREI Infrastructure Finance Limited - Joint venture with BNP Paribas
         Leasing Group in a transaction valued at approx USD 190 million                                                                                Rs. crore
                                                                                 Particulars                          2007-08         2006-07         Growth
        Gokaldas Exports sale of 50.1% stake to Blackstone and
                                                                                 Total Income                        1,330.03           833.93           59%
         consequential open offer in a transaction with a aggregate value
         of USD 165 million                                                      Profit before Tax                      580.21          365.12           59%
                                                                                 Profit after Tax                       408.69          255.71           60%
        Nagarjuna Construction Company Limited - Private Placement of
         Shares to Blackstone for USD 150 million
                                                                                The profit after tax grew by 60% YoY to Rs. 408.69 crore in 2007-08. The
        Kotak Investment Banking was Financial Advisor to the Sheth            growth was achieved due to increased volumes.
         Family in restructuring their shareholding in Great Offshore Limited
         in a transaction valued at approx USD 145 million
                                                                                As on March 31, 2008, in the retail segment, KS had around 4,30,000
        Apollo Hospitals Enterprise Limited - Private placement of shares to   secondary market customers and serviced them through a network of 870
         Apax Partners for USD 104 million                                      offices (own and franchised) across 309 cities.

IX       Kotak Mahindra Bank Limited
The online trading portal continued to do well. A number of new schemes                                                                                   Rs. crore
and products for online customers were launched. The number of online                 Particulars                          2007-08        2006-07       Growth
registered customers as on March 31, 2008 was in excess of 1,60,000. The
                                                                                      Total Income                           739.97         443.63         67%
online volumes continued to grow and crossed the Rs. 1,400 crore mark
                                                                                      Profit before tax                      154.63          84.25         84%
in the year 2007-08.
                                                                                      Profit after tax                       100.62          57.34         75%

In the Portfolio Management Services (PMS), two of the close-ended
schemes launched in earlier years matured in 2007-08. KS continues to                The passenger car market in India saw a growth of 11% for financial year
focus on increasing product offerings and improving service standards.               2007-08 as compared to a growth of 21% for 2006-07. Total unit sales of
                                                                                     cars and MUV’s crossed 15.18 lac units in financial year 2007-08. The car
The buoyant capital markets saw the number of primary market issues increasing       market has grown at a rapid pace due to robust economic growth, launch
over the last year. KS participated in the distribution of 90 public offer issues,   of new and improved models and stable automotive prices.
mobilizing in excess of Rs. 73,200 crore in the retail segment itself.
                                                                                     KMP has, carved out a niche for itself in the car-financing segment focusing
KS’s institutional equities division has made steady growth during the               on distribution and relationship management across manufacturers, dealers,
year. This was achieved through a larger customer base and servicing                 channel partners and customers. Fee based income is an important initiative
of global and domestic asset managers. Kotak Institutional Equities                  of KMP. Dedicated infrastructure is in place to give a further impetus to the
strives to provide high quality fundamental equity research and globally             growth of fee based income with a twin objective of offering value added
compliant execution service to clients. It has a strong research team                services to customers and leveraging the large existing customer database
with wide research coverage of over 130 companies. Kotak Institutional               to generate further fee based income.
Equities clientele includes Foreign Institutional Investors, Financial
Institutions, Banks, Mutual Funds and Insurance companies. Significant               Customer knowledge, easy accessibility through its wide network of
focus on Futures & Options segment contributed substantially to the                  branches and a firm commitment to deliver superior customer service are
revenue growth and market share.                                                     key drivers for KMP’s performance.

Kotak Mahindra Prime Limited                                                         KOTAK MAhINDRA ASSET MANAGEMENT COMPANY LIMITED
(Car finance, Other lending)                                                         KOTAK MAhINDRA TRUSTEE COMPANY LIMITED
Kotak Mahindra Prime Limited (KMP) is into car finance, engaged in                   (Mutual Fund)

