STATE BANK OF INDORE (Associate of the State Bank of India)

Head Office: 5, Yashwant Niwas Road, Indore – 452003 (MP). Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217

Website: www.indorebank.org

PRIVATE PLACEMENT OF UNSECURED, REDEEMABLE, NON-CONVERTIBLE, SUBORDINATED BONDS AGGREGATING TO Rs. 140 CRORES

GENERAL RISKS Investors are advised to read the Risk factors carefully before taking an investment decision in this offering. For taking an investment decision the investor must rely on their examination of the offeror and the offer including the risks involved. The securities have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Specific attention of investors is invited to the Chapter on Risk Factors in this Information Memorandum of Private Placement.

OFFEROR’S ABSOLUTE RESPONSIBILITY The Offeror, having made all reasonable inquiries, accepts responsibility for, and confirms that this Information Memorandum contains all information with regard to the Offeror and the Offer, which is material in the context of the Offer, that the information contained in this Information Memorandum is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.

The Arranger is not required to file this document with SEBI/ROC as it is on private placement and not an Offer to the general Public.

CREDIT RATING CRISIL India Ltd. has assigned a AAA/Stable (pronounced Triple A with stable outlook) rating to the captioned debt programme of the Bank. This rating indicates highest safety. It indicates fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualized, are not likely to affect the timely payment of principal and interest as per terms.

ICRA has assigned a ‘LAAA’ (pronounced as L-Triple A) rating to the captioned debt programme of the Bank. This is the highest credit quality rating assigned by ICRA.

The rating is not recommended to buy, sell or hold Securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating obtained is subject to revision at any point of time in the future. The rating agencies have a right to suspend, withdraw the rating at any time on the basis of new information, etc.

LISTING The Unsecured Redeemable Non-Convertible Subordinated Bonds are proposed to be listed on the Bombay Stock Exchange. (‘BSE’)

BOND TRUSTEE

IDBI Trusteeship Services Ltd., have given their consent to the Bank vide their letter dated September 15, 2005 for

being appointed as Bond Trustee for the present private placement.

Arranger to the Private Placement Registrars to the Placement

SBI Capital Markets Limited 202, Maker Tower ‘E’, Cuffe Parade, Mumbai – 400 005. Tel: (022) 2218 9166 Fax: (022) 2218 8332 www.sbicaps.com

Issue Opens: September 23, 2005 Issue Closes: September 23, 2005

Private and Confidential

Information Memorandum

Ankit Consultancy Pvt. Ltd 2nd Floor, Alankar Point 4-A, Rajgarh Kothi Geeta Bhawan Crossing, Indore Tel: (0731) 2491298/5076083 Fax: (0731) 5065798 Email:ankitind@sancharnet.in

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TABLE OF CONTENTS DEFINITIONS AND ABBREVIATIONS ...................................................................................................................................3

DEFINITIONS .........................................................................................................................................................................3

ABBREVIATIONS ..................................................................................................................................................................4

FORWARD-LOOKING STATEMENTS .....................................................................................................................................7 RISK FACTORS AND MANAGEMENT PERCEPTION THEREOF........................................................................................8

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

EXTERNAL RISK FACTOTRS ............................................................................................................................................12

PART I ........................................................................................................................................................................................17

GENERAL INFORMATION .....................................................................................................................................................17

ELIGIBILITY .............................................................................................................................................................................17

AUTHORITY FOR THE PLACEMENT ............................................................................................................................................17

GENERAL DISCLAIMER ............................................................................................................................................................17

LISTING ...................................................................................................................................................................................19

CAUTION .................................................................................................................................................................................19

UNDERWRITING .......................................................................................................................................................................19

MINIMUM SUBSCRIPTION ...........................................................................................................................................................19

UNDERTAKING BY THE BANK....................................................................................................................................................19

PROHIBITION BY SEBI...............................................................................................................................................................20

CREDIT RATING .......................................................................................................................................................................20

CREDIT RATING DURING PREVIOUS THREE YEARS ...................................................................................................................20

TRUSTEES ................................................................................................................................................................................21

PRIVATE PLACEMENT PROGRAMME .........................................................................................................................................21

PRIVATE PLACEMENT MANAGEMENT TEAM............................................................................................................................21

CAPITAL STRUCTURE OF THE BANK ..................................................................................................................................22

TERMS OF THE PRESENT PLACEMENT ..............................................................................................................................25

UTILISATION OF OFFER PROCEEDS ...................................................................................................................................39

TAX BENEFITS .........................................................................................................................................................................40

PARTICULARS OF THE PLACEMENT ...................................................................................................................................44

OVERVIEW OF THE BANKING SECTOR .............................................................................................................................45

BANK AND MANAGEMENT ..................................................................................................................................................49

PROMOTERS, GROUP COMPANIES, JOINT VENTURES AND ASSOCIATES ..................................................................75

STOCK MARKET DATA ...........................................................................................................................................................80

FINANCIAL SUMMARY............................................................................................................................................................81

MANAGEMENT DISCUSSION AND ANALYSIS ...................................................................................................................82 OUTSTANDING LITIGATION, DEFAULTS & MATERIAL DEVELOPMENTS .................................................................84

RISK FACTORS AND MANAGEMENT PERCEPTION THEREOF......................................................................................87

PART II ......................................................................................................................................................................................96

A. GENERAL INFORMATION...........................................................................................................................................96

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

C. STATUTORY AND OTHER INFORMATION ............................................................................................................117 D. MAIN PROVISIONS OF THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 AND THE SUBSIDIARY BANKS GENERAL REGULATIONS, 1959. ....................................................................................................120

E. MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION .............................................................................129

PART III...................................................................................................................................................................................130

DECLARATION.......................................................................................................................................................................130

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DEFINITIONS AND ABBREVIATIONS DEFINITIONS Term(s) Description

Board/Board of The Board of Directors of State Bank of Indore or a committee thereof Directors

Book Closure/ The date of closure of register of Bond for payment of interest. Record Date

Bonds Unsecured Redeemable Non-Convertible Subordinate Bonds

Offeror/Bank State Bank of Indore constituted under the State Bank of India (Subsidiary Banks) Act, 1959

Depository A depository registered with SEBI under the SEBI (Depositories and Participant) Regulations, 1996, as amended from time to time

Depositories Act The Depositories Act, 1996, as amended from time to time

Depository Participant A depository participant as defined under the Depositories Act

Director(s) Director(s) of State Bank of Indore unless otherwise specified

Financial Period of twelve months ended March 31 of that particular year Year/Fiscal/FY

Head Office of the 5, Yashwant Niwas Road, Indore – 452003 (MP). Bank

ITSL/Trustee IDBI Trusteeship Services Ltd.

Issue/Offer/ Private Placement of the Bonds Private Placement

Issuer/Offeror State Bank of Indore

Information Memorandum/ The Offer Document for the Private Placement of Bonds Memorandum

I.T. Act The Income-Tax Act, 1961, as amended from time to time

Offer Size Unsecured, Redeemable, Non-Convertible, Subordinate Bonds aggregating Rs. 140 Crores

RBI The Reserve Bank of India

Registrar Registrar to the Offer, in this case being Ankit Consultancy Pvt. Ltd.

SEBI The Securities and Exchange Board of India constituted under the SEBI Act, 1992

SEBI Act Securities and Exchange Board of India Act, 1992, as amended from time to time

SEBI Guidelines SEBI (Guidelines for Disclosure and Investor Protection) 2000 issued by SEBI on January 27, 2000, as amended, including instructions and clarifications issued by SEBI from time to time

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ABBREVIATIONS ALCO Asset-Liability Management Committee ALM Asset Liability Management AGL Aggregate Gap Limits ARC Asset Reconstruction Companies AS Accounting Standard BSE The Stock Exchange, Mumbai CAR Capital Adequacy Ratio CDR Corporate Debt Restructured CDSL Central Depository Services (India) Ltd. CRISIL CRISIL Ltd. CRAR Capital to Risk-weighted Assets Ratio CRR Cash Reserve Ratio DICGC Deposit Insurance and Credit Guarantee Corporation of India Ltd. DP Depository Participant ECGC Export Credit Guarantee Corporation of India Ltd. FDI Foreign Direct Investment FEDAI Foreign Exchange Dealers Association of India GoI Government of India/Central Government GDP Gross Domestic Product ICAI Institute of Chartered Accountants of India IGL Individual Gap Limits MoF Ministry of Finance NDTL Net Demand and Time Liabilities NPA Non-Performing Assets NRI Non Resident Indians NSDL National Securities Depository Ltd. RBI Reserve Bank of India RRBs Regional Rural Banks SARFAESI Act Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act SBI State Bank of India SBI (SB) Act State Bank of India (Subsidiary Banks) Act, 1959 SEBI Securities and Exchange Board of India SLR Statutory Liquidity Ratio The Bank State Bank of Indore The Board The Board of Directors of the Bank The Companies Act The Companies Act, 1956 VRS Voluntary Retirement Scheme

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PRIVATE PLACEMENT OF BONDS ISSUED BY STATE BANK OF INDORE

Dear Sir/ Madam, State Bank of Indore (“the Bank”) is proposing to issue Bonds on a private placement basis as described in this Memorandum. Investors are required to make payment through demand draft(s) / cheque(s) payable in favour of “State Bank of Indore A/c-Bonds Issue” and crossed “Account Payee only”. The full face value of the Bonds has to be paid up on application. The Bank reserves the right to reject in full or part any or all of the offers received by them to invest in these Bonds without assigning any reason for such rejections. You are requested to confirm your acceptance to the terms and conditions outlined in this Memorandum of Private Placement by sending the Application Form along with the cheque(s) / demand draft(s) to the Sole Arranger/Bank’s branches. Your acceptance of the terms and conditions outlined in this Memorandum will constitute an offer to invest in the above – referred Private placement and will be subject to acceptance by the Bank. Please note that this Private Placement Memorandum is restricted for circulation only to the investors to whom the above has been addressed personally and this Memorandum cannot be transferred/circulated to others. The information contained herein is to be retained in strict confidence. Should you require any further clarifications regarding the above-mentioned Private placement, we request you to contact the undersigned. Yours Faithfully, For State Bank of Indore Sd/- Authorised Signatory Place: Indore Date: September 23, 2005

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DISCLAIMER

This Memorandum of Private Placement (“Memorandum”) is neither a prospectus nor a statement in lieu of prospectus and does not constitute an offer to the public to subscribe for or otherwise acquire the Bonds issued by State Bank of Indore (the Bank/the Offeror). The document is for the exclusive use of the Person(s)/Institution(s) to whom it is delivered and it should not be circulated or distributed to third party (ies). Apart from this Information Memorandum, no Offer Document or Prospectus has been prepared in connection with this Bond Offer and that no Prospectus in relation to the Issuer or the Bonds relating to this Offer has been delivered for registration nor such a document is required to be registered under the applicable laws. The Arranger is not required to file this document with SEBI/ROC/RBI as it is on private placement and not an Offer to the general Public.

This Memorandum is issued by the Bank. The views contained herein do not necessarily reflect the views of its directors, employees, affiliates, subsidiaries or representatives and should not be taken as such. The Memorandum has been prepared by the Bank to provide general information on the Bank and does not purport to contain all information a potential investor may require. Where this Memorandum summarizes the provisions of any other document, that summary should not be relied upon and the relevant document should be referred to for the full effect of the provisions. The information relating to the Bank contained in the Memorandum is believed by the Bank to be accurate in all respects as of the date hereof.

The Memorandum shall not be considered as a recommendation to purchase the bonds and recipients are urged to determine, investigate and evaluate for themselves, the authenticity, origin, validity, accuracy, completeness, adequacy or otherwise the relevance of information contained in this Memorandum. The recipients are required to make their own independent valuation and judgment of the Bank and the Bonds. It is the responsibility of potential investors to also ensure that they will sell these bonds in strict accordance with this Information Memorandum and other applicable laws, so that the sale does not constitute an offer to the public, within the meaning of the Companies Act 1956. The potential investors should also consult their own tax advisors on the tax implications relating to acquisition, ownership, sale or redemption of Bonds and in respect of income arising thereon. Investors are also required to make their own assessment regarding their eligibility for making investment(s) in the Bonds of the Bank. The Bank or any of its Directors, employees, advisors, affiliates, subsidiaries or representatives do not accept any responsibility and/ or liability for any loss or damage however arising and of whatever nature and extent in connection with the said information.

Neither the Arranger nor any of their respective affiliates or subsidiaries have independently verified the information set out in this Memorandum or any other information (written or oral) transmitted or made to any prospective lender in the course of its evaluation of the Offeror.

The Arranger make no representation or warranty, express or implied, as to the accuracy or completeness of the Information Memorandum, and the Arranger do not accept any responsibility for the legality, validity, effectiveness, adequacy or enforceability of any documentation executed or which may be executed in relation to this Offer.

The recipients of this Memorandum agree that unless and until the definitive written agreements between the Bank and any such recipient with respect to a possible transaction have been executed and delivered and have become legally effective, and then only to the extent of the specified terms and provision of such definitive agreements, neither the Bank nor any of its Directors, employees, advisors, affiliates, subsidiaries or representatives shall be under any legal obligation of any kind what so ever with respect to any such transaction by virtue of the delivery of this Memorandum or its content or of any other written or oral expression by any of the Directors, employees, advisors, affiliates, subsidiaries or representatives of the Bank.

Force Majeure The Bank reserves the right to withdraw the Offer prior to the earliest closing date in the event of any unforeseen development adversely affecting the economic and regulatory environment or otherwise. In such an event, the Bank will refund the application money, if any, along with interest payable on such application money, if any, without assigning any reason.

This Information Memorandum is issued by the Bank and signed by its authorized signatory. Sd/-

Date: September 23, 2005 Authorised Signatory

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FORWARD-LOOKING STATEMENTS This Information Memorandum may contain certain “forward-looking statements”. These forward-looking statements generally can be identified by words or phrases such as we “believe”, “expect”, “estimate”, “anticipate”, “intend”, “plan” or other words or phrases of similar import. Similarly, statements that describe our objectives, plans or goals are also forward-looking statements. All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: a) General economic and business conditions in India; b) Our ability to successfully implement our strategy, our growth and expansion plans and technological

changes; c) Changes in the value of the Indian rupee and other currency changes; d) Changes in the Indian and international interest rates; e) Changes in laws and regulations that apply to the Indian Banking Industry; f) Increasing competition in, and the conditions of, the Indian Banking Industry; g) Changes in political conditions in India; and h) Changes in the foreign exchange control regulations in India. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. In accordance with SEBI requirements, our bank will ensure that investors in India are informed of material developments until such time as the grant of listing and trading permission by the Stock Exchanges.

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RISK FACTORS AND MANAGEMENT PERCEPTION THEREOF The Investors should carefully consider the following risk factors as well as the other details and information contained in this Information Memorandum in evaluating the Bank and its business before investing the Bonds offered by this Information Memorandum. INTERNAL RISK FACTORS (Risk factors and management perception as required on few of the topics given below)- 1. Contingent Liabilities As on March 31, 2005 the contingent liabilities of the Bank were at Rs.9744 crores comprising claims against the Bank not acknowledged as debts (Rs. 59 crores), liability on account of outstanding forward exchange contracts (Rs. 8501 crores), guarantees on behalf of constituents (Rs. 417 crores), acceptances, endorsements and other obligations (Rs. 766 crores) and others (Rs. 1 crores). Management Perception The contingent liabilities have arisen in the normal course of business of the Bank and are according to the prudential norms prescribed by RBI. 2. Profits of the Bank The net profits of the Bank has fallen from Rs. 226.26 crores in FY 2003-04 to Rs. 133.18 crores in FY 2004-05 (negative growth of 41.14%) mainly due to fall in treasury profit. However the Bank made a profit of Rs. 17.37 crores from sale of investments (treasury income) during FY05 (Rs 226.22 crores for the FY04) Management Perception The year 2004-05 has been a difficult year for the banking industry, with the treasury profits of almost all banks declining due to hardening of interest rates. Our bank is no exception to this phenomenon. Despite this setback, Bank has responded effectively to the changed scenario and earned Net profit of Rs 133.18 crores during the year after making all the provisions. It may be noted that operating profit of the Bank has come from diversified income streams comprising net interest income, profit on sale of securities and other income, which account for 142.63%, 4.93% and 45.70% of the total operating profit respectively for the FY 2004-05, which is sustainable in future. 3. Non-Performing Assets (NPAs) As on 31.03.2004 and 31.03.2005, the net NPAs of the Bank stood at Rs Nil and Rs 90.72 crores i.e. Nil and 1.00 % of its net advances amounting to Rs 6406.06 crores and Rs 9040.65 crores respectively in absolute terms. In the event of non-recovery of these assets, the Bank may have to provide for these NPAs, which might affect the profitability of the Bank in future. Management Perception The Net NPAs of the Bank have remained low. The Bank’s provision on NPAs is more than the amount prescribed under IRAC norms. The net NPA ratio of the Bank stood at mere 1.00% as on 3s1.03.2005. The Bank is taking steps to reduce the proportion of non-performing assets through aggressive recovery drives combined with improved risk management practices. Further, there have

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been substantial changes in the legislative and operating environment enabling FIs and Banks to pursue recovery of overdues. Besides Debt Recovery Tribunal (DRT) set up for faster settlement of recovery litigation, GoI has enacted ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’ enabling FIs and Banks to securitise and reconstruct financial assets and enforce security more effectively. Reserve Bank of India has formulated detailed guidelines for operation of the scheme. The Bank is invoking the provisions of the Securitization Act to enhance recovery. Thus, the Bank has been taking recourse to all the available methods to recover its over dues from the borrowers. 4. Regional Concentration of the Bank State Bank of Indore has a regional concentration in Madhya Pradesh accounting for approximately 78% of all branches in terms of numbers. The regional presence of the Bank may compromise its competitive position vis-à-vis its national level competitors. Management Perception The regional presence of the Bank may not be a hindrance to its growth prospects. Total deposits of the Bank have grown by 170.92 % to Rs. 13807.07 crores and advances have grown up by 218.16% to Rs. 9040.65 crores during the past 5 years. The Bank has 440 branches and 30 extension counters as on 31.03.2005. 5. Decline in Return Ratios The Average Yield on Investment (domestic) of the Bank has shown a declining trend from 9.27% in FY 2004 to 8.51% in FY 2005. The Average Yield on Advances of the Bank has decreased from 9.27% to 8.30% during the same period. Management Perception Average Yield on investments has come down because of the decline in the general interest rate structure of the economy during past years. The continuous downward trend in the interest rates over past years has been the major reason for decline in Yield on Investment of the Bank. For example, the yield on 10 year GoI security (semi-annualised yield), which was 6.21% on 31.03.2003 has come down to 5.16% on 31.03.2004. However, the G-Sec yields started hardening due to the higher crude oil prices, higher inflation, etc. and as on 30.06.2005, the yield on 10 year GoI security was at 6.89% (semi annualized). We believe that the declining interest scenario has now reversed and the yield on advances and investments will start improving. 6. Depreciation charge to P& L account due to Transfer of Securities from AFS to HTM Consequent upon transfer of certain Government Securities from Available for Sale (AFS) category to Held to Maturity (HTM) as permissible, depreciation amounting to Rs 25.24 crores in the FY05. Management Perception The above-referred securities were transferred from AFS to HTM to insulate the Bank from further decline in prices. While improvement in prices, will enable selling the securities with the permission of the top management of the Bank, in case of price fall, no further provisioning is necessary as HTM category is exempted from mark to market. 7. Adverse affect of the revised RBI policy on the Capital Adequacy of the Bank

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The provision of capital charge for market risk in AFS securities and operational risk capital from 31.03.2007 will adversely affect the Capital Adequacy Ratio of the Bank in coming years. Management Perception The Bank has already initiated steps to improve the capital funds and has raised the subordinated bonds for Rs. 200 crores in February 2005 augmenting tier-II capital to shore up the Capital Adequacy Ratio. The bank is further making this offer for subordinated bonds for Rs. 140 crores to further shore up CRAR that would take care of capital charge for market risk on AFS securities from 31.03.2006 and operational risk capital proposed from 31.03.2007. 8. Asset Liability Position As per the statement of structural liquidity as on the 31st March 2005, the negative mismatches in the first two time buckets are well within the tolerance levels stipulated by RBI and ALM policy of our Bank. Further, all the negative gaps in the other time buckets are also within the tolerance limits fixed by the bank. A large portion of the funding of the Bank is in the form of short and medium term deposits. The asset liability position of the Bank could be affected if the depositors do not roll over the deposits. A comprehensive contingency plan is put in place to address fully any problems relating to liquidity. Management Perception As per the normal behavioral pattern and past experience, a large portion of the deposits gets rolled over. The Bank feels that in the event of these deposits not being rolled over, the fresh accretion of deposits would take care of the Asset Liability mismatches. In addition, as on 31.03.2005, the Bank had excess SLR securities to the tune of Rs.1990 crores, while the investments of Rs.2660 crores are in the long-term (over 5 years) category, which can be utilized to correct any medium term mismatches. Moreover, the Bank has an Asset Liability Management system in place to actively monitor and manage liquidity mismatches. 9. Credit Risk The Bank’s main business of lending carries an inherent credit risk, which involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. Management Perception The Bank has a rigorous and well-defined credit appraisal system. Prudential exposure norms and various internal exposure norms are followed to avoid credit concentration and to minimize and mitigate credit risk. Credit risk assessment is in place for capturing the risk profiles of the accounts. The Bank ensures that Risk Management Department is independent of the operational department. Bank has a comprehensive loan policy document covering areas of credit and credit risk. 10. Asset Concentration Top five industries amount for 29.7% and 25.66% of non-food credit of the bank as on 31.3.2004 and 31.3.2005 respectively. Top five borrowers account for 11.65% and 5.29% of non-food credit as on 31.3.2004 and as on 31.3.2005 respectively. Management Perception

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Exposure norms are in place to avoid asset concentration. Portfolio reviews and reviews of implementation of exposure management norms are undertaken at regular intervals to check asset concentration. Except for some specified industries, exposure limits for individual industry is capped at 15 percent of the bank's total fund-based exposure to avoid concentration of assets in a few industries. 11. Outstanding Litigations against the Bank There are outstanding litigations (319 cases), as on 31.03.2005 the financial implication of which cannot be estimated. For details, please refer to the para on Litigation on page 54 of the Information Memorandum. Management Perception These claims are not likely to affect the operations and finances of the Bank. 12. Litigation against the Bank sponsored RRB’s There are 9 cases of claims/suits filed against Vidisha Bhopal Gramin Bank. This Gramin Bank is sponsored by State Bank of Indore. For details, please refer to the para on Litigation on page 55 of the Information Memorandum. Management Perception These claims against Vidisha Bhopal Gramin Bank are not likely to affect the operations and finances of State Bank of Indore. 13. RBI’s Annual Financial Inspection Report The Annual Inspection Report of RBI on the financial position of the Bank as on 31.03.2004 has identified certain weaknesses in the system, operational and other deficiencies. Management Perception The bank has taken the necessary action to rectify the various deficiencies pointed out in the Annual Financial Inspection which is a regular supervisory exercise carried out by RBI in respect of all banks and financial institutions. A comprehensive compliance report has already been submitted to the regulatory authorities furnishing details of corrective actions initiated by the bank. 14. Utilization of Funds The utilization of the funds proposed to be raised through this private placement is entirely at the discretion of the Bank and no monitoring agency has been appointed to monitor the deployment of funds. Management Perception The funds raised through this private placement are not meant for any specific project and hence a monitoring agency may not be required. The Bank is managed by professionals under the supervision of its Board of Directors. Further, the Bank is subject to a number of regulatory checks and balances as stipulated in its regulatory environment. Therefore, the management believes that the funds raised via this private placement would be utilized only towards satisfactory fulfillment of the Objects of the Offer. 15. Credit Decisions

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The credit decisions of the Bank are subject to various risk parameters. Management Perception In a dynamic environment, all the credit decisions are subjected to various risk parameters. As such the Bank is following a prudent policy marked by in built checks and balances, where identification and mitigation of risk are the key objectives. Prudential limits are fixed on various financial parameters to implement risk management guidelines. Bank has implemented various Credit Risk Management guidelines given by the Reserve Bank of India. Bank has fixed internal exposure ceilings based on credit rating of the borrowal account to mitigate concentration risk. Portfolio/Industry wise exposure limit is fixed as a risk mitigation tool. As part of the credit risk management system, the Bank has also confined, by and large, the high value credit exposures to specially designated branches, which are equipped to handle such exposures. Bank has also stipulated criteria for taking exposures in a particular industry. Maximum industry wise stipulated exposure is 15 per cent of total advances. The Due Diligence in respect of the retail assets has been strengthened to protect the quality of this portfolio. 16. Credit Policy of the Bank The credit policy followed by the Bank may materially influence its credit portfolio. Management Perception The Bank has a comprehensive loan policy document. The loan policy is regularly updated in the light of market changes and revision in RBI guidelines. Loan policy aims at continued growth of assets while endeavoring to ensure that they remain performing and standard EXTERNAL RISK FACTOTRS Regulatory restrictions on the Bank and limitations of the powers of bondholders of the Bank There are a number of restrictions as per the State Bank of India (Subsidiary Banks) Act, 1959, which impede the flexibility of the Bank's operations and affect/restrict investor's right. i. The Banks can carry on business/activities as specified in the Act. There is no flexibility to

pursue profitable avenues if they arise, in contrast with companies under the Companies act, where shareholders can amend the Object clause by a Special Resolution Act.

ii. There are restrictions in the Banking regulation Act regarding: a) Setting up of subsidiaries by a bank b) Management of the Bank including appointment of directors c) Borrowings and creation of floating charge thereby hampering leverage. d) Expansion of business as the branches need to be licensed e) Opening of new place of business and transfer of existing place of business f) Disclosures in the profit & loss account and Balance sheet g) Production of documents and availability of records for inspection by shareholders h) Reconstruction of banks through amalgamation etc i) Further issues of capital including issue of rights share for which prior SBI/RBI approval

is needed j) The Bank is prohibited from trading activity. This may act as operational constraint.

iii. Every Banking Company is required to create a Reserve fund by transfer of a sum equivalent to not less than twenty percent of profit as disclosed in the Profit & Loss account before any dividend is declared.

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iv. Every Bank has to maintain assets in India, which would be not less than 75% of the Bank's demand and time liabilities in India, which in turn may prohibit the Bank from creating overseas assets and exploiting overseas business opportunities.

v. The financial disclosures in the Information Memorandum may not be available to investors after listing, on a continuous basis.

vi. Various rights/powers of shareholders available under the Companies Act in this behalf are not available to shareholders of Banks as the provisions of the Companies Act are not applicable to the Bank. Rights like calling for general meetings, inspection of minutes and other material records, application by members for investigation of affairs of a company, application for a relief in case of oppression and mismanagement, voluntary winding up are not available to shareholders of a Bank.

vii. As per section 19(2) of State Bank of India (Subsidiary Bank's) Act, 1959, no person other than the State Bank, shall be entitled to exercise voting rights in respect of any shares held by such person in excess of one percent of the issued capital of the subsidiary bank concerned.

viii. No banking company shall pay dividend on its shares until all its capitalised expenses (including preliminary, organisational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. The bank has no such assets/capitalized expenses as on 31.03.2005.

ix. As per Section 9 (1) of the State Bank of India Act,1959 no person shall be registered as a shareholder in respect of any shares in a subsidiary bank held by him, whether in his own name or jointly with any other person, in excess of two hundred shares, or be entitled to payment of any dividend on the excess shares held by him, or to exercise any of the rights of a shareholder in respect of such excess shares otherwise than for the purpose of selling them:

Provided that nothing contained in this sub-section shall apply to-

a) the State Bank; b) a State Government; c) a Corporation; d) an insurer as defined in the Insurance Act, 1938; e) a local authority; f) a Co-operative society; g) a trustee of a public or private religious or charitable trust;

Increase in regional hostilities, terrorist attacks and other acts of violence and war could adversely affect the country's economic growth and development thereby the financial markets including the Bank's business and its future financial performance.

The performance, quality, and growth of the Bank are dependent on the health of the overall Indian economy. Slowdown in economic growth in India could affect the business of the Bank. Management Perception: The bank has been functioning well with all these constraints and is expected to continue to grow as hitherto. The Bank is expanding its product and services offered to diversify its income streams. The Bank's thrust on retail products is envisaged to provide growth. Risk management systems, credit supervision, special emphasis on recovery of NPAs and close monitoring will enable the Bank to closely monitor the health of its credit portfolio. The slowdown witnessed in the Indian and global economy in the past few years has not materially affected the Bank's profitability.

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2. Sensitivity to the Economy and Extraneous Factors The Bank’s performance is highly correlated to the performance of the economy and the financial markets. The health of the economy and the financial markets in turn depends on the domestic economic growth, state of the global economy and business and consumer confidence, among other factors. Any event disturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance of the Bank including the quality and growth of its assets. 3. Competition from Existing and New Commercial Banks Competition in the financial sector has increased with the entry of new players and is likely to increase further as a result of further deregulation in the financial sector. The Bank may face competition both in raising resources and in deploying them. Management Perception: The Bank has an established broad-based presence and has been taking steps to enhance customer satisfaction by upgrading skills, systems and technology to meet such challenges. The Bank is attempting to add quality assets on competitive terms. The Bank is also taking steps to broad base its product bouquet with a special emphasis on enhancement in the non-fund based income. On the resource-raising front, the Bank is actively endeavouring to broaden its reach and raise resources through its wide distribution network of 440 branches, 30 extension counters. 4. Changes in Regulatory Policies The operations of the Banking Industry are subject to regulations by the Government/RBI. Major changes in Government/ RBI policies relating to banking sector may have an impact on the operations of the Bank. Management Perception: The policy changes may provide both opportunities and challenges for the Bank. The Bank has a long presence in the banking sector, for more than 85 years and does not perceive policy changes to be a major threat. 5. Disintermediation in the Financial Markets As the financial markets mature and with growing developments in the capital markets, the trend towards disintermediation may be increasingly in evidence. In such a scenario, many companies including the current and potential borrowers of the Bank may access capital markets directly for their financing needs and reduce their dependence on the banking system. This may have an adverse impact on the level of deposits and also on the level and mix of advances portfolio and the profitability of the Banks. Management Perception: The Bank has, in recent years, launched several retail lending schemes and value added products so as to broaden its borrower base. Further, disintermediation brings with it the opportunity for the Bank to expand its fee-based activities. The Bank has been endeavouring to develop a presence in several financial services to earn fee based income by focusing on businesses such as foreign exchange, treasury, investments, cash management, insurance, depository, debenture trustee etc., thus taking advantage of the disintermediation phenomenon. 6. Forex Risk Exchange Rate fluctuations may have an impact on the Bank’s financial performance. Management Perception: As per RBI guidelines, banks are not allowed to keep open position on their foreign exchange transactions beyond prescribed limits on a daily basis. Foreign exchange transactions beyond such limits, if any, must be squared off at the end of each day. Hence, the risk

15

from exchange rate fluctuations is minimised. The Board of Directors of the Bank has also prescribed limits for gaps or mismatches in maturities of Bank’s foreign currency assets and liabilities and forward transactions in foreign exchange. The Bank operates within the limits fixed for gaps or mismatches in maturities of Bank’s foreign currency assets and liabilities and forward transactions in foreign exchange, thus minimising the risks of mismatches in maturities and interest rates. 7. Interest Rate Risk Present interest rates on deposits and advances are based on many micro and macro economic factors including the directives of the Reserve Bank of India which are likely to be market driven due to deregulation and thereby may result in increasing pressure on spreads and affect profitability. Interest rate volatility exposes the Bank to an interest rate risk or market risk. Such interest rate risk has a potential impact on net interest income or net interest margin as well as on the market value of the fixed income securities held by the Bank in its investment portfolio. Management Perception: These risks are inherent in the banking business. However, the Bank has put in place a system of regular review of lending and deposit rates in order to minimise the interest rate risk. The Asset Liability Management Committees of the Bank reviews the risk on a regular basis. Continuous Risk Management measures are initiated depending upon the movement in the market interest rates. The movement in the interest rates is closely monitored for appropriate action. 8. Operational Risk Operational risk is a result of failure of operating system in a bank due to certain reasons like computer break-ins, power disruptions, fraudulent activities, natural disaster, human error or omission or sabotage. Management Perception: For managing operational risk, the Bank has laid down well-defined systems and procedures. The Bank has set up a separate department to improve the systems and procedures to suit the changing environment. The Bank has also in place a strong internal inspection and audit system. For managing IT related risks, the Information Systems Security Policy is in place. The Bank has an effective Systems and Procedures department, which formulates and monitors delegation of duties and responsibilities at different level. Note to Risk Factors 1. Net worth (excluding revaluation reserves) of the Bank as on 31.03.2004 and 31.03.2005 was

Rs. 790.17 crores and Rs 903.56 crores respectively. 2. The Private Placement size is Rs.140 crores. 3. The Book Value of the share as on March 31, 2004 and March 31, 2005 was at Rs. 4515/- and

Rs. 5163 /- respectively (face value of Rs. 100/-). 4. State Bank of Indore would like to clarify that inspection by RBI is a regular exercise and is

carried out periodically by RBI for all banks and financial institutions. The reports of RBI are strictly confidential. The Bank has informed the RBI the actions already taken and measures that are under implementation in respect of observations made by RBI.

5. As per the provisions of Section 15(1) of the Banking Regulation Act, 1949 no banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off.

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6. No person holding shares in the Bank in respect of any shares held by him/her can exercise voting rights on a poll in excess of 1% of the total voting rights of all the shareholders of the Bank.

7. Transactions between State Bank of Indore and its Associates w.r.t. related party transactions are given under the head Financial Information.

8. The face value per share of the promoters is Rs. 100/-. HIGHLIGHTS OF THE BANK

• Member of the State Bank Group, the largest Banking Group in India. The Group has the biggest network of branches and the highest market share of deposits and advances in the country.

• Only Public sector bank headquartered at Madhya Pradesh – about 0.75% market share in terms of deposits in the country.

• Uninterrupted record of profitability since incorporation.

• Low NPA ratio of 1%.

• The Capital Adequacy Ratio of the Bank 11.61% as at the end of 31st march 2005 which is higher than the minimum 9%.

• Bank's existing equity shares are listed on the Madhya Pradesh Stock Exchange at Indore and are now traded nationwide through ISE.

• Credit growth during the year 2004-05 was at 41.13% against ASCB growth 26.50%.

• Return on Assets and Return on Equity as on 31.03.2005 were 0.79% and 14.74% respectively.

• 100% Business has been computerised.

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STATE BANK OF INDORE

(Associate of the State Bank of India, Constituted under State Bank Of India (Subsidiary Banks) Act, 1959) Head Office: 5, Yashwant Niwas Road, Indore – 452003 (MP).

Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 Website: www.indorebank.org

Private Placement of Tier II, Unsecured, Non- Convertible, Redeemable Subordinated Bonds aggregating Rs. 140 Crores

PART I GENERAL INFORMATION

State Bank of Indore (herein after referred to as “the Bank” or the ‘Issuer’) has been constituted under the State Bank of India (Subsidiary Banks) Act, 1959 herein after referred to as the SBI (SB) Act. The Bank is privately placing to eligible applicants, as mentioned elsewhere in this Information Memorandum, Unsecured, Redeemable, Non-Convertible Subordinated Bonds aggregating Rs. 140 crores of the face value of Rs. 10,00,000/- each ('the Issue').. ELIGIBILITY This being a private placement of debt securities, the eligibility norms of SEBI DIP Guidelines, 2000 are not applicable. AUTHORITY FOR THE PLACEMENT This private placement of Bonds is being made pursuant to the resolution passed by the Board of Directors of the Bank at its meeting held on 21st July 2005 permitting to raise Subordinated Debts up to Rs. 140 crores. Further, State Bank of India, Central Office, has approved the issue of subordinated bonds vide their letter no: SBD/BNJ/1399 dated 18th August 2005. The Bank can carry on its existing activities and has planned future activities in view of the existing approvals, and no further approvals from any Government authority are required by the Bank to carry on its said activities. GENERAL DISCLAIMER This Information Memorandum is neither a Prospectus nor a statement in lieu of Prospectus. It does not constitute an offer or an invitation to the Public at large to subscribe to Tier II Bonds (“Bonds”) issued by State Bank Of Indore. This Information Memorandum is not intended for distribution and is for the consideration of the person to whom it is addressed and should not be reproduced by the recipient. It cannot be acted upon by any person other than to whom it has been specifically addressed. It is not intended to be offered to more than forty-nine investors. Multiple copies hereof given to the same entity shall be deemed to be offered to the same investor. Apart from this Information Memorandum, no other document has been prepared in connection with this Bond Issue and that no document in relation to the Issuer or this Bond Issue has been delivered for registration to any authority. This Information Memorandum has been prepared in accordance with Schedule II of the Companies Act 1956, Chapter VI of the SEBI (DIP) Guidelines to give information regarding the Bank to investors proposing to invest in this issue of Bonds and it does not purport to contain all the information that any such party may require. The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Information Memorandum contains all information with regard to the Issuer, and the Issue, which is material in the context of the Issue, that the information contained in this Information

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Memorandum is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document or any of such information or the expression of any such opinions or intentions misleading in any material respect. Potential investors are required to make their own independent valuation and judgment before making the investment and they are believed to be experienced in investing in debt markets and are able to bear the economic risk of investing in the Bonds. It is the responsibility of potential investors to have obtained all consents, approvals or authorizations required by them to make an offer to subscribe for, and purchase of the Bonds. Potential investors have not relied on any advice given by the Arranger in connection with their offer to subscribe for and purchase the Bonds and acknowledge that the Arranger does not owe them any duty of care in respect of their offer to subscribe for and purchase of the Bonds. It is the responsibility of potential investors to ensure that any transfer of the Bonds is in accordance with this Information Memorandum and the applicable laws, and ensure that the same does not constitute an offer to the public. Potential investors should also consult their own tax advisors on the tax implications of the acquisition, ownership, sale and redemption of Bonds and income arising thereon. The Arranger does not take any responsibility either for the financial soundness of the Bonds offered or for the correctness of the statement made in this Information Memorandum. The Arranger has relied exclusively upon the information provided by State Bank Of Indore and has neither verified independently, nor assumes responsibility for the accuracy and completeness of this Information Memorandum, or any other information or documents supplied or approved by State Bank Of Indore. The Arranger holds no responsibility for any misstatement in or omission by the Bank, publicly available information or any other information about the Bank available in the market. Neither the Arranger nor any officer or employee of the Arranger accept any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.

Disclaimer Statement from the Issuer The Bank accepts no responsibility for statements made otherwise than in the Information Memorandum or in the advertisements or other material issued by or at the instance of the Bank and the Arranger and that anyone placing reliance on any other source of information would be doing so at his/her own risk. Disclaimer in respect of Jurisdiction This Issue is made in India to Investors as specified under section “Who Can Apply” of this Information Memorandum, who shall be specifically approached by the Bank/ Arranger. This Information Memorandum does not, however, constitute an offer to sell or an invitation to subscribe to bonds offered hereby in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person into whose possession this Information Memorandum comes is required to inform himself about and to observe any such restrictions. Any disputes arising out of this Issue will be subject to the exclusive jurisdiction of the district courts of Indore. The Issuer shall make all information available to the investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever. Disclaimer Clause of the Bombay Stock Exchange of India Ltd.

A copy of this Information Memorandum has been submitted to The Bombay Stock Exchange of India Ltd. (hereinafter referred to as ‘BSE’) where Bank’s securities are proposed to be listed in terms of the extant Guidelines. BSE does not in any manner:

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1. warrant, certify or endorse the correctness or completeness of any of the contents of this Information Memorandum; or

2. warrant that the Bank’s securities will be listed or will continue to be listed on the Exchange; or 3. take any responsibility for the financial or other soundness of the Bank, its promoters, its

management or any scheme or project of the Bank. Every person who desires to apply for or otherwise acquire any securities of the Bank may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against BSE whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/ acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever. The delivery of this Information Memorandum hereunder shall not under any circumstances create any implication that there has been no change in the affairs of the Bank since the date thereof or that the information contained herein is correct as of any time subsequent to this date.

LISTING Application shall be made to the Bombay Stock Exchange of India Ltd. to list the bonds of the Bank now being offered through this Information Memorandum and for permission to deal in such Bonds. If the permissions to deal in and for an official quotation of the Bonds is not granted by BSE, the Bank shall forthwith repay, without interest all such moneys received from the applicants in pursuance of this Information Memorandum. If such monies are not repaid within eight days after the Bank becomes liable to repay them (i.e. from the date of refusal or within 70 days from the date of the closing of the subscription list, whichever is earlier), then the Bank will be liable to repay the monies, with interest, as prescribed under Section 73 of the Companies Act, 1956. CAUTION Though the provisions of Sub-section (1) of Section 68-A of the Companies Act, 1956 do not apply to an issue of Bonds, attention of the investors is drawn to the provisions as a matter of abundant precaution:

“Any person who - makes in a fictitious name, an application to a company for acquiring, or subscribing for, any

shares therein, or otherwise induces a company to allot, or register any transfer of shares therein to him, or any

other person in fictitious name, shall be punishable with imprisonment for a term which may extend to five years”

UNDERWRITING The Bonds offer is not underwritten. MINIMUM SUBSCRIPTION The provisions of Section 69 of the Companies Act 1956 are not applicable for the bonds issue. UNDERTAKING BY THE BANK

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The Bank undertakes: a. to attend to the complaints received in respect of the Issue expeditiously and satisfactorily; b. to take all steps for completion of necessary formalities for listing and commencement

of trading at the Stock Exchange where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment;

c. to apply in advance for the listing of the securities; d. that the funds required for despatch of refund orders/allotment letters by registered post shall

be made available; e. that the Allotment Letters/Refund Orders to the applicants shall be despatched within

specified time; f. that no further issue of securities shall be made till the securities offered through this

Offer Document are listed or till the application monies are refunded on account of non- listing;

g. that necessary cooperation with Credit Rating Agency (ies) shall be extended in providing true and adequate information till the debt obligations in respect of the instrument are outstanding;

h. to forward the details of utilisation of the funds raised through the Bonds duly certified by the statutory auditors, to the bond trustees at the end of each half-year;

i. to disclose the complete name and address of the bond trustees in the annual report; j. to provide a compliance certificate to the bond holders on a yearly basis in respect of

compliance with the terms and conditions of placement of Bonds as contained in the memorandum, duly certified by the bond trustee.

PROHIBITION BY SEBI The Bank, its associates and companies with which the directors of the Bank are associated as directors or promoters are not prohibited from accessing the capital market/Corporate Debt Securities Market under any order or directions passed by SEBI. CREDIT RATING Crisil India Ltd. has assigned a * “AAA/Stable”(pronounced “Triple A with stable outlook) rating to the captioned debt programme of the Bank. This rating indicates highest safety. It indicates fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualised, are not likely to affect the timely payment of principal and interest as per terms. ICRA has assigned a ‘LAAA’ (pronounced as L-Triple A) rating to the captioned debt programme of the Bank. This is the highest credit quality rating assigned by ICRA. The rating is not a recommendation to buy, sell or hold Securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating obtained is subject to revision at any point of time in the future. The rating agencies have a right to suspend, withdraw the rating at any time on the basis of new information etc. CREDIT RATING DURING PREVIOUS THREE YEARS The Credit Rating received by the Bank are as follows:

Year Credit Rating Agency Credit Rating Received Amount Raised (Rs. Crs.)

2004-05 CRISIL Ltd CRISIL AAA/Stable 200

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TRUSTEES The Bank has appointed IDBI Trusteeship Services Ltd, 10th Floor, Nariman Bhavan, 227, Vinay K Shah Marg, Nariman Point, Mumbai – 400 021 as Bond Trustees registered with SEBI, for the holders of the Bonds (hereinafter referred to as ‘Trustees’). PRIVATE PLACEMENT PROGRAMME

Opening date September 23, 2005

Closing Date September 23, 2005

Deemed Date of Allotment September 29, 2005

Note: The Bank reserves the right to vary (pre-pone/postpone) any of the above date(s) at its sole and absolute discretion without giving any reasons or prior notice. In such a case, investors will be intimated about the revised time schedule by the Bank. PRIVATE PLACEMENT MANAGEMENT TEAM Arranger Registrar to the Offer Ankit Consultancy Pvt. Ltd 2nd Floor, Alankar Point 4-A, Rajgarh Kothi Geeta Bhawan Crossing, Indore Tel: 2491298/5076083 Fax: 5065798 E-mail:ankitind@sancharnet.in

Bankers to the Bank State Bank of Indore 5, Yeshwant Niwas Road, Indore 452003 Tel. (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 www.indorebank.org

Trustees IDBI Trusteeship Services Ltd 10th Floor, Nariman Bhawan 227,Vinay K. Shah Marg, Nariman Point, Mumbai-400021 Tel. 022 5631 1771/2/3 Fax:5631 1776 www.idbitrustee.com

Auditors to the Offer M. Munshi & Co. 305, Navneet Plaza, 5/2 Old Palasia Indore-452018. Tel.0731 2561023/2563452 Fax:2564019 E-mail:mmunshico@vsnl.net

COMPLIANCE OFFICER The investors can contact the Compliance Officer for Bonds in case of any pre-issue/post-issue related problems such as non-credit of letter(s) of allotment/bond certificate(s) in the demat account, non-receipt of refund order(s), interest warrant(s)/cheque(s) etc.

Mr. Ashok Kumar Ghosh General Manager-Treasury State Bank of Indore-Head Office 5, Yashwant Niwas Road, Indore – 452003 (MP) Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217

Email:gmif@sbindore.co.in

SBI Capital Markets Ltd. 202, Maker Tower “E” Cuffe Parade Mumbai – 400 005 Tel: (022) 2218 9166 Fax: (022) 2218 8332 Email: fig@ sbicaps.com

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CAPITAL STRUCTURE OF THE BANK (As on March 31, 2005)

No. of Shares Face Value (Rs.)

Issue Value (Rs.)

A. Authorised Capital 5,000,000 Equity Shares of Rs. 100 each

500,000,000 500,000,000

B. Issued, Subscribed and Paid-up Capital 1,750,000 Equity Shares of Rs. 100 each

175,000,000 175,000,000

C. Paid Up Capital after the Present Offer 1,750,000 Equity Shares of Rs. 100 each

175,000,000 175,000,000

D. Share Premium Account Before the Offer After the Offer

437,500,000

437,500,000 Notes to Capital Structure: 1) Following is the capital history since 1985: (No. and Amount of Shares) Year ended March 31

Increase (Decrease) in capital

Mode Cumulative Paid-up capital

1985

Existing Capital 35,000 shares

Rs.0.35 crore

Opening Balance/ Issue of Shares at Face Value of Rs.100/ Issue of Shares at premium of Rs.Nil per share etc

35,000 shares

Rs.0.35 crore

1986 1,40,000 shares

Rs.1.40 crore

Rights shares at face value of Rs.100

1,75,000 shares

Rs.1.75 crore

1988 7,00,000 shares

Rs.7.00 crore

Rights shares at face value of Rs.100

8,75,000 shares

Rs. 8.75 crore

1996

8,75,000 shares

Rs.8.75 crore

Rights shares at face value of Rs.100 at premium of Rs.500

17,50,000 shares

Rs.17.50 crore Share premium reserve

Rs.43.75 crore 2. The list of top 10 shareholders of the bank and the number of equity shares held by them: a. Top ten shareholders as on date of filing the Information Memorandum with Stock Exchange

is as follows: Sr. No. Name of the Shareholders Number of Equity Shares

1. State Bank of India 1715867 2. Life Insurance Corporation of India 11920 3. Sir Sarupchand Hukumchand Pvt Ltd 475 4. Shri Chaganlal Airen 268 5. Shri Anuj Airen 200 6. Shri Anand Swarup Shastri 200 7. Smt. Alka Narendra Airen 200

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8. Smt. Urmila Bhargawa 200 9. Shri Manohar Dev 200 10. Shri Rajendra Singh Airen 200

b. Top ten shareholders ten days prior to the date filing the Information Memorandum with

Stock Exchange is as follows:

Sr. No. Name of the Shareholders Number of Equity Shares

1. State Bank of India 1715867 2. Life Insurance Corporation of India 11920 3. Sir Sarupchand Hukumchand Pvt Ltd 475 4. Shri Chaganlal Airen 268 5. Shri Anuj Airen 200 6. Shri Anand Swarup Shastri 200 7. Smt. Alka Narendra Airen 200 8. Smt. Urmila Bhargawa 200 9. Shri Manohar Dev 200 10. Shri Rajendra Singh Airen 200

c. Top ten shareholders two years prior to the filing the Information Memorandum with Stock

Exchange is as follows:

Sr. No. Name of the Shareholders Number of Equity Shares

1. State Bank of India 1715867 2. Life Insurance Corporation of India 11920 3. The N.K.Goud S.B. Cooperative Bank Limited 800 4. Sir Sarupchand Hukumchand Pvt Ltd 475 5. Shri Chaganlal Airen 268 6. Shri Anuj Airen 200 7. Shri Anand Swarup Shastri 200 8. Smt. Alka Narendra Airen 200 9. Smt. Urmila Bhargawa 200 10. Shri Manohar Dev 200

3. Shareholding Pattern (as on March 31, 2005): Sr. No. Category Number of Shares Held % Shareholding

A. Promoter's Holding 1. Promoters*

- Indian Directors/Relatives - Foreign Promoters

1715867

Nil

98.05 Nil

2. Persons acting in Concert - - Sub Total 1715867

98.05

B. Non-Promoters Holding

3. Institutional Investors - 11920 0.68 a. Mutual Funds & UTI b. Banks, Financial Institutions, Insurance Companies

(Central/ State Govt. Institutions/ Non Government Institutions)

c. Foreign Institutional Investors Sub Total 11920 0.68

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4. Others a. Private Corporate Bodies

b. Indian Public 22213 1.27 c. NRIs/ OCBs d. Trade Union/ Trusts/Clearing Members - -

Sub Total 22213 1.27 Grand Total 1750000 100.00

*The Promoter Group of the company comprises of the State Bank of India.

1. The Bank has not raised any bridge loan against the proceeds of this Private Placement. 2. The Bank has not issued any Equity Shares out of revaluation reserves or for consideration

other than cash.

3. The shareholders of the Bank do not hold any warrant, option or any debentures, which would entitle them to acquire further shares in the Bank.

4. The number of issued shares of the Bank as on date of the issue is 17,50,000.

5. The Bank as part of its ongoing capital augmentation programme may issue bonds/securities/loans etc. as deemed necessary.

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TERMS OF THE PRESENT PLACEMENT The Bank is intending to raise an aggregate amount of Rs. 140 crores (through the issue of Unsecured Redeemable Non-Convertible Subordinated Bonds of face value of Rs. 10 lakhs each for cash at par (hereinafter referred to as ‘the Bonds’) by way of private placement. The Bonds being offered are subject, interalia to the terms of this Information Memorandum, the application form, the Memorandum and Articles of Association of the Bank, and the provisions of the Companies Act, 1956, State Bank Of India (Subsidiary Banks) Act 1959 and The Banking Regulations Act, 1949. In addition, the bonds shall be subject to such other terms and conditions to be incorporated in the Bond Trust Deed / Letter of allotment and to the extent applicable, the provisions of the Depositories Act 1996, the relevant Statutory Guidelines and Regulations for allotment and listing of securities issued from time to time by the Government of India (GoI), SEBI and the Stock Exchanges concerned. This Information Memorandum does not, however, constitute an offer to sell or an invitation to subscribe to bonds offered hereby in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction.

The Issue hereunder shall be made in India to Investors specified under clause “Who Can Apply” of this Information Memorandum, who shall be specifically approached by the bank/Arranger. This Information Memorandum does not constitute an offer to sell or an invitation to subscribe to Bonds offered hereby to any person to whom it is not specifically addressed.

OBJECTS

The Issue proceeds would be used to strengthen the Tier II capital funds position and the long term resources of the bank. Instrument at a Glance:

Issue Size Rs. 140 crores

Instrument Unsecured, Redeemable Non-Convertible, Subordinated Bonds in the nature of Promissory Notes.

Credit Rating AAA Stable by CRISIL. LAAA by ICRA

Face Value/ Issue Price Rs. 10,00,000/- per Bond

Minimum Application Size 1 bond

Tenor 120 months from the Deemed Date of Allotment

Redemption Bulleted Redemption at par at the end of 120 months from the Deemed Date of Allotment

Coupon Rate 7.45%* p.a. subject to TDS as applicable

Interest Payment Annual

Interest on Application Money

Interest on application money will be paid to Investors at the Coupon Rate (subject to deduction of tax at source, as applicable) from the date of realisation of cheque(s)/demand draft(s), upto but not including the Deemed Date of Allotment

Put & Call option None

Listing Proposed listing at BSE

Depository NSDL and CDSL

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Issuance & Trading Demat mode

*Subject to TDS as applicable. Investors are advised to read the Information Memorandum for more details.

UNSECURED REDEEMABLE NON-CONVERTIBLE SUBORDINATED BONDS The bonds will constitute direct, unsecured and subordinated obligations of the Bank, subordinate to the claims of all other creditors and depositors of the Bank as regards repayment of principal and interest by the Bank out of its own funds. The Bonds will be negotiable instruments in the nature of Promissory Notes, transferable by endorsement and delivery. KEY TERMS Tenor The Bonds will mature on the expiry of 120 months from the Deemed Date of Allotment. Coupon The investors will receive interest at 7.45% p.a. subject to TDS as applicable. Face Value Per Bond Each Bond has a face value of Rs.10, 00,000/- and is issued at par at Rs.10, 00,000/-. Minimum Application Size The minimum investment shall be 1 bond i.e. Rs.10, 00,000/- and in multiples of 1 (one) Bond i.e. Rs.10, 00,000 thereafter. Deemed date of allotment September 29, 2005 shall be the deemed date of allotment of the Bonds. All the benefits under the bonds will accrue to the investor from this date even though the actual allotment may take place on a date other than the specified deemed date of allotment. Credit Rating CRISIL Ltd. has assigned a “AAA/stable” (pronounced Triple A with stable outlook) rating to the captioned debt programme of the Bank. This rating indicates highest safety. It indicates fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety, but such circumstances, as may be visualised, are not likely to affect the timely payment of principal and interest as per terms. ICRA has assigned a ‘LAAA’ (pronounced as L-Triple A) rating to the captioned debt programme of the Bank. This is the highest credit quality rating assigned by ICRA. The rating is not recommended to buy, sell or hold Securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating obtained is subject to revision at any point of time in the future. The rating agencies have a right to suspend, withdraw the rating at any time on the basis of new information etc. Listing

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Application shall be made to the Bombay Stock Exchange of India Ltd. to list the bonds of the Bank now being offered through this Information Memorandum and for permission to deal in such Bonds. If the permissions to deal in and for an official quotation of the Bonds is not granted by BSE the Bank shall forthwith repay, without interest all such moneys received from the applicants in pursuance of this Information Memorandum. If such monies are not repaid within eight days after the Bank becomes liable to repay them (i.e. from the date of refusal or within 70 days from the date of the closing of the subscription list, whichever is earlier), then the Bank will be liable to repay the monies, with interest, as prescribed under Section 73 of the Companies Act, 1956. UNDERWRITING The Bonds offer is not underwritten. INTEREST ON APPLICATION MONEY Interest at the coupon rate (subject to deduction of tax at source) will be paid in respect of all valid applications including the refunds. Such interest shall be paid from the date of realisation of the cheques/demand drafts up to the date immediately preceding the Deemed Date of Allotment. Refund cheques/Warrants/Demand Drafts will be mailed within seven days of Deemed Date of Allotment. The Interest Cheque(s)/ Demand Draft(s) for Interest on Application Money shall be dispatched by the Bank alongwith allotment advise/ Rejection letter, as the case may be, and will be dispatched by registered post to the sole/ first applicant, at the sole risk of the applicant. INTEREST ON THE BONDS The Bonds will carry interest at the rate of 7.45 % p.a. for tenure of 120 months from the deemed date of allotment. The interest will be paid from the Deemed Date of Allotment (subject to deduction of tax at source at the rates prevailing from time to time under the Income Tax Act, 1961 or any other statutory modification or re-enactment thereof) and is payable annually on April 1st each year for the previous year ended on March 31st during the tenure of the Bonds except for the last interest payment. If any interest payment date falls on a day, which is not a business day in Indore, Madhya Pradesh ("Business Day" being a day on which Commercial Bank are open for business in Indore , Madhya Pradesh ), then payment of interest will be made on the next business day but without liability for making payment of interest for the delayed period. The interest payable shall be calculated by multiplying the coupon rate by the principal amount, multiplying such product by actual number of days in the interest period concerned dividing by 365 (a leap year would be considered as 366 days for the purpose of interest calculation). INTEREST PERIOD a. The first interest period is defined as the actual number of days falling between the Deemed

Date of Allotment to 31st March including both the first date and the last date. The first interest payment would be made on 1st April 2005

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b. The second interest period is defined as the actual number of days between 1st April 2005 and 31st March 2006 including both the dates and so on.

c. The last interest period is defined as the actual number of days falling between 1st April and redemption date including both the first date and the last date. The last interest payment would be made on the redemption date along with the redemption of principal amount.

PAYMENT OF INTEREST The interest payment would be made by Electronic Clearing System or by means of cheques/demand drafts/(Interest warrants payable at par at specified branches of the Bank) and will be mailed to the Bondholders. Payment of interest will be made to the holders of the Bonds whose names appear in the list of beneficiaries given by NSDL/CDSL to the Bank on Record Date. RECORD DATE The Record Date will be 30 days prior to each Interest Payment Date or the Date of Redemption as the case may be.

TAX DEDUCTION AT SOURCE Tax as applicable under the Income Tax Act, 1961, or any other statutory modification or re-enactment thereof will be deducted at source. The investor(s) desirous of claiming exemption from deduction of income tax at source on the interest on application money are required to submit the necessary certificate(s), in duplicate, along with the application form in terms of Income Tax rules. Interest payable subsequent to the Deemed Date of Allotment of Bonds will be treated as “Interest on Securities” as per Income Tax Rules. Bondholders desirous of claiming exemption from deduction of income tax at source on the interest payable on Bonds should submit tax exemption certificate/ document, under Section 193 of the Income Tax Act, 1961, if any, at the office of the Bank, at least 45 days before the payment becoming due. Regarding deduction of tax at source and the requisite declaration forms to be submitted, prospective investor is advised to consult his tax consultant. PUT/CALL OPTION No put/call option is available for the Bonds. REDEMPTION The face value of the Bond will be redeemed at par, on expiry of 120 months from the deemed date of allotment. The Bond will not carry any obligation, for interest or otherwise, after the date of redemption. The Bonds held in the Dematerialised Form shall be taken as discharged on payment of the redemption amount by the Bank on maturity to the registered Bondholders whose name appear in the Register of Bondholders on the record date. Such payment will be a legal discharge of the liability of the Bank towards the Bondholders. On such payment being made, the Bank will inform NSDL/CDSL and accordingly the account of the Bondholders with NSDL/CDSL will be adjusted. No Put/Call option is available on the bonds. However, the consent of Reserve Bank of India will be taken before redemption of bonds on due date as

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required in terms of their guidelines addressed to all commercial banks vide their communication DBOD.BP.BC 5/21.01.002/98.99 dated 08.02.99. EFFECT OF HOLIDAYS Should any of the dates defined above or elsewhere in the Information Memorandum, excepting the Deemed Date of Allotment, fall on a Sunday or a Public Holiday, the next working day shall be considered as the effective date(s). In case any Interest Payment Date(s) and/or the Date of Redemption falls on a holiday, interest/ redemption will be paid on the next working day (i.e. a day on which scheduled commercial banks are open for business). No additional interest will be paid as a result of the interest payment and/or Redemption being made on a day falling after the Interest Payment Date/ Date of Redemption under this condition. ISSUE OF BONDS IN DEMATERIALISED FORM The Bank will be issuing the Bonds in dematerialised form. The Bank will be opening the accounts with NSDL and CDSL for issuing these Bonds. Applicant should mention their Depository Participant’s name, DP-ID and Beneficiary Account Number in the appropriate place in the Application Form. The Bank will take necessary steps to credit the Depository Account of the allottee(s) with the number of bonds allotted. Responsibility for correctness of applicant's demographic details given in the application form vis-a-vis his/her depository participant would rest with the applicant and the bank would not be liable with regard to the above in any manner whatsoever. DEPOSITORY ARRANGEMENT The Bank has appointed Ankit Consultancy Pvt. Ltd., Indore as Registrars and Transfer Agents for Bond Issuance. The Bank will enter into depository arrangements with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) for the issue of the bonds. TRANSFER OF BONDS The transfer of bonds in dematerialised form would be in accordance with the rules/procedures as prescribed by Depository/Depository Participant. TERMS OF PAYMENT Applications should be for a minimum of 1 Bond. All cheques /drafts should be in favour of “State Bank of Indore A/c-Bonds Issue" and crossed Account Payee only. The entire amount of Rs. 10 lakhs (Rs. Ten Lakhs only) per bond is payable on application. PROCEDURE FOR APPLICATION AND MODE OF PAYMENT This being a Private Placement Offer, Investors who are established/Resident in India and who have been addressed through this Communication directly, only are eligible to apply. Applications for the Bonds must be in the prescribed form (enclosed) and completed in BLOCK

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LETTERS in English and as per the instructions contained therein. Applications complete in all respects (along with all necessary documents as detailed in the memorandum of information) must be submitted before the last date indicated in the issue time table or such extended time as decided by the Bank, at any of the designated collection centres, accompanied by the subscription amount by way of cheque(s)/draft(s) drawn on any bank including a co-operative bank which is situated at and is a member of the Bankers’ clearing house located at a place where the application form is submitted. Outstation cheque(s)/Bank draft(s) drawn on Bank(s) not participating in the clearing process at the designated clearing centres will not be accepted. Money orders/postal orders will also not be accepted. The Bank assumes no responsibility for any applications/cheques/ DDs lost in mail. All cheques /drafts should be in favour of “State Bank of Indore – Bonds Issue” and crossed Account Payee only. The entire amount of Rs. 10 lakhs (Rs. Ten Lakhs only) per bond is payable on application. No separate receipt will be issued for the Application money. However, the Bank’s designated collection branches or Arranger receiving the duly completed Application Form will acknowledge receipt of the application by stamping and returning to the applicant the Acknowledgment Slip at the bottom of the each Application Form. As a matter of precaution against possible fraudulent encashment of Interest Warrants/Cheques due to loss/misplacement, the applicant should furnish the full particulars of his or her bank account (i.e. Account Number, name of the bank and branch) at the appropriate place in the Application Form. Interest warrants will then be made out in favour of the bank for credit to his/her account so specified and despatched to the investors, who may deposit the same in the said bank. SUCCESSION In the event of the demise of the sole/first holder of the Bond(s) or the last survivor, in case of joint holders for the time being, the Bank will recognise the executor or administrator of the deceased Bondholder, or the holder of succession certificate or other legal representative as having title to the Bond(s). The Bank shall not be bound to recognise such executor or administrator, unless such executor or administrator obtains probate, wherever it is necessary, or letter of administration or such holder is the holder of succession certificate or other legal representation, as the case may be, from a Court in India having jurisdiction over the matter. The Bank may, in its absolute discretion, where it thinks fit, dispense with production of probate or letter of administration or succession certificate or other legal representation, in order to recognise such holder as being entitled to the Bond(s) standing in the name of the deceased Bondholder on production of sufficient documentary proof or indemnity or on such other terms and conditions as acceptable to the Bank. Where a non-resident Indian becomes entitled to the Bond by way of succession, the following steps have to be complied with:

i. Documentary evidence to be submitted to the Legacy Cell of the RBI to the effect that the Bond was acquired by the NRI as part of the legacy left by the deceased holder.

ii. Proof that the NRI is an Indian national or is of Indian origin.

Such holding by the NRI will be on a non-repatriation basis.

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REGISTER OF BONDHOLDERS

The Register of bondholders containing necessary particulars will be maintained by the Bank at such place(s) as it may decide. TRUSTEES TO THE BONDHOLDERS

The Bank has appointed IDBI Trusteeship Services Ltd. to act as Trustees for the Bondholders (hereinafter referred to as “The Trustees”). The Bank and the Trustees will enter into a Trustee Agreement specifying inter alia, the powers, authorities and obligations of the Trustees and the Bank.

By applying for the Bonds, the Bondholders shall without further action or deed, be deemed to have irrevocably given their consent to and authorised the Trustees or any of their agents or authorised officials to do interalia all acts, deeds, matters and things in respect of or relating to the Bonds. All the rights and remedies of the Bondholders shall vest in and shall be exercised by the Trustees without reference to the Bondholders. No Bondholder shall be entitled to proceed directly against the Bank unless the Trustees, having become so bound to proceed, failed to do so. The Trustees will endeavour to protect the interest of the Bondholders in the event of default in regard to timely payment of interest and principal by the Bank.

DEBENTURE REDEMPTION RESERVE

State Bank Of Indore is a Banking Company within the meaning of the Banking Regulation Act, 1949. The resources through the current issue of the Bank are being raised by the Bank for augmenting the Tier-II Capital for strengthening the Capital Adequacy and enhancing its long-term resources. Department of Company Affairs, Ministry of Law Justice and Company Affairs, Government of India has vide general clarification no.6/3/2001-CL.V dated 18/04/2002 clarified that Banks need not create Debenture Redemption Reserve as specified under section 117C of the Companies Act, 1956.

BONDHOLDER NOT A SHAREHOLDER

The Bondholder will not be entitled to any of the rights and privileges available to the Shareholders. If, however, any resolution affecting the rights attached to the bonds is placed before the members of the Bank, such resolution will first be placed before the Bondholders for their consideration. RIGHTS OF BONDHOLDERS a. The Bonds shall not, except as provided in the Act, confer upon the holders thereof any rights

or privileges available to the members of the Bank including the right to receive Notices or Annual Reports of, or to attend and/or vote, at the General Meeting of the Bank. However, if any resolution affecting the rights attached to the Bonds is to be placed before the shareholders, the said resolution will first be placed before the concerned registered Bondholders for their consideration. In terms of Section 219(2) of the Act, holders of Bonds shall be entitled to a copy of the Balance Sheet on a specific request made to the Bank.

b. The rights, privileges and conditions attached to the Bonds may be varied, modified and/or abrogated with the consent in writing of the holders of at least three-fourths of the outstanding amount of the Bonds or with the sanction of Special Resolution passed at a meeting of the concerned Bondholders, provided that nothing in such consent or resolution shall be operative

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against the Bank, where such consent or resolution modifies or varies the terms and conditions governing the Bonds, if the same are not acceptable to the Bank.

c. The registered Bondholder or in case of joint-holders, the one whose name stands first in the Register of Bondholders shall be entitled to vote in respect of such Bonds, either in person or by proxy, at any meeting of the concerned Bondholders and every such holder shall be entitled to one vote on a show of hands and on a poll, his/her voting rights shall be in proportion to the outstanding nominal value of Bonds held by him/her on every resolution placed before such meeting of the Bondholders. The quorum for such meetings shall be at least five Bondholders present in person.

d. The Bonds are subject to the provisions of the Companies Act, 1956, the Memorandum and Articles, the terms of this Information Memorandum and Application Form. Over and above such terms and conditions, the Bonds shall also be subject to other terms and conditions as may be incorporated in the Trustee Agreement/ Letters of Allotment/ Bond Certificates, guidelines, notifications and regulations relating to the issue of capital and listing of securities issued from time to time by the Government of India and/or other authorities and other documents that may be executed in respect of the Bonds.

e. Save as otherwise provided in this Prospectus, the provisions contained in Annexure C and/or Annexure D to the Companies (Central Government’s) General Rules and Forms, 1956 as prevailing and to the extent applicable, will apply to any meeting of the Bondholders, in relation to matters not otherwise provided for in terms of the Issue of the Bonds.

f. A register of Bondholders will be maintained in accordance with Section 152 of the Act and all interest and principal sums becoming due and payable in respect of the Bonds will be paid to the registered holder thereof for the time being or in the case of joint-holders, to the person whose name stands first in the Register of Bondholders.

g. The Bondholders will be entitled to their Bonds free from equities and/or cross claims by the Bank against the original or any intermediate holders thereof.

h. Bonds can be rolled over only with the positive consent of the Bondholders. MODIFICATION OF RIGHTS The rights, privileges, terms and conditions attached to the Bond may be varied, modified or abrogated with the consent, in writing, of those holders of the Bond who hold at least three fourth of the outstanding amount of the Bond or with the sanction accorded pursuant to a resolution passed at a meeting of the Bondholders, provided that nothing in such consent or resolution shall be operative against the Bank where such consent or resolution modifies or varies the terms and conditions of the Bond, if the same are not acceptable to the Bank. APPLICATIONS MAY BE MADE BY:

1. Provident/Superannuation/Gratuity/Pension Funds. 2. Commercial Banks, Financial Institutions and Insurance Companies, societies

registered under the applicable laws in India and authorised to invest in bonds. 3. State/Central Co-operative Banks, Development Co-operative Banks, Land

Development Banks, RRBs, Primary Co-operative Banks. 4. Mutual Funds, Companies, Bodies Corporate, Trusts and Association of Persons and

Individuals. 5. Port Trusts. 6. Scientific and/or Industrial Research Organisations, authorised to invest in

bonds.Other Government and Non-government agencies authorised to invest in these bonds as per present and relevant government guidelines.

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Although above investors are eligible to apply, only those persons, who are individually addressed through direct communication by the Bank, are eligible to apply for the Bonds. No other person may apply. Posting of Information Memorandum on the Designated Stock Exchange website should not be construed as an offer to issue and has been posted only as it is stipulated by SEBI.

Investors should check about their eligibility before making any investment. The Applications must be accompanied by certified true copies of (1) Memorandum and Articles of Association/constitution/Bye-laws (2) Resolution authorising investment and containing operating instructions (3) Specimen signatures of authorised signatories and (4) Necessary forms for claiming exemption from deduction of tax at source on the interest income / interest on application money, wherever applicable. Application by Provident Funds, Superannuation Funds and Gratuity Funds The Government of India has, vide its Gazette notification dated 06.03.2003, in partial modification of notification no. F.11 (3-PD/98) dated March 31, 1999 has permitted Provident, Superannuation and Gratuity Funds to invest up to 30% of incremental accretions in the bonds/securities of “public sector companies” as defined under Section 2 (36-A) of the Income Tax Act, 1961. Also, an additional amount of 30% of the incremental accretions, can be invested at the discretion of the Board of Trustees in any of the remaining three prescribed categories of investments. The Bank is a “public sector bank” within the meaning of the said section, and hence Provident Funds, Superannuation Funds and Gratuity Funds can invest in the Bonds. The applications must be accompanied by certified true copies of (i) Trust Deed/Bye Laws/Resolutions, (ii) Resolution authorising investment and (iii) specimen signatures of the authorised signatories. Those desirous of claiming tax exemptions on interest on application money are compulsorily required to submit a certificate issued by the Income Tax Officer along with the Application Form. For subsequent interest payments, such certificates have to be submitted periodically. Applications by Commercial Banks Investment by commercial banks in subordinated debt issues of other banks would attract 100% risk weights for the investing bank. The applications must be in conformity with extant RBI guidelines and accompanied by certified true copies of i) Board Resolution authorising investment, ii) Power of Attorney and iii) specimen signatures of authorised signatories. Application by Regional Rural Banks Reserve Bank of India, vide circular No.RPCDNB.BC.98/03.05.34/94/95 dated January 2, 1995 and amended vide Circular No. RPCD.RRB.BC.882/03.05.34/96-97 dated December 13, 1996 has permitted RRBs to invest their surplus non-SLR funds in Bonds of public sector undertakings. However, the investments are subject to the prudential and single exposure norms of RBI. The applications must be accompanied by certified true copies of (i) Government Notification/Certificate of Incorporation/Articles and Memorandum of Association/Other deed governing the constitution, (ii) resolution authorising investment, (iii) Power of Attorney (iv) specimen signatures of authorised signatories and (v) income tax recognition certificate/Form 15 AA.

