draft offer document for shelf registra tion idbi

DRAFT OFFER DOCUMENT FOR SHELF REGISTRATIONIDBI FLEXIBONDS SERIES 2005- 06

INDUSTRIAL DEVELOPMENT BANK OF INDIA LIMITED(Formerly Industrial Development Bank of India)

(Incorporated under the Companies Act, 1956,a Banking Company under the Banking Regulations Act, 1949

and a Public Financial Institution under section 4A of Companies Act, 1956 )Regd.Office:IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005

Tel: (022) 56553355/22189111 Fax:(022) 22181294 Grams:INDBANKIND. Website: www.idbi.com

Public Issues of Unsecured Bonds of Rs. 1500 croreWith an option to retain over-subscription up to Rs.1500 crore

(Aggregating to Rs.3000 crore)

IDBI Infrastructure (Tax Saving) Bond () IDBI Multi-Option Bond ()IDBI Regular Income Bond () IDBI Floating option / Fixed option Bond ()IDBI Growing Interest Bond () IDBI Upfront Interest Bond ()IDBI Retirement / Education Bond () IDBI Zero Coupon Bond () / Money Multiplier Bond ()/

Deep Discount Bond ()IDBI Floating Rate Bond () IDBI Anytime Encashment Bond ()IDBI Fixed Option/Floating Option Bond () IDBI SPLIT Bond () / IDBI STRIPS Bond ()

Note: The bonds offered herein are unsecured in nature. Further, ‘Flexibonds’ is only a brand name (registered trademarkapplied for) and it does not indicate any additional flexibility features.

General Risk: Investors are advised to read the Risk Factors carefully before taking an investment decision in the offering(s).For taking an investment decision, investors must rely on their own examination of the Issuer and the Offer including therisks involved. The Bonds have not been recommended or approved by the Securities and Exchange Board of India (SEBI)nor does SEBI guarantee the accuracy or adequacy of this Draft Offer Document. Specific attention of investors is invited tothe Risk Factors on page v to ix of the Draft Offer Document.Issuer’s Absolute Responsibility: The Issuer, having made all reasonable inquiries, accepts responsibility for, and con-firms that this Draft Offer Document contains all information with regard to the Issuer, and the Issue, which is material in thecontext of the Issue, that the information contained in this Draft Offer Document is true and correct in all material aspects andis not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that thereare no other facts, the omission of which makes this Draft Offer Document or any of such information or the expression ofany such opinions or intentions misleading in any material respect.

Credit Rating: CRISIL ‘AA+ (Stable)’, FITCH ‘AA+(ind) (Stable)’ and ICRA ‘LAA+’For details of the above rating definitions, the investors are advised to refer para ‘Credit Rating’ on page 2 of the Draft OfferDocument.The Rating(s) are not a recommendation to buy, sell or hold securities and Investors should take their own decisions. Therating may be subject to revision or withdrawal at any time by the assigning Rating Agency on the basis of new information.Each rating should be evaluated independent of any other rating.Listing : The Bonds are proposed to be listed on The Stock Exchange, Mumbai and the National Stock Exchange of India.Applications for initial listing approvals have been made to The Stock Exchange, Mumbai and the National Stock Exchangeof India. Bombay Stock Exchange Limited and the National Stock Exchange of India have given their in-principle approvalsvide their letters (____________ ) dated ( ) and (_______________ ) dated ( ) respectively.

Lead Manager to the Issue Registrars to the IssueSBI Capital Markets Limited202, Makers Towers ‘E’Cuffe ParadeMumbai-400005Tel: (022) 22189166 Fax: (022) 22180 8332

website : www.sbicaps.comIssue ScheduleDate of opening the Issue()Date of closing of the issue()

TABLE OF CONTENTS

Section - I - General

Abbreviations Used.............................................................................................................................. iCertain Conventions; Use of Market Data............................................................................................ iiiForward - Looking Statements.............................................................................................................. iv

Section II - Risk Factor v

Section III - IntroductionSummary............................................................................................................................................... xThe Issue.............................................................................................................................................. xiSelected Financial Information............................................................................................................ xiiGeneral Information............................................................................................................................. 1Capital Structure.................................................................................................................................. 6Objects of the Issue............................................................................................................................. 10Tax Benefits......................................................................................................................................... 11Principal Terms of the Bonds............................................................................................................... 16

Section IV - About IDBI Ltd.

Industry Overview................................................................................................................................. 31Business Overview............................................................................................................................... 39Product and Services........................................................................................................................... 43Business Strategy................................................................................................................................. 48Key Industry Regulations..................................................................................................................... 69History and Certain Corporate Matters................................................................................................ 80Management........................................................................................................................................ 83Promoters............................................................................................................................................ 93Related Party Transactions................................................................................................................... 94Corporate Governance........................................................................................................................ 95Currency of Presentation..................................................................................................................... 97

Section V - Financial Information

Auditor’s Report................................................................................................................................... 98Management Discussion and Analysis................................................................................................ 140

Section VI - Regulatory Information

Outstanding Litigation and Material Developments............................................................................. 146Other Regulatory and Statutory Disclosures....................................................................................... 156

Section VII - Issue Related Information

Terms of the Issue................................................................................................................................ 167

Section VIII - Main Provisions of Constitutional Documents 176

Section IX - Other Information

Material Contracts and Material Documents for Inspection................................................................. 181Declaration.......................................................................................................................................... 183

Glossary

Shelf Offer Document 2005-06

ABBREVIATIONS USEDADB Asian Development BankArticles Articles of Association of the Company (IDBI Ltd.)Appointed Date The date viz. October 1, 2004, on which the undertaking of IDBI

has been transferred to the company(IDBI Ltd.)A Y Assessment Yearbps Basis pointsBR Act Banking Regulations Act, 1949BSE Bombay Stock Exchange LimitedCASA Current Account / Saving AccountCBDT Central Board of Direct TaxesCDSL Central Depository Services Ltd.CIT(A) Commissioner of Income Tax (Appeals)CRISIL Credit Rating Information Services of India Ltd.DER Debt Equity RatioDFI Development Financial InstitutionFEDAI Foreign Exchange Dealers Association of IndiaFI Financial InstitutionFII Foreign Institutional InvestorFITCH Fitch Ratings India Private Ltd.FY Financial YearGOI Government of IndiaHUF Hindu Undivided FamilyIBRD International Bank for Reconstruction and DevelopmentIICRA Investment Information and Credit Rating AgencyICMS IDBI Capital Market Services Ltd.IDBI Industrial Development Bank of IndiaIDBI Ltd Industrial Development Bank of India Limited (successor of IDBI),

a banking company incorporated under the Companies Act,1956.Issuer IDBI Ltd., being the issuer of the Bonds.ITAT Income Tax Appellate TribunalLIBOR London Inter Bank Offered RateL/C Letter of CreditMemorandum Memorandum of Association of the Company (IDBI Ltd.)MTLR Minimum Term Lending RateMSTLR Minimum Short Term Lending RateNBFC Non-Banking Finance CompanyNDSCR Notional Debt Service Coverage RatioNSDL National Securities Depository Ltd.NPA Non Performing AssetNSE National Stock Exchange of India Ltd.OCBs Overseas Corporate BodiesPLR Prime Lending RateRBI Reserve Bank of IndiaROC Registrar of CompaniesSASF Stressed Assets Stabilisation Fund

SBI Caps SBI Capital Markets Limited

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Industrial Development Bank of India Limited

ABBREVIATIONS USED (Contd.)

SEBI Securities and Exchange Board of IndiaSFC State Financial CorporationSIDC State Industrial Development CorporationSIIC State Industrial Investment CorporationSIDBI Small Industries Development Bank of IndiaSLR Statutory Liquidity RatioSWIFT Society for Worldwide Interbank Financial TelecommunicationSAT Securities Appellate TribunalThe Repeal Act The Industrial Development Bank (Transfer of Undertaking and Repeal) Act

2003The Board The Board of Directors of IDBI LtdTDS Tax Deducted at SourceYTP Yield to PutYTM Yield to Maturity

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CERTAIN CONVENTIONS; USE OF MARKET DATA

Unless stated otherwise, the financial data in this Shelf Offer Document is derived from our financial statements prepared inaccordance with Indian GAAP and included in this Shelf Offer Document. In this Shelf Offer Document, any discrepancies inany table between the total and the sums of the amounts listed are due to rounding-off.

There are significant differences between Indian GAAP and U.S. GAAP; accordingly, the degree to which the Indian GAAPfinancial statements included in this Shelf Offer Document will provide meaningful information is entirely dependent on thereader’s level of familiarity with Indian accounting practices. Any reliance by persons not familiar with Indian accountingpractices on the financial disclosures presented in this Shelf Offer Document should accordingly be limited. The Bank hasnot attempted to explain those differences or quantify their impact on the financial data included herein, and the Bank urgesyou to consult your own advisors regarding such differences and their impact on our financial data.

All references to “India” contained in this Shelf Offer Document are to the Republic of India. All references to “Rupees” or“Rs.” are to Indian Rupees, the official currency of the Republic of India. All references to “US$” or “U.S. Dollars” are toUnited States Dollars, the official currency of the United States of America.

Unless stated otherwise, industry data used throughout this Shelf Offer Document has been obtained from RBI publications.Industry publications generally state that the information contained in those publications has been obtained from sourcesbelieved to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured.Although the Bank believes that industry data used in this Shelf Offer Document is reliable, it has not been independentlyverified.

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FORWARD-LOOKING STATEMENTS

This Draft Offer Document includes statements that contain words or phrases such as “will”, “aim”, “will likely result”, “be-lieve”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”,“project”, “should”, “will pursue” and similar expressions or variations of such expressions, that are forward-looking state-ments.

All forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differmaterially from those contemplated by the relevant forward-looking statement. Important factors that could cause actualresults to differ materially from our expectations include, among others:

• General economic and business conditions in India and other countries;• Our ability to successfully implement our strategy, growth and expansion plans and technological initiatives;• Changes in Indian or international interest rates and their impact on our financial results;• Performance of the industrial, retail and agricultural sectors in India;• Rate of growth of our deposits, advances and investments;• Changes in the foreign exchange control regulations in India.• Changes in the value of the Rupee vis a vis other currencies;• Potential mergers, acquisitions or restructurings;• Changes in laws and regulations that apply to banks in India, including laws that impact our ability to enforce our

collateral;• The occurrence of natural disasters or calamities affecting the areas in which we have operations or outstanding

credit;• Changes in political conditions in India

For further discussion of factors that could cause our actual results to differ, see the section titled “Risk Factors” beginningon page v of this Draft Offer Document. By their nature, certain market risk disclosures are only estimates and could bematerially different from what actually occurs in the future. As a result, actual future gains or losses could materially differfrom those that have been estimated. The Bank, the members of the Syndicate and their respective affiliates do not haveany obligation to, and do not intend to, update or otherwise revise any statements reflecting circumstances arising after thedate hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. Inaccordance with SEBI requirements, the Bank and the Lead Managers will ensure that investors in India are informed ofmaterial developments until such time as the grant of listing and trading permission by the Stock Exchanges in respect of theBonds allotted in this Issue.

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RISK FACTORSThe investors are advised to carefully consider all the information in this Draft Offer Document, including the risks anduncertainties described below, before making an investment in our Bonds. To obtain a complete understanding of our Bank,you should read this section in conjunction with the sections entitled “Business” and “Management’s Discussion and Analy-sis of Financial Condition and Results of Operations” as well as the other financial and statistical information contained inthis Draft Offer Document.

Internal Risk Factors(a) Redemption Reserve: Creation of Redemption Reserve is not envisaged for the proposed Issue of Bonds.

The erstwhile IDBI, being a public financial institution, had been raising resources both from domestic and overseasmarket in the form of unsecured borrowings. Industrial Development Bank of India Ltd. (IDBI Ltd. ) has been incorpo-rated on September 27, 2004, as a banking company, under the Companies Act, 1956 and has received certificate forcommencement of business on September 28, 2004. On October 1, 2004, the transfer to and the vesting in of theundertaking of IDBI in IDBI Ltd. was effected. RBI, vide its notification dated September 30, 2004 has included IDBILtd. as a ‘scheduled bank’ under the RBI Act, 1934. The resources raised / to be raised by IDBI Ltd. are being / wouldbe utilised for the purpose of its business i.e. mainly providing credit and other facilities to the industry. The assets ofIDBI Ltd. are mostly in form of loans and advances. Hence it is proposed that the Bonds shall be unsecured in naturein that they shall not be secured against any asset of IDBI Ltd. Further, the GOI, Ministry of Law, Justice andCompany Affairs has vide general circular no.9/2002 No.6/3/2001-CL.V dated April 18, 2002 clarified that “No Deben-ture Redemption Reserve is required for debentures issued by All India Financial Institutions, regulated by ReserveBank of India and banking companies for both public as well as privately placed debentures”. IDBI Ltd. has appointeda trustee to protect the interest of the investors. In the event of default, the bondholders may proceed against IDBI Ltd.in terms of the mechanism given under para ‘Trustees to the bondholders’ on page 3.

(b) Credit Risk: The business of lending carries the risk of default by borrowers. As directed by RBI, FIs/Banks will haveto classify such assets which continue to default over a specified period of time as non performing assets (NPAs). Asper guidelines, FIs/Banks are required to make provisions for NPAs out of their profits/reserves.Any lending activity is exposed to credit risk arising from the risk of default by the borrowers. IDBI Ltd. has put asystematic credit evaluation process in place. Necessary control measures like maintaining a diversified portfolio withindustry-wise, promoter group-wise and specific client-wise exposure limits are set to avoid concentration of lendingto any specific industry segment/ promoter group/ company. These limits help minimise credit risk. IDBI Ltd. has inplace a dedicated Risk Management Group that monitors all risks associated with lending, including Credit Risk. IDBILtd. monitors the performance of its asset portfolio on a regular basis and also constantly evaluates the changes anddevelopments in industries to which it has substantial exposure. With the conversion to a banking company andundertaking banking activities, the composition of assets is diversified, leading to further de-risking of the portfolio.IDBI Ltd. has streamlined its credit disbursal procedure and has imposed necessary control measures and is follow-ing the policy of selective lending to well rated corporates to avoid creation of fresh NPAs. The net NPAs of IDBI Ltd.was brought down to 1.7% of the outstanding amount as on March 31, 2005 as compared to 2.4% of the outstandingamount as on March 31, 2004.

(c) Market Risk: Increased interest rate volatility exposes IDBI Ltd. to market rate risk arising out of maturity/rate mis-matches.Risk arising from interest rate volatility is inherent in the business of financial intermediation and term lending. Thisrisk is minimised by linking the interest rates on term lending to a base rate (PLR / MTPLR etc), which varies inaccordance with overall movement in market rates. Further, the rate applicable to each tranche of disbursementvaries in accordance with the prevailing base rate. In case of lending pegged to floating rates, it is generally matchedby floating rate liability (both rupee and foreign currency). IDBI Ltd. manages market risks through active Asset Liabil-ity Management (ALM), viz. liquidity, interest rate and foreign exchange risk by way of gap/duration analysis so as tooptimize matching of the Assets and Liabilities. Active Asset Liability Management with efforts to match Duration ofAssets and Liabilities as also availability of and use of hedging mechanisms help moderate the market risk.

(d) Asset Liability mismatch : The maturity profile of assets and liabilities as on March 31, 2005 shows negative gaps inover 1 to 3 years bucket, over 3 years to 5 years bucket.As can be observed from the table on Maturity profile of Assets and Liabilities given on page 66 there are negativegaps of Rs.5766 crore in over 1 year to 3 years bucket and Rs.1958 crore in over 3 years to 5 years bucket. However,the maturity buckets upto 1 year and of five years are positive. Any gap in any of the maturity buckets is beingmanaged dynamically through suitable structuring of maturity profile of investment products, asset portfolio and liabil-ity products.

(e) Credit Rating: The credit rating of outstanding bond issues of IDBI Ltd. has been revised from “AAA” to “AA+” by CRISIL,from “LAAA to “LAA+” by ICRA and from “Ind AAA” to “Ind AA+” by FITCH.

The revision in ratings reflects the perception of the rating agencies. While CRISIL has reaffirmed its ratings as signed to Fixed Deposit program of IDBI Ltd. at “FAAA”, it has revised its rating assigned to the outstanding bond

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issues from “AAA” to “AA+” with stable outlook. ICRA has assigned the highest rating “A1+” to Certificate of Deposits of IDBI Ltd.. The rating for the Fixed Deposit Programme has been reaffirmed at “MAA+”. ICRA has revisedits rating from “LAAA” to “LAA+” for bonds. FITCH has revised its rating from “IndAAA” to “IndAA+” for bonds andFixed Deposits program. While “AAA” denotes highest safety in terms of timely payment of interest and principal,“AA+” denotes high safety of timely payment of interest and principal. “LAA+” indicates high safety. Risk Factors aremodest and may vary slightly. The protective factors are strong and the prospect of timely payment of principal andinterest as per terms under adverse circumstances, as may be visualized, differs from LAAA only marginally.

(f) Contingent Liabilities: As on March 31, 2005, IDBI Ltd. had contingent liabilities of Rs. 60049.73 crore on account ofclaims against the Bank not acknowledged as debts, liability for partly paid investments, outstanding forward ex-change contracts, guarantees, acceptances, endorsements and other obligations, currency swaps, options, interestrate swaps, forward rate agreements, capital commitment, disputed tax liabilities etc.The contingent liabilities are solely on account of normal operations and are subject to the prudential norms appli-cable to lending and investment operations. The increase in contingent liabilities is primarily on account of the inclu-sion of liability on account of outstanding forward exchange contracts, currency and interest rate swaps, optionsforward rate agreements as per the balance sheet format applicable to commercial banks. The extent of impact on thebalance sheet and profit and loss a/c on account of these contingent liabilities would, however, be considerably lower.

(g) Pending Grievances: As on July 31, 2005 the pending complaints were: 16 pertaining to Flexibonds-6, 4 pertainingto Flexibonds-8, 2 pertaining to Flexibonds-9, 8 pertaining to Flexibonds-10, 5 pertaining to Flexibonds-11, 11 pertain-ing to Flexibonds-12, 15 pertaining to Flexibonds-13, 35 pertaining to Flexibonds – 22 & 23, NIL pertaining to Flexibonds-2, 3, 4, 5, 7, 14, 15, 16, 17, 18, 19, 20 & 21. No complaint was pending for more than 60 days.

(h) Tax Liabilities: As on March 31, 2005, additional demands raised on account of disputed tax liabilities is Rs.3944.32crore. The demand includes Rs. 2174.86 crore, in respect of which the Bank has favourable appellate decisions in itsown cases in earlier years. The net contingent liability is Rs. 1769.45 crore.Appeals have been filed on matters covered by the disputed amount. (Please refer to page 145 of this Draft OfferDocument).

(i) Outstanding Litigations: The outstanding litigations as on September 30, 2005 aggregated Rs.388.02 crore withrespect to 76 cases. Particulars in this regard are given on page 146 of this Draft Offer Document.

(j) Asset concentration in few industries / borrowers : Five industries account for 44% of the total outstandingassistance as on June 30, 2005. Large exposures to specific industries will be impacted by global trends in theseindustries.The loan portfolio of IDBI Ltd. is well diversified among industries. The major outstandings are to the iron and steel,power generation, financial services, telecom services and cotton textiles, which together accounted for about 44% ofthe outstandings as at June 30, 2005. As a prudential measure, IDBI Ltd. has decided at its Board Meeting held onApril 29, 2005 that exposure to each industry could be 20% of IDBI’s industry portfolio or Rs.10000 crore, whicheveris less. As on June 30, 2005 IDBI’s exposure in each industry is well within the limit. With the expansion in its retailbusiness, IDBI’s risk would get further diversified across a wider segment.

(k) Profit after Tax : The profit after tax of IDBI Ltd. for the six months ended March 31, 2005 was Rs. 307 crore asagainst Rs. 465 crore for the 18 month period ended September 30, 2004.

The profit after tax for the period of six months ended March 31, 2005 is for the merged entity and hence notcomparable to the profit after tax for the 18 month period ended September 30, 2004 pertaining to the erstwhile IDBI.