financing of retail customers of passenger cars and multi-utility vehicles
and inventory and term funding to car dealers.The Company finances                   Kotak Mahindra Asset Management Company Limited (KMAMC) and Kotak
new and used cars under retail loan, hire purchase and lease contracts. In           Mahindra Trustee Company Limited (KMTC) are wholly owned subsidiaries
addition to car finance, KMP also carries out other lending activities.              of Kotak Mahindra Bank. KMAMC is the asset manager of Kotak Mahindra
                                                                                     Mutual Fund (KMMF) and KMTC is the trustee company.
During 2007-08, KMP’s gross advances crossed Rs. 5,900 crore mark
recording an increase of 44% as compared to FY07.                                    Indian mutual funds industry is evolving, in terms of breadth and depth.
                                                                                     It is broadening in terms of total number of investors it is catering to and
FY08 witnessed volatile interest and increased interest rates being charged          deepening in terms of its product offering and investment and distribution
to the car finance customer. The pressure continued on maintaining the               practices.
margins in the retail car finance business. KMP continued to focus on
control over cost and credit losses, while maintaining its positioning in the
car finance market. KMP also maintained its good relationships across car
manufacturers, dealers and channel partners in the country.
The following is the list of policy level changes effected during 2007-2008        the category of open-ended debt -short term for one year as well as 3
that had an influence on the mutual funds industry:                                year period ending December 31, 2007. Kotak Flexi Debt was ranked
                                                                                   5 Star - indicating performance among the top 10% in the category of
        With effect from April 16, 2007, guidelines have been introduced
         for parking of funds in short term deposits of scheduled commercial       open ended liquid plus for three year period ending December 31, 2007.
         banks, pending deployment.                                                Kotak Floater Long Term was ranked 5 star fund - indicating performance
                                                                                   among the top 10% in the category of Open Ended Floating Rate Fund for
        With effect from July 2, 2007, Permanent Account Number (PAN)
         would be the sole identification number for all participants              one year period ending December 31, 2007.
         transacting in the securities market irrespective of the amount
         of transaction with a view to strengthen Know Your Client (KYC)           The debt schemes managed by Kotak Mahindra Mutual Funds have
         norms, identify every participant in the securities market and ensure     received over 14 Performance awards over the past eight years from CNBC,
         a sound audit trail.                                                      CRISIL, OUTLOOK MONEY, ICRA online and Lipper Fund Awards.
        The applicable limits for overseas investments by mutual funds has
         been increased to USD 7 billion subject to a maximum of USD 300           Kotak Mutual Fund was also adjudged the Best Debt Fund House at
         million per mutual fund. The overall ceiling for investment in overseas   Outlook Money Awards 2007.
         exchange traded funds that invest in securities has been limited to
         USD 1 billion subject to a maximum of USD 50 million per mutual
                                                                                   The performance of the diversified equity schemes remained satisfactory
                                                                                   with   Kotak        Opportunities   showing     commendable   performance.
        With effect from January 4, 2008, No entry load will be charged           Kotak Opportunities was rated 5 Star by value research as on 31st March
         for direct applications received by an asset management company
                                                                                   2008. It was also ranked 56th in the Lipper’s list of worlds 100 top
         either through the internet, submitted to the asset management
                                                                                   performing stock funds of 2007 out of a set of 24, 887 funds tracked
         company or collection centre/investor services centre which are not
         routed through any distributor/ broker.                                   by it. During the year under review, Kotak 30, Kotak Opportunities,
                                                                                   Kotak Tax Saver, Kotak Balance paid out dividends.
        With effect from January 31, 2008, the provision of charging initial
                                                                                                                                                      Rs. crore
         issue expense and amortization of the same has been removed.
                                                                                    KMAMC                               2007-08        2006-07       Growth
         All mutual fund schemes shall meet the sales, marketing and other
         such expenses connected with sales and distribution of schemes             Total Income                          68.08          54.43         25%
         only from the entry load.                                                  Profit before tax                      2.22          10.60              -
                                                                                    Profit after tax                       1.03           6.83              -
The Average Assets under Management (AAUM) for the year 2007-2008                                                                                     Rs. crore
was Rs. 19,739 Crores, as compared to Rs. 12,829 crores for the year                KMTC                                2007-08        2006-07    Growth %
2006-2007 a growth of 54%. The number of folios as on March 31, 2008                Total Income                           10.98          7.35         49%
was about 9.40 lakhs as compared to about 5.36 lakhs as of March 31,                Profit before tax                      10.11          6.74         50%
2007, a growth of 75%.                                                              Profit after tax                        6.89          4.64         48%

The year saw the launch of several new schemes and facilities, increased           The two key growth drivers would be to increase visibility further in metro
distribution reach and market expansion. During the year under review,             and non-metro regions and focus on geographic expansion. New product
the mainstream debt schemes of the Fund continued their satisfactory               offerings, value added service initiatives and continued focus on fund
performance. Debt schemes of Kotak Mahindra Mutual Fund won awards                 performance would also hold key to growth.
at the ICRA Mutual Fund Awards 2008. Kotak Bond Short Term was ranked
7-star and has been awarded the Gold Award for Best Performance in                 KOTAK INVESTMENT ADVISORS LIMITED (FORMERLY KOTAK
                                                                                   MAhINDRA SECURITIES LIMITED)

                                                                                   (Alternate asset management & advisory)

                                                                                   Demerger and restructuring
                                                                                   During 2006-07, a petition was filed before the Hon’ble High Court of
                                                                                   Judicature at Mumbai in respect of a Scheme of Arrangement between the

XI       Kotak Mahindra Bank Limited
Company (i.e. erstwhile Kotak Mahindra Securities Limited), Kotak Mahindra               IGF had its final closing in September 2005 with aggregate capital
Capital Company Limited (KMCC) and their respective shareholders and                     commitments of Rs. 707 crores. IGF has made 15 investments
creditors (Scheme) for demerger of undertaking comprising of the Trading                 across diversified sectors such as logistics, technology services,
and Clearing operations and strategic investments of the Company to                      retail, media and entertainment, engineering, bio-technology,
KMCC. Upon receipt of necessary approvals, the demerger was completed                    textiles, aviation, telecom and power infrastructure and financial
on 3rd September, 2007.                                                                  exchanges.