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Application by Primary/District/State/Central Co-Operative Banks/Land Development Banks Any State Co-operative Bank (SCB)/District Central Co-operative Bank (DCCB)/Primary Co-operative Bank (PCB)/Land Development Banks (LDBs) in any State would be eligible to invest in these Bonds with necessary approval. Reserve Bank of India vide notification NO. BR.CIR.72/16.20.00/93-94 dated 16th May 1994 have clarified that the primary co-operative banks can invest their surplus funds upto 10% of their deposits in Bonds of public sector undertakings, provided inter-alia that a provision exists for such investments in the respective state Co-operative Societies Act/Multi State Co-operative Societies Act and the Banks should take permission from the Registrar of Co-operative Societies of the State, for such investments. Further, Reserve Bank of India vide notification no. BR.12/16.20.00/95-96 dated Jan 6, 1996 has requested the Registrar of Co-operative Societies of all States to grant general permission to the primary co-operative banks for such investments, subject to their complying with other conditions and safety measures laid down by Reserve Bank of India from time to time. As per RBI circular no. PPF.ROC.9/07.02.03/98-99 dated June 23, 1999; Central/State Co-operative Banks can invest in PSU bonds an amount not exceeding 10% of their deposits and 5% of their average non-SLR surplus funds after obtaining requisite permission. The applications must be accompanied by certified true copies of i) Resolution authorising investment/Power of Attorney and ii) specimen signatures of authorised signatories. Application by Trusts Trusts, whose Trust Deeds provide for investment in Bonds may apply to this issue of bonds, subject to the approval of the Charity Commissioner or other appropriate authority as the case may be. The application must be accompanied by certified true copies of i) Trust Deed/Bye Laws, ii) Certificate of Registration, iii) Resolution authorising investment and containing operating instructions, iv) Specimen signatures of authorised signatories and v) Income exemption certificate (including interest on application money) / Form 15 AA (if applicable). Applications by Corporate Bodies/Companies/FIs/Statutory Corporations The applications must be accompanied by certified true copies of (i) Memorandum and Articles of Association/Constitution/Bye-laws, (ii) resolution authorising investment and containing operating instructions, (iii) specimen signatures of authorised signatories and (iv) Form 15 AA for claiming exemption from deduction of tax on the interest income (including interest on application money), if applicable. Applications under Power of Attorney In case of applications under Power of Attorney by limited companies or other bodies corporates or commercial banks or regional rural banks/primary/district/central co-operative banks or, individuals, a certified copy of Power of Attorney with a copy of the relevant authority/resolution (other than individuals) must be deposited along with the Application Form.

Application under Power of Attorney or by limited companies In case of applications made under a Power of Attorney or by a Limited Company or a Body Corporate or Registered Society or Mutual Fund, and scientific and/or industrial research organisations or Trusts etc, the relevant Power of Attorney or the relevant resolution or authority

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to make the application, as the case may be, together with the certified true copy thereof along with the certified copy of the Memorandum and Articles of Association and/or Bye-Laws as the case may be must be attached to the Application Form or lodged for scrutiny separately with the photocopy of the Application Form, quoting the serial number of the Application Form and the Bank’s branch where the application has been submitted, at the office of the Registrars to the Issue after submission of the Application Form to the bankers to the issue or any of the designated branches as mentioned on the reverse of the Application Form, failing which the applications are liable to be rejected. Such authority received by the Registrars to the Issue more than 10 days after closure of the subscription list may not be considered. Individuals Individuals are also entitled to apply to the bond issue subject to the application qualifying for the minimum application amount and is valid in all other respects. Those desirous of claiming tax exemptions on interest on application money are compulsorily required to submit relevant declaration Form (as per I.T. Act 1961) along with the Application Form. For subsequent interest payments, such Forms have to be submitted periodically. In the case of joint applications, the number of such applicants should not be more than three. All communications and cheques for interest/redemption will be addressed to the applicant whose name appears first, at the address stated in the application form/register of Bondholders PAYMENT INSTRUCTIONS All Application Forms, duly completed, together with Cheque/Bank Drafts for the amount payable on application must be delivered before the closing of the issue list to the specified branches of State Bank Of Indore named herein or to the Arranger to the Issue.

Payment should be made in by Cheque / Bank Draft. Cheques/Bank Drafts should be drawn on any Bank (including Co-operative Bank) which is situated at and is a member or sub-member of the Banker’s Clearing House located at the place where the application is submitted. Outstation Cheque or Bank Drafts will not be accepted. Applications accompanied by such Cheques, or Bank Drafts are liable to be rejected.

All Cheques or Bank Drafts must be made payable to “State Bank Of Indore-Bond Issue” and should be crossed A/c payee only. In case of payment by Cheque or Bank Draft, a separate instrument must accompany each Application form. No receipt will be issued for the application money. However, the Bankers to the Issue and/or their branches receiving the application will acknowledge receipt by stamping and returning to the applicant the acknowledgement slip at the bottom of each Application Form. For further instructions, please read the Application Form carefully. It is mandatory for the applicant to fill in the relevant columns in the Application Forms giving the particulars of their savings/current bank account number, the name and address of the Bank with which such account is held to enable the issuer to print the said details in the Refund Orders in the name of the Payee. In case of Joint Applications, the first applicant must mention these details. Applications not containing these details are liable to be rejected.

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PAN/GIR NUMBER All Applicants should mention their Permanent Account Number or the GIR Number allotted under Income Tax Act, 1961 and the Income Tax Circle / Ward / District. In case where neither the PAN nor the GIR Number has been allotted, the fact of such a non-allotment should be mentioned in the Application Form in the space provided. SIGNATURES Signatures should be made in English or in any of the Indian Languages. Thumb impressions must be attested by an authorised official of a Bank or by a Magistrate/Notary Public under his/her official seal. NOMINATION FACILITY As per Section 109 A of the Companies Act, 1956, only individuals applying as sole applicant/Joint Applicant can nominate, in the prescribed manner, a person to whom his Bonds shall vest in the event of his death. Non-individuals including holders of Power of Attorney cannot nominate. DISPOSAL OF APPLICATIONS AND APPLICATION MONEY The Bank reserves, in its own, absolute and uncontrolled discretion and without assigning any reason, the right to accept in whole or in part or reject any application. If an application is rejected in full, the entire application money received will be refunded to the applicant. If the application is rejected in part, excess of the application money received will be refunded to the applicant within one week from the date of allotment of the bonds. No interest will be payable on the application money so refunded. Refund will be made by cheques or demand drafts drawn in favour of the sole/first applicant (including the details of his savings/ current account number and the name of the bank with whom the account is held) and will be dispatched by registered post/courier. Such refund orders Demand Drafts/Cheques will be payable at par at specified centres. The Bank has undertaken to make adequate funds available to the Registrar to the Offer for complying with the requirements of dispatch of Allotment Letters/Refund Orders by registered post/courier. DISPUTES & GOVERNING LAW The Bonds are governed by and shall be construed in accordance with the Indian Laws. The High Court of Madhya Pradesh, Indore Bench alone shall have the jurisdiction in connection with any matter arising under these precincts. TRADING OF BONDS The trading of privately placed Debt securities would be permitted in standard denomination of Rs. 10 lakhs in the anonymous, order driven system of the Stock Exchange in a separate trading segment. The marketable lot would be Rs. 10 lakhs. All class of investors would be permitted to trade subject to the standard denomination/marketable lot. The trades executed on spot basis shall be required to be reported to the Stock Exchange.

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NOTICES Notice required to be given by the Bank to the Bondholders shall be deemed to have been given if sent by ordinary post/courier to the First Bondholder or if published in one All India English daily newspaper and one regional language newspaper. Any notice required to be given by the Bondholders shall be sent by registered post/courier/by hand delivery to the Bank or to such persons at such address as may be notified by the Bank from time to time. FUTURE BORROWINGS The Bank will be entitled to borrow/raise loans or avail finance in whatever form as also issue bonds / other securities in any manner having such ranking in priority, pari passu or otherwise and change the capital structure, including issue of shares of any class, on such terms and conditions as the Bank may think appropriate, without the consent of or intimation to the Bondholder(s) in this connection. MISCELLANEOUS A Register of Bondholders shall be maintained at the Head Office of the Bank. Such Register shall be closed thirty (30) business days prior to each interest payment date. In case of dissolution/bankruptcy/insolvency/winding up of Bondholders, the Bond certificates shall be transmittable to the Legal Representative(s)/Successor(s) or the Liquidator, in accordance with the law on such terms as may be deemed appropriate by the Bank. REGISTRARS Ankit Consultancy Pvt. Ltd, 2nd Floor, Alankar Point, 4-A, Rajgarh Kothi, Geeta Bhawan Crossing, Indore are acting as Registrar and Transfer agents for the Bank. TRUSTEES The Bank has appointed IDBI Trusteeship Services Ltd, 10th Floor, Nariman Bhavan, 227 Vinay K Shah Marg, Nariman Point, Mumbai – 400002 as Bond Trustees registered with SEBI, for the holders of the Bonds (hereinafter referred to as ‘Trustees’). The Bank will enter into a Trustee Agreement/Trust Deed, inter-alia, specifying the powers, authorities and obligations of the Bank and the Trustees in respect of the Bonds. The Bondholders shall, without any further act or deed, be deemed to have irrevocably given their consent to and authorised the Trustees or any of their Agents or authorised officials to do, all incidental acts, deeds and things necessary in terms of this Memorandum of Private Placement. All rights and remedies under the Trust Deed/Trust Agreement and/or other security documents shall rest in and be exercised by the Trustees without having it referred to the Bondholders. Any payment made by the Bank to the Trustees on behalf of the Bondholder(s) shall discharge the Bank pro tanto to the Bondholder(s). The Trustees will protect the interest of the Bondholders in the event of default by the Bank in regard to timely payment of interest and repayment of principal and they will take necessary action at the cost of the Bank. The Trustees may appoint a nominee director on the Board of the Bank in consultation with other institutional Bondholders in the event of default. The major

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events of default which happen and continue without being remedied for a period of 30 days after the dates on which the monies specified in (i) and (ii) below become due and will necessitate repayment before stated maturity are as follows:

i. Default in payment of monies due in respect of interest/principal owing upon the Bonds; ii. Default in payment of any other monies including costs, charges and expenses incurred by

the Trustees. Other events of default are:

i. Default is committed in the performance or observance of any covenant, condition or provision contained in these presents and/or the financial Covenants and Conditions (other than the obligation to pay principal and interest) and, except where the Trustees certify that such default is in their opinion incapable of remedy (in which case no notice shall be required), such default continues for 30 days after written notice has been given thereof by the Trustees to the Bank requiring the same to be remedied.

ii. Any information given by the Bank in its applications to the Bondholders, in the reports and other information furnished by the Bank and the warranties given/deemed to have been given by it to the Bondholders/trustees is misleading or incorrect in any material respect.

iii. The Bank is unable to or has admitted in writing its inability to pay its debt as they mature. iv. A Receiver or a Liquidator has been appointed or allowed to be appointed of all or any

part of the undertaking of the Bank and such appointment is not dismissed within 60 days of appointment.

v. The Bank ceases to carry on its business. RIGHTS, POWERS AND DISCRETION OF THE TRUSTEES In addition to the other powers conferred on the Trustees and provisions for their protection and not by way of limitation or derogation of anything contained in this Agreement nor of any statute limiting the liability of the Trustees, it is expressly stated as follows: a. The Trustees shall not be bound to give notice to any person of the execution hereof or to see

to the performance or observance of any of the obligations hereby imposed on the Bank or in any way to interfere with the conduct of the Bank’s business unless and until the rights under the Bonds shall have become enforceable and the Trustees shall have determined to enforce the same;

b. Save as herein otherwise expressly provided the Trustees shall, as regards all trusts, powers, authorities and discretions, have absolute and uncontrolled discretion as to the exercise thereof and to the mode and time of exercise thereof and in the absence of fraud shall not be responsible for any loss, costs, charges, expenses or inconvenience that may result from the exercise or non- exercise thereof and in particular they shall not be bound to act at the request or direction of the Bondholders under any provisions of these presents unless sufficient monies shall have been provided or provision to the satisfaction of the Trustees made for providing the same and the Trustees are indemnified to their satisfaction against all further costs, charges, expenses and liability which may be incurred in complying with such request or direction;

c. With a view to facilitate any dealing under any provision of these presents the Trustees shall have full power to consent (where such consent is required) to a specified transaction or class of transactions conditionally;

d. The Trustees shall not be responsible for the monies paid by applicants for the Bonds;

39

e. The Trustees shall not be responsible for acting upon any resolution purporting to have been passed at any meeting of the Bondholders in respect whereof minutes have been made and signed even though it may subsequently be found that there was some defect in the constitution of the meeting or the passing of the resolution or that for any reason the resolution was not valid or binding upon the Bondholders;

f. The Trustees shall have full power to determine all questions and doubts arising in relation to any of the provisions hereof and every such determination bonafide made (whether or not the same shall relate wholly or partially to the acts or proceedings of the Trustees) shall be conclusive and binding upon all persons interested hereunder;

g. The Trustees shall not be liable for anything whatsoever except a breach of trust knowingly and intentionally committed by the Trustees;

h. The Trustees shall not be liable for any default, omission or delay in performing or exercising any of the powers or trusts herein expressed or contained or any of them or in enforcing the covenants herein contained or any of them or in giving notice to any person or persons of the execution hereof or in taking any other steps which may be necessary, expedient or desirable for any loss or injury which may be occasioned by reason thereof unless the Trustees shall have been previously requested by notice in writing to perform, exercise or do any of such steps as aforesaid by the holders representing not less than three-fourths of the nominal amount of the Bonds for the time being outstanding or by a Special Resolution duly passed at a meeting of the Bondholders and the Trustees shall not be bound to perform, exercise or do any such acts, powers or things or to take any such steps unless and until sufficient monies shall have been provided or provision to the satisfaction of the Trustees made for providing the same by or on behalf of the Bondholders or some of them in order to provide for any costs, charges and expenses which the Trustees may incur or may have to pay in connection with the same and the Trustees are indemnified to their satisfaction against all further costs, charges, expenses and liabilities which may be incurred in complying with such request.

i. Provided nevertheless that nothing contained in this clause shall exempt the Trustees from or indemnify them against any liability for breach of trust nor any liability which by virtue of any rule or law would otherwise attach to them in respect of any negligence, default or breach of trust which they may be guilty of in relation to their duties hereunder.

UTILISATION OF OFFER PROCEEDS The Bank undertakes that details of all monies utilized/unutilized out of the Offer shall be disclosed under an appropriate separate head in the Balance Sheet of the Bank.

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TAX BENEFITS M. Munshi & Co., Chartered Accountants, vide their letter dated 25.08.2005 have advised the following tax benefits under the Current Tax Laws: A. TO THE BANK-

1. Under Section 10(23G) of the Income Tax Act, 1961 any income by way of

dividends, interest or long term capital gains of the Bank arising from Investments made on or after the first day of June 1998, by way of Bonds/securities or long term finance in any enterprise wholly engaged in the business of:

i. developing or ii. maintaining and operating or iii. developing, maintaining and operating

any infrastructure facility which has been approved by the Central Government and which satisfied the prescribed conditions as per rule 2E of the Income Tax Rules, 1962, is exempt from tax.

2. Under Section 36(1)(viia) of the Income Tax Act in respect of any provision made for bad and doubtful debts, the Bank is entitled to a deduction not exceeding:

i. 7.5% of the total income (computed before making any deductions under this clause and Chapter VIA) and

ii. 10% of the aggregate average advances made by the rural branches of the Bank computed in the prescribed manner.

Also the Bank shall, at its option, be allowed a further deduction in excess of the limit specified above, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government provided such income has been disclosed in its return of income under the head “Profits and gains of business or profession”.

3. In addition to the deduction available under Section 36(1)(viia) of the Income Tax Act, the Bank is entitled to claim a deduction under Section 36(1)(vii) of the Income Tax Act for the amount of bad debts written off as irrecoverable in the accounts. The deduction shall be limited to the amount by which such debt or part thereof, which exceeds the credit balance in the provision for bad and doubtful debts account made under Section 36(1)(viia) and subject to the compliance of provisions of Section 36(2)(v).

4. Under the provisions of Section 43D of the Income Tax Act interest income on

certain categories of bad or doubtful debts as specified in Rule 6EA of the Income Tax Rules having regard to the guidelines issued by Reserve Bank of India in relation to such debts shall be chargeable to tax, only in the year in which it is actually received or the year in which it is credited to the Profit and Loss Account by the Bank, whichever is earlier.

41

5. Under Second Proviso to Section 48 of the Income Tax Act, the long term capital gains of the Bank arising on transfer of capital assets other than bonds and debentures (not being capital indexed bonds) will be computed after indexing the cost of acquisition, improvement and would be charged at a concessional rate of 20% as per Section 112 of the Income Tax Act plus applicable surcharge and education cess. Alternatively, at the option of the bank, where the tax payable in respect of any such long term capital gains exceeds 10% of the amount of capital gains arrived at without indexing the cost, the capital gains is charged at 10% plus applicable surcharge and education cess.

6. Under the provisions of 54EC of the Income Tax Act and subject to conditions

specified therein, the Bank is eligible to claim exemption from the tax arising on long-term capital gains, by investing the capital gain in long term specified asset (being certain notified bonds), within six months from the date of transfer of capital asset. If only a portion of the capital gains is invested, then the exemption is proportionately available.

If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable by way of Long Term Capital Gains of the year in which the specified asset is transferred.

7. Under Section 54ED of the Income Tax Act, capital gains arising from the transfer of investment held as long term capital asset, being listed securities or unit is exempt fully from tax if the Bank invests within a period six months from the date of such transfer, the whole of the capital gains in acquiring specified equity shares forming part of an eligible issue of capital as defined in clause (i) to explanation in the above section. Where only a part of the capital gains is so invested then the exemption is proportionately available. The exemption is available subject to other conditions specified in that Section. If the specified equity shares are sold or otherwise transferred within a period of one year from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable as Long Term Capital Gain of the year in which the specified equity shares are transferred.

8. In accordance with Section 10(34) of the Income Tax Act, dividend income as referred to in Section 115-O of the Act, is exempt from tax in the hands of the Bank.

9. In accordance with Section 10(35) of the Income Tax Act, the following income

shall be exempt in the hands of the Bank: a) Income received in respect of the units of a Mutual Fund specified under clause

(23D); or b) Income received in respect of units from the Administrator of the specified

undertaking; or c) Income received in respect of units from the specified company;

42

Provided that this exemption does not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be.

10. In accordance to the section 10(38) of the Income Tax Act, any income arising

from the transfer of a long term capital asset being an equity share in a company or a unit of a equity oriented fund is exempt from tax, subject to provisions of the Chapter VII of the Finance (No.2) Act

11. In accordance to the section 88E, where the total income of the bank in the

previous year includes any income under the head “Profits & Gains of business or profession” arising from taxable securities transactions, be entitled to deduction from income tax, an amount equal to this security transaction tax paid by the bank in respect of the taxable securities transactions.

TO THE RESIDENT BONDHOLDERS OF THE BANK:

Capital Gains: The difference between the sale price on transfer and cost of acquisition of the bond held by bondholder as a capital asset, will be treated as long term capital gain/loss in the hands of the investor, provided such bond was held for a continuous period of more than twelve months. 12. As per Section 54ED of the Income Tax Act, long term capital gains arising from

transfer of Bonds/securities of the Bank on its Bonds/securities being listed, is fully exempt from tax if the assessee invests within a period of six months from the date of transfer, the whole of the capital gains in acquiring equity Bonds/securities forming part of an eligible issue of capital as defined in clause (i) to explanation in the above section. Where only a part of the capital gains is so invested, then the exemption is proportionately available. The exemption is available subject to conditions specified in that Section. If the specified equity shares are sold or otherwise transferred within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the specified equity shares are transferred.

13. As per the provisions of Section 54F of the Income Tax Act, 1961, long term capital gains arising in the hands of an individual or HUF on transfer of Bonds/securities of the Bank shall be exempt if the net consideration is invested in purchase of residential house within a period of one year before or two years from the date of transfer or constructs a residential house within a period of three years from the date of transfer. The exemption is available proportionately if only a portion of the net consideration is invested as above. The exemption is subject to other conditions specified in that Section. If the new residential house is transferred within a period of three years from the date of purchase or construction, the amount of capital gains on which tax was not charged earlier, shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the residential house is transferred.

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14. Under Section 112 of the Income Tax Act, where the Total Income of any assessee includes any long term capital gains on transfer of Bonds/debenture of the Bank, then the tax will be at rate of tax at 20% of amount capital gain plus applicable surcharge and education cess. It may be noted no benefit of cost indexation u/s 48 is available, on bonds issued as per the proviso to section 48.

15. No Wealth Tax is payable in respect of investments in Bonds/securities of the

Bank. III. BENEFITS AVAILABLE TO MUTUAL FUNDS

As per the provisions of Section 10(23D) of the Act, dividend income from Investments in Bonds/securities of the Bank or income by way of short term or long term capital gains arising from transfer of such Bonds/securities earned by Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or Regulations made there under, mutual funds set up by the Public Sector Banks or Public Financial Institutions and Mutual Funds authorized by the Reserve Bank of India would be exempt from Income tax subject to the conditions as the Central Government may by notification in the Official Gazette specify in this behalf. Place: Indore For M. Munshi & Co. Date:25.08.05 Chartered Accountants Vishnu Gupta Partner

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PARTICULARS OF THE PLACEMENT OBJECTS OF THE PLACEMENT The present Issue of Bonds is being made to a. Augment the long-term resources of the Bank b. Augment the capital base of the Bank to meet its future capital adequacy requirements CAPITAL ADEQUACY POSITION OF THE BANK The Capital Adequacy Ratio (‘CAR’) of the Bank as on March 31, 2003 was 13.09 %, 12.39 % as on March 31, 2004 and 11.61 % as on March 31, 2005 as against the RBI stipulation of 9.00%. Details of capital vis-à-vis risk weighted assets are as under:

(Rs crores) Year ended March 31 2000 2001 2002 2003 2004 2005

Eligible Tier I Capital 229.51 301.97 353.00 473.19 536.04 616.64 Eligible Tier II Capital 80.48 118.58 200.63 187.22 263.09 456.48 Total Capital 309.99 420.55 553.63 660.41 799.13 1073.12 Total Risk-Adjusted Assets 2684.76 3304.87 4330.96 5044.62 6447.96 9246.22 Capital Adequacy Ratio (%) 11.26 12.73 12.78 13.09 12.39 11.61

REQUIREMENT OF CAPITAL ENHANCEMENT The Bank expects substantial growth in its business activities and operations in the coming years. The risk-weighted assets of the Bank are expected to increase with rise in business level. The capital requirement will also increase due to Basel II norms. Increase in Tier I capital through plough back of profits alone may not be enough to enable the Bank to maintain sufficient capital adequacy ratio. In view of these factors, the Bank proposes to augment its Net worth in order to sustain a healthy CAR. USE OF OFFER PROCEEDS The proceeds of this offer will be utilized for the regular business activities of the Bank. The Bank has to increase the Capital to match the growth in Assets and maintain level of CAR higher than the minimum prescribed level. The requirement of Capital has increased on account of phased convergence to Basel II norms by Reserve Bank of India and growth in credit.

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OVERVIEW OF THE BANKING SECTOR

Structure of Indian Banking Industry The formal banking system in India comprises the Reserve Bank of India, Commercial Banks, Regional Rural Banks and the Co-operative Banks. In the recent past, private non-banking finance companies also have been active in the financial system, and are being regulated by the RBI.

Scheduled Commercial Banks (SCBs) The scheduled commercial banks (SCBs) comprise of Public Sector Banks (SBI Group + Nationalised banks), Private Sector Banks and Foreign Banks.

Public Sector Banks (PSBs) The banking sector in India has been characterized by the predominance of PSBs. The PSBs had 46,142 branches (SBI & Associates: 13499; Nationalised Banks: 32643) as on June 30th, 2003. The aggregate assets of all PSBs stood at Rs. 12,85,235.70 Crores at end FY03 accounting for nearly 76 % of assets of all SCBs in India as on March 31st, 2003. The PSBs’ large network of branches enables them to fund themselves out of low-cost deposits. PSBs account for 79.61% of deposits, 74.19% of advances, 74.52% of income, of all Scheduled Commercial Banks at end FY- 03, thus clearly demonstrating their dominance of the Indian banking sector.

Private Sector Banks In July 1993, as part of the banking sector reform process and as a measure to induce competition in the banking sector, the RBI permitted entry by the private sector into the banking system. This resulted in the addition of 10 private sector banks. These banks are collectively known as the `new’

Scheduled Banks in

India

Scheduled Commercial Banks Scheduled Co operative Banks-

Public Sector Banks Regional Rural BanksForeign BanksPrivate Sector Banks

SBI & its Associates. Nationalized Banks New Private BanksOld Private Banks

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private sector banks. Private sector banks operated through 5624 branches at end FY 2002-03. As on March 31st, 2003, total assets of private sector banks aggregated Rs. 297279.31 Crore and accounted for 17.50% of the total assets of all SCBs. Although the share of private sector banks in total assets has increased from 12.61% at end FY01 to 17.50% on March, 2003, new private sector banks have accounted for most of the gain. The new private sector banks’ share of assets of all private sector banks increased from 27.5% at end-FY97 to 64.64 % on 31.3.2003 (11.31% of assets of SCBs). The share of old private sector banks in total assets of SCBs has decreased marginally from 6.4% at end FY 1996-97 to 6.19% at end FY 2002-03. However, their share in total assets of private sector banks has declined from 72.5% at end FY 1996- 97 to 35.36% at end FY 2002-03.

Foreign Banks Presently, there are 36 foreign banks operating in India with 204 branches as on June 30, 2003. In addition, there are 26 Representative Offices set up by Foreign Banks in India as on September 30, 2003. At end-FY 2002-03, the total assets of Foreign Banks aggregated Rs. 116401.08 Crore and accounted for 6.85% of the total assets of all SCBs. The primary activity of most Foreign Banks in India has been in the corporate segment. However, in recent years, some of the larger foreign banks have started making consumer financing a larger part of their portfolios, based on the growth opportunities in this area in India. These Banks also offer products such as automobile finance, home loans, credit cards and household consumer finance.

(Rs in Crores) Deposits Advances Total Income

Category 2000-01 2001-02 2002-03 2000-

012001-

022002-

03 2000-012001-

022002-

03Public Sector Banks 859462 968624 1079394 414989 480118 549351 103499 117252 128464

Private Sector Banks 136667 169433 207174 68058 116841 138951 16595 20817 31866

Foreign Banks 59190 64511 69313 42997 48632 52171 11987 12964 12044

Regional Rural Banks 38294 44539 15050 17710 4859 5561 Source: RBI Publications for Banking Sector Statistics

All 24 banks: Financials (Rs crore) 2003-04 H1 2002-03 H1 Growth

(per cent) 2002-03 2001-02 Growth

(per cent) Income 64,234.3 58,957.9 8.9 121,448.4 102,513.0 18.5

Interest earned 50,164.4 49,167.0 2.0 99,603.4 87,307.9 14.1

Other income 14,069.9 9,790.9 43.7 21,845.0 15,205.1 43.7

Expenditure 56,562.9 53,434.2 5.9 109,604.0 94,486.6 16.0

Interest expended 32,249.1 33,923.0 -4.9 67,424.2 60,427.4 11.6

Operating expenses 13,671.8 11,931.1 14.6 25,752.1 22,015.8 17.0

Provisions and contingencies

10,642.0 7,580.0 40.4 16,427.8 12,043.5 36.4

Operating profit 18,313.4 13,103.7 39.8 28,272.2 20,069.9 40.9

Net profit 7,671.4 5,523.7 38.9 11,844.4 8,026.4 47.6

Net interest spread 17,915.3 15,244.0 17.5 32,179.3 26,880.6 19.7

H1: First half

These 24 banks comprise 70 per cent of total deposits of scheduled commercial banks in India.: Source: Crisnfac

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The salient features in the evolution of Indian Banking are as follows: The number of banks, including Regional Rural Banks (RRBs) has increased from 89 in 1969 to 295 in June, 2003. The population per branch has declined significantly, from 75,000 in 1950 to 16,000 in 2002. With the nationalization of Banks in 1969, the number of Bank branches (including Regional Rural Banks) increased from 8,262 in 1969 to 66,514 in June 2003. Though most of the expansion was in rural and semi-urban areas the share of rural branches has marginally declined to 48.7% in June, 2003 from 49% as at end- June, 2002. The credit-deposit ratio of SCBs has reached 59.4% as on March 31, 2003, with investment plus credit-deposit ratio of 65.80% as on March 31, 2003. Priority sector lending, which comprise lending to agriculture, SSI and other Priority sectors, increased to Rs. 2,03,095 Crore in 2003 and the percentage of outstanding advances under Priority sector to Net Bank Credit stood at 42.5 % as against the minimum stipulated level of 40%.

Performance of Banking Industry During 2003-2004 (up to 28.11.2003), aggregate deposits recorded a growth of 11.81% (Rs. 1,48,180 Crore) as compared with 18.30% (Rs. 1,94,570 Crore) in the corresponding period of the previous year. Bank credit increased by Rs. 1,39,493 Crore as on 21st March 2003, reflecting an increase of 23.70% (YOY), compared with 15.30 % (YOY) during FY 02. Though there was clear indications for picking up of credit in 2002-03, there was change in the composition of credit off take. Food credit recorded a drop of Rs. 4,499 Crores (-8.30%) on account of lower procurement operations during the year, as against the increase of Rs. 13,987 Crores during the last year. Non-food credit on the other hand registered a welcome increase of Rs. 1,43,992 Crores (26.90%) reflecting a turnaround in the industrial climate, particularly in the second half of the year 2002-03. The investments made by SCBs in government and approved securities increased by Rs. 1,09,276 Crores (24.90%) as on 21.3.2003 over the last year. As on 21.3.2003, banks’ holding of SLR securities, increased by Rs. 1,09,276 Crore over and above the SLR requirement and was substantially higher than the net annual borrowings of the Central Government. In line with macroeconomic trends of softening interest rates in most markets the deposit as well as lending rates of SCBs during FY 2002-03, have been on decline. The PLRs of major PSBs declined from the range of 10.00% to 12.50% p.a. at end March 2002 to between 9.00% to 12.25% p.a. at September 2003, reflecting the comfortable liquidity condition, deposit rates of PSBs, which were ranging from 4.25% to 8.75% in March 2002, softened to 3.75% to 6.25% by September 2003. Long-term domestic deposit rates of PSBs declined from 8.00% to 8.75% in March 2002 to 5.25% to 6.25% in September 2003.

Recent Trends in Banking Industry In recent years, the Banking Industry has been undergoing rapid changes, reflecting number of underlying developments. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act) was enacted. It seeks to deal with Securitisation of assets, setting up of Asset Reconstruction Company (ARCs), and more importantly enforcement of security for realisation of dues without the intervention of court or

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Tribunals. After the ordinance on Securitisation, Banks have issued 33736 notices involving amount of Rs.12,147.20 Crores and recovered Rs.499.20 Crores in respect of 9946 cases as on June 30, 2003. The first asset reconstruction company called Asset Reconstruction Company of India Limited (ARCIL) has been incorporated. The retail loan market has grown at a CAGR of 34% over the last four years to reach about Rs. 45,000 Crores. Housing finance segment accounts for nearly 80% of the retail finance segment. Absorption of technology and upgradation of technological infrastructure, which have accelerated and broadened dissemination of financial information while lowering the costs of many financial activities. This has also led to transparency in information to the public on deposits and advances and interest rate structures. The fiscal year 2002-03 for the Commercial Banks was by and large characterised by soft interest rates regime with flexible interest rate structures. There has also been a good inflow of foreign exchange in the country, with taking the forex reserves of the country to all time high crossing US $ 100 billion mark. There has been a comfortable resources growth with higher credit growth. Treasury operation of banks have been offering handsome opportunities for gains. The stance of the Monetary Policy in recent years has been to maintain adequate liquidity in the market with a preference for soft interest rates. With a view to having a vibrant and resilient competitive financial sector for sustenance of the reform process in the real sector of the economy, the focus has been on the structural and regulatory measures to strengthen the financial system. These measures have been guided by the objectives of increasing operational efficacy of the Monetary policy, redefining the regulatory goal of Reserve Bank of India, strengthening prudential norms. These developments have manifold consequences for the institutional and systemic structure of the financial sector in general and banking in particular. The business profile of financial institutions is also undergoing change. Mergers and takeovers of smaller institutions have led to the emergence of transnational conglomerates, offering services ranging from traditional commercial banking to investment banking and insurance.