(l) Return on Assets : The return on average assets has declined from 8.6% for 18 months period ended September2004 to 8.3% during the FY ended March 31, 2005, while the average cost of funds has also gone down from 7.6%to 6.2% over the same period.The major factor impacting the returns and costs is the sharp drop in interest rates during the last few years. In thelong term loan segment, this has resulted in prepayment of borrowing by high credit clients which in turn has, to someextent impacted credit composition of the portfolio. This coupled with NPAs adversely affected return on assets. Onthe cost front, impact of drop in incremental cost of rupee borrowing (9.81% in FY 2002 to 8.35% in FY 2003 andfurther down to 7.6% for 18-month period ended September 30, 2004 and to 6.2% as at end March 2005) andexercising of call option on high cost borrowings by IDBI Ltd. has resulted in decline in cost of borrowing. The cost ofborrowings is expected to further come down on account of the merger since IDBI is now in a position to access lowcost funds by way of savings and current accounts, etc. The return on assets, however, can be expected to remainmore or less stable considering that most of the high cost loans have come up for re-pricing and the impact of the fallin returns is already reflected in the accounts. Also, with the expansion of its retail reach, returns can be expected toimprove with the expansion of business in high-yielding segments like personal loans, credit cards, etc.

(m) Quoted Investments : IDBI Ltd. has in its portfolio quoted investments aggregating Rs.7862 crore as on March 31,2005 (which are booked at cost) whose market value amounted to Rs.8663 crore. As on March 31, 2005, IDBI Ltd.had debentures and bonds of Rs.5305 crore in its portfolio. All the debentures are secured by hypothecation/mort-gage of fixed assets. However, in case of debentures amounting to Rs.665 crore, the final security by way of mortgagewas yet to be created as on March 31, 2005.

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The creation of final security is a time consuming process as it usually involves title investigation on all the borrowersproperties/assets mortgaged/to be mortgaged in favour of IDBI Ltd. , obtaining No Objection Certificate for creation ofcharge/mortgage from other lenders who are existing charge holders, obtaining letters ceding pari passu charge fromother lenders, obtaining permission to create mortgage from various lessors, No Objection Certificate from IncomeTax Authorities, etc. The creation of final security in respect of the cases underlying the aforesaid debentures is underprocess primarily due to the above reason. IDBI Ltd. is vigorously following up with the concerned companies forearly creation of final security.The investment portfolio of IDBI Ltd. is predominantly of long term and strategic nature. Temporary diminution invalue of securities arises on account of price volatility due to factors and forces affecting the stock market, interestrates, etc. IDBI Ltd. has been classifying its investment portfolio and making appropriate provision for diminution invalue as per RBI guidelines issued from time to time in this regard. The investments are classified under the followingcategories (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading. These investments were valued according tothe prevailing valuation norms.

(n) Foreign Exchange Risk : IDBI Ltd. may be exposed to foreign exchange risk on account of changes in foreignexchange rates.IDBI Ltd. largely maintains a currency-wise matching of assets and liabilities. IDBI Ltd. advances foreign currencyloans on terms that are similar to its foreign currency borrowings whereby the foreign exchange risk is borne by theborrower. The foreign currency cash balances of IDBI Ltd. are generally maintained abroad in currencies matchingwith the underlying borrowings. IDBI Ltd. also operates a USD denominated Single Currency Pool (SCP) and interestrate risks under the SCPs are hedged through basis swaps. IDBI Ltd. is, therefore, not exposed to any significant riskon account of foreign exchange fluctuations.

(o) Nature of Bonds : Bonds are unsecured and in the nature of promissory notes transferable by endorsement anddelivery. The certificates are valuable documents and should be kept safely. Duplicate bonds will be issued only inaccordance with the procedure specified later in the Draft Offer Document. The Bonds are also offered in dematmode.

External Factors

(a) Changes in Government policies and/or adverse external developments may impact the performance of vari-ous industries, which may in turn affect IDBI Ltd.The Indian industry has demonstrated remarkable resilience in adjusting to the changed environment and competitionin the wake of the economic reforms initiated by the Government. Further, the diversified portfolio of IDBI Ltd. pro-vides a sufficient cushion against any downtrend in a particular industry or sector.

(b) Risk of Competition : Competition in the financial sector has increased and is likely to increase further with thestepped up operations of commercial banks and other new players in term lending. IDBI Ltd. faces competition bothin corporate and retail lending as well as in raising resources.After conversion to a banking company, IDBI Ltd. is now in a position to tap low cost funds including savings andcurrent deposits, float money, etc as also offer a host of retail and trade finance related products which it was earliernot able to offer as a DFI. Further, on the merger of its erstwhile subsidiary, IDBI Bank, IDBI Ltd. has gained asignificant boost to its commercial banking activities in the form of readymade technology platform, branch networkand operational expertise. IDBI Ltd. would seek to leverage these benefits to expand its retail reach while continuingto focus attention on its core business of project financing and infrastructure financing in particular. IDBI Ltd. isoffering a host of products including working capital financing, corporate advisory services, forex services, non-fundbased activities etc. With the expected growth in the infrastructure sector, IDBI Ltd. can be expected to have signifi-cant business potential. IDBI Ltd. would simultaneously leverage its considerable brand equity to aggressively growits retail loan and deposit book. The diversification to retail products would provide the much needed risk diversifica-tion enabling IDBI Ltd. to become a significant player in the financial sector.IDBI Ltd. has over the years strengthened its reach through its five Zonal, 154 Branch Offices, eight extention countersand 351 ATMs. IDBI Ltd. aims to further expand its reach and effectively leverage its brand for resource raising. IDBILtd. is also permited to issue bonds of varying maturity as a supplemental source for meeting its long term fundrequirement.

(c) Disintermediation : Development of the capital markets may lead to disintermediation by borrowers.With the development and maturing of the capital markets, there has been a distinct shift in the pattern of industrialfinancing. However, it will be noteworthy that while a part of the financial requirement of the industrial projects may bemet by direct borrowing from the investors, a major portion will still need to be serviced by financial intermediaries.Consequent to the opening up of the economy, large projects in infrastructure, power, petroleum, telecom, etc. withhuge financial outlays are being set up. Their large fund requirements are unlikely to be met by private investmentsalone. Accordingly, the requirement of funds both from lending institutions/banks and the capital market is likely toincrease substantially. Also, the disintermediation brings with it the opportunity for IDBI Ltd. to expand its fee basedactivities.

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General Risks(a) 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 otheritem of expenditure not represented by tangible assets) have been completely written off.

(b) No person holding shares in the Bank shall in respect of any shares held by him, exercise voting rights on poll inexcess of 10% of the total voitng rights of all shareholders of the banking company.Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For takingan investment decision, the investor must rely on his/her own examination of the issuer and the issue including therisks involved. The Bonds have not been recommended or approved by SEBI nor does SEBI guarantee the accuracyor adequacy of this Draft Offer Document.

Notes1. As provided for in the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 (Repeal Act),

the IDBI Act, 1964 has been repealed. The undertaking of IDBI has been transferred to and vested in the newcompany, viz. Industrial Development Bank of India Limited (IDBI Ltd. ) w.e.f. October 1, 2004, the Appointed Date,as notified by the Central Government. IDBI Ltd. was incorporated under the Companies Act, 1956 on September27, 2004 andhas received the Certificate for Commencement of Business from the Registrar of Companies,Mumbai on September 28, 2004. RBI, vide its notification dated September 30, 2004, has included IDBI Ltd. in thesecond schedule of the RBI Act. In conformity with the provisions of the Repeal Act, IDBI Ltd. will carry on bankingbusiness in accordance with the provisions of the Banking Regulations Act, 1949, in addition to its existingbusiness as a Development Financial Institution. All fiscal and other consessions, licenses, benefits, privilegesand exemptions granted to the erstwhile IDBI in connection with its affairs and business under any law for the timebeing in force, shall be deemed to have been granted to IDBI Ltd.

2. As per Clause 4 of Articles of Association of IDBI Ltd. , “the Central Government, being a shareholder of the Company,shall at all times maintain not less than 51% of the issued capital of IDBI Ltd. ”

3. The Board of Directors of the erstwhile IDBI and IDBI Bank Ltd. at their respective meetings held on July 29, 2004approved the merger of IDBI Bank Ltd. with IDBI Ltd. The same has been ratified by the Board of Directors of IDBI Ltd.at its meeting held on October 1, 2004. The Scheme of Amalgamation/Merger of IDBI Bank Ltd. with IDBI Ltd. has beenapproved at separate Extra Ordinary General Body Meetings of the two companies held on February 23, 2005 andFebruary 25, 2005 respectively. The scheme, has become effective from April 2, 2005, with effect from October 1, 2004on approval from Reserve Bank of India.

4. IDBI Ltd. would like to clarify that inspection by RBI is a regular exercise and is carried out periodically by RBI for allBanks and Financial Institutions. While the RBI Guidelines on Asset Classification, provisioning and income recognitionare followed, IDBI Ltd. has difference of opinion in interpretation of RBI guidelines in certain cases vis-à-vis view takenin RBI Inspection Report for the year ended March 31, 2003, which are in the process of being resolved. Pendingresolution of such disputes, IDBI Ltd. has continued to adopt the same interpretation of RBI guidelines in respect ofsuch cases. Pursuant to approval of RBI, a floating provision of Rs.2079 crore as on October 1, 2004 has been madeform General Reserve of IDBI Ltd, towards the provisioning requirements that may arise on settlement of such disputesand any possible decline in value of the loan assets granted prior to October 1, 2004. (With the concurrence of RBI, thefloating provision has since been fully utilized as on September 30, 2005)

5. The Networth of IDBI Ltd. as on March 31, 2005 was Rs.5928.4 crore. The present issue size is Rs.[ * ] crore with anoption to retain oversubscription upto Rs.[ * ] crore.

6. The Book Value per share of IDBI Ltd. as on March 31, 2005 was Rs.81.7. The Earnings per Share as on the said datewas Rs.8.52 (annualised). Cost per share to the promoter of IDBI i.e. GOI is Rs.10 (i.e. at par).

7. Summary of transactions of IDBI Ltd. with its subsidiaries for the last three years : (Rs. crore)

Year ended March 31st 2003 2004 2005 Interest income 2.84 2.43 2.82

Dividend, fees, commission and 150.32 120.87 0.95Other revenueInterest expense 0.16 1.21 0.96Administrative and other expenses 1.90 5.31 7.18

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Outstanding BalancesLoans 101.95 Nil NilInvestments 0.00 38.00 38.00Current assets 4.04 7.04 7.28Long Term debt 0.00 0.00 0.00Current Liabilities 8.89 10.97 11.60

8. The financial information as contained in the Auditor’s Report, including the notes to accounts, significant accountingpolicies as well as Auditor’s qualifications have been duly certified by the Auditors. As far as possible, the Auditednumbers have been used for computation of or arriving at the other financial information contained in the Draft OfferDocument. However, such other financial information contained in the Draft Offer Document except as contained inthe Auditor’s Report has been certified by the management.

9. GOI or the Directors of the Bank have not undertaken any transactions in the equity shares of the Bank in the last sixmonths.

10. The Bonds may have various features/options. Such features need specific attention of the investor. For betterunderstanding of such common features, investors are requested to refer to the discussion on ‘Glossary’ on page 184of this Draft Offer Document.

11. Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond ( ) will be made on a full and firmallotment basis, upto the issue size of Rs.[ * ]crore plus the amount of over subscription retained by IDBI Ltd. Sub-scribers to the IDBI Infrastructure (Tax Saving) Bond ( ) will have priority over subscribers to other bonds for allotment.Therefore, only after all eligible applicants for IDBI Infrastructure (Tax Saving) Bond ( ) have been allotted, applicationsfor other bonds will be considered for allotment on proportionate basis.

ix


SUMMARY

Business Overview

IDBI Ltd. is a company incorporated under the Companies Act, 1956 and Banking Regulation Act 1949. IDBI Ltd.continues as a Public Financial Institution (PFI) under section 4A of the Companies Act, 1956.IDBI Ltd. was establishedin 1964 by the Government of India under an Act of Parliament, the Industrial Development Bank of India Act, 1964(the IDBI Act). Initially, IDBI Ltd. was set up as a wholly-owned subsidiary of Reserve Bank of India (RBI) to providecredit and other facilities for the development of industry. In 1976, the ownership of IDBI Ltd. was transferred to theGovernment of India and it was entrusted with the additional responsibility of acting as the principal financial institutionfor co-ordinating the activities of institutions engaged in financing, promotion or development of industry.

Over the last four decades, IDBI’s role as catalyst to industrial development has encompassed a broad spectrum ofactivities. IDBI Ltd. financed all types of industrial concerns covered under the provisions of the IDBl Act irrespective ofthe size or form of organisation. IDBI Ltd. primarily provided finance to large and medium industrial enterprises engagedor to be engaged in the manufacture, processing or preservation of goods, mining, shipping, transport, hotel industry,information technology, medical and health, leasing generation and distribution of power, maintainance, repair, testing,servicing of vehicles, setting up of industrial estates as also in the research and development for promotion of industrialgrowth. IDBI Ltd. had also been assigned a special role for co-ordinating the activities of institutions engaged in financ-ing, promoting or developing industries.

In the past, the GoI had provided direct and indirect financial assistance and support to IDBI Ltd. including access tolow cost fund and assistance by way of restructuring of high cost liabilities. The GoI, however, has no legal obligationsto provide financial assistance or support to IDBI Ltd., which had been extended from time to time considering theunique role of IDBI Ltd. in the industrial development of the country. The structural changes in the industrial sectorincluding the opening up of the economy and the ongoing disintermediation in the financial sector had affected the creditprofile of IDBI Ltd.. The sources and availability of cheap long term funds have declined resulting in difficulties in operationsas a stand alone DFI. To impart more flexibility in its operations and enable it to diversify on both asset and liabilityside and thereby expand its scope of operations, IDBI Ltd. has taken up banking operations in consonance with theprovisions of the IDBI Repeal Act, 2003 and the Memorandum and Articles of Association of IDBI Ltd. as discussedon page 176 of this Draft Offer Document

Merger of erstwhile IDBI Bank Ltd.

To create a more conducive environment for the transition and to give fillip to the business operations of the new entity(IDBI Ltd.), the then IDBI’s Board decided that for effective transition to a banking company, IDBI Ltd. should leverageon its banking subsidiary, IDBI Bank Ltd. The Scheme of Amalgamation/Merger of IDBI Bank Ltd. with IDBI Ltd. hasbeen approved separately by the respective General Body of Shareholders and has also received approval from theReserve Bank of India (RBI) in terms of the provisions of the Banking Regulation Act, 1949. The scheme of Amalgamationhas become effective from October 1, 2004. Particulars in this regard are discussed on page 41 of the Draft OfferDocument

The merger has brought in significant benefits in terms of enhanced size and improved quality of balance sheet, lowercost of funds, extended branch network, a higher technology platform, lean workforce, alongwith a wide array of retailand wholesale products. This has benefitted all the stakeholders by increased value creation, alongwith the convenienceof a universal bank. The benefits of economies of scale and the convenience of single-window servicing to clients is amajor advantage. The opportunity for the Bank has come from the access to cheaper short-term retail funds. This hasenabled the Bank to lower its cost of liability and price its products attractively. Enlarging the clientele base either throughmarket penetration, product diversification or market development, market segmentation and providing structured productsunder a single roof are the other opportunities for the Bank. Also, the enlarged capital base of the Bank has providedimpetus to expanding business. The inhouse knowledge and expertise in long term finance, including project finance,coupled with the skill of retail financing, has enabled the merged entity to emerge as a preferred source of financefrom all segments of the market. IDBI Ltd. is now a banking company, having a wide array of wholesale and retailproducts and an unique position in view of continuation of its development financial role. The future prospects of IDBILtd. will be closely linked with the opportunities emerging in the process of development of economy and those in thebanking sector. The industry overview is discussed on page 31 of this Draft Offer Document.

x


THE ISSUE

The Industrial Development Bank of India Limited (IDBI Ltd.) proposes to offer, for public subscription, under the umbrella ofits IDBI Flexibonds series, all or any of the following unsecured, redeemable bonds up to a maximum of Rs.1500 crore overa period of next one year, in tranches, through a series of public issues. The quantum of each tranche, the instruments to beoffered and the terms thereof, will be decided prior to the launch of each tranche. IDBI Ltd. will have the option to retain theentire subscription received by it in its tranches, subject to a maximum of Rs.3000 crore including over-subscription to theextent of Rs.1500 crore in next one year.

IDBI Regular Income Bond ()IDBI Growing Interest Bond ()IDBI Retirement / Education Bond ()IDBI Infrastructure (Tax Saving) Bond ()IDBI Floating Rate Bond ()IDBI Fixed Option/Floating Option Bond ()IDBI Floating Option / Fixed Option Bond ()IDBI Upfront Interest Bond ()IDBI Deep Discount/Money Multiplier/Zero Coupon Bond ()IDBI Multi-Option Bond ()IDBI Anytime Encashment Bond ()IDBI SPLIT Bond / IDBI STRIPS Bond

The above bonds are collectively referred to in this Draft Offer Document as “IDBI Flexibonds Series 2005-06 “ or “Bonds”.Instruments at a GlanceSalient features of the instruments to be inserted at the time of tranche issue. Particulars of the instruments included in thisDraft Offer Document as mentioned above is given on page 16 of this Draft Offer Document

Target Amount

This Issue is intended to collectively raise an amount of up to Rs.1500 crore, with an option to retain an additional amountof Rs.1500 crore (i.e. in all, up to Rs.3000 crore) in tranches, during the next one year. The quantum of each tranche, theinstruments to be offered and the terms thereof will be decided prior to the launch of each tranche. IDBI Ltd. will have theoption to retain the entire over-subscription received by it in tranches, subject to a maximum of Rs.3000 crore in the nextone-year.

Issue Schedule

The Issue will open for subscription at the commencement of business hours and close at the close of business hours on thedates indicated below:

OPENING DATE: ()

CLOSING DATE: ()

(The issue may have the provision of earliest opening date, latest opening date as also earliest closing date, etc.)

xi


SELECTED FINANCIAL INFORMATION

Balance SheetThe table below presents the summarized Balance Sheet of IDBI Ltd. as at March 31,2001 to March 31, 2003, for the18 months ended Septermber 30, 2004 and for six months period ended March 31, 2005. The erstwhile IDBI BankLtd. has been merged with IDBI Ltd. with effect from October 1, 2004. Prior to this merger IDBI, the predecessor ofIDBI Ltd. and IDBI Bank Ltd. were distinct legal entities. The figures given below pertain to the operating results oferstwhile IDBI alone for the period upto September 30, 2004. The figures for the six months period ended March 31,2005 for the merged entity is shown separately.

(Rs. Crore)As at March 31, 2001 2002 2003 30 Sept.