The name of the Company was changed from Kotak Mahindra Securities                    (b) Kotak India Venture Fund I
Limited to Kotak Investment Advisors Limited from August 20, 2007. The                   Kotak India Venture Fund I (KIVF-I) is a domestic venture capital
new name is in consonance with the Company’s new main objects and                        fund with the investment objective of making investments primarily
business activity i.e. alternate asset management/ advisory services.                    in companies operating in Biotechnology and Life Sciences sector.
                                                                                         KIVF-I held its final closing in July 2007 with a total corpus of Rs.
The Group wanted to expand its presence in the alternate asset                           205 crore. KIVF-I has made three investments till date.
management business. To facilitate and expedite the same, all alternate
asset management / advisory activities of the Group were assigned to                  (c) Kotak India Growth Fund II
Kotak Investment Advisors Limited (KIAL or the Company).                                 During the year, Kotak Private Equity Group launched its second
                                                                                         growth fund named, Kotak India Growth Fund II (KIGF-II) and
With effect from October 1, 2007, KIAL became the investment manager                     KIAL was appointed as the Investment Manager. The investment
and advisor for all private equity and realty funds of Kotak Mahindra Group.             objective of KIGF-II is to provide long-term capital appreciation to
The Private Equity team (which was earlier functioning as part of Kotak                  its investors by investing in privately negotiated equity and equity
Mahindra Bank Limited (“the Bank”)) and the Realty Fund team (which                      related instruments in mid-sized corporates and working with
was part of Kotak Mahindra Investments Limited, a subsidiary of the Bank)                the managements of such corporates to accelerate their growth.
have move to KIAL.                                                                       KIGF-II shall target companies with strong management teams
                                                                                         and stable cash flows that are seeking capital for their organic
The aggregate alternate assets managed / advised by the Company as March                 and inorganic growth plans.
31, 2008 was Rs. 5,636 crore (USD 1.4 billion). During 2007-08, the Group
raised Rs. 4,471 crore (USD 1.1 billion) as commitments for private equity and           KIGF-II held its closing on March 27, 2008 with aggregate capital
realty funds. The funds were primarily raised from the Group’s customer base.            commitments of Rs. 1,749 crore from Kotak Group’s customers on
                                                                                         a private placement basis.
Since this business was not carried out in the Company during the previous
year the financial results are not comparable.                                    Realty Funds
                                                                      Rs. crore       (a) Kotak Mahindra Realty Fund
 Particulars                                      2007-08          2006-07               Kotak Mahindra Realty Fund (KMRF) was formed in May 2005 as
 Total Income                                        37.81              2.73             a trust and registered as a venture capital fund with SEBI.
 Profit before tax                                   20.71              0.60
 Profit after tax                                    13.47              0.35             KMRF is an umbrella trust and the trustees have the power to
                                                                                         form various schemes. The primary objective of KMRF is to invest
Private Equity Funds                                                                     in and provide finance to real estate sector and allied services
     (a) Kotak SEAF India Fund                                                           sectors in India with an intention to generate long-term capital
         Kotak SEAF India Fund was formed in August 2004 and is                          appreciation. Kotak India Real Estate Fund-I (KIREF-I) has been
         registered with SEBI as a Venture Capital Fund. India Growth Fund               set up as a unit scheme of KMRF. KIREF-I had its final closing
         (IGF) was set up as a unit scheme of Kotak SEAF India Fund with                 in February 2006 with committed contributions of Rs. 458 crore
         investors from select institutional and high net worth investors,               from the domestic, institutional and HNI investors Rs. KIREF-I has
         from both India and abroad, on a private placement basis.                       drawn down 100% of its commitments and has fully committed its
                                                                                         capital (net of expenses and management fees) in 8 investments

                                                                                                                       Kotak Mahindra Bank Limited         XII
          across various assets classes in the real estate sector. KIREF-I       of social security and the governments support through tax benefits have
          made a part divestment from one of its portfolio investments and       only added to this growth story.
          distributed Rs. 23.76 crore to its investors. KIREF-I’s investments
          have begun to mature, and KIAL expects to harvest some of the          All these factors were favourable to the industry in the year 2007-08,
          investments over the next couple of years.                             which is reflected in the growth in premium income over last year.
       (b) Kotak Alternate Opportunities (India) Fund
          Kotak Alternate Opportunities (India) Fund (KAOIF) is the second       The premium income for the year grew to Rs. 1691.14 crore (previous
          domestic real estate fund of the alternate assets business group       year Rs. 971.51 crore). During the year, Kotak Life Insurance wrote over
          set up with an objective of investing in the securities of companies   3,13,771 policies (previous year 1,65,203 policies) of adjusted first year
          operating in real estate, infrastructure and allied services           annualized premium (single premium weighted at 1/10th) of Rs. 1,051.68
          sectors in India with an intention to provide long-term capital        crore (previous year Rs. 572.62 crore), representing a sum assured of Rs.
          appreciation to its investors. KAOIF held its closing in July 2007     33,102 crore (previous year Rs. 20,163 crore).
          with the aggregate capital commitments of Rs. 1,577 crore from
          Kotak Group’s customers on a private placement basis. KAOIF            Introduction of new products and focus on service delivery were primary
          has drawn down 37% of its corpus and has till date made five           drivers for the growth of the private life insurers during 2007-08. Keeping
          investments. KAOIF is a 7-year fund with an option to increase         with our product philosophy of delivering innovative & pragmatic financial
          up to two additional one year periods. KAOIF proposes to have          solution to our customers, Kotak Life Insurance introduced four new
          a well diversified portfolio of its investments in large integrated    products, targeted at different consumer needs.
          residential townships, state-of-the-art IT parks, contemporary
          shopping mall destinations and hospitality projects.                    (i) Kotak Platinum Advantage Plan - A unique blend of safety and
                                                                                      returns, featuring capital protection and embedded investment advice
Apart from acting as investment manager to the above domestic private equity          which works to maximize customer’s wealth. Features like aggressive
and realty funds, the Company also provides non-binding advisory services to          market-linked growth options and life cover make this plan a well-
offshore funds managed by Kotak Group’s international subsidiaries.                   rounded financial solution.