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BANK AND MANAGEMENT HISTORY & BACKGROUND OF THE BANK The Bank, popularly known as “Indore Bank” in the Malwa Region was originally incorporated as Bank of Indore Ltd. under the special charter of His Highness Maharaja Tukojirao Holkar-II on the 23rd March 1920 at Indore. In terms of State Bank of India (Subsidiary Banks) Act, 1959 the Bank of Indore Ltd became a subsidiary of State Bank of India w.e.f. 1st January 1960 and was renamed as State Bank of Indore. The Bank acquired the business of the Bank of Dewas Ltd. in 1962 and the Dewas Senior Bank Ltd. in 1965 and was up-graded to class ‘A’ category bank in 1971. Ever since the bank has been making steady progress; and during the year 2004-05, the business turnover has crossed Rs. 22848 crore. Total number of branches as on 31.03.2005 was 440, of which 341 branches were in Madhya Pradesh and Chattisgarh. During the last two decades, the Bank has spread outside Madhya Pradesh also by opening branches at important centres in 12 states and one union territory. Specialised branches i.e. Industrial Financial Branches, SSI Branches, ADB, P&SB Branch have been opened to the needs of specific customer groups. Being a Subsidiary of SBI, State Bank of Indore has access to more than 13,821 branches of State Bank Group located in India and abroad. ORGANISATIONAL SET-UP The Managing Director at the top is assisted by the Chief General Manager and 6 General Managers in the areas of operations, commercial and institutional advances, planning and development, treasury, inspection and vigilance and information and technology. The bank has 4 zonal offices headed by Deputy General Managers. Four zonal offices are situated in Indore, Bhopal, Mumbai and Delhi. Top executives of the bank at the head office are as under:

Controls 4 Regions

ZONAL OFFICE

INDORE ZONE

Controls 5 Regions

ZONAL OFFICE

BHOPAL ZONE

ZONAL OFFICE

MUMBAI ZONE

ZONAL OFFICE

DELHI ZONE

HEAD OFFICE

AT INDORE

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Shri P. C. Thomas

General Manager (CI & IB)

Shri M. Vasanthakumar

General Manager (P&D)

Shri A.K. Ghosh

General Manager (Treasury)

Smt. Annie Pawar

General Manager (O)

Shri T. Ramesh Babu

General Manager (Technology)

Shri A.V.S.N. Murthy

General Manager (INS. & VIG)

Shri NIRANJAN BARDALAI

Chief General Manager

Shri C. NARASIMHAN

Managing Director

Business Profile The total deposit of the bank as at the end of March, 2005 was Rs. 13807.07 crores and the total advances stood at Rs 9040.65 crores. The bank's advances to priority sector stood at Rs. 4083.04 crores and constituted 44.77 % of the net bank credit. While advances to agriculture stood at Rs. 1666.43 crores and export credit stood at Rs. 913.88 crores. The gross NPA ratio has come down sharply from 3.99% as on 31.03.2004 to 3.28% as on 31.03.2005. The Bank’s provision on NPAs is more than the amount prescribed under IRAC norms. The net NPAs ratio of the Bank stood at 1.00% as on 31.03.2005. The bank has made a Net profit Rs. 133.19 crores for the year ended 31st March 2005. New Products launched by the Bank The following new products were launched by the bank to cater to the needs of the present day demands in the market: Personal Segment

• Instant Cash • Super Drive • Indore Bank Aabhushan Scheme • Flexi Housing Scheme • Indore Bank Realty Scheme • Krishak Mitra • Gram Niwas • Saraswati Yojna • Pensioner Plus • Indorebank Scholar

Small Industries and Business Segment

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• Bank on Schools Scheme (Boss) • Yatri Plus • Artisan Credit Card • Doctor Plus • Indorebank Shoppe • SME Smart Score Scheme • Laghu Udhyami Credit Card (LUCC) • Modernisation of SSI units • Dall Mill plus • Professional Plus • Swarojgar Credit Card (SCC) • Indorebank Internet Kiosks • Vishishtajan Plus

Commercial & Institutional Segment

• Mortgage Loan • Rent Plus • Flexi Loans • Bridge Loan • Corporate Loan • MIBOR linked Loan • Parivahan Mitra • Channel Financing • School Mitra • Advances to traders against Warehouse Receipts

Agriculture Segment

• Indorebank Kisan Credit Card • Indorebank Kisan Gold Card • Scheme for Agro-clinic /Agro-business Herbal Plus • Dairy Plus • Krishi Plus • Arhatia Plus • Scheme for Purchasing Land for Agricultural Purposes

Cross Selling All branches are authorised to do SBI Life and General Insurance Business. Accredition is obtained from IRDA to impart bancassurance (life) training. Corporate agency of United India Insurance Company Ltd., has been obtained for non-life insurance activities. For sale of mutual fund units, the bank has tie-up with SBI Mutual Fund. Future plans: A few important corporate goals of the bank for FY 2005-06 are as follows:

• Operating profit of Rs. 500 crore • Increase of 6 basis points in the deposit market share of the bank with growth of Rs. 3300

crore. • Increase of 5 basis points in the advances market share of the bank with growth of Rs.

2450 crore

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• Increase in non-interest income of branches by atleast 40%. Main Objects of the Bank The SBI (SB) Act was enacted, providing for formation of seven subsidiaries to SBI including SET and for the constitution, management and control of the subsidiary banks so formed and for matters connected there with or incidental thereto. Chapter II Section 4(3) of the SBI (SB) Act provides that the Bank shall carry on the business of banking and other business in accordance with the provisions of the ACT and shall have the power to acquire and hold property whether moveable or immoveable for the purpose of its business and to dispose off the same. Business of the Bank Sections 36, 36(A), 37 and 38 of Chapter VI of the SBI (SB) Act provide that: Subsidiary Bank to Act as Agent of State Bank: 36 (1) A Subsidiary Bank shall, if so required by the State Bank, act as Agent of the State Bank at any place in India for a. Paying, receiving, collecting and remitting money, bullion and securities on behalf of any

government in India; and b. Undertaking and transacting any other business which the Reserve Bank may, from time to

time, entrust to State Bank. Subsidiary Bank to Act as Agent of Reserve Bank: Section 36(A) A Subsidiary Bank shall, if so required by the Reserve Bank, act as Agent of the Reserve bank at all places in India where it has a branch for: a. Paying, receiving, collecting and remitting money, bullion and securities on behalf of any

government in India; and b. Undertaking and transacting any other business which the Reserve Bank may, from time to

time, entrust to it. Section 36A(4) A subsidiary bank may transact any business or perform any functions entrusted to it under sub-section (1) by itself or through any agency approved by the Reserve Bank. Other business, which the Bank may undertake Section 37(1): Subject to the other provisions contained in this Act, a subsidiary bank may carry on and transact the business of banking as defined in clause (b) of Section 5 of the Banking Regulation Act, 1949, and may engage in one or more of the other forms of business specified in sub-section (1) of section 6 of that Act. Clause (b) of Section 5 of the Banking Regulation Act, 1949, states-"Banking" means the accepting for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft or otherwise. Section 37(2): The Central Government may, after consultation with Reserve Bank and the State Bank, by order in Writing: a. Authorise a subsidiary bank to do such other forms of business as the Central Government

may consider necessary or expedient;

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b. Direct as any form of business as is mentioned in the order, shall be carried on subject to such restrictions, conditions and safeguards as may be specified therein; or

c. Prohibit a subsidiary bank from carrying on or transacting any form of business which, but for this clause, it is lawful for the subsidiary bank to engage in.

Business, which the Bank may not transact: Section 37 (3) Save as otherwise provided under Sub-section (2) of Section 37 of the SBI (SB) Act a subsidiary bank shall not engage in any form of business other than referred to in sub-section (1) of Section 37 of the said Act. Bank may acquire the Business of Other Banks: Section 38 (1) A subsidiary bank may, with the approval of the State bank, and shall, if the Reserve Bank, in consultation with State Bank, so direct, enter into negotiations for acquiring the business, including the assets and liabilities of any other banking institutions. BRANCH NETWORK OF THE BANK The Bank has 3 Zonal Offices and 11 Regional Offices; controlling 440 branches and 30 extension counters as on March 31, 2005, including 154 specialised branches (excluding currency chest branches). Distribution of Branch Network The population group-wise break up of branches as on March 31, 2005 in India is as follows:

Population Group Number of Branches % Share to Total

Rural 130 29.55 Semi-Urban 133 30.23 Urban 139 31.59 Metropolitan /Port Town 38 8.63 Total 440 100 Geographical Distribution of Branches is as under:

State/ Union Territory Number of Branches % Share of Total

Andhra Pradesh 2 0.45 Delhi 10 2.27 Haryana 3 0.68 Gujarat 9 2.05 Karnataka 1 0.23 Chhatisgarh 26 5.91 Madhya Pradesh 342 77.73 Maharashtra 20 4.54 Punjab 2 0.45 Rajasthan 8 1.82 Tamilnadu 3 0.68 Uttar Pradesh 8 1.82 West Bengal 5 1.14 Chandigarh (UT) 1 0.23 Total 440 100

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Specialised Branches For customer satisfaction and to increase the business, the Bank has given thrust to single window service by opening the specialised branches. The Bank has 154 specialised branches (excluding currency chest branches) as on March 31, 2005 that are engaged in financing our corporate borrowers, small-scale industries, specialised trading etc. The details are as given below:

Specialised Branches Number of Branches

Asset Recovery Branch 1 Currency Chests 95 Industrial Finance 2 SSI Branch 4 Treasury 144 Commercial Branch 2 Mid Corporate Branch 1 Total 249

BUSINESS OF THE BANK & ITS PRODUCTS AND SERVICES

DEPOSITS

(Rs. in crores) As on 31-Mar-01 31-Mar-02 31-Mar-03 31-Mar-04 31-Mar-05

Deposits (Global) 6698.41 7918.45 9216.80 10418.67 13807.07 Annual Growth – Amount 1602.04 1220.04 1298.35 1201.87 3388.40 Annual Growth – Percent 31.43 18.21 16.40 13.04 32.52 Cost of Deposits (Global) (%) 7.79 7.50 6.81 5.80 5.05 Total global deposits of the Bank as on March 31, 2005, touched a level of Rs. 13807.07 crores. The same was Rs. 10511.50 crores on 31st March 2004 adding Rs. 3295.57 crores. The category-wise break-up of total deposits during last 5 years is presented below:

(Rs. in crores) As on March 31,

2001 March 31,

2002 March 31,

2003 March 31,

2004 March 31,

2005

Current Deposits 667.75 753.09 897.28 955.77 1185.51 Savings Bank Deposits 1528.34 1755.78 1980.54 2419.72 2785.17 Term Deposits 4152.87 5168.34 6073.14 6732.01 9264.94 Bank Deposits 349.45 241.24 265.84 311.17 571.45 Total 6698.41 7918.45 9216.80 10418.67 13807.07

Distribution of Deposits The population group-wise break-up of total domestic deposits (excluding inter-bank) for the last five years is as given in the table below: (in %)

As on March 31, 2001

March 31, 2002

March 31, 2003

March 31, 2004

March 31, 2005

Rural 443.32 489.93 542.77 654.62 715.74 Semi-Urban 1560.86 1774.17 1954.03 2320.78 2596.74 Urban 2667.71 3210.63 3548.01 4238.94 5701.44 Metropolitan 2026.52 2443.72 3171.99 3204.33 4793.15 Total 6698.41 7918.45 9216.80 10418.67 13807.07

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ADVANCES Population group wise classification of Net Advances The population group-wise classification of the Bank’s Net Advances is as under:

(Rs. in crores) As on March 31,

2001 March 31,

2002 March 31,

2003 March 31,

2004 March 31,

2005

Rural 340.68 460.44 560.43 709.78 888.41 Semi-Urban 629.85 772.19 945.41 1167.34 1484.55 Urban 1266.83 1373.36 1697.97 2053.72 2796.97 Metropolitan 1190.12 1683.16 1979.14 2475.22 3870.72 Total (Domestic) 3427.48 4289.15 5182.95 6406.06 9040.65 Total 3427.48 4289.15 5182.95 6406.06 9040.65

Growth of Advances The growth of the Bank’s Net advances during the past five years, both in India and Overseas is as follows: (Rs. in crores) Year ended March 31,

2001 March 31,

2002 March 31,

2003 March 31,

2004 March 31,

2005

Gross Credit 3427.48 4289.15 5182.95 6406.06 9040.65 Annual Increase (%) 20.62 25.14 20.84 23.60 41.13

TREASURY & INTERNATIONAL OPERATIONS: Investments The gross investments of the Bank in Government, approved and other securities increased from Rs. 5434.33 crores as at the end of March 2004 to Rs. 6014.55 crores as at the end of March 2005, recording a growth rate of 10.68 % (Rs. 580.22 crores). Due to hardening of the interest rates during the year, the bank’s profit on sale of investments declined substantially from Rs. 226.22 crores in 2003-04 to Rs. 17.37 crores in 2004-05. The average yield on investments has come down from 9.27% during 2003-04 to 8.51% during the year 2004-05. The modified duration of the investment portfolio improved from 4.16 To 4.08 which is advantageous in rising rate scenario. International Banking The foreign exchange turnover of the Bank increased from Rs.11297.59 crores in 2003-04 to Rs. 18955.56 crores during 2004-05, thus registering a growth of Rs. 7657.97 crores (67.78 %). Purchase transactions constituted Rs 9825.81 crore of the turnover while sales transactions accounted for 9129.75 crore. The profit generated from forex business during the year 2004-05 recorded Rs.22.42 crores as against Rs. 21.59 crores recorded during 2003-04. There was a good demand for export credit denominated in foreign currency during the year. Such credit stood at USD 95.721 millions, as at the end of the year, as against USD 32.429 millions, as at the end of the previous year. The level of export credit (including credit denominated in foreign currency), as at the end of March 2005, was Rs. 913.38 crores, constituting 9.85 % of the Net Bank Credit. The Bank has also been offering foreign currency loans (FCNR

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loans) to its customers at LIBOR related rates and the outstanding foreign currency loans amounted to USD 84.203 millions, as at the end of the year. Proprietary trading operations in foreign currency have yielded good results, with trading profit touching a high of Rs. 5.89 crores during the year, as compared to Rs. 3.85 crores during the previous year. Technological Upgradation ATMs: As at the end of July 2005 the bank has installed 183 ATMs in major cities and at important centers in Madhya Pradesh. Value-added services: The following value-added services are provided to the customers:

Sr. No. Particulars No. of branches

1. Demand drafts / banker’s cheque printing 429 2. TDR / STDR receipt printing 429 3. Clearing module 133 4. Govt. Business module 134 5. Customer sign scan 429 6. PPF module 82 7. Internet banking 157 8. Oltas 136 9. Officers specimen signature 429

Other Projects Core Banking Solution (CBS) Connectivity to State Bank network is established at 380 branches/offices of our bank for implementation of Core Banking Solution. The networked branches are using the IP telephones provided to them. The networked platform is being used for implementing Core banking Solution, internet banking and networking of ATMs. The Core Banking Solution has been implemented at 129 branches. All the branches of the Bank are scheduled to be migrated to CBS in Current year. Extension counter connectivity 26 extension counters of the fully computerized branches have been connected to the Wide Area Network. Realtime Gross Settlement System (RTGS): The bank has gone live on RTGS in September 2004 but limited to Inter Bank Transactions. This will shortly be extended for transaction, on behalf of customers across the bank. ALM Project The IT ALM-CIS solution has been implemented at all branches. ALM data of branches is being sent regularly to ALM Projects Dept. SBI Corporate Centre, Mumbai. ALM data have been brought under auto mailing mode in October 2004. Video conferencing: Video conferencing facility has been installed at all Zonal and Regional offices, Commercial branches and Treasury Department, Mumbai. The finance & accounts and Treasury Departments are using the facility for conferencing with SBI for treasury operations under Group Synergy.

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Bank's web-site: The bank’s web-site was redesigned to render a professional look with dynamic and interactive features like branch search facility, EMI, compound interest calculators, enquiries on various products of our bank and facilities to download NRE a/c opening form. Hindi version of the web-site is also available. Human Resource Development & Training Human Resource Manpower Profile The total strength of the Bank as at the end of March 2005 stood at 6454 as against 6540 as at the end of March 2004. The staff strength comprised of 2094 Officers, 3247 Clerks / Cashiers and 1113 Subordinate Staff. Of these 246 are ex-defence Personnel, 110 belong to Physically Handicapped category. Women’s Representation As at the end of March 2005, there were 715 women employees in the Bank compared to 739 as at the end of March 2004. The Bank continued to provide equal opportunity to women in their career progression. Scheduled Castes / Scheduled Tribes - Representation As at the end of March 2005, there were 1119 Scheduled Caste employees comprising of 305 Officers, 560 Clerks/Cashiers and 254 Sub-ordinate Staff. There were 629 Scheduled Tribe employees comprising of 124 Officers, 369 Clerks/Cashiers and 166 Subordinate Staff as at the end of March 2005. All guidelines of the Government of India for safeguarding the interests of SC/ST employees have been complied with. Training During the year 2004-05, 194 training programmes were organised at the Bank’s Staff Academy, Indore, imparting training to 1639 under officer wing, 1216 under award staff wing and 985 employees under computer wing. With a view to empowering the employees with adequate knowledge and requisite skills to perform their roles and to improve their working efficiency, in-house training has been an on going activity in our bank. With a view to equipping our officials in specialised areas we have conducted several programmes on Risk Management, International Banking, Preventive vigilance, NPA Management and Marketing, Programme for Armed Guards, BANKMASTER, Core Banking Solution Awareness Programme and Programme for SC/ST employees. During the year, 513 officials were deputed to outside training institutions such as State Bank Staff College, Hyderabad, State Bank Academy, Gurgaon, State Bank Institute for Rural Development, Hyderabad, State Bank Institute for Information and Communication Management, Hyderabad, NIBM Pune, BTC, Mumbai, etc Loan Policy State Bank of Indore’s Loan Policy (hereinafter referred to as “The Loan Policy” or “The Policy”) is aimed at accomplishing its mission of all-round growth with maximum profits, a position of pre-eminence in banking, committed to excellence in customer, shareholder and employee satisfaction, with continuing emphasis on its Development Banking role, achieved through a skilled and committed workforce and technological upgradation.

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The Loan Policy of the bank has successfully withstood the test of time and with in-built flexibilities, has been able to meet the challenges in the market place. The policy exists and operates at both formal and informal levels. The formal policy is well documented in the form of circular instructions, periodic guidelines and codified instructions, apart from the Book of Instructions, where procedural aspects are highlighted. The policy, at the holistic level is an embodiment of the bank's approach to sanctioning, managing and monitoring credit risk and aims at making the systems and controls effective. The Loan Policy also aims at striking a balance between underwriting assets of high quality, and customer oriented selling. The basic tenets of State Bank of Indore’s Loan Policy are as follows: a. The Policy applies to all lending subject to the general or special directives of

RBI/Government of India, as also the prudential guidelines applicable to all credit exposures of the Bank.

b. It aims at spotting and seizing opportunities and revamping our products and delivery mechanism as well as innovating new products ahead of competition.

c. The Policy establishes a commonality of approach regarding credit basics, appraisal skills, documentation standards and awareness of institutional concerns and strategies, while leaving enough room for flexibility and innovation.

d. It envisages an effective training system in all areas of "Credit Management" which reflects State Bank of Indore's commitment to upgrade skills of all members of staff on a continuing basis.

e. Computerisation, management information system based on a reliable database and development of faster communication as tools for better overall credit risk management are accorded due priority in the policy.

f. Optimum exposure levels are set out in the Policy to different sectors in order to ensure growth of assets in an orderly manner.

g. The Policy sets out minimum scores / hurdle rates (in terms of Credit Risk Assessment parameters) for new/ additional exposures.

h. Bank's general approach to Export Credit and Priority Sector Advances is set out in the Policy. i. The Policy lays down norms for take over of advances from other banks/FIs. j. Bank's stand on granting credit facilities to companies whose directors is in the defaulter's list

of RBI is covered in the Policy. k. The Policy aims at continued growth of assets while endeavoring to ensure that these remain

performing and standard. The Board of the bank is the apex authority in formulating all matters of policy in the bank. A Credit Risk Management Committee (CRMC), duly approved by the Board of Directors, deals with issues relating to credit policy and procedures on a bank-wide basis. The CRMC and/or the Management Committee (MC) sets broad policies for managing credit risk including industrial rehabilitation, sets parameters for credit portfolio in terms of exposure limits, reviews credit appraisal systems, approves policies for compromises, write-offs, etc. and general management of NPAs besides dealing with the issues relating to Delegation of Powers.

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ASSET CLASSIFICATION, INCOME RECOGNITION & PROVISIONING ASSET CLASSIFICATION The Bank classifies its assets in compliance with RBI guidelines. Under these guidelines, an asset is classified as non-performing if any amount of interest/ principal remains overdue for more than 90 days in respect of term loans. In respect of overdraft/ cash credit, an asset is classified as non-performing if the account remains out of order for a period of more than 90 days and in respect of bills, if the account remains overdue for more than 90 days. In case of retail assets, the Bank classifies an asset as non-performing where any amount of interest/ principal remains overdue for more than 90 days, in respect of all loans. NPAs are further categorised into three groups i.e. Substandard, Doubtful and Loss Asset depending upon the period of delinquency and availability of tangible security. The table below gives the criteria for asset classification viz. Standard, sub-standard, doubtful and loss asset- Category Classification 1. Performing Standard Assets An asset which has not posed any problem and which does not carry

more than the normal business risk 2. Non-Performing a)Sub-Standard Assets An asset which has been non-performing for a period less than or

equal to twelve months b) Doubtful Assets An asset, which has been non-performing for a period of 12 months c) Loss Assets Asset where loss has been identified by the Bank or auditors/ RBI.

The value of security is less than 10% For this purpose, all advances are segregated into performing assets (standard assets) and non-performing assets. A borrowal account is classified as Non Performing Asset (NPA) when interest and/or installment are overdue for more than 90 days. Borrowal accounts treated as NPA for a period of 12 months are classified as sub standard assets and borrowal accounts treated as NPA for more than 12 months are treated as doubtful assets. NPAs where securities are less than 10% and which are considered as irrecoverable are treated as loss assets. When an account is classified as NPA, interest already debited to the account but not realized, is de-recognized and further interest accrued is recognized on cash basis. Provisioning and Write-Offs As per RBI guidelines, provisions are arrived on all outstanding NPAs, as under: Sub-Standard Assets

A general provision of 10 percent on total outstanding without making any allowance for DICGC/ECGC guarantee cover and securities available. Additional provision of 10 per cent, i.e., a total of 20 per cent on the outstanding balance for ‘unsecured exposures’, which are identified as ‘substandard’.

Doubtful Assets 20%, 30%, 60% or 100% for secured portion of Doubtful assets upto one year (DA 1), one to three years (DA 2), more than three years (DA 3) slipped to DA 3 on or before 31.3.2004 and more than three years (DA 3) slipped to DA 3 after 31.03.2004 respectively and at 100% for the unsecured portion of the outstanding after netting retainable or realisable amount of the guarantee

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claims already received/ lodged with DICGC/ECGC, if any. Loss Assets 100% of the outstanding after netting retainable amount of the guarantee

claims already received/lodged with DICGC/ECGC, if any Standard Assets A general provision of 0.25% Details of Non-Performing Assets of the Bank

(Rs in Crores)

PARTICULARS 2002-03 2003-04 2004-05 Gross NPA at the beginning of the year 320.10 295.25 266.36

Addition during the year 117.42 115.54 161.39

Reduction during the year 142.27 144.43 124.27

Gross NPAs as at 31st March 295.25 266.36 303.48

Net NPAs as at the 1st April 153.46 137.84 0.00

Net NPAs as at the 31st March 137.84 0.00 90.72

Movement of Provision for Non-Performing Assets (excluding provisions for standard assets)

(Rs in Crores) 31.3.2005 31.3.2004 31.3.2003

Opening balance as on 1st April 258.29 150.55 160.75 Less : Write off during the year 41.09 77.01 112.81 Sub-total 217.20 73.54 47.94 Less: Write back of floating provision 114.98 0.00 0 Add : Provisions made during the year 97.33 184.75 102.61 Closing Balance as on 31st March 199.55 258.29 150.55

Asset Classification of Performing and Non-Performing Assets for the last 5 years is given below:

(Rs. in crore) Classification of assets as on March 31,

2001 March 31,

2002 March 31,

2003 March 31,

2004 March 31, 2005

Standard Assets 3224.66 4135.47 5045.11 6408.15 8949.97

Sub Standard Assets 99.04 127.09 136.36 131.65 108.98 Doubtful Assets 216.19 175.04 146.53 125.02 182.86 Loss Assets 9.96 17.97 12.36 9.69 11.64 Gross NPAs 325.19 320.10 295.25 266.36 303.48 Gross Advances 3549.85 4455.57 5340.36 6674.51 9253.45 Advances given above are Gross Advances while the Balance Sheet indicates Net Advances after setting off provisions, interest suspense etc: Gross Advances – (Provisions, Interest Suspense and DICGC & ECGC claims) = Net Advances. Asset Classification of Performing and Non-Performing Assets for the last 5 years is given below:

(As a % of Gross Advances) Classification of assets (%) as on

March 31, 2001

March 31, 2002

March 31, 2003

March 31, 2004

March 31, 2005

Standard Assets 90.84 92.82 94.47 96.01 96.72 Sub Standard Assets 2.79 2.85 2.55 1.97 1.18 Doubtful Assets 6.09 3.93 2.75 1.87 1.98 Loss Assets 0.28 0.40 0.23 0.15 0.12 NPA 9.16 7.18 5.53 3.99 3.28

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Total 100.00 100.00 100.00 100.00 100.00 NPA MANAGEMENT STRATEGY Several proactive measures, initiated by the Bank, have resulted in containing Gross NPA level despite growth in advances by 160.67% during the past 4 years. In percentage terms, the Gross NPA ratio declined from 9.16 % in March 2001 to 3.28 % in March 2005, while Net NPA ratio declined from 5.91 % to 1.00 % in the same period. With the aim of improving asset quality, the following measures have been initiated:

* Constant review of large borrowal accounts to ensure proper end use of funds * Measurement of risk through credit rating / scoring * Benchmarking of financial and performance ratios * Effective loan review mechanism and portfolio management * Fixing prudential exposure limits in consonance with RBI guidelines * Constant review of economic scenario to identify systemic sector-wise risks * System of timely detection of sickness * Extending the ambit of Credit Audit for covering advances of Rs.2 crores and above * Adherence to various terms and conditions stipulated in the sanction letter * Monitoring of advances by constant on-site and off-site inspection * Review of Special Mention Accounts above Rs. 10 lacs on a monthly basis by the Top

Management * Intensive training of officers for improvement of credit assessment skills * Utilisation of Securitisation Act for recovery of impaired assets * Restructuring / Rehabilitation through CDR / normal route

RISK MANAGEMENT The Bank has achieved substantial progress in the implementation of risk management systems, envisaged in RBI guidelines. An integrated Risk Management approach is followed, with a well-designed organisational structure, and comprehensive policies and procedures laid down to manage credit, market and operational risks. The Bank has constituted:

i) Risk Management Committee of the Board (RMCB), which monitors the overall risks assumed by the Bank,

ii) Asset Liability Management Committee (ALCO), which monitors the liquidity and interest rate risks,

iii) Credit Risk Management Committee (CRMC), which deals with issues relating to credit policy and procedures on a bank-wide basis,

iv) Investment Committee, which deals with investment decisions, and v) Operational Risk Management Committee (ORMC) that monitors and manages the

Operational Risks. These committees meet at periodic intervals. The Bank has a well-established credit approval process, including comprehensive credit appraisal and established procedures for application forms, documents, etc. A comprehensive system of risk assessment is in place whereby credit rating is assigned to every borrower. An independent review group is also established to vet the risk-assessed credit rating of individual borrower accounts. A comprehensive Loan Policy document that encompasses the various facets of credit risk management is in place. This is reviewed at regular intervals, and modifications to suit the bank’s needs are carried out.

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The Bank has a loan review mechanism, which undertakes review of the pre and post sanction process of all borrowal accounts with sanctioned limits of Rs. 200 lakh and above. The Bank carries out portfolio analysis of all borrowal accounts with sanctioned limits of Rs. 50 lakh and above at half-yearly intervals, which enables it to assess the distribution of standard assets and non-performing assets industry/sector-wise, distribution of standard assets risk rating-wise, extent of non-performing assets in every industry as a percentage of total exposure within the industry and overall credit, and also undertake a constant review of economic scenario to recognise sector-wise risks. The analysis enables the Bank to carry out redressal measures and initiate suitable steps to address the identified credit risks. The process of review/renewal of borrowal accounts is carried out in a systematic manner to assist in assessing the health of the borrowal account and timely detection of sickness. The bank is not required to have a country risk management policy as according to RBI guidelines only banks that have more than 1% of their net funded assets in a particular country are required to have a country risk management policy vis-à-vis that country. In respect of Market Risk Management, including Liquidity and Interest Rate Risk Management, the Bank has introduced a scientific system of Asset-Liability Management. The market risk management policy is adequately spelt out in the ALM policy of the Bank, and is managed within the overall risk framework laid down by the Asset Liability Management Committee. The ALCO monitors market risk on an ongoing basis. Tolerance limits in accordance with RBI guidelines are fixed, and the Bank has always ensured adequate liquidity at all times. The investment policy has been laid down, which embraces the preferred mix of securities, sector-wise ceilings, limits for purchase and buyback transactions, etc., which is monitored by the Investment Committee. Operational Risk covers the whole gamut of residual risks not covered under either Credit or Market Risk. In order to mitigate operational risks, the Bank ensures a comprehensive internal control system, effective systems & procedures, recovery mechanisms and contingency plans, and regular and comprehensive audit of all its business units and administrative offices at regular intervals. The Bank has also introduced Risk Focused Internal Audit, as part of its attempt at introducing improved system of internal audit. ASSET LIABILITY MANAGEMENT (ALM) The ALM system was implemented in the Bank in 1999. An Asset Liability Management Policy has been put in place for the purpose of identifying and measuring of Liquidity and Interest Rate Risks and for the formulation of appropriate strategies to manage such risks. The data collection from branches has since stabilized consequent upon computerization of all the Branches. This has helped in timely decision-making by Asset Liability Management Committee (ALCO). The ALCO is the top operational unit for managing Balance Sheet within the risk parameters laid down by the Board. The ALCO met 65 times during the year to monitor and review risks and returns, raising and deployment of resources, setting Bank’s lending and deposit rates and directing the investment activities of the Bank. Oracle Financial Services Application (OFSA) is the common ALM solution provider for the entire State Bank Group. The Credit Information System (CIS), which is a single source of data relating to most information requirements on advances, is being implemented in the Bankmaster branches. This information is being used by IT-ALM Project and Core Banking Project. The Bank is exposed to three broad categories of risk: credit risk, market risk and operational risk.

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The Bank continues to identify, monitor, measure and manage risk across the bank. A Risk Management Committee at the Board level has been formed to oversee the Bank’s Risk Management policies and procedures. An Executive Committee of Asset Liability Management (ALCO) has been constituted in the Bank to monitor the mismatches and initiate corrective measures to improve profitability. The Credit Risk Management Department reviews and monitors the performing assets and provides guidance to the branches. Exposure to the capital market is reviewed by the Audit Committee on a regular basis. The Bank has made a provision of Rs. NIL crore towards country risk management as per the recent Reserve Bank of India guidelines The Bank has achieved substantial progress in the implementation of risk management systems, envisaged in RBI guidelines. An integrated Risk Management approach is followed, with a well designed organizational structure, and comprehensive policies and procedures laid down to manage credit, market & operational risks. The Bank has constituted 1. Risk Management Committee (RMC), which monitors the overall risks assumed by the Bank 2. Asset Liability Management Committee (ALCO), which monitors the liquidity and interest rate

risks 3. Credit Policy Committee (CPC), which deals with issues relating to credit policy and

procedures on a bank-wide basis 4. Investment Committee, which deals with investment decisions, and 5. Operational Risk Management Committee (ORMC) that monitors and manages the

Operational Risks. These committees meet at periodic intervals The Bank has a well established credit approval process, including comprehensive credit appraisal and established procedures for application forms, documents, etc. A comprehensive system of risk assessment is in place whereby credit rating is assigned to every borrower. An independent review group is also established to vet the risk-assessed credit rating of individual borrower accounts. A comprehensive Loan Policy document that encompasses the various facets of credit risk management is in place. This is reviewed at regular intervals, and modifications to suit the bank’s needs are carried out. The Bank has a loan review mechanism, which undertakes review of the pre and post sanction process of all borrowal accounts with sanctioned limits of Rs.200 lacs and above. The Bank carries out portfolio analysis of all borrowal accounts with sanctioned limits of Rs.50 lacs and above at half-yearly intervals, which enables it to assess the distribution of standard assets and non-performing assets industry/ sector-wise, distribution of standard assets risk rating-wise, extent of non-performing assets in every industry as a percentage of total exposure within the industry and overall credit, and also undertake a constant review of economic scenario to recognize sector-wise risks. The analysis enable the Bank to carry out redressel measures and initiate suitable steps to address the identified credit risks. The process of review / renewal of borrowal accounts is carried out in a systematic manner to assist in assessing the health of the borrowal account and timely detection of sickness.

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The Bank has laid down counterparty bank exposure limits for various operating departments, which is integrated and monitored on a monthly basis. Country Risk Management Policy has been dawn up, duly approved by the Board. These are reviewed at periodic intervals. In respect of Market Risk Management, including Liquidity and Interest Rate Risk Management, the Bank has introduced a scientific system of Asset –Liability Management. The market risk management policy is adequately spelt out in the ALM policy of the Bank, and is managed within the overall risk framework laid down by the Asset Liability Management Committee. The ALCO monitors market risk on an ongoing basis. Tolerance limits in accordance with RBI guidelines are fixed, and the Bank has always ensured adequate liquidity at all times. The investment policy has been laid down, which embraces the preferred mix of securities, sector-wise ceilings, limits for purchase and buyback transactions, etc., which is monitored by the Investment Committee. Operational Risk covers the whole gamut of residual risks not covered under either Credit or Market Risk. In order to mitigate operational risks, the Banks ensures a comprehensive internal control system, effective systems & procedures, recovery mechanisms and contingency plans and regular and comprehensive audit of all its business units and administrative offices at regular intervals. The Bank has also introduced Risk Focused Internal Audit, as part of its attempt at introducing improved system of internal audit. a. Credit Risk Management Credit risk primarily arises in the Bank’s lending and investment operations due to the failure of any party, principally the borrowers, to abide by the terms and conditions of any financial contract with the Bank, including failure to make required repayments on loans due to the Bank. The Bank’s standardized credit approval process includes a well-established procedure of credit evaluation and approval. The Risk Management Department measures, monitors and manages credit risk for each borrower. The Bank has a comprehensive system for tracking the rating profile of the Bank’s loan portfolio.The Bank has adopted very stringent and selective credit growth standards. In order to assess the credit risk associated with any credit proposal, the Bank assess a variety of risks relating to the borrower and the relevant industry.

The Bank has an exhaustive and structured process for monitoring credit exposures. Its aim is to:

i. Ensure compliance with the terms and conditions of the credit approval;

ii. Periodically review performance of the borrowers against projections;

iii. Detect early warning signals and take appropriate corrective prompt actions; and

iv. Conduct rapid portfolio review to right-size exposures.

Credit Procedure The credit process in the Bank is divided into three components – the pre-sanction process, the sanction process and the post sanction process.

Pre-sanction process The corporate office specifies through its corporate credit policies and periodic guidelines, the criteria for asset selection, risk acceptance level, exposure norms as well as account profitability standards. The regional head and the branch head are responsible for drawing up strategic business and marketing plans, including identifying target markets strictly in conformity with these policies. Any deviation proposed from the corporate policies must necessarily be with the prior

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concurrence of the corporate office.

Credit Sanction process The Bank already has in place a streamlined committee system for sanctioning corporate credit. The committees have been empowered suitably through delegation of powers.

b. Market Risk Management Procedure The market risk management policies of the Bank are determined by the ALCO, which also recommends overall market risk appetite to the Risk Management Committee. The Bank’s business is also subject to market risk, which arises in relation to non-trading positions, and customer originated transactions and flows. The Bank has sophisticated systems, which are used for analysing market risks, data warehousing and performing analytic for both trading and investment portfolio. Daily risk reports are prepared summarising the risk in foreign exchange, interest rate, etc., across different markets. The Bank has adopted a twin track limit system to manage its risk positions that distinguishes between risk limits and stop loss limits. The Bank uses a daily ‘Value at Risk’ measure for controlling market risk.

c. Operational Risk Management Procedure The Bank’s Operational Risk Group manages operational risk at the apex level and reports to the Risk Management Committee. The Group monitors and ensures that appropriate operational risk management frameworks are in place, adhering to the Operational Risk Policy. It proactively reviews and manages potential risks that arise from changes in the regulatory, economic, political environment. The Group discusses monthly operational risk reports and analyzes frauds, potential losses, non-compliance, breaches etc., and recommends corrective measures. The Bank has a sophisticated system, developed in coordination with an international consultant, to capture Operational Risk in a qualitative-quantitative framework (including Key Risk Indicators, Controls, Incident Reporting, Internal Loss Data, generation of ‘Value at Risk’ number) and to control it across the organization.