2004

Cash and Bank Balances 2365 1841 1163 1939Investments 9709 10607 10180 24243Loans and Advances 51606 47429 45569 32602Bills of Exchange and 1443 985 613 267Promissory NotesPremises 302 295 292 355Other Fixed Assets 1349 1193 993 550Other Assets 5009 4293 4306 3890Total Assets 71783 66643 63116 63846Current Liabilities and Provisions 6202 6066 4650 5763Borrowings 9963 6879 5360 4634Deposits 2639 3384 4330 3864Bonds and Debentures 43817 43619 41798 43750Total Liabilities 62621 59948 56138 58011(Excluding Capital & Reserve)Equity Capital 653 653 653 653Reserves, Funds and Surplus 8509 6042 6325 5182Total Capital and Reserves 9162 6695 6978 5835Total Liabilities, Capital & Reserves 71783 66643 63116 63846Book Value per Equity Share (Rs) 139.8 101.9 106.4 88.83

Balance sheet as at March 31, 2005 (for the merged entity)(Rs. crore)As on March 31, 2005

Capital and LiabilitiesCapital 721.77Reserves and Surplus 5204.50Employees' stock options (grants) outstanding 2.13Deposits 15102.64Borrowings 50005.54Other Liabilities and Provisions 10323. 67

Total 81360.2

ASSETSCash and balances with Reserve Bank of India 2375.90Balances with banks and money at call and short notice 3277.26Investments 25054.69Advances 45413.57Fixed Assets 889.42Other Assets 4349.41

Total 81360.2

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Profit and Loss AccountThe table below presents the Profit and Loss Account of IDBI Ltd. for the years ended March 31, 2001 toMarch 31, 2003, for the 18 months period ended September 30, 2004 and for six months period ended March 31, 2005. (Rs. crore)

March 31 2001 2002 2003 30 Sept.2004

(18 months)A. Income From Operations*Interest and Discount Income 6191 5862 5219 5743Income from investments 757 761 516 1062Commission and Brokerage etc 188 130 73 61Net profit on sale of investments 535 278 419 1146Other income 164 145 144 211Total Income 7835 7176 6371 8223

B. ExpenditureInterest on deposits, borrowings, etc. 6595 6250 5434 7080Establishment Expenses 84 117 95 182Accelerated write-off of Badand Doubtful Debts 2500Less : Withdrawn from Special (2500)Reserve u/s 36(1)(viii) of IT ActDepreciation 230 223 199 242Other Expenditure 192 171 188 257Provisions and contingencies(excl. provision for tax and deferred tax)Total Expenditure 7101 6761 5916 7761Net Profit (NP) before Tax 734 415 455 462and Extraordinary itemsLess : Provision for Tax (43) (10) (92) (67)Add : Deferred Tax Credit - 19 38 70NP before Extraordinary items 691 424 401 465Extra-ordinary items ** – – – _Net Profit as per 691 424 401 465Audited AccountsPrior period items (3) (13) – _Diminution in value of investments 68 – – -Adjusted Profit After Tax 756 411 401 465

The above figures have been rounded off to the nearest crore.* after meeting of bad debts and making provisions for bad and doubtful debts and other necessary and expedientprovisions. (except for March 2005 where provisions have been shown under expenditure)** write back of excess income/interest tax provision/lease equalisation adjusted.

xiii


The significant accounting policies followed by IDBI Ltd. are given in the Auditors’ Report reproduced later in the DraftOffer Document.

Profit and Loss account for the six months ended March 31, 2005(Rs crore)

I. IncomeInterest earned 2656Other income 627

--------------------------Total 3283

--------------------------II. Expenditure

Interest expended 2468Operating expenses 454Provisions and contingencies [refer Schedule 19 note 3] 54

------------------------Total 2976

--------------------------III. Profit/ Loss

Net profit / (loss) for the year 307Profit / (loss) brought forward 879

--------------------------Total 1186

--------------------------IV. Appropriations

Transfer to statutory reserves 77Transfer to capital reserves 10Transfer to Investment Fluctuation Reserves 200Transfer to Special Reserve under section 36(1)(viii) of the Income Tax Act, 1961 50Transfer to other reservesProposed dividend 54Tax on proposed dividend 8Balance carried over to balance sheet 787

--------------------------Total 1186

--------------------------

xiv


1

GENERAL INFORMATION

Registered Office

IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400 005Tel: +91 22 5655 3355 / 2218 9111Fax: + 91 22 2218 1294

Board of Directors

1. Shri V.P. Shetty Chairman and Managing Director2. Shri. Vinod Rai Government Nominee Director3. Dr. Ajay Dua Government Nominee Director4. Shri. Analjit Singh Independent Director5. Padmashree Ms. Lila Poonawalla Independent Director6. Shri. K. Narasimha Murthy Shareholder Director7. Shri. R.V. Gupta Shareholder Director8. Shri H. L. Zutshi Shareholder Director9. Dr. D. Veerendra Heggade Shareholder Director10. Shri. A. Sakthivel Shareholder Director

Particulars in this regard are given on page 83 of the Draft Offer Document.

Compliance Officers

M.N. KamatDeputy General ManagerDomestic Resources Department (Customer Relations Management Cell)Industrial Development Bank of India Ltd.7th Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005Tel : (022) 56553355/22164385/22180479 / 22151051, Fax : (022) 22180930 e-mail :[email protected]

S.N.BahetiChief General Manager & Company Secretary,Board and Centaral Accounts Department,Industrial Development Bank of India Limited,3rd Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005Tel : (022) 56552265, 56553355 ; Fax : (022) 22184362 e-mail : [email protected] can contact the Compliance Officer in case of any pre-Issue or post-Issue related problems such as non-receipt of application forms, delay in receipt of letters of allotment/ bond certificates etc.

Lead Managers

SBI Capital Markets Ltd.202, Maker Tower “E”,Cuffe Parade,Mumbai – 400005Contact: Mr. Amit SrivastavaTel: 91 22 22189166,Fax: 91 22 22188332Website: www.sbicaps.comemail:[email protected]

(Name of other members of the Lead Management team to be inserted at the time of the tranche issue)Co-Managers

Principal Marketing Co-ordinator Trustees to the BondholdersRegistrar to the Issue Banker to the IssueAuditors

(Names of members of each of the above to be inserted at the time of the tranche)

Statement of Inter Se Allocation of Responsibilities for the Issue (To be given at the time of the issue)


2

Credit RatingDomestic RatingIssue of unsecured bonds of Rs.1,500 crore with an option to retain over-subscription upto Rs.1,500 crore filed under theUmbrella Draft Offer Document for the FY 2005-2006 has been rated “AA+” (pronounced Double A Plus) by CRISIL,“AA+(ind)” by FITCH Ratings India Pvt Ltd and “LAA+” by ICRAThe proposed tranche of bond issue has been rated by three Agencies and the rating details are as given below:

Institution Rating Category Meaning of the Rating

CRISIL “AA+” Debentures Debentures rated ‘AA+’ are judged to offer high(Credit Rating Information (Stable) (Bonds) safety of timely payment of interest and principal.Services of India Ltd) They differ in safety from ‘AAA’ issues only

marginally.A Rating outlook indicates the direction in which arating may move over a medium-termhorizon ofone-to-two years. A stable outlook indicates thatthe rating is likely to remain unchanged over thistime horizon.

FITCH (Fitch Ratings “AA+(ind)” Long Term High credit quality. AA(ind) ratingsIndia Pvt. Ltd. ) (The outlook debt indicate a low expectation of credit risk.

on the rating They indicate strong capacity for timelyis Stable) payment of financial commitments. This capacity

may vary slightly from time to time because ofeconomic Conditions.

FITCH assigns a Rating Outlook to Long Termand Term Deposits Ratings. A Rating Outlookindicates the direction a rating is likely tomove over time. Outlook may be Positive,Stable or Negative. A Positive or NegativeRating Outlook does not imply that arating change is inevitable. Similarly, ratingsfor which Outlook is ‘Stable’ could beupgraded or downgraded before an outlookmoves to Positive or Negative ifcircumstances warrant such an action.Occasionally, FITCH Ratings may be unableto identify the fundamental trend. In thesecases, the Rating Outlook may be describedas ‘Evolving’.

ICRA (Investment “LAA+” Debentures, High safety. Risk factors are modestInformation and Credit Bonds, and may vary slightly. The protectiveRating Agency) Preference factors are strong and the prospect

Shares of timely payment of principal andinterest as per terms under adversecircumstances, as may be visualised,differs from ‘LAAA’ only marginally.

As IDBI Ltd. is a promoter shareholder of CARE, ratings of proposed instruments of borrowings are not being obtainedfrom CARE as a measure of good corporate governance.

International RatingStandard & Poor’s has assigned “BB” (with Stable outlook) long-term foreign currency credit rating to IDBI Ltd. Moody’sInvestors Services has assigned a long-term foreign currency debt rating of ‘Baa3’ to IDBI Ltd. Fitch, the international ratingagency, has assigned long-term foreign currency rating of “BB+” to IDBI Ltd.Meaning of International Ratings‘BB’ long term foreign currency rating from Standard & Poor’s : Less vulnerable in the near term than other lower ratedobligors. However it faces major ongoing uncertainties and exposure to adverse business, financial and economicconditions, which could lead to the obligor’s inadequate capacity to meet its financial commitments.‘Baa3’ long term foreign currency debt rating from Moody’s : Bonds and preferred stock which are rated Baa3 are subjectto moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteris-tics.


3

‘BB+’ long term foreign currency rating from Fitch : Indicates that there is possibility of credit risk developing, particularly asa result of adverse economic change over time; However, business or financial alternatives may be available to allowfinancial commitments to be met. Securities rated in this category are not investment grade.Investors are requested to note that a security rating is not a recommendation to buy, sell or hold securities and thatit may be subject to revision or withdrawal at any time by the agency assigning the rating and that each rating shouldbe evaluated independently of any other rating.

Details of rating in the past 4 years

CRISIL ICRA FITCH/DCR

FY 2004-2005 AA+(Stable) LAA AA+(ind) (Outlookon the Rating isStable)

FY 2003-2004 AA+(Rating watch LAA AA+(ind)(The outlookwith Developing on the Rating isImplications) Evolving)

FY 2002-2003 AA+ LAA AA+ (ind)

FY 2001-2002 AA+ LAA+ Ind AAA

Trustees to the Bondholders

IDBI Ltd. has appointed (————— )to act as Trustees to the Bondholders. IDBI Ltd. and the Trustees will enter into aTrustee Agreement, specifying, inter alia, the powers, authorities and obligations of the Trustees and IDBI Ltd. TheBondholders shall, without further act or deed, be deemed to have irrevocably given their consent to the Trustees or any oftheir agents or authorised officials to do all such acts, deeds, matters and things in respect of or relating to the Bonds asthe Trustees may in their absolute discretion deem necessary or require to be done in the interest of the Bondholders.The complete name and address of the Trustees to the Bondholders will be disclosed in the Annual Report. It is proposedthat in terms of the Agreement, the Trustees will endeavor to protect the interest of the Bondholders, in the event of defaultin regard to timely payment of interest or repayment of principal by IDBI Ltd. Any payment made by IDBI Ltd. to the Trusteeson behalf of the Bondholders shall discharge IDBI Ltd. pro tanto to the Bondholders. No Bondholder shall be entitled toproceed directly against IDBI Ltd. unless the Trustees, having become so bound to proceed, fail to do so. The events ofdefault under the Trustee Agreement are as follows: (to be updated at the time of each tranche as per the TrusteeAgreement)

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

(i) Default in payment of monies due in respect of interest owing upon Bond(s);(ii)Default in payment of any other monies including costs, charges and expenses incurred by the Trustees.

Additional events of default

1. Default is committed in the performance or observance of any covenant, condition or provision contained in the TrusteeAgreement 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 shallbe required), such default continues for thirty days after written notice has been given thereof by the Trustees to the IDBILtd. requiring the same to be remedied.

2. Any information given by the IDBI Ltd. in its applications to the Bondholders, in the reports and other information furnished by the IDBI Ltd. and the warranties given/ deemed to have been given by it to the Bondholders/Trustees is misleading or incorrect in any material respect.3. The IDBI Ltd. is unable to or has admitted in writing its inability to pay its debt as they mature.4. Receiver or a Liquidator has been appointed or allowed to be appointed of all or any part of the undertaking of the IDBI Ltd. and such appointment is not dismissed within 60 days of appointment.5. IDBI Ltd. ceases to carry on its business.· IDBI Ltd. hereby declares that it has not defaulted in payment of any of its previous borrowings.· IDBI Ltd. has executed Memorandum of Understanding (MoU) with Trustees in respect of all its previous public issues

within a period of six months from the closure of each of the public issue which was subsequently followed up with aTrustee Agreement.


4

Rights of Bondholders

a) The Bond(s) shall not, except as provided in the Act, confer upon the holder(s) thereof any rights or privilegesavailable to the members of IDBI Ltd. including the right to receive notices or Annual Reports of, or to attend and/or vote, at the General Meeting of IDBI Ltd. However, if any resolution affecting the rights attached to the Bond(s)is to be placed before the shareholders, the said resolution will be first placed before the concerned registeredBondholder(s) for their consideration. Holder(s) of the Bond(s) shall be entitled to a copy of the Annual Report ona specific request made to IDBI Ltd.

b) The registered Bondholder or in the case of joint-holders, the one whose name stands first in the register ofBondholder(s) shall be entitled to vote in respect of such Bond(s), resolution(s), either in person or by proxy, at anymeeting of the concerned Bondholder(s) and every such holder shall be entitled to one vote on a show of hands.On a poll, his/her voting rights shall be in proportion to the outstanding nominal value of Bond(s) held by him/heron every resolution placed before such meeting of the Bondholder(s). The quorum for such meetings shall be atleast five Bondholder(s) present in person.

c) The Bonds will be subject to the provisions of the Memorandum and Articles of Association of the IndustrialDevelopment Bank of India Limited, Industrial Development Bank of India Ltd.(Issue and Management of Bonds)Rules, 2004, the Companies Act, 1956, Banking Regulations Act, 1949, relevant statutory guidelines and regula-tions for allotment and listing of securities issued from time to time by the Government of India(GoI), SEBI, RBIand the Stock Exchanges concerned, the terms of this Draft Offer Document and Application Form. Over andabove such terms and conditions, the Bond(s) shall also be subject to the the other terms and conditions as maybe incorporated in the Trustee Agreement/Letters of Allotment/Bond Certificates, guidelines, notifications andregulations relating to the issue of capital.

d) A register of Bondholder(s) will be maintained in accordance with the aforesaid provisions of the Act and allinterest and principal sums becoming due and payable in respect of the Bond(s) will be paid to the registeredholder thereof for the time-being or in the case of joint-holders to the person whose name stands first.

e) The Bondholders will be entitled to their Bonds free from equities and/or cross claims by IDBI Ltd. against theoriginal or any intermediate holders thereof.

f) Bonds can be rolled over only with the positive consent of the Bondholders.

Roles, Powers and Obligations of Trustees

The major clauses relating to the general rights, powers and discretions of the Trustees shall be as under (to be updatedat the time of the tranche). These are in addition to other powers conferred on the Trustees and provisions for theirprotection.

a) The Trustee shall not be bound to give notice to any person of the execution of the Trustee Agreement or to seeto the performance or observance of any of the obligations hereby imposed on the IDBI Ltd. or in any way tointerfere with the conduct of IDBI’s business unless and until the rights under the Bonds shall have becomeenforceable and the Trustees shall have determined to enforce the same.

b) Save as otherwise expressly provided in the Agreement, the Trustees shall, as regards all trusts, powers,authorities and discretions, have absolute and uncontrolled discretion as to the exercise thereof and to the modeand 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 shallnot be bound to act at the request or direction of the Bondholders under any provisions of these presents unlesssufficient monies shall have been provided or provision to the satisfaction of the Trustees made for providing thesame and the Trustees are indemnified to their satisfaction against all further costs, charges, expenses andliability 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 toconsent (where such consent is required) to a specified transaction or class of transactions conditionally;

d) The Trustees shall not be responsible for the monies paid by applicants for the Bonds;e) The Trustees shall not be responsible for acting upon any resolution purporting to have been passed at any

meeting of the Bondholders in respect whereof minutes have been made and signed even though it maysubsequently be found that there was some defect in the constitution of the meeting or the passing of theresolution 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 theprovisions of the trustee agreement and every such determination bonafide made (whether or not the same shallrelate wholly or partially to the acts or proceedings of the Trustees) shall be conclusive and binding upon allpersons interested hereunder;

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

h) The Trustees shall not be liable for any default, omission or delay in performing or exercising any of the powersor trusts under the trustee agreement expressed or contained or any of them or in enforcing the covenants or ingiving notice to any person or persons of the execution hereof or in taking any other steps which may be


5

necessary, expedient or desirable for any loss or injury which may be occasioned by reason thereof unless theTrustees shall have been previously requested by notice in writing to perform, exercise or do any of such steps asaforesaid by the holders representing not less than three fourths of the nominal amount of the Bonds for the timebeing outstanding or by a Special Resolution duly passed at a meeting of the Bondholders and the Trusteesshall not be bound to perform, exercise or do any such acts, powers or things or to take any such steps unlessand until sufficient moneys shall have been provided or provision to the satisfaction of the Trustees made forproviding the same by or on behalf of the Bondholders or some of them in order to provide for any costs, chargesand expenses which the Trustees may incur or may have to pay in connection with the same and the Trustees areindemnified to their satisfaction against all further costs, charges, expenses and liabilities which may be incurredin complying with such request PROVIDED NEVERTHELESS that nothing contained in this clause shall exemptthe Trustees from or indemnify them against any liability for breach of trust nor any liability which by virtue of anyrule or law would otherwise attach to them in respect of any negligence, default or breach of trust which they maybe guilty of in relation to their duties under the trustee agreement.

Retirement and Removal of Trustees

The Trustees shall not retire without other Trustee being appointed.a) The Trustees hereof may retire at any time after giving at least one month’s previous notice in writing to IDBI Ltd.

in that behalf.b) The Trustees hereof may be removed by the Bondholders by a Special Resolution duly passed at the meeting of

the Bondholders. IDBI Ltd. shall appoint such person or persons as may be nominated by such Resolution asnew Trustee or Trustees hereof.

c) For the purposes aforesaid, forthwith upon receipt of the notice of retirement from the Trustees for the time beinghereof or on the occurrence of the vacancy in the office of the Trustee or Trustees hereof, the IDBI Ltd. shallconvene a meeting of the Bondholders.

Underwriting agreement

The Issue of Bonds has not been underwritten.


6

CAPITAL STRUCTURE(As on March 31, 2005)

(Rs. Crore) (A) Authorised Capital

Equity Capital125, 00,00,000 Equity Shares of Rs.10/- each 1250 1250

(B) Issued, subscribed and paid-up capitalEquity Capital65,28,80,406 equity shares of Rs.10/- each fully paid up 6536,88,94,616 Equity Shares issued to the shareholders of the erstwhile IDBI Bank 69 722Employees’ Stock Options (grants) outstanding 2

(C) Reserves, Funds and Surplus including Share Premium 5204

(D) DepositsDemand Deposits 3886Saving Bank Deposits 1892Term Deposits 9324 15102BorrowingsIn India 45303Outside India 5888 51191

(E) Present Issue to Public through the Draft Offer Document ( )

Notes :1. The Promoters / Directors / Lead Managers / IDBI Ltd. have not entered into standby or similar arrangements for

these bonds.2. The present issue of unsecured bonds by IDBI Ltd. is made under Guidelines for Issue of Capital by Designated

Financial Institutions, SEBI (Disclosure and Investor Protection) Guidelines 2000, and therefore, provisions of lock-in of share of the promoters are not applicable.

3. IDBI Ltd. has not raised any bridge loan or any other similar financial arrangement, the amount of which would berepaid out of the proposed public issue of unsecured bonds.

4. IDBI Ltd. is in the business of raising resources and deploying them on an ongoing basis. However, no specificissue of ‘Security’ in domestic currency by way of a private placement or a public issue (by means of an Draft OfferDocument/ information memorandum, wherein a specific invitation is given to investors to subscribe to securities)shall be made during the time when the tranche is open.

5. In the event of oversubscription beyond the green-shoe option in a tranche issue, the basis of allotment shall bedecided on a proportionate manner in consultation with the Stock Exchange, Mumbai and the National StockExchange as per the procedure laid out in para Basis of Allotment on page 168 of the Draft Offer Document.

6. No single applicant in the net offer to the public category can make an application for a number of bonds, whichexceeds the net offer to the public.

7. As on March 31, 2005, there were 2,84,873 shareholders of IDBI Ltd. Pursuant to the provisions of the IDBI RepealAct, all shareholders of erstwhile IDBI have become shareholders of IDBI Ltd. as on October 1, 2004, the ‘AppointedDate’.

8. Pursuant to conversion of IDBI to IDBI Ltd., the authorised capital of the company has been reduced to Rs.1250 crorecomprising 125 crore equity shares of Rs.10 each. The paid-up capital of the company as on March 31, 2005 isRs.722 crore.


7

SHARE CAPITAL HISTORY OF IDBI LTD.