During the next financial year i.e. 2008-09, the Group plans to raise an          (ii) Kotak Eternal Life Plans - Participating whole life plans that provide
infrastructure fund from domestic and offshore investors.                             enhanced protection till the golden age of 99. The plans provide for a
                                                                                      high cover at lower premiums, cash lumpsum benefits at desired stage
Kotak Mahindra Old Mutual Life Insurance                                              and also the means to care for loved ones in the second innings of life.
Kotak Mahindra Old Mutual Life Insurance is a 74:26 joint venture between
Kotak Mahindra Group & Old Mutual Plc; South Africa                               (iii) Kotak Surakshit Jeevan - An enhanced protection & long-term savings
                                                                                      plan with the assurance of delivering financial independence. This
Kotak Life Insurance offers life insurance, deferred annuity and employee             plan keeps pace with the customer’s changing needs at every step of
benefit products to individuals and groups. The business is distributed               life, be it protection for the family or savings for the future.
through three distribution channels viz. Tied Agency, Alternate Channels
and Group Insurance. The business is value-driven with a focus on long-term       (iv) Kotak Smart Advantage - This plan offers guaranteed returns on the
shareholder value and an aspiration to meet policyholder expectations.                first year premium and upto 100% premium allocation from second
                                                                                      year onwards. This Unit-Linked plan also gives guaranteed bonus
Since its inception in 2001, Kotak Life Insurance has been witnessing a               additions at regular intervals helping the customer to accumulate
steady growth and is expected to continue these upward trends.                        wealth systematically, over the long-term.

Currently the penetration of life insurance in India is 4% (approx) and          As of March 31, 2008, Kotak Life Insurance had around 35,000 active life
3/4th of the insurable population is without life insurance cover. This          advisors who are continuously being trained to facilitate them to advise
signifies a huge potential for growth for the insurance industry. And factors    customers in a proper manner. As on 31st March, 2008, the Company
like a burgeoning middle & affluent class, rise in disposable income, lack       had 235 corporate agents and 143 empanelled brokers. In addition, the

XIII    Kotak Mahindra Bank Limited
Company also had referral bancassurance tie-ups with 36 co-operative            The Company proposes to shift some of its Investment Management activities to
banks during the year under review                                              Singapore on receiving permission from the Monetary Authority of Singapore.

Currently, Kotak Life Insurance operates from 150 branches in 109 cities        Technology
with a primary focus on the mass affluent and affluent population. During       Scaling business volumes in 2007-2008, were ably supported by technology
the year 76 new branches were opened and this expansion was in second           with a concentration on customer service, information security, and, as in
tier cities which offer good opportunity and also provide a window to           previous years, innovation.
                                                                    Rs. crore
                                        2007-08      2006-07      Growth        New services were launched, and existing services were extended to
 Premium income                        1,691.14        971.51        74%        serve customers better. A new statementing engine provided customers
 New Business (Gross)                  1,106.62        614.94        80%        with information across products availed by them. Services such as RTGS
 New Business (APE)                    1,051.68        572.62        84%        and NEFT payments were made available on the internet and through
 First year regular premium            1,045.57        553.04        89%        the branches. In addition, to ensure that the customer gets an improved
 Deficit                                  71.81         58.35            –      (and similar) experience across the Group, implementation of a common
                                                                                CRM platform was commenced. The first stage of which went live this
International Subsidiaries                                                      year, making Kotak the second largest Siebel-CRM installation in India.
The Bank has overseas subsidiaries with offices in Mauritius, London,
Dubai, Singapore, New York and San Francisco. Kotak Mahindra Inc set up         The year also saw a launch of an extensive Information Security Program,
a branch in San Francisco in September 2007.                                    to strengthen processes and further raise awareness. Continuous patrolling
                                                                                of Kotak websites was instituted, 2-factor authentication for the complete
The overseas subsidiaries are mainly engaged in investment advisory and         security of our online trading customers was introduced, and the Bank
investment management of funds, management of GDR/FCCB issuances,               acquired ISO 27001 certification in DC operations & Network operations.
broker and broker dealer activities as well as investments.
                                                                                The efficacy of these measures, have been validated by multiple external
The assets under management through international operations increased          sources. Kotak Bank received the Asian Banker Summit award for the Best
from USD 1.4 billion as on March 31, 2007 to USD 2.1 billion as on              Banking Securities Systems Project, the Best IT Implementation Award for
March 31, 2008 translating to an increase of 26%. During the year under         the Security Assurance Program, the Microsoft Security Strategist award
review, the Kotak Mahindra (UK) was appointed Investment Manager                for Outstanding Leadership in the field of information security, and the
to a number of India focussed funds including Kotak India Focus Fund,           Banking Technology Award 2008 for its security policy & procedures.
Kotak Fund - Indian Multicap Fund, Kotak India Concentrated Growth
Fund. The Kotak Fund - Indian Multicap Fund will be the principal vehicle       Technology innovation was lead by the launch of Mobile Banking Services.
for raising funds from European Investors. During the forthcoming year,         The bank architected an operator independent, device independent
the international business intends to launch a number of niche asset            platform that can be extended to multiple products and launched payment
management products, which shall increase the presence and penetration          and mutual fund transactions on it.
of the Group in the international markets.
                                                                                The Brokerage business launched account information available on mobile
Buoyancy in the Indian capital markets led to an increased activity level       phones.
during the year. The Company has increased staff levels in the UK, Dubai
and Singapore and foresees significant increase in fund flows.