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Other Statistical Information Lending to Sensitive Sectors

The Bank has a limited lending exposure to the Sensitive Sectors, with a view to insulate itself against adverse market movements. The exposure to these sectors as at 31st March 2004 and as on 31.03.2005, were as follows:

Rs. in lacs

Sensitive sectors 31.3.2005 31.3.2004 Capital Markets 21.98 20.31 Real Estate Sector 14.49 66.75 Commodity Sector 259.52 244.64 Total 295.99 331.70 As % of Total Advances 3.27% 5.18% As % of Total Customer Assets 1.75% 2.54%

Classification of Investments as per RBI norms:

(Rs. in crores) As on March 31, 2002-03 2003-04 2004-05 i. Govt securities 4636.07 4979.80 5580.68 ii. Other approved securities 111.44 88.84 65.56 iii. Shares 25.04 21.57 31.68 iv. Debentures and Bonds 291.78 255.93 178.69 v. Subsidiaries and/or joint ventures 2.19 2.19 2.19 vi. Others (units of UTI & Mutual Funds) 70.51 80.69 39.34 Total 5137.03 5429.02 5898.14

Maturity Profile of Assets and Liabilities is as follows:

Residual Maturity Pattern based on restated Balance Sheet for the Year ended March 31, 2005 (Rs in crores) Maturity Pattern Deposits Loan &

Advances Investment Securities

Borrowings Foreign Currency

Assets Liabilities

1 – 14 days 370 442 934 105 37 103

15 – 28 days 75 216 199 0 40 86 29 days – 3

months 982 399 236 121 410 280

3 – 6 months 656 337 54 7 241 8 6 months – 1 year 1958 586 44 48 66 84

1 – 3 years 5006 3883 727 20 0 50 3 – 5 years 130 1279 1044 198 5 188

Above 5 years 4630 1899 2660 4 0 0 Total 13807 9041 5898 503 799 799

In compiling the above data, certain assumptions as per RBI guidelines and instructions have been made. Residual Maturity Pattern based on restated Balance Sheet for the year ended March 31, 2004

(Rs in crores) Maturity Buckets Deposits Loans &

Advances Investment Securities

Borrowings Foreign Currency

Assets Liabilities

1 – 14 days 416 292 340 31 40 125

15 – 28 days 210 109 18 0 39 46

29 days – 3 months 343 468 114 22 239 193

3 – 6 months 539 287 83 8 116 8

6 months – 1 year 370 477 25 9 2 22

1 – 3 years 4422 2915 545 24 5 47

67

3 – 5 years 138 633 914 12 0 0

Above 5 years 3981 1225 3390 3 0 0

Total 10419 6406 5429 109 441 441

Residual Maturity Pattern based on restated Balance Sheet for the Year ended March 31, 2003

(Rs Crores) Maturity Buckets Deposits Loans &

Advances Investment Securities

Borrowings Foreign Currency

Assets Liabilities

1 – 14 days 1152 502 675 5 33 81

15 – 28 days 171 125 25 0 39 30

29 days – 3 months 557 511 46 28 167 130

3 – 6 months 874 227 62 34 95 38

6 months – 1 year 1372 263 259 11 0 29

1 – 3 years 4505 2409 539 29 4 30

3 – 5 years 367 487 450 13 0 0

Above 5 years 219 659 3081 5 0 0

Total 9217 5183 5137 125 338 338

Unsecured Borrowings

Rs in crores 31.03.2003 31.03.2004 31.03.2005

Borrowings in India 124.59 109.41 502.58

Borrowings outside India 175.69 275.42 371.70 Unsecured Non-convertible Redeemable Bonds (Subordinated for Tier-II Capital)

125.00 125.00 265.00

TOTAL 425.28 509.83 1139.28

Key financial Ratios

(In (%) except where stated)

Ratios 31.3.2001 31.3.2002 31.3.2003 31.3.2004 31.3.2005 Interest Income as a percentage to average working funds

9.89 9.67 9.31 8.53 7.67

Non-Interest Income as a percentage to average working funds

2.27 3.00 2.85 2.94 1.23

Operating profit as a percentage to average working funds

2.91 3.70 3.97 4.34 2.43

Return on Assets 0.78 1.24 1.76 1.73 0.79 Business per employee (Rs. in lacs) 126.00 171.00 220.52 230.77 293.88 Profit per employee (Rs.in lacs) 0.98 1.91 3.06 3.45 2.07 Credit/Deposits Ratio (%) 51.17 54.11 56.23 61.49 65.48 Interest Spread / Average Working Funds (%) 3.22 3.19 3.47 3.70 3.47 Gross Profit / Average Working Funds (%) 2.37 3.74 3.97 4.34 2.43 Net profit / Average Working Funds (%) 0.88 1.37 1.89 1.84 0.92 Operating Expenses / Average Working Funds (%) 3.09 2.46 2.34 2.30 2.27 Return on Average Net Worth (%) 23.57 34.58 40.21 32.94 15.73 Yield on Advances 11.17 10.79 10.27 9.27 8.21 Yield on Investments (%) 10.91 10.50 9.99 9.27 8.51 Cost of Deposit’s (%) 7.79 7.50 6.81 5.80 5.03 Capital Adequacy Ratio (%) 12.73 12.78 13.09 12.39 11.61 Tier I 9.12 8.15 9.40 8.31 6.67 Tier II 3.61 4.63 3.69 4.08 4.94 Dividend Pay Out Ratio 9.57 5.60 4.37 7.73 13.14

68

Business per Employee (Rs in lakhs) 135.43 170.09 204.27 230.77 293.88 Gross Profit per Employee (Rs in lakhs) 2.63 5.24 6.45 8.14 5.48 Business per Branch (Rs in lakhs) 2171.46 2653.60 3123.77 3469.45 4290.67

Definitions of Key Ratios : - Credit / Deposit Ratio : Balance Sheet advances / Balance Sheet deposits Average Working Funds (AWF) : Fortnightly average of total assets Interest spread / AWF (%) : Interest income less interest expenses/AWF

Gross profit / AWF : Profit prior to provisions and contingencies and Extraordinary Items/AWF

Net Profit / AWF (%) : Net Profit / AWF Operating expenses / AWF (%) : Non-interest expenditure / AWF Return on average networth (%) : Net Profit / Average of opening and

closing Networth. Yield on Advances (%) : Interest earned on advances /

Fortnightly Average of advances. Yield on Investments (%) : Interest earned on investments/

Fortnightly Average of investments Cost of deposits (%) : Interest on deposits / Fortnightly Average of deposits Business per employee (Rs.lakhs) : Sum of Average Deposits and Average Advances/Employee Strength Gross profit per employee (Rs. lakhs) : Profit prior to provisions and contingencies and Extraordinary

items/Employee strength. Business per branch (Rs.lakh) : Sum of Average Deposits and Average Advances/Number of Branches. Gross profit per branch (Rs. lakh) : Profit prior to provisions and contingencies and Extraordinary items/ No.

of branches.

Note: The above financial information is based on audited financials of respective years

RELATED PARTY TRANSACTION

Related party Transactions for the financial year ended March 31, 2004, March 31, 2003 and March 31, 2002 are mentioned in the Auditors Report.

SUBSIDIARY The Bank has no subsidiary. ASSOCIATE COMPANY The Bank has no associate companies.

69

MANAGEMENT OF THE BANK

The composition of the Board of Directors of the Bank is as under: Name & Address of Director

Appointed/ Co-opted to the Board Since

Qualifications/Specialisations

Committees on which also a member

A.K. Purwar Chairman, SBI Corporate Centre, Mumbai – 400 031

13.11.2002 Representing SBI, M. Com., CAIIB

S.K. Hariharan Dy. Managing Director & GE, SBI Corporate centre, Mumbai 400 031

16.05.2005 Representing SBI,

B.Sc.

• EC of Board Director’s Committee of Board

C. Narasimhan Managing Director, State Bank of Indore, Head Office, Indore 452 003

11.03.2005

B.Sc., B.G.L., MBA, AIMA, Diploma in Computer

Programming, Certificate in Marketing, Certificate in

French

•EC of Board Director’s Committee of Board •Risk Management Committee of Board •Special Committee of Board for monitoring large value frauds •Shareholders’ Grievance Committee of Board •Customer Service Committee of Board

Smt. D. Srivastava Regional Director, Reserve Bank of India, Rambagh Circle, Tonk Road, Jaipur

06.09.2003 M.A. (Eco.)

•EC of Board Director’s Committee of Board •Audit Committee of Board

M. Venkateswarlu, Under Secretary, Ministry of Finance, Dep. Of Economic Affairs, (Banking Division), Parliament Street, New Delhi 110001.

25.03.2004 M.A., LL.B.

•EC of Board Director’s Committee of Board

M.N. Rao, General Manager, (A&S Group) Corporate Centre, Madam Cama Road, Mumbai 400021

01/01/2001 Representing SBI

M. Sc.

•EC of Board •Audit Committee of Board •Risk Management Committee of Board

Y. Sinha Dy. General Manager, (A&S Group), Corporate Centre, Madam Cama Road, Mumbai 400021

01.01.2004 Representing SBI,

B.E. (Hons.), C.A.I.I.B.

•EC of Board •Audit Committee of Board •Risk Management Committee of Board

Manoj Gupta 312, Manas Bhavan Extn., 11, R.N.T. Marg, Indore – 452001

13.02.2005 M. Com., C.A.

•EC of Board •Audit Committee of Board •Risk Management Committee of Board •Special Committee of

70

Board for monitoring large value frauds •Shareholders’ Grievance Committee of Board •Customer Service Committee of Board

Ravindra Pendharkar 121, Mangal Colony, Near RPG Tower, Ujjain 456001

18.08.2003 B.E. (Mech.), M.E. (IPE)

•EC of Board •Special Committee of Board for monitoring large value frauds •Customer Service Committee of Board

Sudhir Mehta, 405 AD, Vijay Nagar, Scheme No. 74, Indore – 452010

01.11.2004

Bachelors Degree in Comp. Sc. & Economics from

Depauw University, USA. Masters in Business Admn. In Finance & International Business from University of

Chicago, USA.

•EC of Board •Audit Committee of Board •Risk Management Committee of Board •Special Committee of Board for monitoring large value frauds •Shareholders’ Grievance Committee of Board

Alok Khare 26/1, Old Palasia, Indore 452001

28.03.2003 B.Sc., M.A., LLB •EC of Board

Atul Pradhan State Bank of Indore, Lashkar Branch, Patankar Bazar Gwalior 474 001

27.02.2004 M.A., C.A.I.I.B.

•EC of Board

Key Managerial Personnel Name & Designation Date of

Joining Qualifications Experience

(with Issuer Bank)

Functional Responsibility

C. Narasimhan 11.03.2005 B.Sc., B.G.L., MBA, AIMA, Diploma in Computer Programming, Certificate in Marketing, Certificate in French 5 M MD

Niranjan Bardalai 27.01.2005 B.E. 7 M CGM P.C. Thomas 02.06.2005 M.Sc. 3 M GM (C&I and IB) Mrs. Annie Pawar 09.08.2004 M.A., CAIIB –I 12 M GM (Operations) A.K. Ghosh July 2001 M.A. 49 M GM (Treasury) M. Vasanthakumar 01.06.2005 M.Sc(Statistics), CFA 3 M GM (Plg & Devp.) T. Ramesh Babu 22.11.2004 M.Sc, PGD BA, CAIIB 9 M GM (IT) A.V.S.N. Murthy 04.11.2004 M.A., CAIIB 9 M GM &CVO

The key managerial personnel are permanent employees and on the rolls of the Bank.

71

Corporate Governance The Bank places special emphasis on transparency, integrity, responsibility, accountability and fairness in all its policies and practices. As a good corporate citizen, the Bank takes utmost care to protect the interest of all the stakeholders’ viz. shareholders, customers, employees, government and the society at large. The Bank has well developed policies, systems and procedures to achieve these objectives. The policies, systems and procedures are continuously reviewed in order to keep pace with the changing economic and social environment. The Corporate Governance in the Bank is ensured with the following organizational structure / informations:-

1. Board of Directors.

2. Various Committees of the Board of Directors.

3. Other Committees.

4. Information for shareholders 5. Other Disclosures BOARD OF DIRECTORS The Board of State bank of Indore consists of eminent persons with considerable expertise and experience in Banking, Finance, Legal and other allied fields. The Board has Directors nominated by State Bank of India including the Chairman, the Managing Director and 3 non Executive Directors, besides one nominee Director each of the Reserve Bank of India and the Government of India, a workman Director and a non-workman Director. There is no other Executive Director on the Board except Managing Director. All the non-executive Directors have declared that they have no pecuniary relationship vis-à-vis the Bank. 2. COMMITTEES OF THE BOARD The Board has constituted various Committees to oversee operational issues, including those mandatory under the listing agreement. 1. Executive Committee

In terms of Section 35(1) of the State Bank of India (Subsidiary Banks) Act, 1959, an Executive Committee of the Board of Directors has been constituted to consider various matters relating to the day to day operations of the bank, namely sanctioning of credit proposals, investments, approval of capital and revenue expenditure, administrative matters etc. falling beyond the powers of the Bank’s Executives and Head Office Credit Committees. The Committee consists of the Managing Director, four Directors nominated by the State Bank of India, one of whom shall be the Chairman or an Officer Director nominated by SBI, form the quorum for the meetings of the Committee. The Committee met thirteen times during the last year. 2. Director’s Committee of Board Director’s Committee has been formed to review / approve following items:-

• Extension of Services of Scale-V Officers and above,

• Review of pending disciplinary action cases; and,

72

• Review of working of Vigilance Department. The committee comprises of following members:-

• Dy. Managing Director & Group Executive of State Bank of India,

• Managing Director of the Bank,

• Govt. nominee on the Board of the Bank,

• RBI nominee on the Board of the bank. The Committee met 3 times during the last year.

3. Audit Committee of the Board A Board-level Audit Committee has been constituted to ensure that internal control and audit functions in the Bank are carried out satisfactorily. The Committee provides directions and also oversees the operations of the entire audit functions in the bank. The Chairman of the Audit Committee is Shri Manoj Gupta, a Chartered Accountant by profession. Its other members are as under:-

• Shri Sudhir Mehta

• RBI Nominee Director

• SBI Nominee Director The Committee reviews the inspection reports of all branches with ‘Not Satisfactory’ ratings. Reviews of selected specialized branches and large branches are also undertaken by it. The committee also considers the follow up measures to be taken on the following:-

• Inspection Report of RBI

• Inter Branch Adjustment Account

• Un-reconciled long outstanding entries in inter-branch, inter-bank account and NOSTRO accounts

• Major areas of house-keeping, including arrears in balancing of books at various branches

• Performance of Inspection & Audit Department

• Review of Bank’s exposure in the Capital Market. On of the important functions of the Committee is to interact with the external auditors before the finalization of the annual and half yearly/ quarterly accounts and reports of the Bank. The committee met nine times during the year. 4. Risk Management Committee of the Board The Risk Management Committee of the Board oversees integrated Risk Management to manage various balance sheet risks in a cohesive manner. The Committee consists of following members:-

• Managing Director

• State bank of India Nominee

• Shri Sudhir Mehta

• Shri Manoj Gupta

The Committee met 3 times during the year 2004-05. 5. Special Committee of the Board For Monitoring Large Value Frauds

73

Reserve bank of India has desired to pay focused attention for monitoring of large value frauds. In this connection, a special committee has been constituted with the following members:-

• Managing Director

• Shri Ravindra Pendharkar

• Shri Sudhir Mehta

• Shri Manoj Gupta The main functions of this special committee is to monitor and review all the frauds of Rs 1 crore and above. The committee is expected to meet twice a year or more frequently if warranted. The committee met only once during the year, since no fraud of more than Rs 1 crore was reported during the period 2004-05. 6. Shareholders’ Grievance Committee of the Board

As per provisions of Clause 49 of the Listing Agreement with the stock exchange, a Board level Committee under the chairmanship of a non-executive Director has been formed to look into the redressal of the shareholders and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of dividends etc. The Committee comprises of the following members:-

• Shri Manoj Gupta - Chairman

• Managing Director - Member

• Shri Sudhir Mehta - Member During the year 2004-05, the committee met 4 times. No complaint was pending for disposal at the end of the year. 7. Customer Service Committee of the Board Reserve Bank of India has desired to pay focused attention for customer service rendered by the Banks. With a view to bringing ongoing improvements in the quality of customer service in the bank, it has been decided to constitute a Committee with the following members:-

• Shri C. Narasimhan

• Shri Ravindra Pendharkar

• Shri Manoj Gupta The committee once during the year. None of the complaint was pending for disposal at the end of the year. 8. Other Committees (i) Investment Committee The Investment Committee is mainly responsible for vetting of proposals for investments/ disinvestments of dunds in Non-SLR securities. The Committee’s role is only advisory, it does not have any financial powers and such powers are exercised by respective authorities as per the delegation in the bank. The following functionaries are the members of the Investment Committee:-

• General Manager (Treasury)

• General Manager (P&D)/ General Manager (Ops)

74

• Deputy General Manager (F&A) The Committee meets as and when required. The Committee met 50 times during the year 2004-05. (ii) Share Transfer Committee In terms of the listing agreement with the MP Stock Exchange, the process of transfer of shares is required to be completed within one month of receipt of transfer request. An in-house share transfer committee has been constituted comprising following members, to consider and approve share transfer applications:-

• The General Manager (Treasury)

• The Deputy General Manager (Finance and Accounts)

• The Chief Manager (Finance and Accounts) The Deputy General Manager (Finance and Accountshas been designated as the Compliance Officer, as required under the Listing Agreement. The functions and powers of the Share Transfer Committee include approval/ rejection of applications for transfer of shares and redressal of shareholders’ grievances/complaints, if any. The Committee meets at fortnightly intervals to considers requests for share transfers. All share transfer / Transmission applications received during the year were approved for transfer and these transfers were effected within the prescribed time frame. There were no applications pending as on 31.03.2005. (iii) Assets and Liabilities Committee Asset-liability management functions are supervised by the ‘Asset liability Management Committee (ALCO) headed by the Managing Director. The other members of the committee are Chief General Manager and General Managers. This committee manages risks such as market risk, liquidity risk and interest risk faced by the bank with a view to improving the return. The committee periodically to consider and decide on the product mix and their pricing taking into account the risks involvd and prevailing competitive environment in the fmarket. ALCO plays a key role in positioning the balance sheet on risk-return perspectives. The committee met 65 times during the year.

75

PROMOTERS, GROUP COMPANIES, JOINT VENTURES AND ASSOCIATES PROMOTERS AND THEIR BACKGROUND State Bank of India The State Bank of India was constituted on 1st July 1955, pursuant to the State Bank of India Act, 1955 (the "SBI Act") for the purpose of creating a state-partnered and state-sponsored bank integrating the former Imperial Bank of India. In 1959, the State Bank of India (Subsidiary Banks) Act was passed, enabling the Bank to take over eight former state-associated banks as its subsidiaries. The Bank is India's largest bank, with approximately 9,102 branches in India and 54 international offices. Its Associate Banks have a domestic network of around 4,665 branches, with strong regional ties. The Bank also has subsidiaries and joint ventures outside India, including Europe, the United States, Canada, Mauritius, Nigeria, Nepal, and Bhutan. The Bank has the largest retail banking customer base in India. The Bank is engaged in corporate banking for many of India's most significant corporates and institutions, including State-owned enterprises, as well as providing banking services to commercial, agricultural, industrial and retail customers throughout India. The Bank services its most important corporate customers, including certain state-owned enterprises, through its Corporate Banking Group, and its other customers, including other large corporations and State-owned enterprises, small scale industries, agriculture and personal banking customers through its National Banking Group. The National Banking Group also provides financial services to the Government and the state governments, including tax collection and payment services. The Bank is engaged in international banking and has foreign operations in 28 countries with a global network of 54 branches. The Bank has a presence in diverse segments of the Indian financial sector, including asset management, factoring and commercial services, insurance, credit cards and payment services. As at 31st March, 2005, calculated based on RBI data, the Bank's estimated market share in aggregate deposits of all scheduled commercial banks in India equalled 18.02 percent including India Millennium Deposits, a deposit scheme denominated in foreign currencies launched by the Bank for non-resident Indians. The Bank's estimated market share in domestic advances was 16.96 percent as on the last reporting Friday of March 2005, calculated based on RBI data for "All Scheduled Commercial Banks" ("ASCB") in India. As at 31st March 2005, the Bank recorded market share of approx. 25.85% in countries foreign trade as against 24% during the corresponding period of the previous year. The assets of the Bank are diversified across business segments, industries, and groups. The Bank's corporate headquarters ("Corporate Centre") is located at State Bank Bhavan, Madame Cama Road, Mumbai - 400 021. The bank is committed to using its effort to adopt technology to achieve efficiency in its business operations. The bank is moving towards centralised database using enhanced technology to credit it "CBS". The CBS will enable on time, real time transaction processing and provide live interface to a multitude of technology delivery channels.

76

ASSOCIATES FINANCIALS OF GROUP COMPANIES

Name of the company

Nature of activity

Date of Incorporation

Year Equity Capital

Reserves PAT EPS (inRs.)

SBI DFHI Ltd 08.03.98 2002 200 414.76 184.48 92.24

Primary

Dealer

2003 200 502.77 129.89 64.94

2004 290.91 761.45 177.57 61.04

SBI Capital Markets Ltd 2002 58.03 223.98 18.81 3.24

2003 58.03 232.02 28.35 4.89

Offers investment Banking services 2004 58.03 245.93 63.23 10.9

02.02.88 SBI Factors & Commercial Services Pvt. Ltd

2002 2003 25 25

11.57 13.79

0.46 2 22

1.85 8.88

Factoring 26.02.91 2004 25 13.97 1.59 6.32

SBI Funds Management Pvt. Ltd 2002 50 7.27 0.55 1.11

Mutual Fund 2003 50 10.38 6.2 12.23

07.02.92 2004 50 14.83 10.09 20.18

CIBIL Credit Information

Bureau

2002

2003

8.75

18.75

NIL

NIL

-0.47

-0.52

N. A

N. A

21.08.2000 2004 25.00 NIL -3.71 N. A

SBI Card 2002 100 NIL 1.56 N.A

Credit card company 2003 100 NIL 16.57 1.66

2004 100 24.98 59.92 3.8

2002 27 NIL 2.95 1.09 GE Capital Business Process &

Management Services Pvt. Ltd.

2003 27 NIL 8.68 3.21

2004 27 15.33 19.6 7.26

SBI Life 11.10.2000 2002 125.00 NIL -0.29 NIL

2003 125.00 NIL -7.49 NIL

2004 175.00 NIL -16.41 NIL

UTI Trustee C. Pvt. Ltd

14.11.02 2004 0.10 0.0029 0.0029 0.29

Trustee of UTI MF

UTI Asset Mgt Co. Pvt. Ltd 2004 10 124.94 124.94 124.93

14.11.02

Investment Mgt Services

77

Name of the company

Nature of activity

Date of Incorporation

Year Equity Capital

Reserves PAT EPS (inRs.)

2002

2003 2004

50.00

50.00

50.00

702.11

853.45

1098.57

164.5

203.28

301.52

329

406.55

603.04

SBBJ Banking SBI (Subsidiary Banks) Act, 1959

2005 50.00 1247.68 205.65 411.30

SBH Banking 2002 17.25 981.16 226.49 1312.99

2003 17.25 1233.69 301.4 1747.22

2004 17.25 1556.52 381.2 2209.86

2005 17.25 1748.40 250.90 1454.49

SBM Banking 2002 36.00 315.57 65.89 183.06

2003 36.00 394.96 115.92 322

2004 36.00 545.97 176.38 489.94

2005 36.00 720.45 206.26 572.94

SBP Banking 2002 24.75 1117.25 232.94 941.17

2003 24.75 1387.43 322.02 1301.09

2004 24.75 1706.1 430.36 1738.83

2005 24.75 2019.62 287.07 1159.88

SBS Banking 2002 314.00 253.6 82.01 26.12

2003 314.00 311.44 92.55 29.47

2004 314.00 453.41 177.39 56.49

2005 314.00 480.25 41.16 13.10

SBT Banking 2002 50.00 560.14 120.93 241.86

2003 50.00 672.8 171.04 342.08

2004 50.00 875.26 244.6 489.2

2005 50.00 1079.98 247.13 494.26

SBI 2003 526.29 16677.08 3105.00 59.00

2004 526.29 19704.97 3681.00 69.94

1.7.1955

(SBI Act, 1955)

2005 526.29 23545.83 4304.52 81.79

78

The following table sets out details of the SBI's International Subsidiaries, Joint Ventures and Associates outside India as at 31st March 2004. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES OUTSIDE INDIA (AS AT 31ST MARCH 2004)

(Rs millions)

Name Date of Establishment

Total Owned Assets Funds

Bank's

Shareholding (%)

Net Profit

SBI (Canada) 5th May, 1982 6,739.4 976.5 100 (22.2)

SBI (California) 3rd September, 1982 6,617.0 697.5 100 33.7

SBI International 12th October, 1989 3 7,679.1 834.7 98 49.7

(Mauritius) Ltd. 27th March, 1994 4

INMB Bank Ltd., Lagos 26th November, 1981 1,378.3 496.4 51 47.9

Nepal SBI Bank Limited 1 7th My, 1993 4,531.3 341.3 50 29 2

Bank of Bhutan 2 28th May, 1968 12,351.4 917.3 20 164.2

Commercial Bank of India LLC, Moscow

5th December, 2003 868.7 868.7 60 (40.8)

1. Data as on 16th July 2003. 2. Data as on 31st December 2003. 3. As a joint venture. 4. As a subsidiary.

The following tables set out certain performance highlights of the Associate Banks as at 31st March 2005

Operating Name of the Bank

Ownership Deposits Advances Profit

Return on Equity

(per cent) (Rs .in crores)

(Rs .in crores)

(Rs .in crores)

(per cent)

State Bank of Bikaner and Jaipur (SBBJ) 75.07 19038 12248 729.64 15.85

State Bank of Hyderabad (SBH) 100 29628 15590 713.22 14.21

State Bank of Mysore (SBM) 92.33 13585 9124 451.66 27.27

State Bank of Patiala (SBP) 100 26496 15823 852.97 14.04

State Bank of Saurashtra (SBS) 100 12671 6807 368.15 5.18

State Bank of Travancore (SBT)

75.01 24133 15221 802.05 21.87

Total 125551 74813 3917.69

79

NON-BANKING SUBSIDIARIES AND JOINT VENTURES OF THE PROMOTER: In addition to the Associate Banks, SBI also has a network of non-banking subsidiaries and joint ventures in India engaged in business other than commercial banking. At 31st March, 2004, total assets. In SBI's financial statements, investments in subsidiaries and joint ventures (both in India and abroad) are valued at historical cost after provisions, if any.

SBI's Ownership Investment Assets Net profit

Non-Banking Subsidiaries (per cent) (Rs. in millions)

(Rs. in millions)

(Rs. in millions)

SBI Funds Management Pvt. Ltd 100.00 500.0 738. 1 100.9

SBI Factors and Commercial Services Pvt. Ltd SBIDFHI Ltd

69.88 66.00

135.0 1657. 1

1878.6 28599.5

15..9 1740.9

SBI Capital Market Ltd. 86.16 108.0 4815.4 632.3

Non- Banking Joint Ventures

SBI Life Insurance Company Ltd 7400 12950 48665 1641

SBI Cards and Payment Services Pvt. Ltd Credit Information Bureau of India Ltd

60.00 40.00

600.0 100.0

8297.6 2546

599.2 37. 1

GE Capital Business Process Management Services Pvt Ltd 4000 1080 7207 3097

REGIONAL RURAL BANKS PROMOTED BY STATE BANK OF INDIA SBI, along with the Government, including respective state governments, has promoted 30 Regional Rural Banks ("RRBs") spread over 102 districts in 16 States with a network of approximately 2,350 branches. The aggregate deposits and advances of the sponsored RRBs stood at Rs.78,137.8 million and Rs.34,019.0 million respectively at 31st March, 2004. The net profit of the combined RRBs in fiscal year 2004 was Rs. 184.4 million. SBI had, as of March 2004, contributed Rs.1,349.7 million for the recapitalisation of 29 RRBs, which were in the process of financial restructuring CONTINGENT LIABILITIES/LEGAL PROCEEDINGS/DISPUTES SBI and its Banking Subsidiaries have contingent liabilities, which pertain to their normal banking activities. A major portion of these contingent liabilities are a source of income for them. Most of these contingent liabilities are adequately covered through individual security mechanisms as also duly counted for maintaining Capital Adequacy in line with RBI guidelines. SBI and its Associates, Subsidiaries and Affiliates are also party to various legal proceedings / disputes in the ordinary course of business of banking / other business. However, none of such proceedings / disputes, even if determined adversely to SBI and its Associates, Subsidiaries and Affiliates would have, by law, any material adverse effect on the business or financial condition of SET since each subsidiary bank is a separate statutory corporation, constituted and governed by the SBI (SB) Act. SPONSORED RRB The bank has sponsored one regional rural bank- Vidisha Bhopal Kshetriya Gramin Bank. As on March 2005 this RRB had total deposits and advances of Rs.137.12 crores and Rs.77.26 crores respectively. It is profit making and made a profit of Rs 4.94 crores for the year ended 31.03.2005.

80

STOCK MARKET DATA The Bank’s shares are listed with The Madhya Pradesh Stock Exchange (MPSE). As they are very thinly traded this data is not available.

81

FINANCIAL SUMMARY

The Financial Summary has been taken from the Audited results provided by the auditors.

Year ended March 31st 2003 2004 2005 % of change from 2003 to 2004

% of change from 2004 to 2005

Total Income 12884266 14068982 12881007 9.20 -8.44 Interest Income 9864673 10462047 11098310 6.06 6.08 Other Income 3019593 3606935 1782697 19.45 -50.58 Expenditure 10881063 11806411 11549240 8.50 -2.18 Interest Expenditure 6192862 5927865 6076303 -4.28 2.50 Operating Expenditure 2481428 2818762 3283768 13.59 16.50 Profit before Provisions & Contingencies

4209976 5322355 3520936 26.42 -33.85

Provisions & Contingencies 2206773 3059784 2189169 38.65 -28.45 Net Profit 2003203 2262571 1331767 12.95 -41.14

For details, refer to the Chapter on Auditors Report

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MANAGEMENT DISCUSSION AND ANALYSIS Significant items of Income and Expenditure during 2004-05 (Comparison of Financials for the year ended March 2005 with March 2004) Net Profit: The year 2004-05 has been difficult for the banking industry, with the treasury profits of almost all banks declining due to hardening of interest rates. Our bank is no exception to this phenomenon. Despite this setback, Bank has earned Net profit of Rs 133.18 crores during the year after making all the provisions. Interest Income: The Interest income had steadily been increasing aided by an increase in advances which is advantageous in rising rate scenario. Other Income: Due to hardening of interest rates during the year, the Bank’s profit on sale of investments declined substantially from Rs 226.22 crores in 2003-04 to Rs 17.37 crores in 2004-05 in line with industry trend accounting for fall in other income. If the effect of profits on sale of investments is excluded, the other income had increased by 19.66% supported by increases in all areas. Interest Expenses: The interest expenses increased by mere 2.50% in 2004-05 despite hardening of interest rates and higher growth of 31.35% in deposits; due to reduction in average cost of deposits. Operating Expenses: The operating expenses increased by 16.50% primarily on account of payments to & provisions for employees and normal rise in overheads. Significant items of Income and Expenditure during 2003 -04 (Comparison of Financials for the year ended March 2004 with March 2003) Net Profit: The net profit has increased by 12.95% due to an increase in interest as well as other income. Interest Income: The Interest income had increased by 6.06% aided by an increase in advances. Other Income: The other income had increased by 19.45% supported by a good rise in profit on sale of investments. Interest Expenses: The interest expenses decreased by 4.28% due to reduction in average cost of deposits. Operating Expenses: The operating expenses increased by 13.59% primarily on account of depreciation on the bank’s property and payments to & provisions for employees.

Other matters relating to the Operations of the Bank Unusual or Infrequent events and transactions: No unusual or infrequent events and transactions occurred in the last three years.

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Significant economic changes that materially affected or are likely to affect income from continuing operations: Changes in the interest rate structure that is any upward movement in interest rate, is going to reduce the value of the investment portfolio. Future relationship between costs and revenue: The freedom to determine interest rates and the keen competition have resulted in narrowing of spreads and reduction in profitability. However the bank has a tradition of mobilising low cost deposits and keeping its cost of deposits low. The Net Interest Margin stood at comfortable level of 3.63% for the year ending 31.03.2005. The bank has also succeeded in increasing its Other Income (excluding profit on sale of investments), thus retaining profitability. Extent of seasonality in the business: Bank’s business is not likely to be affected by seasonality. Non-dependence on a few customers: The operations of the bank are well spread out. The bank has a large customer base of more than 29.28 lakh and a diversified credit portfolio to prevent any concentration in exposures both industry-wise and client-wise. This insulates the bank to a large extent from any possible adverse conditions affecting any particular industry segment. The Bank has an adequately designed credit risk policy to ensure the prevention of excess exposure to few customers. Competitive Conditions: The Bank has 130 rural branches where it has monopoly in business. The large network of rural and semi-urban branches (numbering 263) ensures that a huge captive business automatically flows in to the bank. In metro centres, the Bank faces a stiff competition from other Banks, including private sector banks and foreign banks. In spite of this, the bank has succeeded in registering good performances over the last few years. Servicing Behavior: The Bank has been servicing all its principal and interest liabilities on time and there have been no defaults. Material Developments: In the opinion of the Directors of the Bank, there have been no material developments after the date of the last financial statements as disclosed in the Information Memorandum, which would materially and adversely affect or are likely to affect the trading or profitability of the Bank or the value of its assets, or its ability to pay its liabilities within the next twelve months, other than what has been already set out elsewhere in this Information Memorandum.

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OUTSTANDING LITIGATION, DEFAULTS & MATERIAL DEVELOPMENTS Save as stated herein:

• There is no outstanding or pending litigation, suit, criminal or civil prosecution, proceeding initiated for offence (irrespective of whether specified in paragraph (I) of Part 1 of Schedule XIII of the companies Act) or litigation for tax liabilities against the Bank, its Promoters, Directors or Promoter Group companies.

• There are no defaults, non payments or overdues of statutory dues, institutional or bank dues or dues towards holders of debentures, bonds and fixed deposits and arrears of preference shares, other than unclaimed liabilities of the Bank, its Promoters or Promoter Group companies.

• No disciplinary action has been taken by SEBI or any stock exchanges against the Bank, its Promoters or Directors.

• There are no outstanding litigations against the directors of the Bank. • There are no other litigations except the following, mentioned below:

CASES FILED AGAINST THE BANK The summary of litigations outstanding as on March 31st 2004 is as follows: Sr. No.

Particulars

No. of Cases

Amount involved (Rs. in crores)

A. Cases pending in various Civil/High Courts filed by customers and others

24 57.16

B. Suits/Writs filed by employees/ex-employees in various Civil / High Courts and other courts

283 Financial Implication cannot be estimated as of

now C. Consumer Cases filed against the Bank 11 0.22 D. Premises Cases 1 1.69 Total 319 59.07 Disputed Tax Liabilities

Rs. in lacs Sr.No.