The ownership of IDBI from 1964 to 1976 was with the Reserve Bank of India and was transferred to the GoI with effectfrom February 16, 1976. The contribution to the share capital, since inception was made by the RBI (later transferred tothe GoI in 1976 ) / GoI. Subsequently, in 1995, IDBI accessed the capital market by making a public issue of 17,30,93,300equity shares of Rs.10/- each. Details of capital history are as under :

Year@ No. of equity Face Value Cumulative shareShares issued (Rupees) capital (Rupees)

1964-65 1,00,00,000 10,00,00,000 10,00,00,0001966-67 1,00,00,000 10,00,00,000 20,00,00,0001970-71 1,00,00,000 10,00,00,000 30,00,00,0001971-72 1,00,00,000 10,00,00,000 40,00,00,0001973-74 1,00,00,000 10,00,00,000 50,00,00,0001977-78 1,00,00,000 10,00,00,000 60,00,00,0001978-79 3,00,00,000 30,00,00,000 90,00,00,0001979-80 1,50,00,000 15,00,00,000 105,00,00,0001980-81 4,00,00,000 40,00,00,000 145,00,00,0001981-82 5,50,00,000 55,00,00,000 200,00,00,0001982-83 5,50,00,000 55,00,00,000 255,00,00,0001983-84 13,00,00,000 130,00,00,000 385,00,00,0001984-85 3,00,00,000 30,00,00,000 415,00,00,0001985-86 3,00,00,000 30,00,00,000 445,00,00,0001986-87 3,00,00,000 30,00,00,000 475,00,00,0001987-88 2,00,00,000 20,00,00,000 495,00,00,0001988-89 4,50,00,000 45,00,00,000 540,00,00,0001989-90 9,70,00,000 97,00,00,000 637,00,00,0001990-91 6,60,00,000 66,00,00,000 703,00,00,0001991-92 5,00,00,000 50,00,00,000 753,00,00,00016.11.94* (25,30,00,000) (253,00,00,000) 500,00,00,00025.8.1995 ** 17,30,93,300 173,09,33,000 673,09,33,0005.6.2000 *** (24,70,00,000) (247,00,00,000) 426,09,33,00025.8.2000# (1,80,74,300) (18,07,43,000) 408,01,90,00029.3.01## 24,48,11,400 244,81,14,000 652,83,04,00027.09.04 @@ 50,060 5,00,060, 5,00,06001.10.04@@@ 65,28,30,400 65,28,30,40,000 652,88,04,06002.04.05 $ 6,97,60,806 69,76,08,060 722,64,12,12024.05.05 $$ 2,65,583 26,55,830 722,90,67,95010.06.05 $$$ 1,34,160 13,41,600 723,04,09,550

@ The financial year up to 1987-88 was July – June and April-March thereafter.* Conversion of Equity Capital into redeemable Preference Shares, since redeemed.** Initial Public Offer of equity shares of a face value of Rs. 10/- with a premium of Rs. 120/- per share.*** The Government of India vide Notification dated June 5, 2000 converted 24.70 crore equity shares held by

it into three year redeemable preference shares of Rs. 10/- each aggregating Rs.247 crore carryingdividend @ 13% p.a. Consequently, the equity shareholding of the Government in IDBI then stood reducedfrom Rs.485.58 crore (i.e. 72.14%) to Rs.238.58 crore (i.e. 57.76%)

# On August 25, 2000, 1,80,74,300 partly paid up equity shares of face value Rs.10/- each were forfeited.Consequently, (i) the aggregate face value of Rs.18,07,43,000 was reduced from the subscribed and paid-upcapital (ii) Allotment money in Arrears of Rs.13,55,57,250 was written down fully and (iii) Capital Reserveaccount was credited by Rs.4,51,85,750 being the amount actually paid up on the forfeited shares. On accountof this, Government’s shareholding went up to 58.5% with effect from August 25, 2000.

## The board of IDBI recommended bonus in the ratio of three equity shares for every 5 equity shares held videBoard resolution dated December 19, 2000 which was subsequently ratified in the EGM held on January 23,2001. Consequently, IDBI issued 24,48,11,400 fully paid up equity shares of Rs.10 each issued as bonus shares


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on March 29, 2001 by capitalization of Capital Reserve of Rs.4.52 crore and Share Premium of Rs.240.29 crore.@@ IDBI Ltd., the successor of IDBI, was incorporated on 27/09/2004 with a share capital of Rs.5,00,560.@@@ All Shareholders of the erstwhile IDBI have become shareholders of IDBI Ltd. as on October 1, 2004, the

appointed date. The authorized capital of the company was reduced to Rs.1250 crore comprising 125 croreequity shares of Rs.10 each. The paid-up capital of the company remained unaltered at Rs.653 crore as onOctober 1, 2004.

$ The RBI has approved the amalgamation of the erstwhile IDBI Bank Ltd. with IDBI in terms of section 44A ofBanking Regulations Act, 1949, with retrospective effect from October 1, 2004. All the shareholders of the erst-while IDBI Bank Ltd. have become the shareholders of IDBI Ltd.

$$ Allotment of 2,65,583 shares to employees of IDBI CBSBU under ESOS scheme on 24.05.2005.$$$ Allotment of 1,34,160 shares to employees of IDBI CBSBU under ESOS scheme on 10.06.2005.

Equity Shares held by top 10 shareholders

(i) The list of top ten shareholders of IDBI Ltd. on the date of Stock Exchange filing on () and the number of sharesheld by them is as follows.

Sr. No Name of the Shareholder No of Shares12345678910

(ii) The list of top ten shareholders 10 days prior to the date of Stock Exchange filing and the number of sharesheld by them is as follows.

Sr. No Name of the Shareholder No of Shares12345678910.

(iii) The list of top ten shareholders of IDBI 2 years prior to the date of Stock Exchange filing and the number ofshares held by them is as follows. As mentioned earlier these shares were held in the erstwhile IDBI.

Sr. No Name of the Shareholder No of Shares

12345678910


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Shareholding pattern as of March 31, 2005

Category Total % to Total % of shareShareholders numbers shares holding

Governement of India* 1 0.00 381778000 58.48Employees 1508 0.56 474475 0.07Public 255895 95.39 82534794 12.64HUF 731 0.27 658628 0.10Bodies Corporate 2352 0.88 21080731 3.23Institutionsa) Banks 71 0.03 26423991 4.05b) FIIs 87 0.03 84870041 13.00c) State Finance Corporations 5 0.00 221760 0.03d) FIs 3 0.00 4104392 0.63e) Mutual Funds 20 0.01 6239099 0.96f) OCBs 5 0.00 314020 0.05Societies 9 0.00 31040 0.00Trusts 68 0.03 281130 0.04Insurance Companies 6 0.00 38396077 5.88NRIs 7485 2.79 4846337 0.74Directors & Relatives 14 0.01 4806 0.00NSDL (Transit) 0 0.00 621085 0.10

Grand Total 268260 100.00 652880406 100.00

* Shareholding of Government of India has come down to 52.80% as of September 30, 2005 subsequent to merger ofIDBI with IDBI Bank


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OBJECTS OF THE ISSUEThe Issue is for augmenting the medium to long-term rupee resources of IDBI Ltd. for the purpose of carrying out itsfunctions authorised under the Memorandum and Articles of Association.The Main Object Clause of IDBI Ltd. as contained in the Memorandum and Articles of Association enables IDBI Ltd. toundertake the activities for which the funds are being raised in the present issue. Also, the main objects of IDBI Ltd. ascontained in Memorandum and Articles of Association adequately cover its existing and proposed activities. The fundsraised by way of this public issue will be utilised for general business purposes including on-lending/ investment inshares/debenture, debt servicing and such other activities as may be permitted under the Memorandum and Articles ofAssociation. Further, the funds raised through Infrastructure Bonds will be used for lending to infrastructure projects.

Utilization of FundsIDBI Ltd. undertakes that all monies received out of Issue of Bonds to public shall be transferred to a separate accountother than the bank account referred to in sub-section (3) of Section 73 of the Companies Act,1956.

Issue Expenses

The expenses of this Issue include, among others, lead management fees, printing and distribution expenses, statutoryadvertisement expenses and listing fees. The estimated issue expenses are as follows:

Activity Expenses(In Rs. million)

Lead Management [ * ]Advertisement and Marketing Expenses [ * ]Printing and Stationery [ * ]Registrars Fee [ * ]Others [ * ]Total estimated Issue Expenses. [ * ]

In addition to the above, listing fees will be paid by the Bank

BrokerageIDBI Ltd. will pay brokerage to all the members of recognised Stock Exchanges and Bankers to the Issue on applicationsbearing their stamp in the Broker column in the following manner.• For individuals and HUFs, Brokerage shall be

(details of the brokerage structure to be inserted at the time of the tranche)• For investors other than individuals, brokerage will be paid as follows

(details of the brokerage structure to be inserted at the time of the tranche)• Apart from the brokerage indicated above, IDBI Ltd. may/may not, at its sole discretion, set aside an undisclosed/

disclosed amount as kitty for distribution among the top performing Lead team members/brokers etc., based on themobilisation/number of applications procured etc.

In case of overwriting etc. in the broker’s column, the decision of payment of brokerage will be made by IDBI Ltd. and wouldbe final/binding on all parties.The aggregate brokerage and kitty amount, if any, paid by IDBI Ltd. shall not exceed 1.5% of the total amount raised andretained by IDBI Ltd.


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TAX BENEFITS

(to be updated before each tranche)

IDBI Ltd. has been advised by its Tax Consultant vide letter dated December 15, 2005 that under the current tax laws, thefollowing tax benefits inter alia, will be available the Bondholders. However, an investor is advised to consider in his owncase the tax implications of an investment in the Bonds.

1. To Resident Indian Bondholders :

1.1 Tax Deduction at Source :1.1.1 No Income tax is deductible at source under the current provisions of the Income Tax Act on interest payable on

Bonds in the following cases:

(a) When the payment of interest on bonds to resident individual bondholder in the aggregate during the financialyear does not exceed Rs.2,500/- ;

(b) When the Assessing Officer issues a certificate on an application by a Bondholder, on satisfaction that the totalincome of the Bondholder justifies no deduction of tax at source, as per the provisions of Section 197(1) of theIncome Tax Act ;

(c) When the resident Bondholder (not being a company or a firm) submits a declaration(wherever applicable) asper the provisions of Section 197A of the Income-Tax Act in the prescribed form 15G and verified in theprescribed manner.

(d) Tax will be deducted at a lower rate where the Assessing Officer, on an application of any Bondholder, issuesa certificate for deduction of tax at such lower rate as per provisions of the Section 197(1) of the Income Tax ActThe maximum amount of income not chargeable to tax is Rs. 1,35,000/- in case of a woman resident in Indiaand below sixty-five years of age, at any time during previous year.Senior citizens, who are of the age of 65 years or more at any time during financial year, can submit a self-declaration in the prescribed form 15H in accordance with the provisions of section 197A

1.2 Capital GainsThe difference between the sale price on transfer and the cost of acquisition of the Bond held by the Bondholder asa capital asset, will be treated as long-term capital gain/loss in the hands of the investor, provided such Bond washeld for a continuous period of more than twelve months. However, in the case of cumulative options of IDBIInfrastructure (Tax Saving) Bond, held as investment, where the income is offered on accrual basis in accordancewith the CBDT circular dated February 15, 2002, the gains arising on transfer of Bonds will be treated as short termcapital gains, as clarified in the said Circular. As per the Section 112 of Income Tax Act, 1961. tax on long term capitalgain arising on transfer of listed securities will be limited to 10% plus surcharge and education cess, of such gainfor all the assessees. IDBI Bonds, on being listed, will be eligible for this benefit. It may be noted that the variousBonds under consideration, being debt instruments, will not have the benefit of cost indexation.Investors who wish to avail of the exemption from tax on capital gains or transfer of capital asset as provided insections 54EC, 54ED or 54F, may do so subject to the conditions as prescribed in those sections. Moreover,Bondholders are advised to consult their tax advisors in this matter.

1.3 Deduction under Section 80C

Investment in the infrastructure (Tax Saving) Bond will be eligible for deduction under Section 80C of the Income TaxAct, 1961 provided that the bonds are not “sold or otherwise transferred” at any time within a period of three yearsfrom the date of investment.

An assessee being an Individual or HUF investing in these Bonds along with other eligible modes of investmentsspecified in section 80C may secure a deduction of Rs.1,00,000/- subject to provision as per Section 80CCE of theIncome Tax Act, 1961where the aggregate amount of deductions under section 80C, Section 80CCC and Section80CCD shall not exceed one Lakh rupees.

2. To Non Resident Indians / Overseas Corporate Bodies :

2.1. As per the first proviso to Section 48 of the Act, capital gains arising to non - resident Indians from the transfer of theBonds shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively inconnection with such transfer and the full value of the consideration received or accruing into the same foreigncurrency as was initially utilized in the purchase of the Bonds and the capital gain so computed in such foreigncurrency shall be reconverted into Indian currency.

2.2. According to the provisions of Section 112(1)(c) read with the proviso to Section 112(1) of the Act, long term capitalgains arising on the transfer of the Bonds by a non-resident Indian (not being a company ) or a foreign company willbe taxed at the concessional rate of 10 % without the benefit of cost indexation.


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2.3. According to the provisions of Section 115E and subject to other provision of Chapter XII-A of the Act, the income ofa non-resident Indian consisting of the long term capital gain on the transfer of the Bonds, acquired or purchasedwith, or subscribed to in convertible foreign exchange will be liable to tax at the concessional rate of 10 %.

2.4. According to the provisions of Section 115F(1) and subject to other provisions of Chapter XII-A of the Act, in the caseof a non-resident Indian, the long term capital gains arising from the transfer of Bonds acquired or purchased with,or subscribed to in convertible foreign exchange shall be exempt from income tax entirely / proportionately if the non-resident Indian invests entirely / partly the net consideration in specified assets as defined in that section or savingcertificate referred to in Section 10(4B) within six months from the date of such transfer. The amount so exemptedshall be chargeable to tax under the head capital gains if the new asset is transferred / converted into money withinthree years from the date of its acquisition.

2.5. According to provisions of Section 115H of the Act, where the non-resident Indian in any previous year becomesassessable as resident in India in respect of the total income of any subsequent year, he may furnish to theassessing officer, a declaration in writing along with his return of income under section 139 for the assessment yearfor which he is so assessable, to the effect that the provisions of Chapter XII-A shall continue to apply to him inrelation to the investment income derived from the specified asset subscribed to in convertible foreign exchangeand if he does so, the provisions of this chapter shall continue to apply to him in relation to such income for thatassessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by wayof transfer) into money of such asset.

2.6. Under Section 115I of the Act, an option is given to the non-resident Indian either to be assessed as per the normalprovisions applicable to the resident Indian or to be assessed under the special provisions of Chapter XII-A of theAct.

2.7. No income tax is deductible at source under the present provisions of the Act when the assessing officer issues acertificate in the prescribed form on an application by a non-resident Bondholder, on satisfaction that the totalincome of the Bondholder justifies no deduction of tax at source as per the provisions of the Section 197(1) of the Act.

2.8. Alternatively, declaration in the prescribed form ( Form 15G ) can be submitted by the Bondholder ( not being acompany or a firm ) verified in the prescribed manner to the effect that the tax on his estimated total income of theprevious year in which such income is to be included in computing his total income will be nil.

2.9. Tax will be deducted at a lower rate where the assessing officer on an application of any non-resident Bondholder,issues a certificate for such lower deduction of tax as per the provision of Section 197(1) of the Act and suchcertificate is furnished to IDBI Ltd.

2.10. In all other cases wherever applicable tax would be deducted at the rates of tax as per the relevant finance act or asper the double taxation avoidance treaties, whichever is lower.

2.11. For claiming exemption from capital gains the non resident Bondholders can invest the sale proceeds in thespecified assets as prescribed in Section 54EC and 54ED, if he opts not to be assessed under the specialprovisions of Chapter XII-A.

2.12. For deduction under Section 80 C(2)(xvi) please refer to para 5.4 below. However this deduction is availableprovided the non-resident Indian opts not to be assessed under the provisions of Chapter XII-A.

3. To Foreign Institutional Investors ( FIIs )

3.1. Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer has to bedetermined in accordance with the provisions of Section 115AD. As per these provisions, FIIs are liable to be taxedon their income in respect of securities at the rate of 20% (plus surcharge and education cess), on short term capitalgain at the rate of 30% (plus surcharge and education cess) and on long term capital gains at the rate of 10% (plussurcharge and education cess), subject to the conditions laid down in that section.

3.2. As per the provisions of Section 196D(1) of the Act, tax at 20 % (plus surcharge and education cess) is liable to bededucted at source, from interest payable on these securities

4. To Other Eligible Institutions:

4.1 Investment in bonds by charitable/religious trusts will qualify as eligible investments under section 11(5) of the ITAct.

4.2 A mutual fund registered under the SEBI Act or regulations made thereunder or such other mutual fund set up by apublic sector bank or a public financial institution or authorised by Reserve Bank of India and notified by the centralGovernment will, subject to the provisions of Chapter XII-E be exempt from income tax on all its income, includingincome from investments in bonds under the provisions of Section 10(23D) of the IT Act.


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4.3 Section 10(25) of the IT Act, inter alia, exempts from tax, any income received by a recognised Provident Fund, anapproved Superannuation Fund or an approved Gratuity Fund. As per the pattern of Investment laid down in Rule 67(as amended by Income Tax (seventh Amendment) Rules, 1997) of the Income Tax Rules, Recognised ProvidentFunds, Approved Superannuation Funds and Approved Gratuity Funds can invest up to 25% of the “investible money”in bonds and securities of a public financial institution. They can also invest an additional 30% of the “investiblemoney” in any of the three permitted categories mentioned in the Rules, including the category of Bonds/securitiesof a Public Financial Institution. Therefore in the aggregate 55% of the “investible money” can be invested in thebonds / securities of the public financial institution. The subscription to the bonds being issued under this Draft OfferDocument, within the permissible limits, would satisfy the requirements of the said Rule.

5. Tax Provisions Relating to Various Bonds :

5.1. IDBI Regular Income Bond

Interest receivable on these Bonds in any financial year will be taxable as income of the Bondholder in that yearunder all the options.

5.2. IDBI Growing Interest Bond

The interest earned on these Bonds gradually rises from ( ) % in the first year to ( ) % in the ( ) year. The interestreceivable in a year will be taxable as income of the Bondholder in that year.

5.3. IDBI Retirement/Education Bond

Under this Bond the investor may choose from the various payment options. No interest accrues during the waitperiod and hence no tax liability would arise during that period. Under all the options interest portion of periodicpayments will be taxable on receipt of payment.

5.4. IDBI Infrastructure ( Tax Saving ) Bond

An investor has an option to choose from an annual interest option or cumulative interest option, under this scheme.An application is being made to CBDT seeking its approval of IDBI Infrastructure (Tax Saving ) Bond under Section80 C(2)(xvi) of the Act. Subject to the approval of the CBDT, investment in this Bond by an Individual or a HinduUndivided Family (HUF) will be eligible for rebates as follows :

5.4.1 An assessee being an Individual or HUF may claim deduction under Section 80C up to Rs. 1,00,000 on makinginvestments in these Bonds along with other eligible modes of investments specified in the said Section.

5.4.2. Deduction under section 80 C is available provided the bonds are held for a minimum period of 3 years. Bondholders intending to pledge the Bonds as a security for availing loans, are advised to consult their tax advisors, as interms of section 80 C of the Act, such pledge of the Bonds could be construed as a sale or transfer, resulting in non-availability of the benefit under section 80 C.

5.5. IDBI Floating Rate Bond

Under this scheme investor will receive interest at a spread of ( ) bps above the benchmark rate which is defined inthe Offer Document. The floating rate will be reset periodically. The interest receivable on the Bonds in any financialyear will be liable to tax at the prevailing rates.

5.6. IDBI Fixed Option / Floating Option Bond

The interest on these Bonds earn a fixed rate of interest ( ) % for the first year. However the investor / IDBI Ltd. has anoption to receive / pay interest at a floating rate or a suitable benchmark rate payable for the balance years afterexercising such an option. The tax on interest is payable in the year in which it is received.

5.7 IDBI Floating Option / Fixed Option Bond

The interest on these Bonds earn a floating rate of interest ( ) % for the first ( ) years. However the investor / IDBI Ltd.has an option to receive / pay interest at a fixed rate for the balance years after exercising such an option. The tax oninterest is payable in the year in which it is received.

5.8. IDBI Up Front Interest Bond

As per the terms of this Bond, the Bondholders will be paid interest for the full period after ( ) years. The interest paidwill be liable for taxation entirely in the year in which it is paid. At the end of the tenure, the entire principal will berepaid, involving no tax liability.