It is expected that sustained investment activity into the Indian Equity
markets will result in a substantial increase in the assets under management
and this will provide a significant boost to the revenues of the Company.

                                                                                                                       Kotak Mahindra Bank Limited        XIV
Productivity improvements resulting from workflow automation was a              Bank, at an integrated level, covering all activities of the Bank. Development
focus for the year. A state of the art product was evaluated and procured,      of the risk strategy and risk appetite is an ongoing process and is based on
to be implemented across the Group. The life insurance business proved          past experience and future plans. The risk strategy is consistent with the
the business benefits of workflow automation, with enhancements that            Board’s overall risk tolerance, management’s expertise in each business
resulted in straight through processing proposals increasing from 32% to        unit and the total financial amount that the Bank is prepared to place at
50%, and total processing time decreasing from 4 hours to 2 hours per           risk of loss (Capital at risk).
                                                                                The Management Committee provides overall risk management supervision
The strategy of integrated technology platforms, to provide synergies across    for the consolidated Group as a whole. Various risk committees, namely
the Kotak Group was extended during the year. 13 entities of the Kotak          Asset Liability Committee (ALCO), Credit Committee, First Tier Audit
Group migrated to a common General Ledger system, and the Anti-Money            Committee, Risk Management Committee, Information Security Committee
Laundering solution already in use by the Bank, was extended to Kotak           etc, review specific risk areas and supervise the activities of enterprise wide
Life Insurance and Kotak Securities. In addition, a common Document             risk management.
Management System was introduced for the Group.
                                                                                Categories of Risk
As the business scaled, technology upgraded its infrastructure for firewalls,   The most important risks are specific banking risks and reputation risk as
storage, processors, backups and desktop management across the Group.           well as risk arising from the general business environment.
With centralization of datacenters (for life insurance, asset management,
treasury and international businesses) and common networks, infrastructure      Specific Banking Risks
is now shareable across the Group. Unified procurement arising from             In consonance with the guidelines of Reserve Bank of India with regards to
centralizing was leveraged to obtain improved terms for purchasing from         BASEL II, the risk management processes of the Bank distinguish among
vendors.                                                                        four kinds of banking risk: credit, market, liquidity and operational risk.

Ultimately, there is no better acknowledgement of excellence, than one          Risk Management Tools
conferred by peers. The Indian Banking Associating bestowed 6 of its 15         The Bank uses a comprehensive range of quantitative tools and metrics
awards, including the prestigious ‘IT Team of the Year’ to Kotak Bank. Thus,    for monitoring and managing risks. Some of these tools are common to a
setting it apart, as a leader in technology solutions.                          number of risk categories whereas the others are tailored to address the
                                                                                particular features of specific risk categories.

                                                                                Both with a view to bringing in risk sensitivity through policies and to
The diversified business activities require the Bank to identify, measure,      duly meet the regulatory requirements, the Bank continually assesses the
aggregate and manage risks effectively and to allocate capital among its        appropriateness and the reliability of the quantitative tools and metrics in
businesses appropriately. The risk management framework lays emphasis on        the light of the changing risk environment
the Group’s risk philosophy, proper organizational structure, risk and reward
balance and is supported by dedicated monitoring and risk measuring             Credit Risk
mechanism.                                                                      Credit risk arises from all transactions that give rise to actual, contingent
                                                                                or potential claims against any counterparty, borrower or obligor. The
Risk Control systems are being enhanced with a view to enable business          Bank’s credit exposure is primarily categorized into retail and wholesale
gain and maintain competitive advantage while growing assets profitably.        borrowers. Retail exposure is mostly term loans and asset backed other
Consumer Banking continues to take initiatives to further improve its risk      than personal loans. Wholesale borrowers are internally categorized into
management capability.                                                          emerging corporate, corporate and financial institutional group. While retail
                                                                                credit lending is largely based on predefined parameters and is mostly
Basic Principles and Risk and Capital Management                                decentralized, credit appraisal is undertaken by an independent dedicated
The Board is involved in defining risk appetite and capital at risk for the     credit risk team for wholesale exposure.