A.Y. Appeal Pending before

Major grounds of Appeal Disputed Amount

Tax amount incl. interest

1 1981-82 High Court Deduction u/s 80M 0.71 0.248

2 1983-84 High Court Charging of Intt u/s 256(2) 2.33 0.945 3 1985-86 High Court Intt. suspence/ R.A. u/s 256(1) 137.19 48.016 4 1985-86 High Court Non payment of Intt. On refund 71.40 0.097 5 1986-87 High Court Deduction u/s 80M 1.6 0.56

Intt suspence / rR.A. u/s 256(2) 48.19 16.697 6 1986-87 High Court Non payment of intt on refund 59.96

7 1987-88 CIT (A) Charging Intt u/s 217 (1) 13.40 4.69 8 1994-1995 CIT(A) Adj. Of refund against demand 16.81 5.833

Dis Allow Guest House Exp 10.63 3.72 9 1996-97 ITAT Dis Allow Cap Expenditure 6.12 2.142

1996-97 CIT (A) Adj. Of refund against demand 3840.85 1344.29 10 1997-98 CIT(A) Re- cal of Intt u/s 244(A) 39.39 13.786 11 1997-98 CIT (A) Charging Intt u/s 220(2) 13.54 4.739

Total 4262.12 1445.66

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CASES FILED AGAINST THE RRBS SPONSORED BY THE BANK AS ON MARCH 31, 2005 The summary of litigations outstanding as on March 31st 2005 is as follows: Sr. No.

Particulars No. of Cases Amount involved (Rs. in crores)

A. Cases pending in various Civil/High Courts filed by customers and others

Nil Nil

B. Suits/Writs filed by employees/ex-employees in various Civil / High Courts and other courts

9 Financial Implication cannot be estimated

as of now C. Consumer Cases filed against the Bank Nil Nil D. Premises Cases Nil Nil Total 9 - AGAINST THE DIRECTORS OF THE BANK There are no outstanding litigations, disputes or penalities against the Directors of the Bank, including tax liabilities, economic offences, criminal or civil prosecution for any offence, irrespective of whether specified under any enactment in Paragraph 1 of Part 1 of Schedule XIII, of the Companies Act, 1956 or any other liability in their personal capacities or as Director/Partner/Sole Proprietor in the Bank or any other company/firm. There are no litigations against the Directors involving violation of statutory regulations or criminal offences. No discipliniary action has ever been taken by the Securities and Exchange Board of India or Stock Exchanges and no penalty has been imposed by any authority. Other than as stated above, there are no disputes/litigations towards tax liabilities or any criminal or civil prosecutions against the Bank, its subsidiaries and sponsored associations for any offence – economic or otherwise. No criminal proceedings have been launched against the Bank under any of the enactment irrespective of whether specified in paragraph 1 of part 1 of Schedule XIII of the Companies Act, 1956. DEFAULTS Besides the above, the Bank, its subsidiaries and sponsored institutions have not defaulted in meeting any of its statutory or institutional dues and have made all payments/refunds on fixed deposits. Further, no proceedings have been initiated against the Bank, its subsidiaries and sponsored institutions for any of the offences specified in paragraph 1 of Part I of Schedule XIII of the Companies Act, 1956. Further, there are no disputes/litigations towards tax liabilities or criminal prosecutions against the Bank and its Directors for any offence, economic or otherwise. As regards civil litigations against the Bank and its Directors, there are no material disputes/legal actions other than those disclosed above There are no pending proceedings initiated for economic offences against the Bank, its subsidiaries and sponsored institutions. Besides the above, no disciplinary action/ investigation has been taken by the SEBI against the Bank, its subsidiaries and sponsored institutions and its respective

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directors. MATERIAL DEVELOPMENTS In the opinion of the Directors of the Bank, there have been no material developments after the date of the last financial statements as disclosed in the Information Memorandum, which would materially and adversely affect or are likely to affect the trading or profitability of the Bank or the value of its assets, or its ability to pay its liabilities within the next twelve months, other than what has been already set out elsewhere in this Information Memorandum. INVESTOR GRIEVANCE & REDRESSAL SYSTEM Investor grievances are given utmost importance and grievances received are dealt expeditiously. Pursuant Clause 49 para VIC of the Listing Agreement a shareholder/investor grievance committee has been formed under the chairmanship of a non-executive director. The Committee specifically looks into redressing of shareholder/investor complaints in matters like transfer of shares, non-receipt of annual reports, non-receipt of dividends etc. This Committee is designated ‘Shareholders’ Grievance Committee of the Board’ and meets every quarter. The Bank has appointed a Compliance officer to deal with the Investors’ grievances Mr. Ashok Kumar Ghosh General Manager-Treasury State Bank of Indore-Head Office 5, Yashwant Niwas Road, Indore – 452003 (MP) Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 The investors can contact the Compliance Officer in case of any pre-issue/ post-issue related problems such as non-credit of letter(s) of allotment/ bond certificate(s) in the demat account, non-receipt of refund order(s), interest warrant(s)/ cheque(s) etc.

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RISK FACTORS AND MANAGEMENT PERCEPTION THEREOF The Investors should carefully consider the following risk factors as well as the other details and information contained in this Information Memorandum in evaluating the Bank and its business before investing the Bonds offered by this Information Memorandum. INTERNAL RISK FACTORS (Risk factors and management perception as required on few of the topics given below)- 1. Contingent Liabilities As on March 31, 2005 the contingent liabilities of the Bank were at Rs.9744 crores comprising claims against the Bank not acknowledged as debts (Rs. 59 crores), liability on account of outstanding forward exchange contracts (Rs. 8501 crores), guarantees on behalf of constituents (Rs. 417 crores), acceptances, endorsements and other obligations (Rs. 766 crores) and others (Rs. 1 crores). Management Perception The contingent liabilities have arisen in the normal course of business of the Bank and are according to the prudential norms prescribed by RBI. 7. Profits of the Bank The net profits of the Bank has fallen from Rs. 226.26 crores in FY 2003-04 to Rs. 133.18 crores in FY 2004-05 (negative growth of 41.14%) mainly due to fall in treasury profit. However the Bank made a profit of Rs. 17.37 crores from sale of investments (treasury income) during FY05 (Rs 226.22 crores for the FY04) Management Perception The year 2004-05 has been a difficult year for the banking industry, with the treasury profits of almost all banks declining due to hardening of interest rates. Our bank is no exception to this phenomenon. Despite this setback, Bank has responded effectively to the changed scenario and earned Net profit of Rs 133.18 crores during the year after making all the provisions. It may be noted that operating profit of the Bank has come from diversified income streams comprising net interest income, profit on sale of securities and other income, which account for 142.63%, 4.93% and 45.70% of the total operating profit respectively for the FY 2004-05, which is sustainable in future. 3. Non-Performing Assets (NPAs) As on 31.03.2004 and 31.03.2005, the net NPAs of the Bank stood at Rs Nil and Rs 90.72 crores i.e. Nil and 1.00 % of its net advances amounting to Rs 6406.06 crores and Rs 9040.65 crores respectively in absolute terms. In the event of non-recovery of these assets, the Bank may have to provide for these NPAs, which might affect the profitability of the Bank in future. Management Perception The Net NPAs of the Bank have remained low. The Bank’s provision on NPAs is more than the amount prescribed under IRAC norms. The net NPA ratio of the Bank stood at mere 1.00% as on 3s1.03.2005. The Bank is taking steps to reduce the proportion of non-performing assets through aggressive recovery drives combined with improved risk management practices. Further, there have

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been substantial changes in the legislative and operating environment enabling FIs and Banks to pursue recovery of overdues. Besides Debt Recovery Tribunal (DRT) set up for faster settlement of recovery litigation, GoI has enacted ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’ enabling FIs and Banks to securitise and reconstruct financial assets and enforce security more effectively. Reserve Bank of India has formulated detailed guidelines for operation of the scheme. The Bank is invoking the provisions of the Securitization Act to enhance recovery. Thus, the Bank has been taking recourse to all the available methods to recover its over dues from the borrowers. 4. Regional Concentration of the Bank State Bank of Indore has a regional concentration in Madhya Pradesh accounting for approximately 78% of all branches in terms of numbers. The regional presence of the Bank may compromise its competitive position vis-à-vis its national level competitors. Management Perception The regional presence of the Bank may not be a hindrance to its growth prospects. Total deposits of the Bank have grown by 170.92 % to Rs. 13807.07 crores and advances have grown up by 218.16% to Rs. 9040.65 crores during the past 5 years. The Bank has 440 branches and 30 extension counters as on 31.03.2005. 5. Decline in Return Ratios The Average Yield on Investment (domestic) of the Bank has shown a declining trend from 9.27% in FY 2004 to 8.51% in FY 2005. The Average Yield on Advances of the Bank has decreased from 9.27% to 8.30% during the same period. Management Perception Average Yield on investments has come down because of the decline in the general interest rate structure of the economy during past years. The continuous downward trend in the interest rates over past years has been the major reason for decline in Yield on Investment of the Bank. For example, the yield on 10 year GoI security (semi-annualised yield), which was 6.21% on 31.03.2003 has come down to 5.16% on 31.03.2004. However, the G-Sec yields started hardening due to the higher crude oil prices, higher inflation, etc. and as on 30.06.2005, the yield on 10 year GoI security was at 6.89% (semi annualized). We believe that the declining interest scenario has now reversed and the yield on advances and investments will start improving. 6. Depreciation charge to P& L account due to Transfer of Securities from AFS to HTM Consequent upon transfer of certain Government Securities from Available for Sale (AFS) category to Held to Maturity (HTM) as permissible, depreciation amounting to Rs 25.24 crores in the FY05. Management Perception The above-referred securities were transferred from AFS to HTM to insulate the Bank from further decline in prices. While improvement in prices, will enable selling the securities with the permission of the top management of the Bank, in case of price fall, no further provisioning is necessary as HTM category is exempted from mark to market. 7. Adverse affect of the revised RBI policy on the Capital Adequacy of the Bank

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The provision of capital charge for market risk in AFS securities and operational risk capital from 31.03.2007 will adversely affect the Capital Adequacy Ratio of the Bank in coming years. Management Perception The Bank has already initiated steps to improve the capital funds and has raised the subordinated bonds for Rs 200 crores in February 2005 augmenting tier-II capital to shore up the Capital Adequacy Ratio. The bank is further making this offer for subordinated bonds for Rs 140 crores to further shore up CRAR that would take care of capital charge for market risk on AFS securities from 31.03.2006 and operational risk capital proposed from 31.03.2007. 8. Asset Liability Position As per the statement of structural liquidity as on the 31st March 2005, the negative mismatches in the first two time buckets are well within the tolerance levels stipulated by RBI and ALM policy of our Bank. Further, all the negative gaps in the other time buckets are also within the tolerance limits fixed by the bank. A large portion of the funding of the Bank is in the form of short and medium term deposits. The asset liability position of the Bank could be affected if the depositors do not roll over the deposits. A comprehensive contingency plan is put in place to address fully any problems relating to liquidity. Management Perception As per the normal behavioral pattern and past experience, a large portion of the deposits gets rolled over. The Bank feels that in the event of these deposits not being rolled over, the fresh accretion of deposits would take care of the Asset Liability mismatches. In addition, as on 31.03.2005, the Bank had excess SLR securities to the tune of Rs.1990 crores, while the investments of Rs.2660 crores are in the long-term (over 5 years) category, which can be utilized to correct any medium term mismatches. Moreover, the Bank has an Asset Liability Management system in place to actively monitor and manage liquidity mismatches. 9. Credit Risk The Bank’s main business of lending carries an inherent credit risk, which involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. Management Perception The Bank has a rigorous and well-defined credit appraisal system. Prudential exposure norms and various internal exposure norms are followed to avoid credit concentration and to minimize and mitigate credit risk. Credit risk assessment is in place for capturing the risk profiles of the accounts. The Bank ensures that Risk Management Department is independent of the operational department. Bank has a comprehensive loan policy document covering areas of credit and credit risk. 10. Asset Concentration Top five industries amount for 29.7% and 25.66% of non-food credit of the bank as on 31.3.2004 and 31.3.2005 respectively. Top five borrowers account for 11.65% and 5.29% of non-food credit as on 31.3.2004 and as on 31.3.2005 respectively. Management Perception

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Exposure norms are in place to avoid asset concentration. Portfolio reviews and reviews of implementation of exposure management norms are undertaken at regular intervals to check asset concentration. Except for some specified industries, exposure limits for individual industry is capped at 15 percent of the bank's total fund-based exposure to avoid concentration of assets in a few industries. 11. Outstanding Litigations against the Bank There are outstanding litigations (319 cases), as on 31.03.2005 the financial implication of which cannot be estimated. For details, please refer to the para on Litigation on page 54 of the Information Memorandum. Management Perception These claims are not likely to affect the operations and finances of the Bank. 12. Litigation against the Bank sponsored RRB’s There are 9 cases of claims/suits filed against Vidisha Bhopal Gramin Bank. This Gramin Bank is sponsored by State Bank of Indore. For details, please refer to the para on Litigation on page 55 of the Information Memorandum. Management Perception These claims against Vidisha Bhopal Gramin Bank are not likely to affect the operations and finances of State Bank of Indore. 13. RBI’s Annual Financial Inspection Report The Annual Inspection Report of RBI on the financial position of the Bank as on 31.03.2004 has identified certain weaknesses in the system, operational and other deficiencies. Management Perception The bank has taken the necessary action to rectify the various deficiencies pointed out in the Annual Financial Inspection which is a regular supervisory exercise carried out by RBI in respect of all banks and financial institutions. A comprehensive compliance report has already been submitted to the regulatory authorities furnishing details of corrective actions initiated by the bank. 14. Utilization of Funds The utilization of the funds proposed to be raised through this private placement is entirely at the discretion of the Bank and no monitoring agency has been appointed to monitor the deployment of funds. Management Perception The funds raised through this private placement are not meant for any specific project and hence a monitoring agency may not be required. The Bank is managed by professionals under the supervision of its Board of Directors. Further, the Bank is subject to a number of regulatory checks and balances as stipulated in its regulatory environment. Therefore, the management believes that the funds raised via this private placement would be utilized only towards satisfactory fulfillment of the Objects of the Offer.

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15. Credit Decisions The credit decisions of the Bank are subject to various risk parameters. Management Perception In a dynamic environment, all the credit decisions are subjected to various risk parameters. As such the Bank is following a prudent policy marked by in built checks and balances, where identification and mitigation of risk are the key objectives. Prudential limits are fixed on various financial parameters to implement risk management guidelines. Bank has implemented various Credit Risk Management guidelines given by the Reserve Bank of India. Bank has fixed internal exposure ceilings based on credit rating of the borrowal account to mitigate concentration risk. Portfolio/Industry wise exposure limit is fixed as a risk mitigation tool. As part of the credit risk management system, the Bank has also confined, by and large, the high value credit exposures to specially designated branches, which are equipped to handle such exposures. Bank has also stipulated criteria for taking exposures in a particular industry. Maximum industry wise stipulated exposure is 15 per cent of total advances. The Due Diligence in respect of the retail assets has been strengthened to protect the quality of this portfolio. 16. Credit Policy of the Bank The credit policy followed by the Bank may materially influence its credit portfolio. Management Perception The Bank has a comprehensive loan policy document. The loan policy is regularly updated in the light of market changes and revision in RBI guidelines. Loan policy aims at continued growth of assets while endeavoring to ensure that they remain performing and standard EXTERNAL RISK FACTOTRS Regulatory restrictions on the Bank and limitations of the powers of bondholders of the Bank There are a number of restrictions as per the State Bank of India (Subsidiary Banks) Act, 1959, which impede the flexibility of the Bank's operations and affect/restrict investor's right. i. The Banks can carry on business/activities as specified in the Act. There is no flexibility to

pursue profitable avenues if they arise, in contrast with companies under the Companies act, where shareholders can amend the Object clause by a Special Resolution Act.

ii. There are restrictions in the Banking regulation Act regarding: a) Setting up of subsidiaries by a bank b) Management of the Bank including appointment of directors c) Borrowings and creation of floating charge thereby hampering leverage. d) Expansion of business as the branches need to be licensed e) Opening of new place of business and transfer of existing place of business f) Disclosures in the profit & loss account and Balance sheet g) Production of documents and availability of records for inspection by shareholders h) Reconstruction of banks through amalgamation etc i) Further issues of capital including issue of rights share for which prior SBI/RBI approval

is needed j) The Bank is prohibited from trading activity. This may act as operational constraint.

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iii. Every Banking Company is required to create a Reserve fund by transfer of a sum equivalent to not less than twenty percent of profit as disclosed in the Profit & Loss account before any dividend is declared.

iv. Every Bank has to maintain assets in India, which would be not less than 75% of the Bank's demand and time liabilities in India, which in turn may prohibit the Bank from creating overseas assets and exploiting overseas business opportunities.

v. The financial disclosures in the Information Memorandum may not be available to investors after listing, on a continuous basis.

vi. Various rights/powers of shareholders available under the Companies Act in this behalf are not available to shareholders of Banks as the provisions of the Companies Act are not applicable to the Bank. Rights like calling for general meetings, inspection of minutes and other material records, application by members for investigation of affairs of a company, application for a relief in case of oppression and mismanagement, voluntary winding up are not available to shareholders of a Bank.

vii. As per section 19(2) of State Bank of India (Subsidiary Bank's) Act, 1959, no person other than the State Bank, shall be entitled to exercise voting rights in respect of any shares held by such person in excess of one percent of the issued capital of the subsidiary bank concerned.

viii. No banking company shall pay dividend on its shares until all its capitalised expenses (including preliminary, organisational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. The bank has no such assets/capitalized expenses as on 31.03.2005.

ix. As per Section 9 (1) of the State Bank of India Act,1959 no person shall be registered as a shareholder in respect of any shares in a subsidiary bank held by him, whether in his own name or jointly with any other person, in excess of two hundred shares, or be entitled to payment of any dividend on the excess shares held by him, or to exercise any of the rights of a shareholder in respect of such excess shares otherwise than for the purpose of selling them:

Provided that nothing contained in this sub-section shall apply to-

a) the State Bank; b) a State Government; c) a Corporation; d) an insurer as defined in the Insurance Act, 1938; e) a local authority; f) a Co-operative society; g) a trustee of a public or private religious or charitable trust;

Increase in regional hostilities, terrorist attacks and other acts of violence and war could adversely affect the country's economic growth and development thereby the financial markets including the Bank's business and its future financial performance.

The performance, quality, and growth of the Bank are dependent on the health of the overall Indian economy. Slowdown in economic growth in India could affect the business of the Bank. Management Perception: The bank has been functioning well with all these constraints and is expected to continue to grow as hitherto. The Bank is expanding its product and services offered to diversify its income streams. The Bank's thrust on retail products is envisaged to provide growth. Risk management systems, credit supervision, special emphasis on recovery of NPAs and close monitoring will enable the Bank to closely monitor the health of its credit

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portfolio. The slowdown witnessed in the Indian and global economy in the past few years has not materially affected the Bank's profitability. 2. Sensitivity to the Economy and Extraneous Factors The Bank’s performance is highly correlated to the performance of the economy and the financial markets. The health of the economy and the financial markets in turn depends on the domestic economic growth, state of the global economy and business and consumer confidence, among other factors. Any event disturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance of the Bank including the quality and growth of its assets. 3. Competition from Existing and New Commercial Banks Competition in the financial sector has increased with the entry of new players and is likely to increase further as a result of further deregulation in the financial sector. The Bank may face competition both in raising resources and in deploying them. Management Perception: The Bank has an established broad-based presence and has been taking steps to enhance customer satisfaction by upgrading skills, systems and technology to meet such challenges. The Bank is attempting to add quality assets on competitive terms. The Bank is also taking steps to broad base its product bouquet with a special emphasis on enhancement in the non-fund based income. On the resource-raising front, the Bank is actively endeavouring to broaden its reach and raise resources through its wide distribution network of 440 branches, 30 extension counters. 4. Changes in Regulatory Policies The operations of the Banking Industry are subject to regulations by the Government/RBI. Major changes in Government/ RBI policies relating to banking sector may have an impact on the operations of the Bank. Management Perception: The policy changes may provide both opportunities and challenges for the Bank. The Bank has a long presence in the banking sector, for more than 85 years and does not perceive policy changes to be a major threat. 5. Disintermediation in the Financial Markets As the financial markets mature and with growing developments in the capital markets, the trend towards disintermediation may be increasingly in evidence. In such a scenario, many companies including the current and potential borrowers of the Bank may access capital markets directly for their financing needs and reduce their dependence on the banking system. This may have an adverse impact on the level of deposits and also on the level and mix of advances portfolio and the profitability of the Banks. Management Perception: The Bank has, in recent years, launched several retail lending schemes and value added products so as to broaden its borrower base. Further, disintermediation brings with it the opportunity for the Bank to expand its fee-based activities. The Bank has been endeavouring to develop a presence in several financial services to earn fee based income by focusing on businesses such as foreign exchange, treasury, investments, cash management, insurance, depository, debenture trustee etc., thus taking advantage of the disintermediation phenomenon. 6. Forex Risk Exchange Rate fluctuations may have an impact on the Bank’s financial performance.

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Management Perception: As per RBI guidelines, banks are not allowed to keep open position on their foreign exchange transactions beyond prescribed limits on a daily basis. Foreign exchange transactions beyond such limits, if any, must be squared off at the end of each day. Hence, the risk from exchange rate fluctuations is minimised. The Board of Directors of the Bank has also prescribed limits for gaps or mismatches in maturities of Bank’s foreign currency assets and liabilities and forward transactions in foreign exchange. The Bank operates within the limits fixed for gaps or mismatches in maturities of Bank’s foreign currency assets and liabilities and forward transactions in foreign exchange, thus minimising the risks of mismatches in maturities and interest rates. 9. Interest Rate Risk Present interest rates on deposits and advances are based on many micro and macro economic factors including the directives of the Reserve Bank of India which are likely to be market driven due to deregulation and thereby may result in increasing pressure on spreads and affect profitability. Interest rate volatility exposes the Bank to an interest rate risk or market risk. Such interest rate risk has a potential impact on net interest income or net interest margin as well as on the market value of the fixed income securities held by the Bank in its investment portfolio. Management Perception: These risks are inherent in the banking business. However, the Bank has put in place a system of regular review of lending and deposit rates in order to minimise the interest rate risk. The Asset Liability Management Committees of the Bank reviews the risk on a regular basis. Continuous Risk Management measures are initiated depending upon the movement in the market interest rates. The movement in the interest rates is closely monitored for appropriate action. 10. Operational Risk Operational risk is a result of failure of operating system in a bank due to certain reasons like computer break-ins, power disruptions, fraudulent activities, natural disaster, human error or omission or sabotage. Management Perception: For managing operational risk, the Bank has laid down well-defined systems and procedures. The Bank has set up a separate department to improve the systems and procedures to suit the changing environment. The Bank has also in place a strong internal inspection and audit system. For managing IT related risks, the Information Systems Security Policy is in place. The Bank has an effective Systems and Procedures department, which formulates and monitors delegation of duties and responsibilities at different level. Note to Risk Factors 1. Net worth (excluding revaluation reserves) of the Bank as on 31.03.2004 and 31.03.2005 was

Rs. 790.17 crores and Rs 903.56 crores respectively. 2. The Private Placement size is Rs.140 crores. 3. The Book Value of the share as on March 31, 2004 and March 31, 2005 was at Rs. 4515/- and

Rs. 5163 /- respectively (face value of Rs. 100/-). 4. State Bank of Indore would like to clarify that inspection by RBI is a regular exercise and is

carried out periodically by RBI for all banks and financial institutions. The reports of RBI are strictly confidential. The Bank has informed the RBI the actions already taken and measures that are under implementation in respect of observations made by RBI.

5. As per the provisions of Section 15(1) of the Banking Regulation Act, 1949 no banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisational expenses, share selling commission, brokerage, amounts

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of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off.

6. No person holding shares in the Bank in respect of any shares held by him/her can exercise voting rights on a poll in excess of 1% of the total voting rights of all the shareholders of the Bank.

7. Transactions between State Bank of Indore and its Associates w.r.t. related party transactions are given under the head Financial Information.

8. The face value per share of the promoters is Rs. 100/-. HIGHLIGHTS OF THE BANK

• Member of the State Bank Group, the largest Banking Group in India. The Group has the biggest network of branches and the highest market share of deposits and advances in the country.

• Only Public sector bank headquartered at Madhya Pradesh – about 0.75% market share in terms of deposits in the country.

• Uninterrupted record of profitability since incorporation.

• Low NPA ratio of 1%.

• The Capital Adequacy Ratio of the Bank 11.61% as at the end of 31st march 2005 which is higher than the minimum 9%.

• Bank's existing equity shares are listed on the Madhya Pradesh Stock Exchange at Indore and are now traded nationwide through ISE.

• Credit growth during the year 2004-05 was at 41.13% against ASCB growth 26.50%.

• Return on Assets and Return on Equity as on 31.03.2005 were 0.79% and 14.74% respectively.

• 100% Business has been computerised.

96

PART II

A. GENERAL INFORMATION CONSENTS Consents in writing of the Arranger to the Issue, Directors, Trustees, Registrars, Legal Advisors and Compliance Officer to act in their respective capacities have been obtained. EXPERT OPINION Save as stated elsewhere in the Information Memorandum, the Bank has not obtained any other expert opinion. CHANGES IN DIRECTORS DURING THE LAST THREE YEARS The changes that took place in the Board of Directors since 1st September, 2001 are as follows:

Date of Change S. No.

Name Appointment Ceased from

Reason for Change

1. Janki Ballabh 1/11/2000 31/10/2002 Retirement 2. A. K. Purwar 13/11/2002 ----- Continue till date 3. D. P. Roy 20/04/1999 30/09/2001 Retirement 4. R. Sundar Raman 01/10/2001 31/05/2002 Retirement 5. K.S.V. Krishanama Chari 12/06/2002 31/07/2003 Retirement 6. C. Bhattacharya 08/10/2003 30/05/2004 Changed 7. A. G. Kalmankar 31/05/2004 11.05.2005 Transfer 8. S. Prasada Rao 24/05/2002 30/06/2003 Retirement 9. T. S. Bhattacaharya 01/03/2004 26.02.2005 Promotion and

transfer to SBI 10. A. Thomas 15/04/1999 19/03/2002 Completion of tenure 11. S. K. Thakur 20/03/2002 24/03/2004 Completion of tenure 12. M. Venkateswarlu 25/03/2004 ---- Continue till date 13. B. Ghosh 06/02/1999 09/06/2002 Transfer 14. Ku. Uma Subramaniam 10/06/2002 05/09/2003 Transfer 15. Smt. D. Srivastava 06/09/2003 ---- Continue till date 16. A. R. Samajdar 20/10/1999 30/09/2003 Retirement 17. Ravindra Pendharkar 18/08/2003 ---- Continue till date 18. Harish Chandhok 04/10/2000 31/10/2004 Completion of tenure 19. Sudhir Mehta 01/11/2004 ---- Continue till date 20. Manoj Fadnis 13/02/2002 12.02.2005 Retirement 21. J. P. Jhawar 18/12/1998 26/02/2004 Completion of tenure 22. Atul Pradhan 27/02/2004 ---- Continue till date 23. J. S. Dilawari 21/12/1998 28/03/2003 Completion of tenure 24. Alok Khare 28/03/2003 ---- Continue till date 25. M. N. Rao 01/01/2001 ---- Continue till date 26. Y. Sinha 01/01/2004 ---- Continue till date 27. C. Narasimhan 11.03.2005 ---- Continue till date 28. Manoj Gupta 13.02.2005 ----- Continue till date 29. S.K. Hariharan 16.05.2005 ----- Continue till date

97

CHANGES IN AUDITORS DURING THE LAST THREE YEARS Since the RBI appoints the Auditors each year, the changes have been effected as per RBI’s Approval. The changes are given below: Sr. No. Name of the Auditors Year of Change Added / Retired

1 Ghiya & Company 2003-04 Added 2 Arun K Agrawal & Co. 2003-04 Added 3 DC Garg & Co. 2003-04 Added 4 Sharma Goyal & Co. 2003-04 Added 5 V K Jindal & Co 2003-04 Retired 6 Bhushan Bensal Jain & Assoc. New Delhi 2003.04 Retired 7 Oberai, Sood & Kapoor 2003-04 Retired 8 B M Roostgi & Co. 2003-04 Retired 9 K K Ghai & Co 2004-05 Retired 10 Rajhar Gopal & Co 2004-05 Added

AUTHORITY FOR THE PRESENT ISSUE This private placement of Bonds is being made pursuant to the resolution passed by the Board of Directors of the Bank at its meeting held on 21st July 2005. The Board has authorised the Managing Director to issue the Information Memorandum. LETTERS OF ALLOTMENT/ REFUND The Bank shall credit the allotted securities to the respective beneficiary account / dispatch the Letter of Allotment, if applicable or Refund Orders/Letter of Regret, as the case may be, by Registered Post or as per extant postal rules at the sole risk of the applicant to the applicant within thirty days from the date of allotment. Further, the Bank agrees that

a) as far as possible, allotment of bonds shall be made within 30 days of the closure of the issue. b) Interest shall be paid at 15% p.a. if the allotment has not been made and/or the refund orders have not been dispatched to the investors within 30 days from the date of the

closure of the issue, for any delay beyond 30 days from the 31st day till the date of dispatch of refund order.

BASIS OF ALLOTMENT The Bank reserves the right to reject in full or partly any or all the offers received by them to invest in these Bonds without assigning any reason for such rejections.

98

ISSUE MANAGEMENT TEAM

Arranger to the Issue

Trustee to the Bond Holders IDBI Trusteeship Services Ltd.,Mumbai 10th Floor, Nariman Bhawan 227,Vinay K. Shah Marg, Nariman Point, Mumbai-400021 Tel. 022 5631 1771/2/3 Fax:5631 1776

www.idbitrustee.com

Registrar to the Issue Ankit Consultancy Pvt. Ltd 2nd Floor, Alankar Point 4-A, Rajgarh Kothi Geeta Bhawan Crossing, Indore Tel: (0731) 2491298/5076083 Fax: (0731) 5065798

Email:ankitind@sancharnet.in

Auditors to the Bank M. Munshi & Co. 305, Navneet Plaza, 5/2 Old Palasia Indore-452018. Tel.0731 2561023/2563452 Fax:2564019

E-mail:mmunshico@vsnl.net

COMPLIANCE OFFICER The Bank has appointed a Compliance officer to deal with the Investors’ grievances Mr. Ashok Kumar Ghosh General Manager-Treasury State Bank of Indore-Head Office 5, Yashwant Niwas Road, Indore – 452003 (MP) Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217

SBI Capital Markets Ltd. 202, Maker Tower “E” Cuffe Parade Mumbai – 400 005 Tel: (022) 2218 9166 Fax: (022) 2218 8332 Email: fig@ sbicaps.com

99

B. AUDITORS’ REPORT The Board of Directors State Bank of Indore, Head Office Indore Dear Sir, In terms of our appointment for the purpose of certification of the statement of accounts, to be incorporated in the offer document to be issued by the Bank, in connection with the Private Placement of Sub-ordinated Tier II Debts, we state as follows: 1. We have examined the Audited Accounts of the Bank for the five consecutive financial years

ended on 31.03.2005. 2. The aforesaid financial statements have been prepared in accordance with the guidelines issued

by the Reserve Bank of India from time to time and subject to the limitation of disclosures required under the State Bank of India Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

3. In accordance with the requirements of clause B of Part II to schedule II of the Companies

Act 1956 and SEBI (Disclosures and Investor Protection) Guidelines 2000, we report as under:

a. The Statement of Assets and Liabilities and Profit & Loss of Bank for the five consecutive financial years ended on 31.03.2005, the Significant Accounting Policies, Notes to Accounts, Auditors Report, Significant changes in Accounting Policies and subject to Auditor's Qualifications in respect of which no adjustments could be carried out as consequential effects could not be ascertained, are prepared from the aforesaid accounts after making such adjustments and regroupings as were feasible and in our opinion, considered appropriate.

b. We further report that the dividends declared by Bank in respect of five consecutive

financial years ended on 31.03.2005 are set out in annexure enclosed.

c. We have also examined the accompanying statements of Key Accounting Ratios for the five consecutive years ended on 31.03.2005, details of unsecured loans, details of other income, details of investments, statement of capitalisation, Tax shelter statements, contingent liabilities statement and report that in our opinion these have been correctly computed, as detailed in the annexure, subject to the consequential effects for non adjustment of qualifications.