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5.9. IDBI Zero Coupon / Money Multiplier / Deep Discount Bond

Small non-corporate investors investing upto an aggregate face value of Rs.1 lakh.

CBDT has clarified the position regarding Deep Discount Bonds for small non-corporate investors investing uptoan aggregate face value of Rs.1 lakh, by its letters dated March 12 and May 27, 1996 as follows:

“ It is clarified that the difference between the issue price and the redemption price of Deep Discount Bonds willbe treated as interest income assessable under the IT Act. On transfer of bonds before maturity, the differencebetween the sale consideration and the issue price will be treated as Capital Gains/Loss, if the assesseepurchased them by way of investment. However, in the case of an assessee who deals in purchase and sale ofbonds, securities, etc. the profit or loss shall be treated as trading profit or loss.”

“…… the difference between the issue and redemption price will be treated as interest income assessableunder the Income Tax Act and therefore, tax will have to be deducted at source under the relevant provisions of theIT Act. However, in case of transfer before maturity, the difference between the issue price and the sale consider-ation will be capital gain. This position will hold good for transfer till date of redemption.”

As mentioned below, CBDT has provided such investors an option to offer income from Money Multiplier Bondsto tax in the manner available to the other investors as given in the immediate paragraph below. Such investorsmay, therefore, at thier option, choose between any one of the two methods for computing income from MoneyMultiplier Bonds.

Other investors

CBDT has further clarified the position regarding Deep Discount Bond by its Circular dated February 15, 2002:

“It is clarified that every person holding a Deep Discount Bond will make a market valuation of the bond as onMarch 31st of each financial year (hereinafter referred to as the valuation date) and mark such bonds to suchmarket value in accordance with the guidelines issued by RBI for valuation of investments. For this purpose,market values of different instruments declared by RBI or by Primary Dealers’ Association of India jointly with theFIMMDA may be referred to”.

“.... The difference between the market valuation as on two successive valuation dates will represent theaccretion to the value of the bond during the relevant financial year and will be taxable as interest income(where the bonds are held as investments) or business income (where the bonds are held as tradingassets)”.“.... Where the bond is transferred at any time before the maturity date the difference between sale priceand the cost of the bond will be taxable as capital gains in the hands of the investor or as business incomein the hands of the trader. For computing such gains the cost of the bond will be taken to be the aggregateof the cost for which the bond was acquired by the transferor and the income, if any, already offered to taxby such transferor (as mentioned above) upto the date of transfer.”

“.... Since the income chargeable in this case is only the accretion to the value of the bond over a specific period,for the purpose of computing capital gains, the period of holding in such cases will be reckoned from thedate of purchase/subscription, or the last valuation date in respect of which the transferor has offeredincome to tax, whichever is later. Since such period would always be less than one year the capital gainswill be chargeable to tax as short term capital gains.”

“.... Where the bond is redeemed by the original subscriber the difference between the redemption price andthe value, as on the last valuation date immediately preceeding the maturity date will be taxed as interestincome in the case of investors, or business income in the case of traders.”“.... The difference between the bid price of Deep Discount Bond and its redemption price which is actuallypaid at the time of maturity, will continue to be subject to tax deduction at source u/s 193 of the IT Act. ....Further the Central Government is empowered to specify any such bonds issued by an institution, authority,public sector company or co-operative society by way of notification, exempting them from the requirementof tax deduction at source.”“.... Considering the difficulties which might be faced by small non-corporate investors in determining marketvalues under the RBI Guidelines and computing income taxable in each year of holding, it has further beendecided that such investors holding Deep Discount Bonds upto an aggregate face value of Rs.1 lakh may, attheir option, continue to offer income for tax in accordance with the earlier clarifications issued by the Board(CBDT letters dated March 12 and May 27, 1996).”5.12. IDBI Strip Bond / IDBI Split Bond


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5.10. IDBI Multi-Option Bond

Under this Bond the Bondholders will receive annual payments of interest at the specified rates and the same willbe treated as income for that year. On Bondholder exercising the option for encashment of ( ) % of the face value ofthe Bond, such encashment will be treated as capital receipt in his hand. However the tax authorities may take adifferent view in this matter. Investors may consult their tax advisors regarding tax implications of the premiumreceived on redemption prior to making investment under this option.

5.11. IDBI Anytime Encashment Bond

The Bondholders under this scheme will receive interest at ( ) % at the specified intervals over the tenure of the Bond.Encashment of these Bonds is at par. Interest receivable on these Bonds in any financial year will attract tax liabilityin the year in which it is received.

5.12. IDBI Strip Bond / IDBI Split Bond

In case of IDBI Strip Bond / IDBI Split Bond separate instruments are issued for each payment viz. periodic interestpayments and repayment of principal. Each instrument so issued would be considered in the nature of DeepDiscount Bond instrument and tax would be applicable as given above under Deep Discount Bond / Money MultiplierBond.

6. Wealth Tax

6.1. The Bonds are exempt from Wealth Tax without any monetary limit in case of all assesses.


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PRINCIPAL TERMS OF THE BONDS

Under the present shelf registration, IDBI Ltd. offers for public subscription12 types of unsecured Bonds. These Bondshave been structured with several investor-friendly features to meet the needs of different types of investors. Investors canapply for any or all types of Bonds, as they desire. (Some or all of the structures suggested below could be offered at thetime of each tranche. Further, the key terms of the instruments shall be inserted/provided at the time of the tranche)This offer of Bonds is made in India to persons resident in India/NRIs/OCBs/FIIs on repatriable/non-repatriable basis.

The Bonds issued herein are subject to applicable prudential norms of RBI, as applicable. The Bonds are also governedby the Terms and Conditions of the Trustee Agreement, particulars whereof are given on page 3 of this Draft OfferDocument.

Minimum/Maximum Investment: IDBI Ltd. reserves the right to limit the investment at a maximum/minimum level for allthe bonds/options.

Finalization of terms of the instruments: Under the terms of some of the instruments, may/may not terminology isused. This essentially means that the terms of the instrument have not been fully finalized yet and these aspects wouldbe finalized when the instruments are actually offered to the public at the time of the tranche/issue under the presentshelf registration.

Type of the instruments: The terms of the various instruments provided in the subsequent section are indicative in nature.In general, IDBI Ltd., under its various tranches under this shelf registration, would offer one or more instruments from thebasket of instruments provided below. In addition, IDBI Ltd., subject to approval of regulatory authorities, reserves the rightto alter the terms of the instruments in the basket and/or offer additional instruments depending on the then prevailingmarket conditions.

IDBI Regular Income Bond ()

Investors in IDBI REGULAR INCOME BOND () will receive interest at () % p.a. payable annually (option A), or will receiveinterest at () % p.a. payable semi-annually (option B) or will receive interest at () % p.a. payable quarterly (option C), or willreceive interest at () % payable monthly (option D) for period of () years.

Key Terms

Minimum InvestmentEach Bond has a face value of Rs. (). Minimum investment shall be Rs. (), Rs. (), Rs. () and Rs. () for Option A, Option B,Option C and Option D respectively.

Interest RateInvestors have the option to receive interest payments either annually or semi-annually or quarterly or monthly at the ratesmentioned in the table below

Option A Option B Option C Option DMinimum Investment Rs. Rs. Rs. Rs.Payment of Interest Annually Semi-Annually Quarterly MonthlyInterest Rate —% p.a. —% p.a. —% p.a. — % p.a.Yield to Maturity —% ——% ——% ——%

Option A: Annual Interest OptionInterest will be due and payable on () every year. The first payment of interest for the period from deemed date of allotmentup to () will be made on ().Option B: Semi-annual Interest OptionInterest will be due and payable on () and () every year. The first payment of interest for the period from deemed date ofallotment up to () will be made on ().Option C: Quarterly Interest OptionInterest will be due and payable on (), (), (), and () every year. The first payment of interest for the period from the deemeddate of allotment up to () will be made on ().Option D: Monthly Interest OptionInterest will accrue on () day of every month, and will become due and payable on () of every month. The first payment ofinterest for the period from the deemed date of allotment up to () will be made on ().

MaturityThe Bonds will mature on the expiry of () years from the deemed date of allotment, the deemed date of allotment will be ().The Bonds will, therefore, mature on ().On maturity, the Bonds will be redeemed at face value.


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YTM

The annualized yield to maturity on the bond works to () % for Option () and ()% for Option ().

Early Encashment Option/Put Option

Holders of IDBI Regular Income Bond () will have / not have the option to encash the bonds at the face value at the endof () years from the deemed date of allotment i.e. on ().In case of early encashment option the Bondholders exercising this option will receive an adjusted rate of interest for thelast interest payment at () % p.a. for Option A, () % p.a. for Option B, () % p.a. for Option C and () % p.a. for Option D, so asto provide an effective yield on () %, () %, () % and () % respectively.

Procedure for Early Encashment

Investors desirous of exercising the option to encash the IDBI Regular Income Bond () should submit their requests inwriting to IDBI Ltd. or the Registrars along with the Bond certificate(s) duly discharged, at least () months prior to theencashment date. The Bondholder will be entitled to receive the applicable deemed face value only if the request isreceived within the specified time. After verification, they will be issued cheques for the amount due on the encashmentand the cheques will be mailed ( ) week(s) prior to the encashment date.

Call Option

IDBI Ltd. shall have/not have the option to redeem the Regular Income Bond on the dates mentioned above.On the Bondholders receiving the amount as applicable on exercise of the early encashment Option / Call option, the Bondshall stand fully discharged.

Tax Benefits (to be updated before each tranche)

For tax benefits, please see under ‘Tax Benefits’ on the page 11 of this Draft Offer Document.

Tax Deduction at Source

Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified in “CommonTerms” appearing in the Draft Offer Document.

IDBI Growing Interest Bond ()

Investors in IDBI GROWING INTEREST BOND () will receive interest at ()% p.a. payable monthly/ quarterly/semi-annually/annually for the first year. The interest will be stepped up every year from the ( ) year onwards up to a maximum of () % p.a.in the () year. All holders of IDBI Growing Interest Bonds will have / will not have option to encash the bond at the end of ()year from the deemed date of allotment till () month(s) prior to the redemption date (Early encashment option). Thus, it isa flexible maturity bond. Alternatively, the investor can choose to continue and get a progressively higher interest rate yearafter year till maturity.

Key Terms

Minimum Investment

Each Bond has a face value of Rs. (). Investment shall be for a minimum of Rs. () and in multiples of Rs. () thereafter.

Interest Rate

Investors will receive interest at the following rates payable monthly/quarterly/half-yearly/annually.Year Interest Rate for the year Yield to Early Encashment

(payable monthly/quarterly/ half-yearly/annually) date(annualized)1 ——— % p.a —— %2 ——— % p.a —— %3 ——— % p.a —— %4 ——— % p.a —— %5 ——— % p.a —— %6 ——— % p.a —— %7 ——— % p.a —— %

Interest Payment Dates

Interest will be due and payable on (). The first payment of interest for the period from the deemed date of allotment up to() will be made on ().

Maturity

The Bonds will mature on the expiry of () years from the deemed date of allotment. The deemed date of allotment will be(). The Bonds will, therefore, mature on (). On maturity, the Bonds will be redeemed at face value.


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Yield to Maturity

The annualized yield to maturity on the bond works to () %


All Individual bondholders of the IDBI Growing Interest Bond () will have / will not have early encashment option.In the case of early encashment option the individual bondholders will have the option to encash the Bond at the end of ()year after () year from the deemed date of allotment i.e. ()


Bondholders desirous of exercising the option to encash the IDBI Growing Interest Bond () at the end of any year shouldsubmit their requests in writing to any of the offices of IDBI Ltd. or the Registrars along with the Bond Certificates(s) dulydischarged at least two months prior to the encashment date. The Bondholders will be entitled to receive the amountequal to the face value only if the request is received within the specified time. After verification, they will be issued chequesfor amount due on encashment. The cheques will be mailed () week(s) prior to the encashment date.Anytime Encashment Option (Put Option)An individual Bondholder of IDBI Growing Interest Bond () has the additional option to encash the bond anytime afterthe expiry of () months from the deemed date of allotment i.e. () till () month prior to the redemption date i.e. till (),(“relevant period”) at any of the specified branches or office(s) as specified by IDBI Ltd. (“specified branches”)/ (“speci-fied offices”)

Call Option

IDBI Ltd. shall have/not have the option to redeem the IDBI Growing Interest Bond. If the option is available, it shall beexercised () months prior to the date of maturity.




Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified in ”CommonTerms” appearing in the Draft Offer Document.

IDBI Retirement/Education Bond ( )

Investors in IDBI Retirement/Education Bond () will be repaid the face value on maturity with periodic interest payments /receive a ( ) number of equal ( ) annuity payments after the specified wait period. Depending upon the ( ) wait periodchosen, the amount of the annuities consisting of principal and interest shall vary.

Key Terms

Minimum Investment

Each Bond has a face value of Rs. (). The minimum investment shall be () Bonds i.e. Rs. () and in multiples of Rs. ()thereafter under Option A, Option B, Option C and Option D.

Wait Period and Annuities

Option A: There is no Wait Period under Option A. The holder of IDBI Retirement Bond () Option A will receive () equalannuities of Rs. () each per Bond. The first annuity payment will be made on (). The tenor of the bond is ( years)

Option B: There is no Wait Period under Option B. The holders of IDBI Retirement Bond () Option B will be repaid theprincipal amount at the end of the () maturity period. Thus, the investor will receive the first interest payment of Rs. () perBond on ().

Option C: There shall be ( years) Wait Period under Option C. From the end of the wait period, the investor will receive ()equal annuities of Rs. () each. The first annuity will be made on ().The tenor of the bond is ( years).

Option D: There shall be ( years) Wait Period under Option D. The holders of IDBI Retirement Bond () Option D will berepaid the principal amount at the end of the () maturity period. From the end of the wait period, the investor will receive ()equal interest payments of Rs. () each. The first interest payment will be made on ().

Payment Dates, Maturity and Yield to Maturity

Each annuity payment comprises interest and principal as indicated in the table below. The payment dates, maturity andyield to maturity along with the other key features of the Bond will be as indicated in the table below.


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Option A Option B Option C Option D

Wait period Nil Nil ( ) years ( ) yearsRepayment of Paid in the form Face value repaid Paid in the form Face value repaidPrincipal of equated on maturity of equated on maturity

instalments instalmentsalongwith interest alongwith interest

Date of Repayment n.a. () years from the n.a. () years from theof Principal deemed date of deemed date of

allotment i.e. allotment i.e.Annuity Payment per Bond Rs. () /- Rs. () /- Rs. ()/- Rs. ()/-Number of Annuities () () () ()Date of first annuitypayment () () () ()Date of last annuitypayment () () () ()

Option A Option B Option C Option D

Interest portion perBond Rs. () Rs. () Rs. () Rs. ()Principal portion perBond Rs. () Nil Rs. () NilMaturity () years () years () years () yearsYield to Maturity () % () % () % () %


Investors in IDBI Retirement Bond shall have / not have early encashment option to redeem the Retirement Bonds prior tothe date of maturity.

Call Option

IDBI Ltd. shall have/not have option to redeem the bonds prior to the date of maturity.



Tax Deducted at Source

Payment of interest will be subject to deduction of tax at source as per the prevailing tax laws and as specified in ”CommonTerms” appearing in the Draft Offer Document.

IDBI Infrastructure (Tax Saving) Bond ()

IDBI Infrastructure (Tax Saving) Bond () carries interest at ()% p.a., payable annually, for () years (in case of benefitunder section 80 C). Investment made in the Bonds will be eligible for tax benefits under Section 80 C of the IncomeTax Act, 1961. For further details, please refer to the Section on ‘Tax Benefits’ later in the Draft Offer Document.

Key Terms

Minimum Investment

Minimum investment shall be Rs () and in multiples of Rs () thereafter. Each Bond has a face value of Rs ().

Interest Rate

Investors in annual interest option Bond shall receive interest at the rate of () % payable annually and those in cumulativeinterest option Bond shall be entitled to a yield to maturity of ()%.

Option A – Annual/Semi-annual/Quarterly/Monthly Interest OptionInvestors in the IDBI Infrastructure Bond will get interest at () p.a. payable annually/semi-annually/quarterly/monthly for aperiod of () years.Option B- Cumulative Interest OptionInvestors in the IDBI Infrastructure Bond will get Rs () at the end of () years () months.


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Interest starts accruing from the deemed date of allotment, (). Interest accruing up to () every year is paid on (). The firstpayment of interest from the deemed date of allotment up to () will be paid on ().

Maturity

The Bonds under section 80 C shall mature on the expiry of () years from the deemed date of allotment. The Bonds will,therefore, mature on (). On maturity, the Bonds will be redeemed at face value under option A and the cumulative valueunder option B.

Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified in ”CommonTerms” appearing in Draft Offer Docttment.

Yield to Maturity

The table on tenor(maturity) and annualized yields to maturity for the bond is given below.

Option A: Annual/Semi Annual/Quarterly/Monthly Interest Option

Tax benefit Tenor Interest payable ( ) YTM (%) (considering tax benefit) u/s80 C (years)() () % () %

Option B: Cumulative Option

Tax benefit Tenor Maturity Value YTM (%) (considering tax benefit) u/s80 C (years)() () %


There may / may not be early encashment option for investors in IDBI Infrastructure (Tax Saving) Bond ()

Call Option

IDBI Ltd. shall have/ not have option to redeem the IDBI Infrastructure (Tax Saving) Bond () prior to the date of maturity.


CBDT has, vide letter F.No. (…….) dated (………, 2005) declared Infrastructure (Tax Saving) Bonds issued by IDBI in thefinancial year 2005-2006 upto an amount of Rs.3,000 crore as eligible for the purpose of Section 80C of the Income Tax Act,1961 read with Rule 20 of the Income Tax Rules,1962. Accordingly, allottees (sole/first applicant) of those bonds can availof tax rebate under Section 80C of the IT Act, subject to certain conditions as detailed under ‘Tax Benefits’ in the Draft OfferDocument.




Priority for Allotment

Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond () under Section 80 C option will bemade on a full and firm allotment basis, subject to a total limit of issue size plus the amount of over-subscription retainedby IDBI Ltd.

Subscribers to the IDBI Infrastructure (Tax Saving) Bond () will have priority over subscribers to other bonds for allotment.Therefore, only after all eligible applicants for IDBI Infrastructure (Tax Saving) Bond () have been allotted, applications forother bonds will be considered for allotment on a proportionate basis.

IDBI Floating Rate Bond ( )

In the IDBI Floating Rate Bond ( ), the interest earned by the investors on the Bonds will be () % p.a. over the () yearGovernment security (G-Sec) yield or () days T-Bills rate or Bank Rate or MIBOR or () year Fixed Deposit rate of State Bankof India/() Bank, or any other suitable benchmark rate as decided by IDBI Ltd. in mutual consultation with the LeadMerchant Banker, payable (), for a period of () years. In the event of non-availability of the benchmark, IDBI Ltd. retains theright to change the benchmark in consultation with Trustees to the bondholders. In case of non-agreement between IDBILtd. and the Trustees over the benchmark, IDBI Ltd. would provide an exit option to all the investors in such floating ratebonds.


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The applicable interest rate for the first coupon payment is () % p.a. payable annually/semi-annually/quarterly/monthly/such other period. Interest on the Bond shall be reset annually/semi-annually/quarterly/monthly/ such other period.

Key terms

Minimum Investment

Each Bond has a face value of Rs (). Investment shall be for a minimum of Rs () and in multiples of Rs. () thereafter.

Interest Rate

The interest earned by the investors on the Bonds will be () % p.a. over the () days T-Bills rate or Bank Rate or () year FixedDeposit rate of State Bank of India or any other suitable benchmark rate payable (), for a period of () years. Interest on theBond is reset yearly/half-yearly/quarterly/monthly / such other period.


Interest will be due and payable on () every year. The first payment of interest for the period from deemed date of allotmentup to () will be made on (). The reference rate will be reset on () every year/ semi-annually/quarterly/monthly/ such otherperiod. The interest rate determined on () will be applicable from the period () to ().

Maturity

The Bonds will mature on the expiry of () years from the deemed date of allotment. The deemed date of allotment will be(). The Bonds will, therefore, mature on (). On maturity, the Bonds will be redeemed at face value.