XV     Kotak Mahindra Bank Limited
Credit Risk Management Tools
During the year the Bank has put in place an internal credit rating model
for the comprehensive risk assessment of the wholesale banking credit
exposures. Each obligation is evaluated on two dimensions to assign
obligor and facility rating. The rating tool rates Large Corporates, SMEs,          The robustness of the risk management systems put in place is evident
Brokers, Traders and Services separately. The parameters in each risk entity        from the healthy portfolio maintained by the Bank.
(viz. business risk, industry risk, management risk and financial risk) to
evaluate ratings and appropriate weight-age to these parameters have                Counterparty credit risk arising out of derivatives and
been decided based on past experience and after assessing the rating                forward contracts
methodology. The final output of the model helps the bank to assess                 The bank has adopted current exposure method to measure counterparty
the expected probable loss number attached to each borrower after duly              credit exposure. This comprises marked to market value of outstanding
considering the securities provided to mitigate the risk. The internal credit       contracts and potential future exposure for the remaining maturity. The
rating system would facilitate Bank’s migration to internal rating-based            bank earmarks an estimated maximum exposure against a counterparty
approaches of Basel II Accord in due course. The rating tool grades obligors        limit at the time of entering into a transaction based observed movement
into 18 categories and each rating category has been assigned a Probability         of various risk factors.
of Default (PD) number. The facility extended by the bank to the borrower
is also rated on a comprehensive scale of 30 categories of ratings. Such a          Credit Risk Management Principles
facility rating provides the Loss Given Default (LGD) number to each facility       The Bank measures and manages its credit risk based on the following
rating category. The combination of Obligor and Facility Rating provides            principles
Combined Rating which is divided into 18 categories.
                                                                                           The extension & renewal of any Credit Facility to a particular
                                                                                            borrower requires Credit Approval at the appropriate authority level.
Internal rating is assigned to each obligor based on quantitative and                       The Rating Tool, which is already in place, helps the authorities in
qualitative factors and forms an important element of credit lending                        such decision
decision. These ratings are reviewed at least annually.                                    The approval of all the limits to the counterparties should be in line
                                                                                            with the Corporate Credit Policy and Collateral Risk Management
Independent credit appraisal, credit administration, credit monitoring, credit              Policy of the bank. Such approval should generally be within the
measurement and industry research group are in place encompassing the                       Bank’s portfolio guidelines and credit strategies
entire gamut functions facilitating integrated credit risk management.                     There will be a regular review of the credit worthiness of the
                                                                                            borrowers not only using the rating tool of the bank but also by its
The Bank’s Credit Appraisal process incorporates a review of all aspects of                 Credit Risk Management team
the proposals including all risks to ensure that it is within the acceptable risk
framework decided by the Board and earns the indicated risk-adjusted return.        Market Risk
                                                                                    Market risk arises from the uncertainty concerning changes in market
The Credit Administration team ensures that all credit covenants are                prices and rates viz. interest rates, equity prices, foreign exchange rates,
properly fulfilled prior to disbursal. Once a credit has been extended,             the correlations among them and their levels of volatility.
adherence of the same to sanctioned terms is scrupulously monitored by
the Credit Monitoring team.                                                         Market risk management framework is laid down in the investment and
                                                                                    ALM policy of the bank. The bank runs exposure on interest rates, equity,
The Industry Research Group guides the bank in building its portfolio               foreign exchange and a combination of them through derivatives. Exposure
with emphasis on reducing sector concentration and identifying sectors              is managed through a set of risk limits such as open position, PVO1, gap
to grow the business. The Group conducts regular portfolio reviews tracks           limits, cash value etc. These limits are monitored on daily basis by the
significant change in the operating environment and undertakes rapid                independent mid-office cell and are reviewed based on market conditions
impact analysis on the portfolio.                                                   on frequent basis by ALCO.

                                                                                                                           Kotak Mahindra Bank Limited        XVI
The Bank computes value at risk (VAR) for the aforesaid risk on an                managed through setting limits on the negative gap for maturity bucket. As
individual portfolio basis as well as on aggregated portfolios basis after        part of liquidity risk management the bank conducts behaviour analysis of its
considering correlation effect. Value at risk is reported on a daily basis and    CASA, term deposits and other products to analyze the impact of the inbuilt
back testing and stress testing is undertaken to confirm the validity of the      option. The Bank has also put in place a formal Contingency Liquidity Plan to
measurement models.                                                               forewarn/mitigate adverse liquidity situations.