Place: Indore For M. Munshi & Co. Date: 25.08.05 Chartered Accountants Vishnu Gupta

Partner

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STATEMENT OF PROFIT AND LOSS FOR FIVE YEARS (Rs. in crores)

Year ended Year ended Year ended Year ended Year ended 31.03.2001 31.03.2002 31.03.2003 31.03.2004 31.03.2005

I INCOME

Interest Earned 710 888 986 1046 1110

Other Income 162 275 302 361 178

TOTAL 872 1163 1288 1407 1288

II EXPENDITURE

Interest Expended 476 596 619 593 608

Operating Expenses 224 225 248 282 328 Provisions and Contingencies 108 217 221 306 219

TOTAL 808 1038 1088 1181 1155

III PROFIT/LOSS

C/f profit/(loss) 0 0 0 0 0

Net Profit for the year 64 125 200 226 133

Capital Reserve (Investment appreciation)

TOTAL 64 125 200 226 133

IV APPROPRIATIONS

Transfer to

- Statutory Reserves 52 59 136 81 100

-

Investment Fluctuation Reserve (excess / short provision towards depn. on Investments net of taxes and Statutory Reserves) 5 51 51 110

0

- Transfer to Capital Reserves (Profit on sale of Inv. under "HTM" Category 8 3 5

0

- Redemption Reserve for Bonds

- Dividend 7 7 10 20 20

(inclusive of Dividend Tax where applicable) Other Reserve 10

13

Balance carried over to Balance Sheet 0 0 0 0 0

TOTAL 64 125 200 226 133

Earnings per share Basic/Diluted) 365.71 714.85 1144.69 1292.91 761.01

101

(Rupees in crores)

1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

INTEREST INCOME

Interest/Discount on Advances/Bills 278 351 399 486 496 622

Income on investments 242 323 452 473 526 454 Interest on balances with Reserve Bank of India and other inter bank funds 22 18 21 17 15 25

Others 18 18 16 10 9 10

TOTAL 560 710 888 986 1046 1110

OTHER INCOME

Commission, Exchange and Brokerage 70 72 75 84 95 110 Profit/Loss on sale of investments (Net) 37 62 174 183 226 18 Profit (-loss) on Revaluation of Investments (Net) - Profit on sale of land, buildings and other assets (Net) 0

Profit on exchange transactions (Net) 7 8 9 20 12 22

Miscellaneous Income 20 20 17 15 28 28

TOTAL 134 162 275 302 361 178

INTEREST EXPENDED

Interest on Deposits 350 447 557 586 565 571 Interest on Reserve Bank of India/Inter Bank borrowings 3 4 3 2 0 16

Others 19 25 36 31 28 21

TOTAL 372 476 596 619 593 608

OPERATING EXPENSES

Payments to and provisions for

Employees 133 155 153 166 177 195

Rent, Taxes and Lighting 13 14 16 18 21 25

Printing and Stationery 2 3 3 4 5 7

Advertisement and Publicity 0 0 0 1 1 4

Depreciation on Bank's Property 12 15 15 17 26 25

Directors' Fees, Allowances and Expenses 0 0 0 0 0 0 Auditors' Fees and Expenses (including Branch Auditors) 1 2 2 2 4 4

Law Charges 0 0 1 0 1 1

Postage, Telegrams, Telephones etc. 4 4 4 4 4 4

Repairs and Maintenance 2 2 2 2 2 4

Insurance 3 3 4 5 4 8

Other Expenditure 23 26 25 29 37 51

TOTAL 193 224 225 248 282 328

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STATEMENT OF ASSETS AND LIABILITIES Rs. in crores Financial Year Ended as on March 31 2001 2002 2003 2004 2005

A. ASSETS

1. Cash in hand 21 26 35 39 23

2. Balances with RBI 484 465 588 513 544 3. Balances with Banks in India 56 32 54 191 425 4. Balances with Banks outside India 30 71 24 13 4 5. Money at Call and Short Notice 60 205

6. Investments in India 3916 4531 5137 5429 5898

7. Investments Outside India

8. Advances in India 3427 4285 5183 6406 9041

9. Advances outside India 10.Fixed Assets (Net of Rev. Reserve) 55 49 47 61 77

11.Other Assets 233 387 309 332 682

A. TOTAL OF (A) 8222 9846 11377 13044 16899

B. LIABILITIES

1. Demand Deposits

From Banks 142 116 129 204 286

From Others 668 753 897 1051 1186

2. Savings Deposits 1528 1756 1981 2420 2785

3. Term Deposits

From Banks 207 125 137 107 285

From Others 4153 5168 6073 6730 9265

4. Borrowings

In India 208 136 124 109 503

Outside India 50 176 275 372 5. Other Liabilities and Provisions 1005 1329 1276 1357 1313

6. Subordinated Debts

B. TOTAL OF (B) 7911 9433 10793 12253 15995

C. NET ASSETS (C=A-B) 311 413 584 791 904

Represented by:

D. SHARE CAPITAL 18 18 18 18 18

E. RESERVES AND SURPLUS

1. Statutory Reserve 180 239 376 458 558

2. Capital Reserve 0 9 12 17 17

3. Share Premium 44 44 44 44 44 4. Investment Fluctuation Reserve 9 60 110 220 220 5. Revenue and Other Reserve 60 43 24 34 47 6. Balance of Profit and Loss Account 0 0 0 0 0

TOTAL (E) 293 395 566 773 886

F. TOTAL (D+E) 311 413 584 791 904

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CONTINGENT LIABILITIES

Rs. in crores

FINANCIAL YEAR 2000-01 2001-02 2002-03 2003-04 2004-05

Claims against the Bank not acknowledged as debts 57 49 51 60 59 Liability for partly paid Investment 2 Liability on account of outstanding forward exchange contracts 659 872 2464 4589 8501 Guarantees given on behalf of constituents (Net of Margin) 164 159 174 211 417 Acceptances, endorsements and other obligations (Net of Margin) 272 309 388 493 766 Other Items for which the Bank is contingently liable 6 8 6 3 1

TOTAL 1160 1397 3083 5356 9744

BILLS FOR COLLECTION 420 526 541 1077 920

BREAK UP OF UNSECURED LOANS AS ON 31.03.2004 AND 31.03.2005 (Rs. in crores)

31.03.2005 31.03.2004

I. Borrowings in India

i) Reserve Bank of India

ii) Other Banks - 52

iii) Other Institutions and Agencies - -

II. Borrowings outside India 372 275

III. Tier II Bonds

(a) Subordinated Debt (12 yr maturity) 265 125

(b) 7 Yr Unsecured Redeemable Bonds

TOTAL (I+II+III) 637 452

DETAILS REGARDING LOANS AND ADVANCES TO PERSONS/COMPANIES IN WHICH DIRECTORS ARE INTERESTED

Name of The Director

Type of Bank's Exposure Amount in Lakhs

as on 31.03.05 Asset Classification

Nil Nil Nil Nil

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STATEMENT OF FACE VALUE, BOOK VALUE AND MARKET VALUE OF INVESTMENTS AS ON 31st MARCH, 05

(Rs. in crores)

Sn Investments Face Value Book Value Market Value

A Govt. Securities

Held to Maturity 1102.98 1199.72 1199.72

Available for sale 3875.68 4312.99 4217.84

Held for trading 145.69 163.43 163.13

Total of A 5124.35 5676.14 5580.69

B Other App Securities

Available for Sale 65.71 65.46 65.46

HTM 0.10 0.10 0.10

NPA 6.26 6.26 Nil

Total of B 72.07 71.82 65.56

C Shares

Available for sale + HFT + HTM 12.63 32.90 31.92

NPA 0.75 2.37 1.95

Total of C 13.38 35.27 33.87

D Bonds/Debentures

Held to maturity - - -

Available for sale--performing 186.45 179.13 178.69

NPA 12.29 12.19 Nil

Total of D 198.74 191.32 178.69

E Others

Mutual Funds 36.65 40.00 39.34

Asset Security Receipts - - -

Total of E 36.65 40.00 39.34

GRAND TOTAL 5445.19 6014.55 5898.15

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SIGNIFICANT ACCOUNTING POLICIES

1. General

The accompanying financial statements have been prepared on historical cost basis and confirm to the generally accepted accounting practices and statutory provisions unless otherwise stated. 2. Transactions involving Foreign Exchange

a) Monetary assets and liabilities in foreign exchange are converted at the FEDAI rates prevailing at the close of the year.

b) Income and expenditure items are translated at the exchange rates prevailing on the

date of the transaction. The revised AS-11 is yet to be implemented, however, the non-implementation has no material impact on the accounts for the year 2004-05.

c) Letters of guarantee and letters of credit issued in foreign currencies are translated at

the rates prevailing on the date of the respective transactions.

d) Profit or Loss on outstanding Forward Contracts as is accounted for on the basis of valuation as per FEDAI guidelines.

3. Investments

a) Pursuant to revised guidelines issued by RBI vide Circular No. BP.BC.21/21.04.141/2003-04 dated 2nd September 2003, all investments have been classified in three categories, viz. "Held to Maturity", "Available for Sale" and "Held for Trading" and valued accordingly. However, for disclosures in the balance sheet these are classified under six groups- Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries/Joint Ventures and Others.

b) The valuation of securities in these classifications has been done as per RBI

guidelines, as detailed hereunder:

i) Investments in ‘Held to Maturity’ category are carried at acquisition cost unless it is more than the face value, in which case the premium has been amortised over the residual period of maturity and the book value of each scrip has been adjusted accordingly.

ii) Investments held into ‘Available for Sale’ and ‘Held For Trading’ are

marked to market, the net appreciation in each classification has been provided and the net appreciation under each classification has been ignored.

iii) Investments in Government of India securities, State Government

Securities and Other SLR eligible Bonds classified under ‘Available for Sale’ and ‘Held For Trading’ are valued at the market price as available from the trades/ codes on the national stock exchange, price declared by Primary Dealers Association of India (PDAI) jointly with the Fixed Income Money Market and Derivatives Association of India (FIMMDA).

iv) Investment in shares, debentures, bonds of public sector undertakings and private corporate bodies, units of Unit Trust of India and other mutual funds

106

classified in ‘Available for Sale’ for which market quotations are not available, are accounted for at estimated realisable value in accordance with PDAI and FIMMDA guidelines.

c) The Weighted Average Cost method is adopted for determining the cost of

securities sold. d) Incentive, brokerage and commission received on subscription are adjusted against

the cost of the securities. e) Investments are treated as non performing assets applying RBI's prudential norms

on asset classification, in cases where interest/ dividend is not received regularly and is in arrears for more than 90 days, appropriate provisions are made accordingly.

f) Securities with guarantees of Central Government are treated as performing investment, notwithstanding arrears of principle or interest payment. However, interest if not realised for more than 90 days is recognised as income only on cash basis.

g) Securities guaranteed by State Government where principle or interest is due but not paid for a period of 180 days as 31.03.05 are treated as non performing investment and provided as per RBI guidelines. Further, the Securities guaranteed by State Government where principle or interest is due but not paid for a period of 90 days, interest is recognised as income only on cash basis.

h) Pursuant to Prudential guidelines on Bank’s investment in non SLR securities issued by RBI vide circular no. DBOD.BP. BC.44/21.04.141/2003-04 dated 12th November, 2003, the bank has classified- i) Preference shares where the fixed dividend is not paid ii) Equity Shares where the investment is valued as Re.1/- per company as non-

performing investments. i) Profit/Loss on sale of investments in any category are taken to the profit & Loss

Account. However, in case of profit on sale of investments in ‘ Held to Maturity” category, an equivalent amount is appropriated to the Capital Reserve Account.

j) Brokerage and Commission incurred at the time of acquisition of securities are recognized as expenses.

k) Investment stated in the balance Sheet are net of depreciation.

4. Advances

Provision on advances has been arrived at in accordance with Reserve Bank of India guidelines as under: a) All advances are classified under four categories i.e.:

1) Standard Assets; ii) Sub-Standard Assets; iii) Doubtful Asset; iv) Loss Assets b) The provision on standard assets is created @ 0.25% of the outstanding. c) Provisions on Non Performing Assets are arrived at on amount outstanding net of

interest suspense/ interest not collected is any, are as under: i) Sub-Standard assets @ 10% of the outstanding. However, in case of

sub-standard assets which are identified ab intio as "unsecured exposures", provisions @ 20% have been made.

ii) Doubtful Assets @ 20-100% of the secured portion of the advances based on the period for which the account remained as “Doubtful Assets” and at 100% of the unsecured portion of the outstandings after deducting eligible amount of claims under the guarantee schemes of ECGC/CGSTI.

iii) Loss Assets @ 100% of the outstanding.

107

d) Appropriation of partial recoveries: The partial recoveries in Doubtful and Loss Assets are first appropriated towards principal outstanding and thereafter towards income.

5. Advances shown in the balance sheet are net of:

a) Unrealised income(interest Not Collected) b) Provisions made on advances (including floating provision) except that on

Standard Assets. c) Bills rediscounted with IDBI/SIDBI

6. Fixed Assets a) Premises and other fixed assets are accounted for on the historical cost basis.

Premises include cost of land where the same cannot be segregated. b) Premises include freehold as well as lease hold properties. Leasehold properties are

amortised over the period of lease. c) In some cases land and buildings are capitalized based on conveyance/ letter of

allotment/ agreement and physical possession of the property. d) Depreciation is provided for on diminishing balance method at the rates prescribed

under the income Tax Rules, 1962. Depreciation on computers (excluding software) is provided on straight line method @ 33.33% per annum as per RBI guidelines. No depreciation is provided in the year of sale/disposal.

e) Depreciation on Assets leased prior to 01.04.2001 is provided for on Capital Recovery Method.

7. Staff Benefits i) Liability for gratuity, pension and leave encashment on retirement to staff is

provided on accrual basis as per actuarial valuation. ii) Additional retirement benefits payable to retired employees are accounted for in

the year of payment.

8. Net Profit

The Net Profit disclosed in profit and loss account is arrived at after: i) Provisions for taxes on income in accordance with AS 22 and other statutory

requirements ii) Provisions on advances iii) a) Provisions for depreciation on investments

b) Adjustments to the value of investments iv) Transfer to Contingency fund v) Other usual and necessary provisions

9. Contingency Fund

Contingency funds are grouped in the balance sheet under the head “Other Liabilities and Provisions”.

10. Revenue Recognition A) Income

i) Interest and other incomes are accounted for on accrual basis except the following which are accounted for on cash basis

108

a) Interest and other income on non performing assets as per norms prescribed by

Reserve Bank of India. b) Commission on Letters of Credit/ Guarantees c) Income from Merchant Banking activities. d) Insurance claims e) Dividend on shares and units of Mutual Funds f) Interest on overdue bills. g) Locker rentals h) Value-dating interest on inter-bank account with State Bank of India i) Commission on Government Business.

ii. Lease income in respect of assets leased prior to 01.04.2001 is recognised based on the Internal Rate of Return method over the primary period of the lease and accounted for in accordance with the guidelines issued by the Institute of Chartered Accountants of India.

B. Expenditure Expenditure is accounted for on accrual basis except the following, which are accounted for on payment basis:

i. Expenses on electricity, telephone, rentals, and property taxes.

ii. Interest on overdue deposits not renewed. iii. Annual Maintenance Contracts. iv. Overdue interest claims for delayed settlement of inter bank forex contracts v. Insurance Premiums vi. Value-dating interest on inter-bank account with State Bank of India.

EFFECTS OF CHANGES IN SIGNIFICANT ACCOUNTING POLICIES During the five consecutive financial year ended 31st March,2005, various guidelines were issued by RBI on Income Recognition, Asset classification, Provisioning in respect of Standard Assets/ Non Performing Advances, Other Assets, Classification of Investments, Valuation thereof, Treatment of depreciation on investments/ fixed/ leased Assets and amortization of Voluntary Retirement scheme expenditure etc. necessary amendments in the accounting policy has been carried out by the bank in the relevant years, to be in conformity with the RBI guidelines. The year-wise changes in accounting policies with their consequential effect in the year of change are as under: In the year 2004-05 accounting policy in respect of following have changed: a. The profit on cancellation of Forward contract payable to customers at maturity date,

which was hitherto accounted for on payment basis is now being accounted for on accrual basis now, as a result of which the profit for the year is lower to the extent of Rs.5.07 crores.

b. Interest accrues and due on “Term Deposits” which was accounted for as “Interest

Liability” up to last year is being capitalized as deposit from current year (2004-05). Consequently, the aggregate deposit has increased by Rs. 386.71 Crores as on 31.03.05.

109

In the year 2003-04, accounting policy in respect of following have changed : 1) The delinquency norms for asset classification have been changed from 180 days to 90

days for the year 2003-04. The provision on Non Performing Assets are arrived at on amount outstanding net of interest suspense/ interest not collected if any, are 10% of outstanding sub-standard assets, 20% to 50% on doubtful assets and 100% of the unsecured portion of the outstanding after deducting eligible amount of claims under ECGC schemes as also on loss assets.

Appropriation of partial recoveries in doubtful and loss assets is first done towards principal outstanding and thereafter towards income.

2) In the year 2003-04, Accounting policy in respect of appropriation partial recoveries in

Doubtful and Loss Assets has been changed, in terms of which partial recoveries will now be first appropriated towards principal outstanding instead of income due to which the profit for the year 2004-05 is lower to the extent of Rs.1.16 Crores.

3) The provision on standard assets @ 0.50% made in the earlier years prior to 2003-04 as

against 0.25% stipulated by Reserve Bank of India has now been maintained at 0.25%. This has resulted in write back in the provision on standard assets of Rs.9.14 Crores.

4) Due to change in accounting policy in respect of booking profit on sale of investment

from "Cost" to "Weighted Average Cost Method", the profit for the year ended on 31.03.2004 is lower to the extent of Rs.15.17 Crores.

In the year 2002-03, accounting policy in respect of following have changed : 1) SOFTWARE Expenditure, which was hitherto being charged to Profit and Loss account

in the year in which it was incurred, was capitalized and depreciation on the same was charged as per the rates prescribed under Income tax Rules 1962. Due to this change in accounting policy the profit for the year was higher by Rs.0.13 Crore.

2) Accounting for Leave Encashment Facility on retirement has changed from cash basis to

accrual basis. The accrued liability for leave encashment has determined on actuarial valuation, as on 31.03.02 amounting to Rs.19.39 crore was adjusted against Revenue Reserves as per guidelines issued by RBI. The liability for year amounting to Rs.5.04 crore was charged to Profit and Loss Account. Due to this change in accounting policy, the profit of the year was lower by Rs.5.04 Crore.

3) Recognition of income on zero coupon bonds and Treasury bills has changed from cash

basis to accrual basis, the difference between acquisition cost and the redemption value of treasury bills held at the end of the year was apportioned on time basis and was recognized as accrued income. Due to this change in accounting policy, the profit of the year was higher by Rs.0.20.crore

CAPITAL ADEQUACY RATIO

Particulars 2005 2004 Capital to Risk Weighted Assets Ratio [CRAR] 11.61% 12.39% Tier I Capital to Risk Weighted Assets Ratio 6.67% 8.31% Tier II Capital to Risk Weighted Assets Ratio 4.94% 4.08%

110

ADDITIONAL DISCLOSURES In terms of the Reserve Bank of India guidelines, the following additional disclosures have been made and the data as computed by the management is relied upon by the auditors: [Rs. in crores] Particulars 2004-05 2003-04 A Percentage of share holding of the State Bank of India. 98.05% 98.05% B Percentage of Net NPA to Net Advances 1% 0% C Details of “Provisions and Contingencies” debited to the Profit and Loss

Account of the year: Provisions made towards NPAs Write-Back of floating Provision Provision for depreciation and amortisation in the value of investments Provision for income tax(including deferred tax) Provision for Wealth Tax Provision for Wage Revision Provision for Restructured Accounts Depreciation on Security Margin with CCIL Provision for Contingent Liabilities Provision for Standard Assets Total

97.33 (114.98) 150.48 14.93 - 40.00 21.98 0.49 2.29 6.40 218.92

184.75 - 31.15 99.21 - - - - (9.14) 305.97

D Subordinate debt raised as Tier II Capital During the year 2000-01 Rs. 65.00 During the year 2001-02 Rs. Nil During the year 2002-03 Rs. Nil During the year 2003-04 Rs. Nil During the year 2004-05 Rs. 200.00 Total Rs.265.00

265.00 125.00

E Business Ratios: i. Interest income as a percentage to average working funds ii. Non-interest income as a percentage to average working funds iii. Operating profit as a percentage to average working funds iv. Return on assets (net profit as a percentage to total assets at the end of the year) v. Business (Deposits plus Advances) per employee vi. Profit per employee

7.67% 1.23% 2.43% 0.79% 2.93 0.20

8.53% 2.94% 4.34% 1.73% 2.31 0.35

COUNTRY RISK EXPOSURE AND PROVISIONS THERE AGAINST The net funded exposure on 31.03.2005 of the bank in respect of foreign exchange transaction with each country is within 2% of the total Assets of the bank and hence no provision and disclosure is required. COMPLIANCE WITH ACCOUNTING STANDARDS (2004-2005) (a) Segmental Reporting (AS 17) i) Following segments have been identified as primary segments:- a) Domestic Treasury operations

111

b) Other Banking operations ii) The entire Indian operations are being treated as a single reportable segment hence secondary segment is not considered.

(Rs. in Crores)

Business Segment Treasury Other Banking Operations Total

Particulars Year ended 31.03.2005

Year ended 31.03.2004

Year ended 31.03.2005

Year ended 31.03.2004

Year ended 31.03.2005

Year ended 31.03.2004

Revenue 502.86 772.35 1168.98 1075.72 1671.84 1848.07

Less: Inter segmental Revenue 386.29 442.42

Net Revenue 1285.55 1405.65

Results (71.75) 269.43 217.30 66.13 145.55 335.55

Unallocated Revenue 2.55 1.24

Unallocated Expenses 0.00 11.32

(Operating profit) 148.10 325.47

Income Taxes 47.75 140.24

Deferred Taxes (32.82) (41.03)

Net Profit 133.17 226.26

Segment Assets 6807.57 6166.08 10007.54 6810.28 16815.11 12976.36

Unallocated Assets 83.26 67.56

Total Assets 16898.37 13043.92

Segment Liabilities 550.96 288.8 16044.91 12337.14 16595.87 12625.94

Unallocated Liabilities 302.5 417.98

Total Liabilities 16898.37 13043.92

Segment Capital Employed 39.85 53.73 863.71 736.44 903.56 790.17

(b) Related party transactions (AS 18) Key Management Personnel

Sn Name Designation Particulars Period Amount Rs.

1. Shri C. Narasimhan Managing Director Remuneration From 11.03.2005 0 2. Mr. T.S. Bhattacharya Managing Director Remuneration Upto 26.02.2005 3,61,257.52 Total 3,61,257.52

(c) Leases (AS 19) Lease income in respect of assets leased prior to 01.04.2001 is recognized based on the internal Rate of Return method over the primary period of the lease and accounted for in accordance with guidelines issued by Institute of Chartered Accountant of India. (d) Earning per share (AS 20)

Particulars 31.03.05 31.03.04

Earning Per Share (absolute) 761.01 1292.91 Earning Per Share (dilute) 761.01 1292.91

(e) Accounting for deferred taxes assets/liabilities (AS 22)

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The bank has accounted the deferred Income Tax in accordance with the Accounting Standard 22 issued by the Institute of Chartered Accountant of India. Major Components of Deferred Tax Asset and Liabilities are as under:

(Rs. in Crores)

Particulars 31.03.05 31.03.04

Deferred Tax Assets Depreciation on Fixed Assets 0.00 3.85 Depreciation on Investments 32.77 13.45 Provision for bad debts 0.00 22.46 Provision for leave encashment 9.79 0.20 Provision for wage revision 14.63 0.00 Provision for restructured accounts 8.81 2.80 Interest accrued on investments 0.48 (6.00) Total (a) 66.48 36.76 Deferred Tax Liabilities Other Liabilities 0.00 3.1 Total (b) 0.00 3.10 Net deferred tax Assets (a-b) 66.48 33.66

ADDITIONAL DISCLOSURES: In terms of the guidelines issued by the RBI, the following additional disclosures are made:

31.03.2005 31.03.2004 i) Shareholding Percentage of shareholding of Govt. of India Nil Nil ii) Non-Performing Assets The Percentage of Net NPAs to Net Advances 1.00% 0.00%

iii) Tier II Capital

Amount of subordinated debts 265.00 125.00 Unsecured Redeemable Bonds

iv) Issuer composition of Non SLR investments-2005

(Amounts reported under Columns 4, 5, 6 & 7 are not mutually exclusive) (Rs. in Crores)

No.

Issuer Amount (Rs. In crores)

Extent of private

placement

Extent of below

“investment grade”

securities

Extent of unrated securities

Extent of unlisted securities

1 2 3 4 5 6 7 1 PSUs 50.86 40.20 5.00 3.50 17.45 2 FIs 88.52 58.02 3.93 4.67 25.06 3 Banks 10.97 10.00 0.00 0.00 8.00 4 Private Corporates 60.03 48.98 1.29 5.03 18.05 5 Subsidiaries/Joint

ventures 2.19 -- -- -- --

6 Others 39.34 -- -- -- -- 7 Provision held

towards depreciation

14.69 -- -- -- --

Total 266.60 157.20 10.22 13.20 68.56

v) Non-performing non-SLR investments:-2005

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Particulars Amount (Rs. crores) Opening balance as on 01.04.2004 4.78 Additions during the year 9.85 Reduction during the year 2.00 Closing balance as on 31.03.2005 12.63 Total provisions held 12.63

vi) Securities sold under repos and purchased under reverse repos, under Liquidity Adjustment Facility of RBI

(Rs. in Crores)

Outstanding during 2004 -05 Minimum Maximum Daily average Closing as on 31.03.2005

Securities sold under Repos 25.00 990.00 264.64

Securities purchased under reverse repos 50.00 1100.00 26.21 850.00

vii) Movement of NPAs for the year 2004 & 2005 (Rs. In Crores)

31.03.2005 31.03.2004 1. NPAs at the beginning of the year 266.36 295.25 2. Less: Reduction in NPAs a) By recoveries/write offs 124.27 144.43 b) Up gradation c) Exchange fluctuation Add:

a) Fresh NPAs during the year 161.39 115.54 b) Increase in the existing NPAs due to operations

c) Exchange Difference d) Interest Suspense Gross NPA at the end of the year 303.48 266.36

viii) (a) Movement of Provisions held towards NPAs

(Rs. in Crores) 2004-05 2003-04 Opening balance 258.29 150.55 Add: Provisions made during the year 97.33 184.75 Total 355.62 335.30 Less: Amount transferred to interest sacrifice in restructured account, write back of excess provisions and exchange difference

41.09 77.01

Less: Write back of floating provision 114.98 0 Closing balance 199.55 258.29

(b) Movement of Provisions for NPI/Depreciation on investments 31.03.05 (Rs in Cr.)

a) Opening balance (as on 01.04.2004) 5.31 b) Add: Provisions made during the year 113.09 c) Less: Write back of excess provisions during the year 2.00 d) Closing balance (as on March 31,2005) 116.40

ix) Maturity patterns as on 31.03.2005

The Maturity Pattern of Loans & Advances, Investments & Securities, Deposits and Borrowings (under various Maturity Buckets prescribed by the Reserve Bank of India) are as follows:

(Rs. in crores) Residual Maturity 1-14 days 15-28

days 29 days 3 mths

3 to 6 mths

6 mths to 1 year

1 year to 3 years

3 year to 5 years

Over 5 years

Total

Maturity Pattern of Loans & Advances 442 216 399 337 586 3883 1279 1899 9041

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Maturity Pattern of Investment & Securities 934 199 236 54 44 727 1044 2660 5898

Maturity Pattern of Deposits 370 75 982 656 1958 5006 130 4630 13807

Maturity Pattern of Borrowings 105 -- 121 7 48 20 198 4 503

Foreign Currency Asset 37 40 410 241 66 0 5 -- 799

Foreign Currency Liabilities 103 86 280 8 84 50 188 -- 799

The above maturity pattern has been compiled based on information received from branches, rates prescribed by RBI for determining core and volatile portion and adjustment/ apportionment made at Head Office on the basis of behavioural maturity, and has been relied upon by the auditors.

x) Lending to Sensitive Sectors (Rs. in Crores)

31.03.2005 31.03.2004 A Advances to Capital Market Sector 21.98 20.31 B Advances to Real Estate Sector 14.49 66.75 C Advances to Commodity Sector 259.52 244.64 D Exposure to Capital Market

i) Investment in a) Shares b) Convertible Debentures /Bonds c) Equity Oriented Mutual Funds ii) Aggregate advances against security/collateral of shares

25.77

37.00

15.01

10.44

E Finance extended to Margin Trading -- --

xi) Corporate Debt Restructuring (Rs. in Crores)

Particulars Total 31.03.2005

Total 31.03.2004

Total amount of loan assets 88.25 186.73 Amount of Standard assets 80.74 186.73 Amount of Sub-standard assets -- -- Amount of Doubtful assets 7.51 --

xii) Restructured Advances (Industrial advances excluding those under CDR)

(Rs. in Crores)

Sr. No. Particulars 31.03.2005 31.03.2004

a) Total amount of loan assets 17.22 51.54 b) The amount of standard assets 14.60 48.82 c) The amount of sub-standard assets 0.05 0.12 d) The amount of doubtful assets 2.57 2.60

Statement of Dividend for the last five years (Rs. in crores)

31/3/01 31/3/02 31/3/03 31/3/04 31/03/05

Dividend (Excl. Tax) 6.12 7.00 8.75 17.50 17.50

Tax 0.62 - 1.12 2.24 2.28

Dividend Rate (%) 35 40 50 100 100 KEY ACCOUNTING RATIOS FOR LAST 5 YEARS

For the Year 2001 2002 2003 2004 2005

Earnings per Share (EPS) (Rs.) 365.71 714.85 1144.69 1292.91 761.01

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Book Value per Share / (Tangible Net Worth/No. of shares.) 1777.03 2357.71 3335.25 4515.34 5165.71

Return on Net worth (%)

(Net Profit/ Average Tangible Net Worth)

23.57% 34.58% 40.21% 32.94% 15.73%

CAPITALISATION STATEMENT AS ON 31.03.2004 March 31, 2005 March 31, 2004

Amount Amount

Rs. in Crores Rs. in Crores Borrowings

Short -Term Debts 281.00 70.00 Long - Term Debts (incl. Sub-ordinated Debt) 222.00 39.00 Total 503.00 109.00

Shareholders Funds Equity 17.50 17.50 Reserves & Surplus (excluding Revaluation Reserve) 886.00 772.67

Total 903.5 790.17

Debt/Equity Ratio 0.56 0.64

NETWORTH STATEMENT (Rs. in crores)

For the Year

March 31, 2001 March 31,

2002 March 31,

2003

March 31, 2004

March 31, 2005

Share Capital 17.50 17.50 17.50 17.50 17.50 Reserve & Surplus Statutory Reserve 179.94 239.42 376.27 457.68 557.67 Share Premium 43.75 43.75 43.75 43.75 43.75 Capital Reserve 0.85 8.88 11.62 16.73 16.76 Investment Fluctuation Reserve 9.01 59.60 110.47 220.47 220.47 Revaluation Reserve Revenue & Other Reserves 59.91 43.43 24.04 34.04 47.40 Balance of Profit and Loss Account (Adjusted) 0.02 0.02 0.02 0.01 0.01 Total Reserves 293.48 395.10 566.17 772.68 886.06 Total (Capital & Reserves) 310.98 412.60 583.67 790.18 903.57 NETWORTH 310.98 412.60 583.67 790.18 903.57 Networth Excluding Revaluation Reserve 310.98 412.60 583.67 790.18 903.57 Net Profit 64.19 125.10 200.32 226.26 133.18 Income Tax 31.96 70.42 103.40 140.24 47.75 Return 96.15 195.52 303.72 366.50 180.93 Average Net Worth 272.36 361.79 498.13 686.93 846.88 Return on Average Net Worth (PAT Basis)

23.57% 34.58% 40.21% 32.94% 15.73%

Return on Average Net Worth (PBT Basis) 35.30% 54.04% 60.97% 53.35% 21.36%

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TAX SHELTER STATEMENT (Rs. in crores)

State Bank of Indore

Tax Shelter Statement For Five Consecutive Financial Years Ending 31st March

Details 2000 2001 2002 2003 2004

Tax Rate 38.50% 39.55% 35.70% 36.75% 35.88%

Provision For Tax In Books 20.33 31.96 70.42 103.40 140.24

Net Profit (As Per Book) 45.25 63.99 125.10 200.32 226.26

Adjustments

Add:

Depreciation As Per Books 11.80 14.53 14.61 16.89 25.74

Provisions 112.12 147.15 232.68 244.38 322.07

Provision For Bonus 0.07 0.02 0.02 0.02 0.01

Interest Recd On Investments 216.45 291.74 411.61 449.36 520.33

Donations Made 0.11 0.40 0.52

Amortisation On Investments 0.44 9.21 12.91 30.52

Others 1.05 1.22 1.53 2.46 5.45

Total 341.49 455.10 669.77 726.42 904.64

Less

Depreciation As Per It Schedule 14.12 13.21 11.65 13.60 20.84

Payment of Interest Tax 4.89

Dividend Income Exempt

Interest Eligible For Deduction u/s 23(G) 242.02 11.20

Provision For Standard Assets 9.14

Bonus deductible 0.09 0.05 0.02 0.02 0.02

Interest on Investment on Due Basis 322.73 452.18 473.17 526.06

Profit on Sale of Permanent Category

Deduction U/S 36(1)(Viia) 64.47 74.75 105.93 156.27 126.67

Deduction U/S 80g 0.10 0.26 0.06 0.19 0.51

Provision For Depn On Investments 8.23 6.51 4.68 5.31

Others 26.61 56.21 20.73 27.85 46.95

Total 352.30 475.44 597.08 675.78 746.70

Business Income After Adjustments 34.44 43.65 197.79 250.96 384.20

Income form Other Sources 5.10

Total Income 34.44 43.65 197.79 256.06 384.20

Tax On Long term Capital Gains

Total Tax 13.26 17.26 70.61 94.10 137.83

Less: Advance tax/TDS/Self ass. Tax 20.46 37.73 74.48 97.16 148.88

Net Tax payable/refund (7.20) (20.47) (3.87) (3.06) (11.05)

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C. STATUTORY AND OTHER INFORMATION MINIMUM SUBSCRIPTION The provisions as to minimum subscription are not applicable for the Private Placement of Bonds. UTILISATION OF OFFER PROCEEDS Pending the utilisation of net proceeds of the Offer as specified under the section “Objects of Offer”, the net proceeds will be invested in high quality, interest bearing liquid instruments including deposits with banks for the necessary duration EXPENSES OF THE OFFER The expenses of the Offer payable by the Bank inclusive of brokerage, fees payable to the Arranger, fees of Legal Advisors, stamp duty, fees payable to trustees, fees payable to the Registrars to the Offer, listing fees and other miscellaneous expenses is estimated not to exceed 1.00% of the offer size and will be met out of the proceeds of the Offer. ARRANGER TO THE ISSUE The fees payable to the Arranger are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

AUDITORS The fees payable to the Auditors are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

REGISTRAR TO THE ISSUE The fees payable to the Registrar are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

TRUSTEES FOR THE BONDHOLDERS The fees payable to the Trustees for the Bondholders are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

OTHER EXPENSES The other expenses include fees and reimbursement of expenses towards printing, listing fees, credit-rating fees etc.

UNDERWRITING COMMISSION AND BROKERAGE The issue is not underwritten and hence no underwriting commission is payable. No broker is appointed hence no brokerage is payable. OUTSTANDING DEBENTURE OR BOND OFFERS As of March 31, 2005, the Bank has outstanding Bonds of Rs 265 crores. OUTSTANDING PREFERENCE SHARES As of date, the Bank does not have any outstanding preference shares. CAPITALISATION OF RESERVES OR PROFITS The bank has not capitalised any reserves or profits during the last five financial years. PREVIOUS PLACEMENT BY THE BANK The Bank has raised Tier II Capital by way of Private Placement of unsecured, redeemable bonds in the nature of Promissory Notes to augment capital adequacy as under:

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Year of

Placement Size

(Rs crore) Tenor

(Months) Credit Rating

Coupon (% p.a)

Redemption Date

2004-05 200.00 111 CRISIL AAA/Stable

7.20% 15.05.2014

2000-2001 65.00 63 unrated 11.75% 08.04.2006

PREVIOUS COMMISSION AND BROKERAGE Commission or brokerage has been paid by the Bank for earlier issues as per guidelines and within the stipulated limit. OPTION TO SUBSCRIBE The Bank has not given any person nor does it propose to give any person any option to subscribe to the bonds of the bank. UNDERTAKING REGARDING PURCHASE OF PROPERTY There is no property which the Bank has purchased or acquired or proposes to purchase or acquire, which is to be paid for wholly or partly out of the proceeds of the present issue or the purchase or acquisition of which has not been completed on the date of this Offer Document, other than property as given hereunder:

a) The contracts for the purchase or acquisition whereof were entered into, or may be entered into, in the ordinary course of the Bank’s business, such contracts not being made in contemplation of the offer nor the offer in consequence of the contract or

b) In respect of which the amount of the purchase money is not material. The Bank has not purchased any property in which any of its directors had or have any direct or indirect interest or in respect of any payment thereof. REVALUATION OF ASSETS The bank has not revalued its assets in the last 5 years CLASSES OF SHARES The authorised capital of the Bank is Rs 50 crores divided into 50,00,000 Equity Shares of Rs.100 each. PAYMENT OR BENEFIT TO PROMOTERS OR OFFICERS OF THE COMPANY Except as stated otherwise in this Information Memorandum, no amount or benefit has been paid or given since the inception of the Bank. TERMS OF APPOINTMENT OF MANAGING DIRECTOR In terms of Section 29 (1) of State Bank of India (Subsidiary Banks) Act, 1959, the State Bank of India, after consulting the Board of Directors of State Bank of Indore and with the approval of Reserve Bank of India, appointed Shri C. Narasimhan as Managing Director of State Bank of Indore for a period of two years from the date of his assuming charge of the position, vide notification dated 11th March 2005. ISSUE OTHERWISE THAN FOR CASH There has not been any issue of equity shares for consideration other than cash, otherwise than as mentioned in the chapter on Capital Structure.

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PAYMENT OR BENEFIT TO THE DIRECTORS AND OFFICERS OF THE BANK No amount or benefit has been paid or given or is intended to be paid or given to any Director or Officer of the Bank except their normal remuneration and/or reimbursement for the services rendered to the Bank to which they are entitled to or may become entitled to under the provisions of the Bank Nationalisation Act or otherwise in accordance with the Law. PREVIOUS ISSUES BY THE BANK- OUTSTANDING Bonds issued by the Bank outstanding as on the date of Offer Document and terms of issue Issue Year of

Placement Size (Rs in

Crores) Tenor

(Months) Credit Rating

Coupon (% p.a.)