All Holders of the IDBI Floating Rate Bond () shall have / not have the option to encash the Bond at the end of every year after() years from the deemed date of allotment i.e. ().


Bondholders desirous of exercising the option to encash the IDBI Floating Rate Bond () at the end of any year after the ()year should submit their requests in writing to any of the offices of IDBI Ltd. or the Registrars along with the Bondcertificate(s) duly discharged at least () months prior to the encashment date. The Bondholders will be entitled to receivethe amount equal to the face value only if the request is received within the specified time. After verification, they will beissued cheques for the amount due on encashment. The cheques will be mailed () week(s) prior to the encashment date.

Anytime Encashment Option

An original individual allottee of IDBI Floating Rate Bond () has/does not have an additional option to encash the Bondanytime after the expiry of () years from the deemed date of allotment i.e. () till one month prior to the redemption date i.e.till (), (“relevant period”) at any of the specified branches of IDBI Ltd (“specified branches”) or any other offices as notifiedby IDBI Ltd. (specified offices)

Call Option

IDBI Ltd. shall have / not have an option to redeem the IDBI Floating Rate Bond () anytime after the expiry of () years fromthe deemed date of allotment i.e. ()





IDBI Fixed Option/Floating Option Bond ( )

The investors in the IDBI Fixed Option/Floating Option Bond () shall earn a fixed rate of () % p.a. for the first () years.Thereafter, the investors / IDBI Ltd. shall have the option to receive/ pay fixed rate of () % p.a. or floating rate, which will be() % over the () G-Sec rate or () % over the () days T-Bills rate or Bank Rate or the () year Fixed Deposit rate of State Bankof India or suitable benchmark rate, payable (), for the balance () years. However, if the investors/ IDBI Ltd. choose(s) toexercise floating rate of interest, the investor will receive the floating rate interest with a floor rate (minimum) of () p.a anda cap rate (maximum) of () % p.a.


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Key Terms

Minimum Investment


Interest Rate

The interest earned by the investors on the Bonds will be () % p.a. The investor/ IDBI Ltd. may exercise the option to convertthe bond to floating rate of interest once during the tenor of bonds. The right to convert the bonds to floating rate may beexercised before () months before the interest payment date. The investor/ IDBI will thereafter have the option to receive afixed rate of () % p.a. or floating rate of () % over the () days T-Bills rate or Bank Rate or () year SBI Fixed Deposit or oversuitable benchmark rate, payable annually, for the next () years. In case of floating rate option, interest on the Bond is resetevery year/half-year/quarter, after the ()th year, on ().


Interest will be due and payable on () every year. The first payment of interest for the period from the deemed date ofallotment up to () will be made on (). In case of floating rate option, the reference rate will be reset on () every year. Theinterest rate determined on () will be applicable from () to ().

Maturity

The Bonds will mature on the expiry of () years from the deemed date of allotment. The deemed date of allotment will be(). The Bonds, will therefore, mature on (). On maturity, the Bonds will be redeemed at face value.

Yield to Maturity (Applicable only for bonds with fixed interest rate option for the entire period)

The annualized yield to maturity works to () %


Holders of the IDBI Fixed option/Floating Rate Bond () shall have/not have the option to encash the Bond before thematurity.


Bondholders desirous of exercising the option to encash the IDBI Fixed Option/Floating Option Bond () at the end of anyyear after the () year should submit their requests in writing to any of the offices of IDBI Ltd. or the Registrars along with theBond certificate(s) duly discharged at least () months prior to the encashment date. The Bondholders will be entitled toreceive the amount equal to face value only if the request is received within the specified time. After verification, they will beissued cheques for the amount due on encashment. The cheques will be mailed () week(s) prior to the encashment date.

Call Option

IDBI Ltd. shall have/not have the option to redeem the IDBI Fixed Option/Floating Option Bond ().

Tax Benefits (to be updated at the end of each tranche)

For tax benefits, please see under ‘Tax Benefits’ on the page 11 of this Draft Offer Document..


Payment of interest will be subject to deduction of tax at source as per the prevailing tax laws and as specified in”Common Terms” appearing in the Draft Offer Document.

IDBI Floating Option/Fixed Option Bond ()

The investors in the IDBI Floating Option/Fixed Option Bond () shall earn a floating rate, which will be () % over the () G-Secrate or () % over the () days T-Bills rate or Bank Rate or the () year Fixed Deposit rate of State Bank of India or suitablebenchmark rate, payable for the first () years. Thereafter, the investors / IDBI Ltd. shall have the option to receive fixed rateof () % p.a. or floating rate, for the balance () years.

Key Terms

Minimum Investment


Interest Rate

The investor/ IDBI Ltd. may exercise the option to convert the bond to fixed rate of interest, once during the tenor of bonds.The right to convert the bonds to fixed rate may be exercised () months before the interest payment date. The investor/ IDBIwill thereafter have the option to receive a fixed rate of () % p.a. or floating rate of () % over the () days T-Bills rate or Bank


23

Rate or () year SBI Fixed Deposit or over suitable benchmark rate, payable annually, for the next () years. In case of floatingrate option, interest on the Bond is reset every year/half-year/quarter.


Interest will be due and payable on () every year. The first payment of interest for the period from the deemed date ofallotment up to () will be made on (). In case of floating rate option, the reference rate will be reset on () every year. Theinterest rate determined on () will be applicable from () to ().

Maturity

The Bonds will mature on the expiry of () years from the deemed date of allotment. The deemed date of allotment will be(). The Bonds, will therefore, mature on (). On maturity, the Bonds will be redeemed at face value.


Holders of the IDBI Floating option/Fixed Rate Bond () shall have/not have the option to encash the Bond before thematurity.


Bondholders desirous of exercising the option to encash the IDBI Floating Option/Fixed Option Bond () at the end of anyyear after the () year should submit their requests in writing to any of the offices of IDBI Ltd. or the Registrars along with theBond certificate(s) duly discharged at least () months prior to the encashment date. The Bondholders will be entitled toreceive the amount equal to face value only if the request is received within the specified time. After verification, they will beissued cheques for the amount due on encashment. The cheques will be mailed () week(s) prior to the encashment date.

Call Option

IDBI Ltd. shall have/not have the option to redeem the IDBI Floating Option/Fixed Option Bond ().

Tax Benefits (to be updated at the end of each tranche)



Payment of interest will be subject to deduction of tax at source as per the prevailing tax laws and as specified in”Common Terms” appearing in Draft Offer Document.

IDBI Upfront Interest Bond ()

Investors in IDBI Upfront Interest Bond () shall receive interest for the entire tenor of the bond upfront at the end of () years.They shall receive the amount equal to the face value at maturity of the bond.

Key Terms

Minimum Investment

Each Bond has a face value of Rs (). Investment shall be for a minimum of Rs. () and in multiples of Rs. () thereafter.

Interest Rate

The investors will receive interest of () % p.a. The investors for the entire period will be paid at the end of () years fromdeemed date of allotment i.e. ().

Yield to Maturity

The yield to maturity for the above bond is ()%.


Investors in IDBI Upfront Interest Bond () shall not have a right to encash the bonds prior to the date of maturity.

Call Option

IDBI Ltd. shall have/not have option to redeem the IDBI Upfront Interest Bond prior to the date of maturity.


For tax benefits, please see under ‘Tax Benefits’ later Draft Offer Document.




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IDBI Zero Coupon Bond ()/ IDBI Money Multiplier Bond ()/IDBI Deep Discount Bond ()

IDBI Zero Coupon Bond ()/ IDBI Money Multiplier Bond ()/IDBI Deep Discount Bond () is issued at a discounted price of Rs.(). After the maturity period of () years, investors can redeem the Bond at its face value of Rs ().

Key Terms

Minimum Investment

The minimum investment is Rs. () per Bond and the investors can apply in multiples thereof. The entire amount is payableon application.

Maturity

The Bonds will mature on the expiry of () years from the deemed date of allotment. The deemed date of allotment will be(). The Bonds will, therefore, mature on ().

Maturity Value

On maturity, investors can redeem the Bond at its face value of Rs. ().

Yield To Maturity

The annualized yield to maturity, on redemption after () years is () %.


Investors will have/not have the option to encash the Zero Coupon Bond. The schedule of early encashment shall be asgiven in the following table. (to be provided at the time of tranche)

Early Encashment/Redemption Period from the date of allotment Amount payable to investor (Rs)option date (Deemed face value)


Investors desirous of exercising the option to encash the IDBI Zero Coupon Bonds/Money Multiplier Bonds/Deep DiscountBonds on any of the above dates should submit their requests in writing to IDBI Ltd. or the Registrars along with the Bondcertificate(s) duly discharged, at least two months prior to the relevant date. The Bondholder will be entitled to receive theapplicable deemed face value only if the request is received within the specified time. After verification, they will be issuedcheques for the amount due on encashment and the cheques will be mailed within () week(s) of the relevant date.

Call Option

IDBI Ltd. will have / will not have Call Option to redeem the Zero Coupon Bonds/Money Multiplier Bonds/Deep DiscountBonds on the dates mentioned above. In the event, the amount equal to the deemed Face Value of the Bond as per thetable given above will be paid to the Bondholders.The full maturity value of Rs. () shall be payable only if the Bondholder does not exercise the Early Encashment Option andIDBI Ltd. does not exercise the Call Option to redeem the Bond. On the Bondholder receiving the amount as specifiedabove on exercise of the Early Encashment Option / Call Option at any time, the Bond shall stand fully discharged.

Tax treatment (to be updated before each tranche)


IDBI Multi - Option Bond ( )

Investors in IDBI Multi-Option Bond () shall receive regular interest payments. In addition, there shall be an option toredeem a part /parts of the Bonds on specified dates during the tenor of the Bonds. If the investors exercise the option ofpartial redemption, they shall be eligible to get an amount equal to the part of the face value on the specified dates.

Key Terms

Minimum Investment

Each Bond has a face value of Rs. (). Investment shall be for a minimum of Rs. () and multiples of Rs. () thereafter.

Interest Rate

The investors will receive interest of () % p.a., payable annually, for a period of () years. If partial redemption option(s) areexercised, the Interest shall be paid on the balance of the face value of the Bond.


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Interest will be due and payable on () every year. The first payment of interest for the period from the deemed date ofallotment up to () will be made on ().

Maturity

The Bonds will mature on the expiry of () years from the deemed date of allotment. Investors will have an option of earlyencashment of () % of the face value of the Bond at the end of ()rd ()th or ()th year. The deemed date of allotment will be ().

Yield To Maturity

The annualized yield to maturity works to () %.


Investors shall have an option to encash a part of the Bond before maturity. In case of early encashment investors will havethe option to encash () % of the face value of the Bond before the maturity period on the following dates.

EarlyencashmentYear

Date ofpayment of()% of facevalue

Interest payable till date ofredemption of () % of theface value

Interest payable after dateof redemption of () % ofthe face value

Yield toMaturity (%)

Call Option

IDBI Ltd. shall have /not have option to redeem/partially redeem the IDBI Multi-Option Bond () prior to the date ofmaturity.





IDBI Anytime Encashment Bond ()

Investors in IDBI Anytime Encashment Bond () shall receive coupon payments over the tenor of the bonds. In addition,there shall be Anytime Encashment Option available to the investors, after the completion of () years from the deemed dateof allotment.

Key Terms

Minimum Investment

The minimum investment is Rs. () per Bond and the investors can apply in multiples thereof. The entire amount is payableon application.

Interest Rate

The investors will receive interest of () % p.a., payable annually/semi-annually, for a period of () years.



Maturity

The Bonds will mature on the expiry of () years from the deemed date of allotment. The deemed date of allotment will be(). The Bonds will, therefore, mature on ().

Maturity Value

On maturity, investors can redeem the Bond at its face value of Rs. (). In addition, the investors shall receive a redemptionpremium equal to () % of the face value.


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Yield To Maturity

The annualized yield to maturity, on redemption after () years is () %.


Investors shall have an option to encash the bond anytime after completion of () year/ () years from the deemed date ofallotment.


Investors desirous of exercising the option to encash the IDBI Ltd. Anytime Encashment Bond () should submit theirrequests in writing to IDBI Ltd. or the Registrars along with the Bond certificate(s) duly discharged, at least two monthsprior to the relevant date. The Bondholder will be entitled to receive the applicable deemed face value only if the requestis received within the specified time. After verification, they will be issued cheques for the amount due on encashment andthe cheques will be mailed within () week(s) of the relevant date.

Call Option

IDBI Ltd. shall not have a Call option to redeem the IDBI Anytime Encashment Bond () before maturity. On the Bondholderreceiving the amount as specified above on exercise of the Early Encashment Option / Call Option at any time, the Bondshall stand fully discharged.

Tax Treatment (to be updated before each tranche)


IDBI Split Bonds () / IDBI Strip Bonds ()

General: STRIP is an acronym for ‘Separate Trading of Registered Interest and Principal Securities’, wherein the indi-vidual components of interest and principal receivable by the investor at specific intervals are split into separate tradableinstruments. It is in essence the process of separating a standard interest-paying (coupon bearing) bond into its indi-vidual interest and principal components (separate tradable instruments) which are separately listed with the stockexchange. For example, a 5-year semi-annual interest-paying bond can be stripped into 10 coupon (interest) and oneprincipal component. Similarly, if the repayment is made by way of equated periodic (monthly/quarterly/semi-annual/annual etc) installments comprising interest and principal component, the equated periodic cash flows can be split intoseparate tradable instruments. All these separately tradable instruments then become zero coupon bonds having variousmaturities and are listed and traded likewise. The concept is illustrated as under.

Consider a 10.0 %, Regular Income Bond with a face value of Rs. 5000 and maturity of 5 years, semi-annual interestpayments. The cash flow stream of this Bond comprises 10 coupon inflows of Rs. 250 each (approx.) and a principalrepayment of Rs. 5000. Thus, in all there are 11 streams of cash flows. All these cash flows can be considered separatesecurities as given in the following table.

STRIP Type Maturity Period Maturity Value (Rs.)

STRIP 1 Coupon 6 months 250STRIP 2 Coupon 12months 250STRIP 3 Coupon 18 months 250STRIP 4 Coupon 24 months 250STRIP 5 Coupon 30 months 250STRIP 6 Coupon 36 months 250STRIP 7 Coupon 42 months 250STRIP 8 Coupon 48 months 250STRIP 9 Coupon 54 months 250STRIP 10 Coupon 60 months 250STRIP 11 Principal 60 months 5000

The holder of the STRIP would have right on these cash flows. For example, holder of STRIP 5 would have right on cashflow of Rs. 250, 30 months from the date of issuance. STRIP 5 would be treated as a zero coupon bond with a face valueof Rs. 250 and a maturity of 30 months.STRIPS are effective tools for asset liability management and do not carry any reinvestment risk because there is only onecash flow contained in a STRIP.

Investors in IDBI STRIP BOND () will receive interest at () % p.a. payable annually (option A), or will receive interest at () %p.a. payable semi-annually (option B). It may also be in the form of equated periodic payment comprising interest andprincipal component with YTM () % (Option C). The bonds will be in the nature of split/strip securities as mentioned above.The Bonds will be issued as consolidated certificate. The allotment advise/certificate will specifically indicate separatelythe amount and maturity of each split/strip instrument comprising the interest and/or principal component of the Bond.


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Investors may, however, request for separate certificate for each split/strip instrument at the time of issue of certificate oranytime during the tenure of the Bonds.

Key Terms

Minimum Investment

Each Bond has a face value of Rs. (). Minimum investment shall be Rs. () and Rs. () for Option A, and Option B respectively.

Interest Rate/ YTM

Investors have the option to receive interest payments/equated installments either annually, semi-annually etc at the rates/YTM mentioned in the table below. Investors would be issued separate instruments towards interest payment/ equatedinstallments on allotment, which would mature on the respective interest payment dates.

Option A Option B

Minimum Investment Rs. Rs.

Payment of interes / Equated payment Annually Semi Annually

Interest Rate ----%p.a. ----%p.a.

Yield to Maturity ----%p.a. ----%p.a.


Option A: Annual Interest / Equated Payment Option


Option B: Semi-annual Interest / Equated Payment Option

Interest will be due and payable on () and () every year. The first payment of interest for the period from deemed date ofallotment up to () will be made on ().

Maturity of the Bond

The Bonds will mature on the expiry of () years from the deemed date of allotment, the deemed date of allotment will be ().The Bonds will, therefore, mature on ().

On maturity, the Bonds will be redeemed at face value.

In case payments are made in equated periodic installments comprising interest and apportioned principal, therewould be no separate repayment of face value on maturity.

Maturity of each Split/Strip Instrument

Each split/strip instrument will mature on the respective interest/equated installment payment dates as mentionedabove.

Early Encashment Option

Holders of IDBI STRIP Bond () will have/will not have the option to encash the bonds/separate instrument.

Call Option

IDBI Ltd. will have/will not have the option to redeem the IDBI STRIP Bond/separate instrument before maturity.

Tradability of the Bonds

The Bond and each split instrument thereof will be transferable by way of endorsement and delivery. The transferprocedure is discussed elsewhere in this Draft Offer Document.




Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified in “CommonTerms” appearing in the Draft Offer Document.


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Common terms

Terms of Payment

The full amount of issue price of the Bonds applied for should be paid along with the application.

Interest on Application money

Successful applicants will be paid interest on their application money ——— p.a. from the third day from the date of depositof their application upto the deemed date of allotment. Interest on application money will be sent to the investor by way ofa warrant and will be despatched along with the Bond Certificate except in the following cases. Investors may please notethat interest on application money upto Rs.——— will be sent alongwith the first interest cheque in case of (name of thebonds to be inserted at the time of the tranche)

Investment Holding and Market Lot

Investment in the Bonds may be held either in “Physical Form” or in “Demat Form”. The market lot will be one Bond.

Denomination of Bond Certificates (Physical form)

Investors may opt for certificates in market lot or consolidated certificate by indicating in the application form. If “Consoli-dated Certificate” option is chosen, one consolidated Bond Certificate will be issued for each option/Bond for the totalnumber of Bonds allotted. Investors may later ask for split of the certificate into market lots at any time till the maturity of thebonds.This will be done free of cost once. If “Market Lots” option is chosen, separate Bond Certificate will be issued foreach Bond allotted. If no option is indicated, a Consolidated Certificate will be issued. Those investors who wish to tradeon the stock exchanges are advised to opt for certificates in “Market Lots”. Others may opt for “Consolidated Certificate” forease and convenience.

Depository Arrangement

IDBI LTD.. has entered into depository arrangements with National Securities Depository Limited (NSDL) and CentralDepository Services Ltd. (CDSL). Investors will have the option to hold the security in dematerialised form and deal withthe same as per the provisions of Depositories Act, 1996 (as amended from time to time)IDBI Ltd. has signed two tripartite agreements in this connection viz.

1) Tripartite Agreement dated [ * ] between IDBI, National Securities Depository Limited (NSDL) and the Registrar(name to be inserted at the time of tranche).

2) Tripartite Agreement dated [ * ] between IDBI, Central Depository Services Limited (CDSL) and the Registrar(name to be inserted at the time of tranche).

These agreements executed by IDBI, continue to apply with full force and effect for IDBI Ltd. also.

Procedure for Opting for Demat Facility

1. Investor(s) should have / open a Beneficiary Account with any Depository Participant of NSDL or CDSL2. Responsibility for correctness of investor’s age and other details given in the Application Form vis-à-vis those with the

investor’s Depository Participant would rest with the investors. Investors should ensure that the names of the sole/allthe applicants and the order in which they appear in the application form should be same as Registered with theInvestor’s Depository Participant.

3. For opting for Bonds in dematerialized form, the beneficiary account number and depository participants ID shall bespecified in the relevant columns of the Application Form.

4. If incomplete/incorrect Beneficiary Account Details are given in the Application Form or where the investor does not optfor the option to receive the Bonds in dematerialized form, the Bonds will be issued in the form of physical certificate(s).

5. The Bonds allotted to investor opting for dematerialized form, would be directly credited to the Beneficiary Account asgiven in the application form after verification. Allotment advice/refund order (if any) would be sent directly to theapplicant by the Registrars to the Issue but the confirmation of the credit of the Bonds to the investor’s DepositoryAccount will be provided to the investor by the investor’s Depository Participant.