Value at Risk:                                                                    Operational Risk
Value at Risk (VaR) is among one of the techniques used to monitor and            Operational risk is the potential for incurring losses due to failure of
measure the market risk. The VaR approach derives a quantitative measure          employees, technology, system or a process and disasters, projects, external
of market risk under normal market conditions, estimates the potential            factors, frauds etc, including legal and regulatory risk. The bank seeks to
future loss that will not be exceeded in a defined period of time and with        ensure that key operational risk are managed in a timely and effective
a defined confidence level. VaR is calculated for internal reporting purpose      manner through a framework of policies, procedures and tools to identify,
using a 99% confidence level and 10 days holding period on daily basis.           assess, monitor, control and report such risks. The Group internal audit team
The VaR model takes into account all the material risk factors assuming           and the compliance department have set a sound platform for operational
normal market conditions. We calculate VaR using the historical observation       risk management, along with the operational risk management unit.
techniques giving more weights to the recent observed movements.
                                                                                  The following techniques are applied by bank to manage operational risks
Value at Risk Analysis for the year 2007-08 is as below:                           – All products and process notes need review by all concerned
                                                                      Rs. crore        departments including Compliance, Legal and Risk Management.
 Value at Risk                                                Amount crore
 Maximum                                                              65.73        – Unusual event reporting and creation of loss database have been
 Minimum                                                              11.58            institutionalized as a stepping stone towards measurement of operational
 Average                                                              30.90            risk. Analysis of unusual events assists identifying sources of operational
 Year End 31.03.2008                                                  28.89            risks and taking adequate risk mitigating measures to minimize those
Back Testing:
We use back testing to verify the accuracy of the VaR calculations. We             – During the year, bank launched ‘the focus initiative’. Through this
compare the actual movement in the portfolio with the VaR estimates.                   initiative, Bank aims to increase the overall level of operational
                                                                                       risk awareness amongst staff using various tools. The workshops
Stress Testing:                                                                        conducted as part of the initiative rolled out bank’s ‘Risks and Controls
While Value at Risk, calculated on the daily basis, measures the maximum               Self Assessment’ program for formally assessing the operational risks
potential loss in the normal market conditions, we also value our                      and related key risk indicators to monitor these risks. These workshops
portfolio under the extreme market condition by using the Stress testing               were attended by large number of participants representing different
methodology. According to the predefined stress scenarios, underlying                  business/ operations/ support functions from across bank. Bank plans
risk factors are stressed for sudden and extreme change in the market                  to hold more such programs to cover all business/operating/support
movement rate risk of the balance sheet is managed through gap analysis,               functions.
especially duration gap of the assets and liabilities.
                                                                                  Bank is already calculating operational risk capital charge using ‘Basic
Liquidity Risk                                                                    Indicator Approach’ as prescribed under the guidelines issued by the
Liquidity risk is the risk arising from the potential inability of the Bank       Reserve Bank of India. Above measures will equip bank in adopting
to meet all payment obligations when they become due. Liquidity risk is           more sophisticated risk based approaches in future for the purpose of
                                                                                  computing operational risk capital charge (subject to regulatory review
                                                                                  and approval).
Basel II                                                                         Compliance Policy. The compliance function is headed by a senior resource
The Bank has made considerable progress in capturing data and                    in all Group companies. The Compliance function in the Bank was also
implementing systems with regards to computing capital adequacy                  suitably strengthened to meet the requirements of the RBI guidelines on
as per the standardized approach of Basel II for credit risk. Efforts are        Compliance Management issued during the year. The Compliance function
on to automate the process of capital computation as per Basel II and            for international subsidiaries was enhanced significantly by recruitment
application system is being implemented to that effect. As on March 31,          of several senior resources. The Group Head Compliance reports to the
2008 the estimated capital adequacy ratio as per the new guidelines is           Board of Directors of the Bank. The Compliance Department oversees
17.53% as compared to 17.36% under the current guidelines.                       adherence to all regulatory prescriptions both domestic and international.
                                                                                 The department is also responsible for ensuring adherence to Know Your
The revised framework of capital adequacy norms is applicable to Indian          Customer (KYC) and Anti-Money Laundering (AML) standards. The senior
banks having operational presence outside India and foreign banks with           compliance resource in each of the Group companies is also designated
effect from March 31, 2008 and other scheduled commercial banks have             as the Principal Officer under the Prevention of Money Laundering Act
been encouraged to migrate with effect from March 31, 2008, but not              2002. The Bank and the Insurance subsidiary have implemented a
later than March 31, 2009. A multi-disciplinary group having members             sophisticated AML application. The application is being rolled across all
from various department of the banks have been formed to ensure setting          key subsidiaries.
process and develop infrastructure to comply with the requirements of
Basel II.                                                                        Dissemination of regulatory information in the Bank is done on an online
                                                                                 basis by using knowledge management tools. Dissemination of regulatory
During the year the Bank has successfully implemented the K-Ram rating           information in key subsidiaries was also enhanced significantly during the
system. The rating is based on management, industry, financial and business      year. The department also brings out a quarterly compliance newsletter to
risk parameters all of which are evaluated to give an obligor rating to the      update employees on regulatory developments. The Department is actively
borrower. In addition, a separate facility risk rating is also undertaken by     involved in both onsite and online training for the employees in Compliance
K-RAM, which assists in appropriate structuring of facilities. This issuer       matters. During the year the Department has brought a Handbook on Foreign
and facility rating is in line with Basel II requirements. All customers are     Exchange Transactions to facilitate education of employees and customers.
compulsorily rated and these ratings are subject to periodic reviews. The
Bank also has in place a system to track rating migration.                       The department is also responsible for ensuring adherence to standards
                                                                                 and codes by Reserve Bank of India (RBI), Banking Codes and Standards
A stress testing policy has also been formulated to periodically review the      Board of India (BCSBI), Indian Banks Association (IBA), Foreign
impact of the dynamic external environment on the portfolio. The Bank is         Exchange Dealers’ Association of India (FEDAI), Fixed Income Money
also compiling a document on the RAROC framework for pricing of loans            Market and Derivatives Association (FIMMDA), Securities and Exchange
as is required by the Reserve Bank of India.                                     Board of India (SEBI), Association of Mutual Funds in India (AMFI),
                                                                                 Insurance Regulatory and Development Authority (IRDA), and international
Bank’s Operational risk capital charge using Basic Indicator Approach as         regulators / SRO’s.
per Reserve Bank of India guidelines worked out to Rs. 160.23 Crores
(Rs. 1,602.30 million) as on March 31, 2008.                                     The Bank and its subsidiaries have adequate compliance monitoring and
                                                                                 reporting systems in place. They have also adopted a ‘Whistle Blower
In addition to the regular monitoring and oversight, in the coming years,        Policy’ encouraging employees to report any instances of irregularity to
the focus of risk function would be to develop sophisticated measurement         senior management.
tools to statistically quantify risk in all lending businesses and operations.
                                                                                 The Group has hired a reputed consulting firm to benchmark the compliance
Compliance                                                                       processes and practices with the best in the world. During the year the
The Group has in place an independent and comprehensive compliance               exercise has been completed in Kotak Securities Limited.
structure to address compliance and reputation risk on a group wide
basis. The Board of the Bank has adopted during the year a Group Wide            Internal Controls