Redemption Date

1 2004-05 200.00 111 CRISIL

AAA/Stable

7.20% 15.05.2014

2 2000-2001 65.00 63 Unrated 11.75% 08.04.2006

NATURE AND INTEREST OF DIRECTORS No Director of the Bank is interested in the appointment of any of the Managers, Registrars and Bankers to the Issue. No Director of the Bank is interested in any property acquired by the Bank within two years of the date of the Offer Document or proposed to be acquired by it. The Bank has not purchased any property in which any of its Directors had or have any direct or indirect interest or in respect of any payment thereof. The Bank has no plans, at present, to acquire any running business out of the proceeds of the Issue. The Directors have no interest in any loan or advance given by the Bank to any person(s)/ Company (ies) nor is any beneficiary of such loan or advance related to any of the Directors.

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D. MAIN PROVISIONS OF THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 AND THE SUBSIDIARY BANKS GENERAL REGULATIONS, 1959. The General Regulations extracted in this document are as existing now. The relevant provisions of the SBI (Subsidiary Banks) Act 1959 (THE ACT) / Subsidiary Banks General Regulations (G.R.) Framed under the Act inter alia are as under: AUTHORISED CAPITAL Section 6 of Chapter II of the SBI (SB) Act provides that the authorised capital of the Bank shall be Rs. Two crore and shall be divided into shares of one hundred rupees each. The authorised capital of the Bank may be increased or reduced by the State Bank with the approval of the Reserve Bank. It was subsequently increased to Rs 50 Crores ISSUED CAPITAL Section 7 (sub sections 4 & 5) of Chapter II of the SBI (SB) Act provides as under: A Subsidiary Bank may, with the approval of SBI and RBI, increase from time to time, its issued capital but no increase in the issued capital shall be made in such a manner that the State Bank holds at any time less than fifty-five per cent of the issued capital of the Bank.

DISPOSAL OF PROFITS Sec. 40 (1): After making provision for bad and doubtful debts, depreciation in assets, equalization of dividends, contribution to staff and superannuation funds and for all other matters for which provision is necessary by or under this Act or which are usually provided for by banking companies, a Subsidiary bank may, out of its net profits, declare a dividend. Sec. 40 (2): The rate of dividend shall be determined by the Board of Directors of the Subsidiary bank concerned.

VOTING RIGHTS Chapter IV of the Subsidiary Banks General Regulations 1959 provides that : G.R. 25 (1): Subject to the provisions contained in section 19 of the Act, each shareholder of a subsidiary Bank who has been registered as a shareholder for a period of not less than three months prior to the date of a general meeting of that subsidiary bank shall be entitled to vote on every resolution placed before the meeting. G.R. 25 (2): Every shareholder entitled to vote as aforesaid who, not being a company, is present in person or by proxy or who being a company is present by a duly authorised representative, or by proxy shall have one vote on a show of hands and in case of a poll shall have one vote for each share held by him. G.R. 26 (1): A shareholder, of a subsidiary bank, being a company, may by a resolution or a power of attorney authorise any of its officials or any other person to act as its representative at any general meeting of the shareholders of the subsidiary bank and the person so authorised (referred to as a “duly authorised representative” in these Regulations) shall be entitled to exercise the same powers on behalf of the company which he represents, as if he were an individual shareholder of the subsidiary bank. The authorisation so given may be in favour of two persons in the alternative and in such a case any one of such persons (but not both) may act as the duly authorised representative of the company. G.R. 29: No person who is an officer or an employee of a subsidiary bank may be appointed a duly authorised representative or a proxy in respect of a general meeting of that bank.

MEETING OF SHAREHOLDERS NOTICE CONVENING A GENERAL MEETING

121

G.R. 17(1): A notice convening a General Meeting of the shareholders of a subsidiary bank signed by the Chairman or the Managing Director of that bank shall be published at least twenty-eight days before the date of the meeting in the Gazette of India and also in at least two principal daily newspapers circulating at the place where the head office of the subsidiary bank is situated. G.R.17 (2): Every such notice shall state the time, date and location of such meeting, and also the business that shall be transacted at the meeting.

SPECIAL GENERAL MEETING G.R. 18 (1): The Board may, at any time and shall, if a requisition for such a meeting has been received from either the State Bank or other shareholders holding shares carrying, in the aggregate, not less than 20 per cent of the total voting rights of all the shareholders, convene or cause to be convened, a Special General Meeting of shareholders.

BUSINESS AT GENERAL MEETINGS G.R. 19(1): No business other than that specified in sub-section (2) of section 44 of the Act shall be transacted or discussed at the Annual General Meeting, except with the consent of the Chairman or other person presiding at the meeting, unless not less than six weeks’ notice of the same has been given to the Chairman or the Managing Director or the subsidiary bank either by the State Bank or by at least ten other shareholders qualified to vote at the meeting. Such notice shall take the form of a definite resolution to be put to the meeting, and shall be included in the notice of the meeting. G.R. 19 (2): Except with the consent of the Chairman or other person presiding at the meeting, no business shall be transacted or discussed at any special general meeting, except the business for which the meeting has been specifically convened.

QUORUM AT GENERAL MEETINGS G.R. 20: No business shall be transacted at any meeting of the shareholders whether it is the Annual General meeting or any Special General Meeting, unless a quorum of at least five shareholders consisting of the State Bank represented by a proxy or by a duly authorised representative and four other shareholders entitled to vote at such meeting in person or by proxy or by duly authorised representatives is present at the commencement of such business, and if within fifteen minutes from the time appointed for the meeting a quorum is not present the Chairman or the person presiding at the general meeting may dissolve the meeting or adjourn it to the same day in the following week at the same time and location, and if at such adjourned meeting a quorum is not present, the shareholders who are present in person or by proxy or by duly authorised representative shall form a quorum: Provided that no annual general meeting shall be adjourned to a date later than three months after the 31st December # and if adjournment of the meeting to the same day in the following week would have this effect, the annual general meeting shall not be adjourned but the business of the meeting shall be commenced either as soon within one hour from the time appointed for the meetings as a quorum may be present, or immediately after the expiry of one hour from that time and those shareholders who are present in person or by proxy or by duly authorised representative at such time shall form a quorum. # changed to March 31

CHAIRMAN AT GENERAL MEETINGS G.R. 21(1): The Chairman or in his absence such one of the directors as may generally or in relation to any particular meeting be authorised by the Chairman in this behalf shall preside at a general meeting, and in the absence of the Chairman and the person so authorised and also failing any such authorisation the shareholders who are present in person or by proxy or by duly authorised representatives at the meeting may elect any other director to preside at the meeting. G.R. 21 (2): The person presiding at a general meeting shall regulate the procedure at the general meeting, and, in particular, shall have power to decide the order in which shareholders may address

122

the meeting, to fix a time limit for speeches, to apply the closure when, in his opinion, any matter has been sufficiently discussed and to adjourn the meeting.

PERSONS ENTITLED TO ATTEND THE GENERAL MEETINGS G.R. 22 (1): All directors, the auditor for the time being and all shareholders of the Subsidiary bank shall, subject to the provisions of sub-regulation (2), be entitled to attend a general meeting.

VOTING AT GENERAL MEETINGS G.R. 23 (1): Save as otherwise provided in section 31 of the Act, every matter submitted to a General Meeting of a subsidiary bank shall be decided by a majority of votes. G.R. 23(2): A declaration by the person presiding at a general meeting of a subsidiary bank that a resolution has been carried or rejected thereat upon a show of hands by those shareholders present who are entitled to vote on the resolution shall be conclusive, and an entry to that effect in the book of proceeding of the subsidiary bank shall be sufficient evidence of that fact, without proof of the number or proportion of the votes recorded in favour of, or against, such resolution, unless immediately on such declaration a poll be demanded in writing on behalf of the State Bank of by at least four other shareholders present and entitled to vote at the meeting. G.R. 23 (4): The decision of the person presiding at the meeting as to the qualification of any person to vote, and also in the case of a poll, as to the number of votes any person is competent to exercise shall be final.

TRANSFER OF SHARES Chapter IV of the State Bank of India (Subsidiary Banks) Act 1959 provides that- Sec. 18 (1) : Save as otherwise provided in sub-section (2) the shares of a subsidiary bank shall be freely transferable. Sec. 18 (2) : Nothing contained in sub-section (1) shall entitle the State Bank to transfer any shares held by it in any subsidiary bank if such transfer will result in reducing the shares held by it to less than fifty five per cent of the issued capital of that subsidiary bank. Sec. 19 (1) : No person shall be registered as a shareholder in respect of any shares in a subsidiary bank held by him, whether in his own name or jointly with any other person, in excess of two hundred shares, or be entitled to payment of any dividend on the excess shares held by him, or to exercise any of the rights of a shareholder in respect of such excess shares otherwise than for the purpose of selling them : Provided that noting contained in this sub-section shall apply to –

(a) the State Bank; (b) a State Government; (c) a Corporation; (d) an insurer as defined in the Insurance Act, 1938; (e) a local authority; (f) a co-operative society; (g) a trustee of a public or private religious or charitable trust; (h) a shareholder of an existing bank who is allotted any shares under sub-section (9) of

Section 13. Sec. 19 (2) : Notwithstanding anything contained in sub-section (1), No person referred to in the proviso to that sub-section, other than the State Bank, shall be entitled to exercise voting rights in respect of any shares held by such person in excess of one per cent of the issued capital of the subsidiary bank concerned. Sec. 20 : Notwithstanding anything contained in the Acts hereinafter mentioned in this section, the shares of a subsidiary bank shall be deemed to be included among the securities enumerated in section 20 of the Indian Trusts act, 1882, and also to be approved securities for the purposes of the Insurance Act, 1938, and the Banking Companies Act, 1949. Sec.21: Every subsidiary bank shall keep at its head office, a register, in one or more books, of the shareholders, and shall enter therein the following particulars so far as they may be available:-

123

a. the names, addresses and occupations, if any, of the shareholders and a statement of the shares held by each shareholder, distinguishing each share by its denoting number;

b. the date on which each person is so entered as a shareholder; c. the date on which any person ceases to be a shareholder; and d. such other particulars as may be prescribed.

Sec. 22: Notwithstanding anything contained in section 19, no notice of any trust, express, implied or constructive shall be entered on the register of shareholders of a subsidiary bank or be receivable by it in respect of its shares. Chapter II of the Subsidiary Banks General Regulations 1959 provides that- G.R. 13 (1): Every transfer of the shares of a subsidiary bank shall be in writing in the form contained there in or in any usual or common form which the subsidiary bank shall approve. G.R. 13 (2): The instrument of transfer of any share shall be submitted to the Board or its Executive Committee and shall be signed by or on behalf of the transferor and the transferee, and the transferor shall be deemed to remain the holder of such shares until the name of the transferee is entered in the share register. Each signature to such transfer shall be duly attested by the signature of one witness who shall add his address and occupation. G.R. 13 (3) : Upon receipt by the Board or its Executive Committee of an instrument of transfer with the request to register the transfer, the Board or its Executive Committee shall, unless it declines the registration under Regulation 14, within two months from the date on which the instrument of transfer was delivered to the subsidiary bank for submission to the Board or its Executive Committee, cause the transfer to be registered. G.R. 14 (1) : The Board or its Executive Committee may decline to register any transfer of shares unless:- G.R. 14 (1) (b) : a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and the transferee has been submitted to the Board or its Executive Committee. G.R. 14 (1) (c) : The instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the subsidiary bank may reasonably require in evidence of the right of the transferor to make the transfer. G.R. 14 (1) (d) : It is satisfied after such enquiry as it may consider necessary that the transferee is qualified to be registered as a shareholder in respect of the shares covered by the instrument of transfer. G.R. 14 (2) : The Board or its Executive Committee may suspend the registration of transfer during any period in which the register is closed. G.R. 16 (2) : The Board or its Executive Committee may at any time cause such enquiries to be made as it shall deem fit for the purpose of ascertaining whether any person registered as a shareholder of the subsidiary bank whether alone or jointly with another or others, is not or has ceased to be, qualified to be so registered in respect of any share and upon being satisfied that any such person is, contrary to the provision of subsection (1) of section 19 of the Act, registered, by inadvertence or other wise, in respect of any shares held by him whether in his own name or jointly with another person or persons so as to make such total holdings in excess of the total nominal value of twenty thousand rupees, it shall determine which of such shares shall be deemed to constitute such excess and shall inform the shareholder or, where such excess is held jointly, each of the joint shareholders, that in accordance with section 19 of the Act he is, and in the case of joint holders they are, not entitled to the payment of any dividend on any such share not to exercise any of the rights of a shareholder otherwise than for the purpose of the transfer of such share and shall make an entry in the register to that effect. G.R. 17 : Subject to the provisions of sub-section (3) of section 44 of the Act. G.R. 17 (1) : A Notice convening a general meeting of the shareholders of a subsidiary bank signed by the chairman or the [managing director] of that bank shall be published at least twenty-eight days before the date of the meeting in the Gazette of India and also in at least two principal daily newspapers circulating at the place where the head office of the subsidiary bank is situated.

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G.R. 17 (2) : Every such notice shall state the time, date and location of such meeting, and also the business that shall be transacted at the meeting. G.R. 18 (1) : The Board may, at any time and shall, if a requisition for such a meeting has been received from either the State Bank or other shareholders holding shares carrying, in the aggregate, not less than 20 per cent of the total voting rights of all the shareholders convene or cause to be convened, a special general meeting of shareholders. G.R. 18 (2) : The requisition referred to in sub-regulation (1) shall state the purpose for which the special general meeting is required to be convened, and may consist of several documents in like form each signed by one or more of the requisitionists. G.R. 18 (3) : The time, date and location of a general meeting shall be decided by the Board: Provided that a special general meeting convened on requisition shall be convened not later than three months of the receipt of the requisition. G.R. 19 (1) : No business other than that specified in sub-section (2) of section 44 of the Act shall be transacted or discussed at the annual general meeting, except with the consent of the chairman or other person presiding at the meeting, unless not less than six weeks notice of the same has been given to the chairman or the [Managing Director] of the subsidiary bank either by the State Bank or by at least ten other shareholders qualified to vote at the meeting. Such notice shall take the form of a definite resolution to be put to the meeting, and shall be included in the notice of the meeting. G.R. 19 (2) : Except with the consent of the Chairman or other person presiding at the meeting no business shall be transacted or discussed at any special general meeting, except the business for which the meeting has been specifically convened.

SHARES AND SHARE REGISTERS Chapter II of the Subsidiary Banks General Regulations 1959 provides that – G.R.3 : The shares of a subsidiary bank shall be moveable property. G.R.4(1) : Subject to the provisions of the Act and these Regulations, the register of shareholders of a subsidiary bank shall be maintained by, and be under the control of, the Board or its Executive Committee and the decision of the Board or its Executive Committee as to whether or not a person is entitled to be registered as a holder in respect of any share shall be final. G.R.4 (2) : In particular, and without prejudice to the foregoing provision, the Board or its Executive Committee shall, as regards the entries in the register of shareholders of that bank, have the power to examine and pass or refuse to pass transfers and transmissions and to approve or refuse to approve transferees of shares and to give certificates of shares. G.R.5(1) : Except as otherwise provided by these regulations, no minor or person who has been found by a Court of competent jurisdiction to be of unsound mind shall be entitled to be registered as a shareholder. G.R.5(2) : In the case of firms, shares shall be registered in the names of the individual partners, and no firm, as such, shall be entitled to be registered as a shareholder. G.R.6(2) : In the case of joint holders of any shares, their names and other particulars required by subregulation (1) shall be grouped under the name of the first of such joint holders. G.R.6(3) : A shareholder resident outside India shall furnish to the subsidiary bank an address in India, and such address shall be entered in the register and be deemed to be his registered address for the purposes of the Act and these regulations. G.R.7 : If any share stands in the name of two or more persons the person first named in the register shall, as regards voting, receipt of dividends, service of notice and all or any other matter connected with the subsidiary bank, except the transfer of the shares, be deemed the sole holder thereof

SUCCESSION G.R.15(1) : The executors or administrators of the estate of a deceased sole holder of a share of subsidiary bank, or the holder of a succession certificate issued under Part X of the Indian

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Succession Act, 1925 in respect of such share or a person in whose favour a valid instrument of transfer of such share was executed by such person or by the deceased sole holder during the latter’s life-time, shall be the only persons who may be recognized by the subsidiary bank as having any title to the share of the deceased shareholder. In the case of a share of a subsidiary bank registered in the names of two or more holders, the survivor or survivors and on the death of the last survivor, the executors or administrators of his estate, or any person who is the holder of a succession certificate in respect of such survivors interest in the share, or a person in whose favour a valid instrument of transfer of the share was executed by such person or such last survivor during the latter’s life-time shall be the only person who may be recognized by the subsidiary bank as having any title to such share. The subsidiary bank shall not be bound to recognize such executors or administrators unless they shall have obtained probate or letters of administration or other legal representation as the case may be from a duly constituted Court in India having effect at the place where the Head Office of the subsidiary bank is situated. Provided nevertheless that in any case where the Board or its Executive Committee shall in its absolute direction think fit, it shall be lawful for the Board or its Executive Committee to dispense with the production of a succession certificate, letters of administration or such other legal representation upon such terms as to indemnity or other wise as it may think fit. G.R.15(2) : Subject to the provisions of the Act and these regulations, any such person becoming entitled to a share of a subsidiary bank in consequence of the death of a shareholder and any person becoming entitled to a share in consequence of the insolvency, bankruptcy or liquidation of a shareholder shall upon production of such evidence, as the Board or its Executive Committee may require, be entitled:- G.R.15(2) (a) : to be registered as a shareholder in respect of the share upon his satisfying the Board or its Executive Committee in the same manner as if he were the proposed transferee under regulation 14 that he is qualified to be registered as a shareholder; or G.R. 15(2) (b) : to make such transfer of the share as the person from whom he derives his title, could have made.

INCORPORATION AND SHARE CAPITAL OF STATE BANK OF INDORE Chapter II of the SBI (Subsidiary Banks) Act 1959 provides as under: Sec 7 (1) : On the appointed day, the issued capital of a new bank shall consist of such amount divided into fully paid up shares of hundred rupees each, as the State Bank may, with the approval of the Reserve Bank fix. Sec 7 (4) : Without prejudice to the provisions contained in sub-section (3), a new bank may, with the approval of the State Bank and the Reserve Bank, increase from time to time, its issued capital and the capital so increased shall consist of fully paid up shares to be issued in such manner as the State Bank may, with the approval of the Reserve Bank, direct. Sec 7 (5) : No increase or reduction in the issued capital of a new bank shall be made in such a manner that the State Bank holds at any time less than 55 per cent of the issued capital of that bank.

CONSTITUTION OF THE BOARD OF DIRECTORS, THEIR POWERS, THEIR REMUNERATIONS Chapter V of the SBI (Subsidiary Banks) Act 1959 provides as under : Sec 24(1) : The State Bank may, from time to time, give directions and instructions to a subsidiary bank in regard to any of its affairs and business, and that bank shall be bound to comply with the directions and instructions so given. Sec 24(2) : Subject to any such directions and instructions, the general superintendence and conduct of the affairs and business of a subsidiary bank shall, as from the appointed day, vest in a Board of Directors who may, with the assistance of the Managing Director, exercise all powers and do all such acts and things as may be exercised or done by that bank.

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Sec 25(1) : Subject to the provisions of sub-section (2), the Board of Directors of a subsidiary bank shall consist of the following: (a) the chairman for the time being of the State Bank, ex-officio; (aa) the Managing Director appointed under sub- section (1) of section 29, or under section 32; (b) an officer of the Reserve Bank, to be nominated by that bank; (c) not more than five directors to be nominated by the State Bank of whom not more than three shall be officers of that bank; (ca) one director, from among the employees of the subsidiary bank, who are workmen, to be appointed by the Central Government in the manner provided in the rules made under this Act. (cb) one director, from among such of the employees of the subsidiary banks as are not workmen, to be appointed by the Central Government in the manner provided in the rules made under this Act; (d) two directors to be elected in the prescribed manner by the shareholders, other than the State Bank; provided that if the total amount of holdings of all such shareholders registered in the books of the subsidiary bank three months before the date fixed for election is below five per cent of the total issued capital, or if there are no shareholders other than the State Bank registered on the books of the subsidiary bank, the directors to be elected by the shareholders shall be nominated by the State Bank and such directors shall, for the purposes of this Act, be deemed to be directors elected under this clause; (e) a director, if any, to be nominated by the Central Government. Sec 26(1) : A director of a subsidiary bank nominated under clause (b) or clause (c) or clause (e) of subsection (1) of Section 25 or appointed under clause (ca) or clause (cb) of that sub-section shall hold office during the pleasure of the authority nominating or appointing him. Sec 26 (2) : Subject to the provisions contained in Section 25, a director elected under clause (d) of subsection (1) of that section shall hold office for three years and thereafter until his successor is duly elected, and shall be eligible for re-election. Provided that no such director shall hold office continuously for a period exceeding six years. Sec 26 (2A) : Subject to the provisions contained in Section 25 and in sub-section (1), a director nominated under clause (c) and not being an officer of the State Bank or a director appointed under clause (ca) or clause (cb) or a director, not being an officer of the Central Government, nominated under clause (e) of sub-section (1) of section 25, shall hold office for such term not exceeding three years, as the central government may specify and thereafter until his successor shall have been duly nominated or appointed, and shall be eligible for re-nomination or re-appointment, as the case may be. Provided that no such Director shall hold office continuously for a period exceeding six years.

MANAGING DIRECTOR OF A SUBSIDIARY BANK Sec.29(1) : The State Bank shall, after consulting the Board of Directors of a subsidiary bank, and with the approval of the Reserve Bank, appoint a Managing Director for that subsidiary bank; Sec.29(3)(b) : The Managing Director of a subsidiary bank shall hold office for such term not exceeding four years and subject to such conditions as the State Bank may, with the approval of the Reserve Bank, specify at the time of his appointment; Sec.29(4) : The Managing Director vacating his office shall be eligible for re-appointment. Sec.29(5) : The State Bank may, with the approval of the Reserve Bank, for any sufficient reason, remove from office the Managing Director of a subsidiary bank; Provided that no such Managing Director shall be removed from office unless he has been given an opportunity of showing cause against such removal.

CASUAL VACANCIES CASUAL VACANCY OF MANAGING DIRECTOR Sec. 32 : If the Managing Director of a subsidiary bank is rendered incapable of discharging his duties by reason of infirmity or otherwise or is absent on leave or otherwise in circumstances not

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involving the vacation of his office, the State Bank may appoint another person to officiate for the managing director until the date on which the Managing Director resumes duty.

CASUAL VACANCIES AMONG DIRECTORS Sec.33 (1) : Where any vacancy occurs before the expiry of the term of office of a director of a subsidiary bank (other than the Managing Director or a director appointed under clause (ca) or clause (cb) of subsection (1) of section 25, the vacancy shall be filled a. in the case of a director nominated under clause (c) of sub-section (1) of section 25, not being an officer of the State Bank, by nomination by the State Bank; b. in the case of a director elected under clause (d) of sub-section (1) of section 25, by election or where the proviso to that clause is applicable, by nomination by the State Bank; Provided that where the duration of the vacancy in the office of an elected director is likely to be less than six months, the vacancy may be filled by the remaining directors by co-opting a person from among the shareholders entitled to elect a director under clause (d) of sub-section (1) of section 25 who is not disqualified under section 27; c. in the case of a director nominated under clause (e) of sub-section (1) of section 25, not being an officer of the Central Government, by nomination by that Government in consultation with the State Bank. Sec. 33 (2) : A person nominated or elected or co-opted as the case may be, [under sub-section (1) shall hold office for the unexpired portion of the term of his predecessor. Sec. 33 (3) : Where any vacancy occurs before the expiry of the term of office of a director appointed under clause (ca) or clause (cb) of sub-section (1) of section 25, such vacancy shall be filled in accordance with the said clause (ca) or, as the case may be, clause (cb) and the director so appointed shall hold office for the period specified under sub-section (2A) of Section 26.

REMUNERATION OF DIRECTORS Sec.30 : A director of a subsidiary bank shall be paid for attending the meetings of the Board of Directors or of any of its committees and for attending to any other business of the subsidiary bank such fees and allowances as may be prescribed. Provided that no fees shall be payable to the chairman of the State Bank (or the Managing Director of the subsidiary bank) or any other director who is a whole time officer of the Central Government or the Reserve Bank or the State Bank.

POWER AND REMUNERATION OF MANAGING DIRECTOR Sec. 29 (2) : Subject to the general control of the Board of Directors, the day to day administration and management of the affairs of a subsidiary bank shall vest in the managing director, and the Managing Director shall exercise such other powers and perform such other duties as may be delegated to him by the Board of Directors. Sec.29(3) : The Managing Director of a subsidiary bank shall devote his whole time to the affairs of that bank :Provided that the Managing Director of the subsidiary bank may, with the approval of the State Bank and the Reserve Bank be a director of any other institution; shall receive such salary and allowances as may be determined by the State Bank with the approval of the Reserve Bank.

EXECUTIVE AND OTHER COMMITTEES OF THE BOARD OF DIRECTORS Sec.35(1) : There shall be an executive committee in respect of a subsidiary bank consisting of such directors as may be prescribed : Provided that if any such director being an officer of the State Bank and nominated by that bank under clause (c) of sub-section (1) of section 25, is for any reason unable to exercise his functions or to discharge his duties in relation to the executive committee, the State Bank may depute any of its officers to exercise all the functions and to discharge all the duties of such director in relation to the executive committee whenever such director is so unable to exercise his functions or discharge

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his duties; and the officer so deputed shall, for all purposes of this Act, in so far as it applies to the executive committee, be deemed to be a director of the subsidiary bank. Sec.35(2) : Subject to any regulations made under this Act, the executive committee may deal with any matter within the competence of the Board of Directors. Sec.35(3) : A copy of the minutes of every meeting of the executive committee of a subsidiary bank shall be forwarded to the State Bank and be laid before the Board of Directors of the subsidiary bank as soon as possible after the meeting. Sec.35(4) : Without prejudice to the powers of the executive committee, and subject to any regulations made under this Act, the Board of Directors of a subsidiary bank may constitute such and so many other committees, whether consisting wholly of the directors or wholly of other persons, or partly of the directors and partly of other persons, as it deems fit, to exercise such powers and perform such duties as may, subject to such conditions, if any, as the Board of Directors may impose, be delegated to them by the Board of Directors.

MEETINGS OF THE BOARD OF DIRECTORS Sec.34(1) : The Board of Directors of a subsidiary bank shall meet at such time and place and shall observe such rules of procedure in regard to the transaction of business at its meetings as may be prescribed. Sec.34(2) : The chairman of the State Bank shall preside at every meeting of the Board of Directors of a subsidiary bank and, in his absence such one of the directors as may generally or in relation to any particular meeting be authorised by the chairman in this behalf shall preside: and in the absence of the chairman and also failing such authorisation, the directors of the subsidiary bank present at the meeting shall elect one from among themselves to preside at the meeting. Explanation – For the purposes of this sub-section “absence from a meeting” means non-attendance for any reason whatsoever at the meeting or any part of the meeting during which any business is transacted. Sec.34(3) : All questions at a meeting of the Board of Directors of a subsidiary bank shall be decided by a majority of the votes of the directors present, and in case of equality of votes, the person presiding at the meeting shall have a second or casting vote. Sec.34(4) : Where any of the directors specified in clauses (a) and (b) of sub-section (1) of section 25 or any of the directors, being an officer of the State Bank specified in clause (c) of that sub-section is unable to attend any meeting of the Board of Directors of a subsidiary bank, and the State Bank or any other such director as may be present at the meeting considers that the State Bank would not be adequately or effectively represented at such meeting by reason of the absence of any such director, the State Bank or the director present may give notice in writing to that subsidiary bank that the meeting should be adjourned to such date as may be indicated in the notice; or that any matter, action, step or proceeding proposed to be considered, taken or carried out at that meeting, should not be so considered, taken or carried out: or that no decision should be taken at that meeting on any such matter, action step or proceeding; and that subsidiary bank and its Board of Directors shall be bound to comply with such notice and act accordingly.

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E. MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION Material Contracts and Documents

• State Bank of India (Subsidiary Banks) Act, 1959

• Credit Rating Letters for the current Placements.

• Terms of Appointment of Managing Director.

• Original Documents of Property purchased and registered in the name of the Bank.

• Board Resolution approving the proposed Bond placement.

• Consent letters of the Registrars, the Trustees to the Bondholders, and the Directors of the Bank.

• Annual Reports of the Bank for the last five years.

• Certificates in relation to the Placement.

• Agreements and approvals for floating of joint ventures and associates.

• Auditor’s Certificate in respect of the Financials of the Bank.

• Tax Benefit Certificate issued by the Auditors.

• Certificate form Trustees for concurrence with the Trustee Clauses The above documents are available for the inspection by the investors with the Compliance Officer to the Private Placement at the Head Office of the Bank between 10.00 a.m. to 2.00 p.m. on all working days during which the proposed private placement remains open.

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PART III DECLARATION It is hereby declared that full disclosures have been made and all the relevant provisions of the State Bank Of India (Subsidiary Banks) Act, 1959, Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 as amended from time to time and the legal requirements connected with this placement as also the guidelines, instructions, etc. issued by SEBI, Government and any other competent authority in this behalf have been complied with and no statement made in this Information Memorandum is contrary to the provisions of the said Acts/Regulations/ Guidelines and rules thereunder.

The Issuer accepts no responsibility for the statement made otherwise than in the Information Memorandum or in the advertisement or any other material issued by or at the instance of the Issuer and that any one placing reliance on any other source of information would be doing so at his own risk. Signed by the Managing Director, pursuant to the authority granted by the Board of Directors of State Bank Of Indore. For State Bank Of Indore

Date: Place: Indore

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STATE BANK OF INDORE (Associate of the State Bank of India)

Head Office: 5, Yashwant Niwas Road, Indore – 452003 (MP).

Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217

Website: www.indorebank.org Application Form Sr. No.

Dear Sirs, Having read and understood the contents of the Memorandum of Private Placement, we apply for allotment to us of the Unsecured, Redeemable Non-Convertible, Subordinated Bonds The amount payable on application as shown below is remitted herewith On allotment, please place our name on the Register of Bond holders. We bind ourselves to the terms and conditions as contained in the Information Memorandum for Private Placement. We note that the Bank is entitled in its absolute discretion to accept or reject this application whole or in part without assigning any reason whatsoever.

(PLEASE READ THE INSTRUCTIONS CAREFULLY BEFORE FILLING THIS FORM)

Form in which certificate is to be issued

[ ] Demat

DP NAME: NSDL [ ] CDSL [ ]

DPID: CLIENT ID:

We understand that in case of allotment of Bonds to us / our Beneficiary Account as mentioned above would be credited to the extent of Bonds allotted. In case the Bonds allotted to us cannot be credited to our Beneficiary Account for any reason whatsoever, we will accept physical Bonds certificates.

The application shall be for a minimum of 1 (One) Bonds and in Multiples of 1 (One) Bonds thereafter

No. of Bonds applied for (In words)

No. of Bonds applied for (In figures)

Amount (Rs.) (in words)

Date Cheque / Demand Draft drawn on Cheque /Demand Draft No.

We are applying as {Tick (����) whichever is applicable}

1 Company Body Corporate 2 Commercial Bank 3 Regional Rural Bank

4 Co-operative Banks 5 Financial Institution 6 Insurance Companies

7 Mutual Fund 8 Provident/Superannuation/Gratuity Funds 9 Port Trusts

10 NBFC & Residuary NBFC 11 Association of Persons 12 Others (Please specify)

Application Details

First Applicant’s Name in Full (Block letters)

Second Applicant’s Name in Full

Third Applicant’s Name in Full

Mailing Address in Full (Do not repeat name. Post Box No. alone is not sufficient.)

Pin: Tel: Fax:

PAN or GIR No. IT Circle / Ward / District Not Allotted Tax Details

Details of Bank Account

Bank Name & Branch_______________________________________________________________________

Account No: ____________________________ Nature of Account _______________________________________________________

Tax Deduction Status: (Please tick one)

Fully Exempt (Please furnish exemption certificate): ____________________________________________________________________

Tax to be deducted at Source: __________________________________________________________________________________

Specimen Signature

Name of the Authorised Signatory Designation Signature

1.

2.

Acknowledgement Slip shall be given to the Investors as shown below the Instructions.

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INSTRUCTIONS

1) Application Forms must be completed in BLOCK LETTERS IN ENGLISH. A blank space must be between two or more parts of the name. For Example

A B C D E L I M I T E D

2) Application forms duly completed in all respect must be lodged at the collection centers mentioned below, before the closing of the subscription. Cheques/Demand Drafts should be in favour or ‘State Bank of Indore– Bonds Issue’ and crossed ‘Accounts Payee only’. Cheques / Demand drafts may be drawn on any bank including a co-operative bank, which is situated at and is a member or sub-member of the Banker’s clearing house located at the Designated Collection centers as mentioned elsewhere in the Information Memorandum.

3) Cash, outstation cheques, money orders, postal orders and stock invest will NOT be accepted. 4) As a matter of precaution against possible fraudulent encashment of interest warrants due to loss / misplacement,

applicants are requested to mention the full particulars of their bank account as specified in the Application Form. Interest warrants will then be made in favour of the bank for credit to the applicant’s account. In case the full particulars are not given, cheques will be issued in the name of the applicant at his own risk.

5) Receipt of application will be acknowledged by the Bank in the “Acknowledgement Slip” appearing below the Application Form. No separate receipt will be issued.

6) All applicants should mention their permanent Account No. or the GIR number allotted under the Income Tax Act, 1961 and the Income Tax Circle/Ward district. In case where neither the PAN nor GIR is allotted, the fact of non-allotment should be mentioned in the application form in the space provided.

7) The Application would be accepted as per the terms and conditions of the Bonds outlined in the Memorandum of Private Placement.

8) Signatures should be made in English. Signatures made in any other Indian language must be attested by an authorized official of a Bank or by a Magistrate/Notary Public under his/her official seal.

9) Those desirous of claiming tax exemptions on interest on application money are compulsorily required to submit a certificate issued by the Income Tax Officer / relevant declaration forms as pr Income Tax Act, 1961 along with the application form. In case the above documents are not enclosed with the application forms, TDS will be deducted on interest on application money. For subsequent interest payments such certificates have to be submitted periodically.

Application forms can be submitted to the offices of the Arranger mentioned in the Information Memorandum or at the branches of State Bank of Indore as mentioned in the Information Memorandum and shown below:

Designated Collection Centres State Bank of Indore Mumbai Fort Branch : AGM Shri S.R.T.Khan, 022- 22072918 /09821638607; RTGS Centre Manager Pradeep Srivastava, 022-22642358; Kolkata Brabourne Road Branch : AGM Shri P.K.Saxena, 033-22103209/ 09830036081; Delhi Con.Circus Branch : AGM Shri A.K.Johri,011-23415044/ 09868392013; Chennai Broadway Branch : CM Shri K.R.K.Nair, 044-25364534/ 09840376969; Bangalore J.C.Road Branch : CM Shri G.Haridoss, 080-26703717/ 09448491467

SBI Capital Markets Limited

202, Maker Tower ‘E’, Cuffe Parade, Mumbai – 400 005 Tel: 022 2218 9166 Fax: 022 2218 8332

----------------------------------------------------------------------------------Tear Here-------------------------------------------------------------------------------------

STATE BANK OF INDORE (Associate of the State Bank of India)

Head Office: 5, Yashwant Niwas Road, Indore – 452003 (MP).

Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217

Website: www.indorebank.org

ACKNOWLEDGEMENT SLIP

Sr. No.: Received from ____________________________________________ Address _______________________________________________ __________________________________________ an application for _________________ Bonds along with Cheque/Demand Draft No. __________ Dated _________ Drawn on _____________ for Rs. __________ (Rupees________________________________________ ___________________________________________ only)

(Note: Cheques and Drafts are subject to realisation)