6. Investors may choose to opt for part of the total number of Bonds applied for in demat form and the balance inform. In case of partial allotment bonds will first be allotted in demat form and the balance if any in physical form.Separate applications in physical and dematerialized form would be considered as multiple applications and areliable to be rejected at the sole discretion of IDBI Ltd.

7. Interest or other benefits with respect to the bonds held in dematerialized form would be paid to those Bondholderswhose names appear on the list of beneficial owners given by the depositories to IDBI Ltd. as on the Record Date. Incase the beneficial owner is not identified by the depository on the Record Date due to any reason whatsoever, IDBILtd. shall keep in abeyance the payment of interest or other benefits, till such time the beneficial owner is identifiedby the depository and intimated to IDBI Ltd. On receiving such intimation, IDBI Ltd. shall pay the interest or otherbenefits to the beneficiaries identified, within a period of 15 days from the date of receiving such intimation.


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8. Investors may please note that the Bonds in demat form can be traded only on the stock exchanges having electronicconnectivity with NSDL or CDSL.

9. Investors may please note that in case of Bonds having monthly payment options (names of the bonds havingmonthly payment options to be inserted here at the time of the tranche), Bonds will be issued only in physical form andnot in demat form.

Electronic Clearing Service for Payment of Interest

Reserve Bank of India has introduced the concept of Electronic Clearing Service (ECS) through the clearing-house toobviate the need for issuing and handling paper instruments and thereby facilitate improved customer service. This facilitywould be available in cities where RBI provides such facility.As per the guidelines issued by RBI in this regard, the investor is required to give his mandate for ECS with all the detailsin a format, which will be sent to the investors along with the Bond Certificates on allotment. This will help IDBI Ltd. to creditthe interest amount to investor’s account with the concerned bank at the earliest. The investors will also have the conve-nience of direct credit to their bank account without the need to receive interest warrants by post and deposit the same intheir bank accounts. The bank branch will credit the investor’s account and indicate the credit entry with ECS in thepassbook/statement of account.Alongwith /subsequent to dispatch of the Bond Certificate(s)/Letter of Allotment, IDBI Ltd. /Registrar will send to theinvestor a form to be duly filled up by those investors desiring to avail the facility of ECS.Investors who have not opted for ECS will be sent interest warrants by post.

Listing

Applications have been made to Bombay Stock Exchange Limited and the National Stock Exchange of India Ltd. forpermission to deal in and for official quotation of the Bonds. The Stock Exchange Mumbai and the National Stock Exchangeof India have given their in-principle approvals vide their letters dated ( ) and ( ) respectively. IDBI Ltd. shall complete allthe formalities relating to the listing of the Bonds within seventy days from the date of closure of each tranche/issue. If thepermissions to deal in and for an official quotation of bonds are not granted by any of the Stock Exchanges, IDBI Ltd. shallforthwith repay, without interest, all such moneys received from the applicants in pursuance of this Draft Offer Document.If such money is not repaid within eight days after IDBI Ltd. becomes liable to repay it (i.e. from the date of refusal or within70 days from the date of closing of the subscription list, whichever is earlier), then IDBI Ltd. will be liable to repay themoney, with interest, as prescribed under applicable regulations.

Nature of Instruments

The Bonds will be unsecured and issued in the form of promissory notes. The Bonds shall rank pari passu inter se and,subject to any obligations preferred by mandatory provisions of the law prevailing from time to time shall also, as regardsrepayment of principal and payment of interest, rank pari passu with all other unsecured un-subordinated borrowings ofIDBI. These bonds will rank superior to all the existing and future unsecured subordinated borrowings of IDBI Ltd.


No income tax is deductible at source under the present provisions of the Income-tax Act on interest payable on bonds inthe following situations:(a) When the payment of interest on bonds to resident individual Bondholder in the aggregate during the financial

year does not exceed Rs. 2,500;

(b) When the Assessing Officer issues a Certificate on an application by a Bondholder, on satisfaction that the totalincome of the Bondholder justifies no deduction of tax at source, as per the provisions of section 197(1) of the Income-tax Act;

(c) When the resident Bondholder (not being a company or a firm) submits a declaration as per the provisions of section197A of the Income-tax Act in the prescribed Form 15G verified in the prescribed manner to the effect that the tax on hisestimated total income of the previous year in which such income is to be included in computing his total income willbe nil. As per section 197A(1B) of the Income-tax Act, Form 15G cannot be submitted nor considered for exemptionfrom deduction of tax at source if the aggregate income of the nature referred to in the said section, viz. dividend,interest, etc as prescribed therein, credited or paid or likely to be credited or paid during the financial year in whichsuch income is to be included exceeds the maximum amount which is not chargeable to tax. The maximum amountof income not chargeable to tax in case of individuals and HUFs is Rs.1,00000, for FY 2005-06 relevant to AY 2006-07.The maximum amount of income not chargeable to tax is Rs.1,35,000/- in case of a woman resident in India andbelow sixty-five years of age, at any time during previous year.Senior citizens, who are of the age of 65 years or more at any time during the financial year, can submit a self-declaration in the prescribed Form 15 H in accordance with the provisions of section 197A


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Tax will be deducted at a lower rate where the Assessing Officer, on an application by any Bondholder issues acertificate for such lower rate of deduction of tax as per the provisions of Section 197(1) of the Income-tax Act.In all other situations, unless the investor is exempt from deduction of tax at source by virtue of a notification/ circular,tax would be deducted at source on each payment as per prevailing provisions of the Income-tax Act.

Such a declaration for the financial year 2005-06 may be attached to the application form. For subsequent years, theinvestor will have to submit the prescribed Form every financial year (April-March) to the registrar and transfer agent ( )separately, atleast two months prior to the date for payment of interest or dispatch of post dated interest warrants as thecase may be, failing which the tax will be deducted at source as per the prevailing tax laws. Investors may approach any ofthe offices of IDBI Ltd. for copies of prescribed Form. The TDS certificate if applicable is mailed to the investors by theRegistrars. Investors desirous of receiving consolidated certificate of Tax Deduction at Source, in case of bonds withquarterly interest options, may indicate their request for the same at the appropriate place in the application form.

IDBI Ltd., vide its letter dated July 18, 2005 has applied to the CBDT for exempting it u/s 193(ii)(b) of IT Act, 1961 fromdeducting Tax at Source (TDS) from the interest earned on the Bonds to be issued under IDBI Flexibonds 2005-06 series.

Amendment of the Terms of the Bonds

IDBI Ltd. may amend the terms of the Bond(s) at any time by a resolution passed at a meeting of the Bondholders with theconsent of the Bondholders holding in the aggregate more than 50% in nominal value of the Bonds held and outstandingunder the respective schemes from those present and voting.

Right to Purchase/ Reissue Bond(s)

IDBI Ltd. may purchase the Bonds in the open market, through market makers or otherwise. Such Bonds may becancelled (extinguished), held, resold or reissued to any person at the discretion of IDBI Ltd. Where IDBI Ltd. purchasesBonds, IDBI Ltd. shall have and shall be deemed always to have had the right to keep such Bonds alive for the purposesof resale or reissue and in exercising such right, IDBI Ltd. shall have and deemed always to have had the power to resellor reissue the same Bonds or by issuing other Bonds in lieu thereof.

Future Borrowings / Issues

IDBI Ltd. will be entitled to borrow/ raise loans or avail of financial assistance in whatever form as also issue debentures/ bonds / other securities in any manner having such ranking in priority, pari passu or otherwise and change the capitalstructure including the issue of shares of any class, on such terms and conditions as IDBI Ltd. may think appropriate,without the consent of, or intimation to, the Bondholders or the Trustees.


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INDUSTRY OVERVIEW

The information in this section has been extracted from publicly available documents from various sources, includingofficially prepared materials from the GoI and its various ministries and RBI, and has not been prepared or independentlyverified by IDBI Ltd. or any of its advisors. IDBI Ltd. has relied on the RBI Annual Report, 2003-2004, Quarterly Statisticson Deposits and Credit of Scheduled Commercial Banks as of December 2004 and RBI’s Annual Policy Statements for2004-2005 and 2005-2006.

History

The evolution of the modern commercial banking industry in India can be traced to 1786 with the establishment of the Bankof Bengal in Calcutta. Three presidency banks were set up in Calcutta, Bombay and Madras. In 1860, the limited liabilityconcept was introduced in banking, resulting in the establishment of joint stock banks like Allahabad Bank Limited,Oriental Bank of Commerce Limited, Bank of Baroda Limited and Bank of India Limited. In 1921, the three presidencybanks were amalgamated to form the Imperial Bank of India, which took on the role of a commercial bank, a bankers’ bankand a banker to the Government. The establishment of RBI as the central bank of the country in 1935 ended the quasi-central banking role of the Imperial Bank of India. In order to serve the economy in general and the rural sector in particular,the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state sponsored banktaking over the Imperial Bank of India and integrating with it, the former state-owned and state-associate banks. Accord-ingly, the State Bank of India (“SBI”) was constituted in 1955. Subsequently in 1959, the State Bank of India (SubsidiaryBank) Act was passed, enabling the SBI to take over eight former state-associate banks as its subsidiaries. In 1969, 14private banks were nationalised followed by six private banks in 1980. Since 1991, many financial reforms have beenintroduced substantially transforming the banking industry in India.

Reserve Bank of India (RBI)

RBI is the central banking and monetary authority in India. RBI manages the country’s money supply and foreign exchangeand also serves as a bank for the GoI and for the country’s commercial banks. In addition to these traditional centralbanking roles, RBI undertakes certain developmental and promotional activities.RBI issues guidelines, notifications and circulars on various areas, including exposure standards, income recognition,asset classification, provisioning for non-performing assets, investment valuation and capital adequacy standards forcommercial banks, long-term lending institutions and non-banking finance companies. RBI requires these institutions tofurnish information relating to their businesses to RBI on a regular basis.

Commercial Banks

Commercial banks in India have traditionally focused on meeting the short-term financial needs of industry, trade andagriculture. At the end of March 2005 there were 284 scheduled commercial banks and four non-scheduled commercialbanks in the country, with a network of 68,116 branches. Scheduled commercial banks are banks that are listed in thesecond schedule to the RBI Act, and may further be classified as public sector banks, private sector banks and foreignbanks. Industrial Development Bank of India was converted into a banking company by the name of Industrial DevelopmentBank of India Limited with effect from October 2004 and is a scheduled commercial bank. Scheduled commercial bankshave a presence throughout India, with nearly 69.49% of bank branches located in rural or semi-urban areas of the countryA large number of these branches belong to the public sector banks.

Public Sector Banks

Public sector banks make up the largest category of banks in the Indian banking system. There are 27 public sector banksin India. They include the SBI and its associate banks and 19 nationalised banks. Nationalised banks are governed by theBanking Companies (Acquisition and Transfer of Undertakings) Act 1970 and 1980. The banks nationalised under theBanking Companies (Acquisition and Transfer of Undertakings) Act 1970 and 1980 are referred to as ‘corresponding newbanks’. At the end of December 2004, public sector banks had 47,156 branches and accounted for 74.49% of theaggregate deposits and 71.23% of the outstanding gross bank credit of the scheduled commercial banks.

Regional Rural Banks

Regional rural banks were established from 1976 to 1987 jointly by the Central Government, State Governments andsponsoring public sector commercial banks with a view to develop the rural economy. Regional rural banks providecredit to small farmers, artisans, small entrepreneurs and agricultural labourers. There were 196 regional rural banksat the end of March 2005 with 14,433 branches, accounting for 3.50% of aggregate deposits and 2.81% of gross bankcredit outstanding of scheduled commercial banks.

Private Sector Banks

After bank nationalisation was completed in 1969 and 1980, the majority of Indian banks were public sector banks. Someof the existing private sector banks, which showed signs of an eventual default, were merged with state-owned banks. InJuly 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, RBII

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Industrial Development Bank Of India Limited

permitted entry by the private sector into the banking system. This resulted in the introduction of nine private sector banks.These banks are collectively known as the new private sector banks. There are nine “new” private sector banks operatingat present. In addition, 21 private sector banks existing prior to July 1993 were operating at year-end fiscal 2004.

Foreign Banks

At the end of March 2005, there were 31 foreign banks with 220 branches operating in India, accounting for 4.40% ofaggregate deposits and 6.66% of outstanding gross bank credit of scheduled commercial banks. The Government ofIndia permits foreign banks to operate through (i) branches; (ii) a wholly owned subsidiary; or (iii) a subsidiary withaggregate foreign investment of up to 74% in a private bank. The primary activity of most foreign banks in India has beenin the corporate segment. However, some of the larger foreign banks have made consumer financing a significant part oftheir portfolios. These banks offer products such as automobile finance, home loans, credit cards and household consumerfinance. The GoI in 2003 announced that wholly-owned subsidiaries of foreign banks would be permitted to incorporatewholly-owned subsidiaries in India. Subsidiaries of foreign banks will have to adhere to all banking regulations, includingpriority sector lending norms, applicable to domestic banks. In March 2004, the Ministry of Commerce and Industry, GoIannounced that the foreign direct investment limit in private sector banks has been raised to 74% from the existing 49%under the automatic route including investment by FIIs. The announcement also stated that the aggregate of foreigninvestment in a private bank from all sources would be allowed up to a maximum of 74% of the paid up capital of the bank.

Cooperative Banks

Cooperative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urbanand semi-urban areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. In light of the liquidity and insolvency problems experienced by some cooperative banks in fiscal2001, RBI undertook several interim measures to address the issues, pending formal legislative changes, includingmeasures related to lending against shares, borrowings in the call market and term deposits placed with other urbancooperative banks. RBI is currently responsible for the supervision and regulation of urban co-operative societies, theNational Bank for Agriculture and Rural Development, state co-operative banks and district central co-operative banks.The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 (which came into effect as of September24, 2004), specifies that all co-operative banks are under the supervision and regulation of RBI.

Term Lending Institutions

Term lending institutions were established to provide medium-term and long-term financial assistance to various indus-tries for setting up new projects and for the expansion and modernization of existing facilities. These institutions providefund-based and non-fund based assistance to industry in the form of loans, underwriting, direct subscription to shares,debentures and guarantees. The primary long-term lending institutions include Industrial Development Bank of India -IDBI (converted into a banking company with effect from October 2004), IFCI Limited, Infrastructure Development FinanceCompany Limited (IDFC) and Industrial Investment Bank of India (IIBI). The term lending institutions were expected to playa critical role in industrial growth in India and, accordingly, had access to concessional government funding. However, inrecent years, the operating environment of the term lending institutions has changed substantially. Although the initial roleof these institutions was largely limited to providing a channel for government funding to industry, the reform processrequired them to expand the scope of their business activities. Their new activities include fee based activities likeinvestment banking and advisory services and short-term lending activity including corporate loans and working capitalloans.

Pursuant to the recommendations of the Committee on Banking Sector Reforms (Narasimham Committee II), S.H.Khan Working Group, a working group created in 1999 to harmonise the role and operations of term lending institutionsand banks, RBI, in its mid-term review of monetary and credit policy for fiscal 2000, announced that long-term lendinginstitutions would have the option of transforming themselves into banks subject to compliance with the prudentialnorms as applicable to banks in India. In April 2001, RBI issued guidelines on several operational and regulatory i s -sues which were required to be addressed in evolving the path for transition of a term lending institution into a universalbank.

Industrial Development Bank of India was converted into a banking company with the name of Industrial DevelopmentBank of India Limited within the meaning of the Bank Regulation Act and the Companies Act with effect from October 2004.It is currently able to carry on banking operations in addition to the business being transacted by it as a term lendinginstitution.

Non-Banking Finance Companies

There were 13,187 non-banking finance companies in India as of March 31, 2005, mostly in the private sector. All non-banking finance companies are required to register with RBI in terms of The Reserve Bank of India (Amendment) Act,1997. The non-banking finance companies, on the basis of their principal activities are broadly classified into fourcategories namely Equipment Leasing (EL), Hire Purchase (HP), Loan and Investment Companies and deposits andbusiness activities of Residuary Non-Banking Companies (RNBCs). The Reserve Bank has put in place a set of direc-


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tions to regulate the activities of NBFCs under its jurisdiction. The directions are aimed at controlling the deposit accep-tance activity of NBFCs. The NBFCs which accept public deposits are subject to strict supervision and capital adequacyrequirements of RBI. Out of the NBFCs registered with RBI as of March 2005, 474 NBFCs accept Public Deposits.

Housing Finance Companies

Housing finance companies form a distinct sub-group of the non-bank finance companies and are regulated by NationalHousing Bank (NHB). As a result of the various incentives given by the Government for investing in the housing sector inrecent years, the scope of their business has grown substantially. Until recently, Housing Development Finance Corpora-tion Limited was the premier institution providing housing finance in India. In recent years, several other players includingbanks have entered the housing finance industry. The National Housing Bank and the Housing and Urban DevelopmentCorporation Limited are the two Government-controlled financial institutions created to improve the availability of housingfinance in India. The National Housing Bank Act provides for refinancing andsecuritization of housing loans, foreclosure of mortgages and setting up of the Mortgage Credit Guarantee Scheme. RBIhas directed commercial banks to lend at least 3.0% of their incremental deposits in the form of housing loans. Further,RBI has reduced the risk weight for loans for residential properties to 50.0% for the purpose of determining capitaladequacy. However, RBI increased this risk weightage for loans to residential properties to 75% in December 2004.Housing loans up to certain limits prescribed by RBI as well as mortgage-backed securities qualify as priority sectorlending under RBI’s directed lending rules.

OTHER FINANCIAL INSTITUTIONS

Specialized Financial Institutions

In addition to the long-term lending institutions, there are various specialized financial institutions that cater to the specificneeds of different sectors. They include the National Bank for Agricultural and Rural Development, Export Import Bank ofIndia(EXIM), Small Industries Development Bank of India (SIDBI), Risk Capital and Technology Finance CorporationLimited (RCTFC), Tourism Finance Corporation of India Limited (TFCI), National Housing Bank (NHB), Power FinanceCorporation Limited (PFC).

State Level Financial Institutions

State financial corporations operate at the state level and form an integral part of the institutional financing system. Statefinancial corporations were set up to finance and promote small and medium-sized enterprises. The state financialinstitutions are expected to achieve balanced regional socio-economic growth by generating employment opportunitiesand widening the ownership base of industry.At the state level, there are also state industrial development corporations, which provide finance primarily to medium-sized and large-sized enterprises.

Insurance Companies

Currently, there are 29 insurance companies in India, of which 14 are life insurance companies, 14 are general insurancecompanies and one is a reinsurance company. Of the 14 life insurance companies, 13 are in the private sector and oneis in the public sector. Among the general insurance companies, nine are in the private sector and five are in the publicsector. The reinsurance company, General Insurance Corporation of India, is in the public sector. Life Insurance Corpora-tion of India, General Insurance Corporation of India and public sector general insurance companies also provide long-term financial assistance to the industrial sector. In fiscal 2004, the total gross premiums underwritten of all generalinsurance companies were Rs. 160.37 billion and the total new premiums of all lifeinsurance companies were Rs. 194.30 billion. As per provisional figures released by Insurance Regulatory and Develop-ment Authority (IRDA), in fiscal 2005, the total gross premiums underwritten by all general insurance companies were Rs.180.95 billion and the total new premiums of all life insurance companies were Rs. 253.43 billion. Over the past few years,the market shares of private sector insurance companies have been increasing in both life and non-life insurancebusinesses. The market share of private sector life insurance companies in new business written increased from 1.35%in fiscal 2002 to 5.66% in fiscal 2003 and 12.56% in the fiscal 2004. Provisional figures released by IRDA indicate a marketshare of 21.93% during fiscal 2005 for private sector life insurance companies in new business written. The market shareof private sector non-life insurance companies for business in India increased from 3.86% in fiscal 2002 to 9.16% in fiscal2003 and 14.09% during the fiscal 2004. Provisional figures released by IRDA indicate a market share of 19.65% duringfiscal 2005 for private sector non-life insurance companies for business in India.