                                                                                                                      Kotak Mahindra Bank Limited XVIII
The Bank’s internal audit department undertakes a comprehensive
audit of all branches and businesses under a risk-based internal audit
model recommended by the Reserve Bank of India and approved by the
Audit Committee of the Board of Directors. An annual risk-based internal
audit plan is drawn up on the basis of risk profiling of Bank’s branches and
businesses/ departments which is approved by the Audit Committee. The
internal audit department seeks assistance from external firms in respect
of Information Technology audits.                                                      the best talent is acquired, nurtured and developed. This year the Bank
                                                                                       through its Corporate Social Responsibility initiative has also embarked on
After assessing the overall risk of a branch or business or department, the            projects relating to Environment protection and helping the cause of the
Bank takes measures to minimize such risk. Senior officers also assess and             underprivileged.
evaluate the mitigating measures taken by the branch during their visits.
Higher risk areas and branches are targeted for more frequent audits.                  Through some best-in-class and innovative HR practices, the Bank and its
                                                                                       subsidiaries strive to build a work force that is committed to delivering
The Bank has a process of concurrent audit of critical functions using external        world class products & services to its customers across the globe.
consulting and/or accounting firm(s). Concurrent audit is also carried out for
the Bank’s treasury operations, in particular for sovereign and corporate debt         Opportunities and Threats
investments and foreign exchange operations. This has been undertaken to
ensure the existence of and adherence to internal and regulatory controls.             Opportunities

                                                                                             Scalability through increased brand awareness, market penetration
The subsidiaries of the Bank, are also subjected to internal audit, either by                 and service offerings across all categories of financial services
internal teams or by external auditors. All auditors report to the respective
                                                                                             Increase in customer’s wallet share
Audit Committees. The scope of all companies is approved by the respective
Audit Committees. All audit reports are placed before the Audit Committee                    Leveraging the latest technology for providing quality and client
of the respective companies and key and significant issues communicated                       centric services
to the Bank (the holding company). Mitigating measures are taken where
risk is more than acceptable levels.                                                   Threats

                                                                                             Oil prices and rising inflation
human Resources
As on March 31, 2008, the Bank along with its subsidiaries employed around                   Increasing interest rate scenario
20,000 employees at various locations in India and abroad, an addition of                    Competition from local and multinational players
around 9,000 employees over 2007-08. The Bank was adjudged the 10th
                                                                                             Changing global financial markets
Best Employer in India by the Hewitt Best Employer Survey in 2007.
The Bank and its subsidiaries continue to invest substantially in people               Kotak Mahindra Group’s results for the financial year demonstrate the
development and have in place policies & processes to ensure employee                  strong fundamental growth in the India story. However, the economy
welfare and skill development. The training programs ensure holistic                   inhibits the concerns over the impact of inflation, the weakening of the
development of the employees by equipping them with not only functional                global economy and rising crude oil prices.
skills, but with skills necessary for leadership effectiveness and self-development.
A robust performance and Talent Management system ensures that                         The Group believes that the present economic scenario offers immense

XIX    Kotak Mahindra Bank Limited
opportunities for it to grow in scale and reach coupled with value creation.
The Group is confident that with its integrated business model it shall
be able to take advantage of the significant growth opportunities in the
coming years.

Safe harbour
This document contains certain forward-looking statements based on
current expectations of Kotak Mahindra management. Actual results
may vary significantly from the forward-looking statements contained
in this document due to various risks and uncertainties. These risks and
uncertainties include the effect of economic and political conditions in
India and outside India, volatility in interest rates and in the securities
market, new regulations and Government policies that may impact the
businesses of Kotak Mahindra Group as well as its ability to implement the
strategy. Kotak Mahindra does not undertake to update these statements.

This document does not constitute an offer or recommendation to buy or
sell any securities of Kotak Mahindra Bank or any of its subsidiaries and
associate companies. This document also does not constitute an offer or
recommendation to buy or sell any financial products offered by Kotak
Mahindra, including but not limited to units of its mutual fund and life
insurance policies.

All investments in mutual funds and securities are subject to market risks
and the NAV of the schemes may go up or down depending upon the
factors and forces affecting the securities market. The performance of the
sponsor, Kotak Mahindra Bank Limited, has no bearing on the expected
performance of Kotak Mahindra Mutual Fund or any schemes thereunder.

Figures for the previous year have been regrouped wherever necessary to
conform to current year’s presentation.

                                                                               Kotak Mahindra Bank Limited   XXI

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