Mutual Funds

As of the end of March 2005, there were 29 mutual funds in India with total net assets of Rs. 1495.54 billion. From 1963 to1987, Unit Trust of India was the only mutual fund operating in India. It was set up in 1963 at the initiative of the Governmentand RBI. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual funds wereestablished by public sector banks, the Life Insurance Corporation of India and General Insurance Corporation of India.The mutual funds industry was opened up to the private sector in 1993. The industry is regulated by the SEBI (Mutual Fund)Regulation, 1996.

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Liberalisation and the Reform Process

Impact of Liberalisation on the Banking SectorUntil 1991, the financial sector in India was heavily controlled, and commercial banks and term lending institutions, thetwo dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stableenvironment, with little or no competition. Term lending institutions were focused on the achievement of the Indiangovernment’s various socio-economic objectives, including balanced industrial growth and employment creation, espe-cially in areas requiring development. These lending institutions provided access to long-term funds at subsidised ratesthrough loans and equity from the Government of India and from funds guaranteed by the Government of India originatingfrom commercial banks in India and foreign currency resources originating from multilateral and bilateral agencies.The focus of the commercial banks was primarily to mobilise household savings through demand and time deposits andto use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition, thecommercial banks provided a range of banking services to individuals and businesses. However, since 1991, there havebeen comprehensive changes in the Indian financial system. Various financial sector reforms, implemented since 1991,have transformed the operating environment of the banks and long-term lending institutions. In particular, the deregulationof interest rates, the emergence of a liberalised domestic capital market, and entry of new private sector banks, along withthe broadening of term lending institutions’ product portfolios, have progressively intensified the competition amongbanks and term lending institutions. RBI has permitted the transformation of term lending institutions into banks subjectto compliance with the applicable law.

Banking Sector ReformsIn the wake of the last decade of financial reforms, the banking industry in India has undergone a significant transforma-tion, which has covered almost all important facets of the industry. Most large banks in India were nationalised by 1980 andthereafter were subject to a high degree of control until reform began in 1991. In addition to controlling interest rates andentry into the banking sector, the regulations also channelled lending into priority sectors. Banks were required to fund thepublic sector through the mandatory acquisition of low-interest-bearing government securities or statutory liquidity ratiobonds to fulfil statutory liquidity requirements. As a result, bank profitability was low, non-performing assets were com-paratively high, capital adequacy was diminished, and operational flexibility was hindered.

Committee on the Financial System (Narasimham Committee I)The Committee on the Financial System (Narasimham Committee I) was set up in August 1991 to recommend measuresfor reforming the financial sector. Many of the recommendations made by the committee, which addressed organisationalissues, accounting practices and operating procedures, were implemented by the Government of India. The majorrecommendations that were implemented included the following:• With fiscal stabilisation and the Government increasingly resorting to market borrowing to raise resources, the

statutory liquidity ratio, or the proportion of the banks’ net demand and time liabilities that were required to beinvested in government securities, was reduced from 38.5%, in the pre-reform period, to 25.0% in October 1997.This meant that the significance of the statutory liquidity ratio shifted from being a major instrument for financingthe public sector in the pre-reform era to becoming a prudential requirement;

• Similarly, the cash reserve ratio or the proportion of the bank’s net demand and time liabilities that were requiredto be deposited with RBI, was reduced from 15.0%, in the pre-reform period, to 5.0% currently;

• Special tribunals were created to resolve bad debt problems;• Most of the restrictions on interest rates for deposits were removed and commercial banks were allowed to set

their own level of interest rates for all deposits except savings bank deposits; and• Substantial capital infusion to several state-owned banks was approved in order to bring their capital adequacy

closer to internationally accepted standards. The stronger public sector banks were given permission to issueequity to increase capital.

Committee on Banking Sector Reform (Narasimham Committee II)The second Committee on Banking Sector Reform (Narasimham Committee II) submitted its report in April 1998. Themajor recommendations of the committee were in respect of capital adequacy requirements, asset classification andprovisioning, risk management and merger policies. RBI accepted and began implementing many of these recommen-dations in October 1998. The successes of the reforms were aided to a large extent by the relative macroeconomic stabilityduring the period. Another distinguishing feature of the reforms was the successful sequencing and gradual introductionof the reforms. Banks have implemented new prudential accounting norms for the classification of assets, incomerecognition and loan loss provisioning. Following the Bank for International Settlements (BIS) guidelines, capital ad-equacy norms have also been prescribed. To meet additional capital requirements, public sector banks have beenallowed to access the market for funds. Interest rates have been deregulated, while the rigour of directed lending has beenprogressively reduced. A number of measures have been taken to reduce the level of non-performing assets, such as theestablishment of DRTs, Lok Adalats and the system of one-time settlement of dues through mutual negotiation. A systemof corporate debt restructuring, based on the “London Approach” has been put in place as a voluntary process of corporaterestructuring. For information on corporate debt restructuring, please refer to the section titled “Corporate Debt Restruc-turing” on page 35 herein.


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Proposed Structural Reforms

Amendments to the Banking Regulation Act• The Finance Act, 2005, has proposed the introduction of a comprehensive bill to amend the Banking Regulation

Act, 1949, to, inter alia, provide for the following:• to remove the lower and upper bounds to the Statutory Liquidity Ratio and provide flexibility to RBI to prescribe

prudential norms;• to allow banking companies to issue preference shares;• to introduce specific provisions to enable the consolidated supervision of banks and their subsidiaries by RBI in

consonance with international best practices;• to provide for set-off of losses to banking companies in cases of amalgamation; and• enhancement of credit-linking of self-help groups with the banking system.

Amendments to the Reserve Bank of India ActFurther, the Finance Act, 2005 also provides for the introduction of the following amendments to the Reserve Bank of IndiaAct, 1934:• to remove the limits of the CRR to facilitate greater flexibility in monetary policy; and• to enable RBI to lend or borrow securities by way of repo, reverse repo or otherwise.

Legislative Framework for Recovery of Debts Due to Banks

In fiscal 2003, the Parliament passed the Securitisation Act. The Securitisation Act provides the powers of “seize anddesist” to banks. The Act provides that a “secured creditor” may, in respect of loans classified as non-performing inaccordance with RBI guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days,failing which the secured creditor may take possession of the assets constituting the security for the loan, and exercisemanagement rights in relation thereto, including the right to sell or otherwise dispose of the assets. This Act also providesfor the establishment of asset reconstruction companies regulated by RBI to acquire assets from banks and financialinstitutions. The constitutionality of the Securitisation Act was challenged in Mardia Chemicals Limited v. Union of India,AIR 2004 SC 2371, a petition filed before the Supreme Court. The Supreme Court upheld the validity of the Act, exceptSection 17(2), wherein they found that the requirement of making a deposit of 75% of the amount claimed at the time ofmaking a petition or an appeal to the DRT under Section 17 in order to challenge the measures taken by the creditor inpursuance of Section 13(4) was unreasonable and therefore, struck down. RBI has issued guidelines for asset recon-struction companies in respect of their establishment, registration and licensing by RBI, and operations. Earlier, followingthe recommendations of the Narasimham Committee I, the Recovery of Debts due to Banks and Financial Institutions Act,1993 was enacted. This legislation provides for the establishment of a tribunal for the speedy resolution of litigation andthe recovery of debts owed to banks or financial institutions. The legislation creates tribunals before which the banks or thefinancial institutions can file a suit for recovery of the amounts due to them. However, if a scheme of reconstruction ispending before the Board for Industrial and Financial Reconstruction, under the Sick Industrial Companies (SpecialProvision) Act, 1985, no proceeding for recovery can be initiated or continued before the tribunals. While presenting itsbudget for fiscal 2002, the Government of India announced measures for establishing more debt recovery tribunals andthe eventual repeal of the Sick Industrial Companies (Special Provision) Act, 1985. While the Parliament has repealed thisAct, the notification to make the repeal effective has not yet been issued.

Corporate Debt Restructuring (“CDR”)

To put in place an institutional mechanism for the restructuring of corporate debt, RBI has devised a corporate debtrestructuring system. The objective of this framework is to ensure a timely and transparent mechanism for the restructur-ing of corporate debts of viable entities facing problems, outside the purview of the Board for Industrial and FinancialReconstruction, debt recovery tribunals and other legal proceedings. In particular, the framework aims to preserve viablecorporates that are affected by certain internal and external factors and minimize the losses to the creditors and otherstakeholders through an orderly and co-ordinated restructuring program. The corporate debt restructuring system is anon-statutory mechanism and a voluntary system based on debtor-creditor and inter-creditor agreements. Any lenderhaving a minimum 20% exposure in term loan or working capital may make a reference to the CDR Forum. The system putin place by RBI contemplates a three tier structure with the CDR Standing Forum at the helm, which is the general body ofall member institutions, out of which is carved out the core group, a niche body of select institutions that decides policymatters. Decisions on restructuring are taken by the CDR Empowered Group, which has all the member banks/FIs as itsmembers. To assist the CDR Forum in secretarial matters and for analysis of the restructuring packages, a CDR Cell hasbeen formed. The total membership of the CDR Forum, as on March 31, 2004 is 60, of which there were 14 FIs, 27 publicsector banks and 19 private sector banks.

Universal Banking Guidelines

Universal banking, in the Indian context, means the transformation of long-term lending institutions into banks. Pursuantto the recommendations of the Narasimham Committee II and the Khan Working Group, RBI, in its mid-term review of

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monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of trans-forming themselves into banks subject to compliance with the prudential norms as applicable to banks. If a long-termlending institution chose to exercise the option available to it and formally decided to convert itself into a universal bank, itcould formulate a plan for the transition path and a strategy for smooth conversion into a universal bank over a specifiedtime frame. In April 2001, the RBI issued guidelines on several operational and regulatory issues which were required tobe addressed in evolving the path for transition of a long-term lending institution into a universal bank.

Annual Policy Statement

The RBI has renamed its credit policy as the “Annual Policy” statement since it is directed at structural adjustments ratherthan controlling the credit flow in the economy. As per the Annual Policy statement for fiscal 2006, the rate of CRR ofscheduled commercial banks has been kept at 5.00% of net demand and time liabilities. As part of its efforts to continuebank reform, the RBI has announced a series of measures in its monetary and credit policy statements aimed atderegulating and strengthening the financial system.In the Annual Policy for fiscal 2006, the RBI has stated that the overall stance of monetary policy for fiscal 2006 shall be asfollows:• provision of appropriate liquidity to meet credit growth and support investment and export demand in the

economy while placing equal emphasis on price stability;• consistent with the above, to pursue an interest rate environment that is conducive to macroeconomic and

price stability, and maintaining the momentum of growth; and• to consider measures to stabilize inflationary expectations in response to evolving circumstances.

In the Annual Policy for fiscal 2006, the RBI has introduced the following specific measures, among others:• liquidity adjustment facility (“LAF”) scheme: The international usage of “repo” and “reverse repo” terms have

been adopted from October 27, 2004. The LAF scheme is being operated with overnight fixed rate repo andreverse repo with effect from November 1, 2004. Accordingly, auctions of 7-day and 14-day repo (‘reverse repo’in international terminology) stand discontinued from November 1, 2004;

• there is no change in the bank rate, which remains at 6.00%;• the fixed reverse repo rate under the LAF scheme has been increased effective from April 29, 2005 from 4.75%

to 5.00%. Accordingly the fixed repo rate under LAF will continue to remain at 6.00%;• the CRR level is unchanged at 5.00%;• no deregulation of interest rates relating to (i) savings deposit accounts; (ii) NRI deposits; (iii) interest rate

ceilings on small loans up to Rs. 0.2 million; and (iv) interest rate regulation on export credit;• the RBI will not be participating in the primary issuance of government securities with effect from April 1, 2006.

The further sale of government securities allotted in primary issues with and between CSGL account holdersshall also take place on the same day;

• the RBI shall issue guidelines on merger and amalgamation between private sector banks and with NBFCs.The guidelines would cover the process of merger proposal, determination of swap ratios, disclosures,norms for buying/selling of shares by promoters before and during the process of merger and the board’sinvolvement in the merger process. The principles underlying these guidelines would also be applicable asappropriate to public sector banks, subject to relevant legislation;

• to raise the ceiling of overseas investment by Indian entities in overseas joint ventures and/or wholly ownedsubsidiaries from 100% to 200% of their net worth under the automatic route;

• to set up an independent Banking Codes and Standards Board of India based on the UK model in order toensure that a comprehensive code of conduct for the fair treatment of customers is created and adhered to;

• structural and developmental measures for expanding the government securities market; and• measures for simplifying the systems and procedures for offering better customer service and to continue with

the liberalisation process for the improvement of the foreign exchange market.

Reforms of the Non-Banking Finance Companies

The standards relating to income recognition, provisioning and capital adequacy were prescribed for non-banking financecompanies in June 1994. The registered non-banking finance companies were required to achieve a minimum capitaladequacy of 6.0% by year-end fiscal 1995 and 8.0% by year-end fiscal 1996 and to obtain a minimum credit rating. Toencourage the companies complying with the regulatory framework, RBI announced in July 1996 certain liberalizationmeasures under which the non-banking finance companies registered with it and complying with the prudential normsand credit rating requirements were granted freedom from the ceiling on interest rates on deposits and amount ofdeposits. Other measures introduced include requiring non-banking finance companies to maintain a certain percentageof liquid assets and to create a reserve fund. The percentage of liquid assets to be maintained by non-banking financecompanies has been revised uniformly upwards and since April 1999, 15.0% of public deposits must be maintained.Efforts have also been made to integrate non-banking finance companies into the mainstream financial sector.


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New Initiatives in the Banking Sector

Risk Management and Basel IIWith gradual deregulation, banks are now exposed to different types of risks. In view of the dynamic nature of the financialmarket, banks face various market risks like interest rate risk, liquidity risk, and exchange risk. In respect of lending, theyface credit risk which includes default risk and portfolio risk. Banks also face risks like operational risk.In preparation for the adoption of the Basel II accord, banks have already been required by RBI to take active measures interms of risk management systems, evaluate capital charges including for operational risk and bring about more trans-parency in financial reporting as part of market discipline. RBI has also moved towards adoption of Risk Based Supervi-sion (RBS) of banks under which the risk profile of the banks will decide their supervisory cycles - a bank with higher riskrating will undergo more frequent supervisory reviews than those with lower risk rating. RBI has also indicated that it willadopt a phased approach to the implementation of the Basel II. Implementation of market risk will be completed within twoyears from the year ended March 31, 2005 and the credit risk and operational risk with effect from 31 March 2007.

RTGS Implementation in IndiaWith the commencement of operations of the Real Time Gross Settlement (“RTGS”) system from March 26, 2004, Indiacrossed a major milestone in the development of systemically important payment systems and complied with the coreprinciples framed by the Bank for International Settlements. It was a ‘soft’ launch with four banks, besides RBI, asparticipants. As on March 31, 2004, there are 71 direct participants in the RTGS system. The salient features of the RTGSare as follows:• payments are settled transaction by transaction for high value and retail payments;• settlement of funds is final and irrevocable;• settlement is done on a real time basis and the funds settled can be further used immediately;• it is a fully secure system which uses digital signatures and public key infrastructure based inscription for safe

and secure message transmission;• there is a provision for intra-day collaterised liquidity support for member banks to smoothen the temporary

mismatch of fund flows; and• RTGS provides for transfer of funds relating to inter bank settlements as also for customer related fund transfers.

More than 75% of the value of inter bank transfers, which was earlier being settled through the deferred netsettlement systems (“DNSS”) based inter-bank clearing, is now being settled under RTGS.

Technology

Technology is emerging as a key-driver of business in the banking and financial services industry. Banks are developingalternative channels of delivery like ATMs, telebanking, remote access and Internet banking etc. Indian banks have beenmaking significant investments in technology. Besides computerization of front-office operations, the banks have movedtowards back-office centralization. Banks are also implementing “Core Banking” or “Centralised Banking”, which providesconnectivity between branches and helps offer a large number of value-added products, benefiting a larger number ofcustomers. RBI Annual Report for the year 2003-04 states that the use of ATMs has been growing rapidly and this hashelped in optimising the investments made by banks in infrastructure. Banks have joined together in small clusters toshare their ATM networks during the year. There are five such ATM network clusters functioning in India. The total numberof ATMs installed by the public sector banks stood at 8,219 at March 31, 2004, compared with 5,963 ATMs at March 31,2003. The payment and settlement system is also being modernised. RBI is actively pursuing the objective of establishinga RTGS system, on par with other developed economies.

Corporate Governance

Adoption of good corporate governance practices has been getting the attention of banks as well as the regulators andowners in India. Banks in India now typically have an audit committee of the board of directors which is entrusted with thetask of overseeing the organisation, operationalisation and quality control of the internal audit function, reviewing financialaccounts and follow-up with the statutory and external auditors of the bank as well as examinations by regulators.Disclosure levels in bank balance sheets have been enhanced, while measures have also been initiated to strengthencorporate governance in banks.

Consolidation

Indian banks are increasingly recognizing the importance of size. These efforts have received encouragement from theviews publicly expressed by the current Government favouring consolidation in the Indian banking sector. Although therehave been instances of mergers, these have usually involved financially distressed banks. Mergers and acquisitions areseen by banks as a means of achieving inorganic growth in size and attaining economies of scale and scope. Notwith-standing the government ownership of public sector banks, the government has indicated that it would not stand in the wayof mergers of public sector banks, provided the bank boards come up with a proposal of merger, based on synergies andpotential for improved operational efficiency. The Government has also provided tax breaks aimed at promoting mergers

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and acquisitions (Section 72 (A) of the I.T. Act enables the acquiring entity (which could be a company, a correspondingnew bank, a banking company or a specified bank) the benefit of “carry forward and set-off of accumulated losses andunabsorbed depreciation” of the acquired entity, subject to specified conditions being fulfilled). Further, the Finance Act,2005 has included of a new Section 72AA to the I.T Act. Pursuant to this Section, during the amalgamation of a bankingcompany with any other banking institution under a scheme sanctioned and brought into force by the Central Governmentunder Section 45 (7) of the Banking Regulation Act, the accumulated loss and the unabsorbed depreciation of suchbanking company shall be deemed to be the loss or, as the case may be, allowance for depreciation of such bankinginstitution for the previous year in which the scheme of amalgamation was brought into force and other provisions of theI.T Act relating to the set-off and carry forward of loss, and allowance, for depreciation shall apply accordingly. It isenvisaged that the consolidation process in the public sector bank group is likely to gather pace, particularly as banks willbe required to attain higher capital standards under Basel II and meet the pressures of competition by adoption of theextended universal banking model.

Moving Ahead

Bank deposits continue to remain an important instrument of financial saving. The share of bank deposits in householdsavings has shown an increase from 30.8% in fiscal 2000 to 40.5% in fiscal 2004. The increased use of technologyshould help banks to reduce transaction costs, and enhance cross-selling of bank products. It has been recognized thatthe agricultural sector has not been a major beneficiary of the decade long reform process and a skewed interest ratestructure has emerged in case of agricultural loans vis-à-vis consumer loans, mainly as a result of fierce competitivepressures in the consumer finance segment. The GoI intends to address this underlying weakness, considering that 70%of the population is in India’s villages and the agro-economy needs more infrastructure investment. Accordingly, the GoI’spolicy is to double the level of agricultural credit in the next three years and the public sector banks have geared them-selves to pursue this objective. This, however, is not expected to result in risk concentration as agricultural advances ofpublic sector banks constituted only 15.4% of their net credit at March 31, 2004. Further, being of smaller quantum,agricultural advances help banks to achieve risk-dispersal and it is generally seen that recovery rates are consistentlyhigher. Moreover, banks have been provided tax breaks for boosting agricultural advances banks can claim income taxexemption on 10% of their average rural advances and 7.5% of net profit before provisions and tax. More recently, RBI hasalso modified the NPA norms for agricultural advances (linking delinquency to the crop cycle).


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BUSINESS OVERVIEW

IDBI Ltd. has emerged as one of India’s major public sector banks. As of August 31, 2005, IDBI Ltd. has 154 branches inIndia and a work force of 4776 people. In fiscal 2005, IDBI Ltd. earned a net profit of Rs.307 crore. At the end of the financialyear as of March 31, 2005(six month period), IDBI Ltd. had assets of Rs.81,360 crore and net worth of Rs.5895 crore.

History of IDBI Ltd.

IDBI Ltd. was established in 1964 by the Government of India under an Act of Parliament, the Industrial DevelopmentBank of India Act, 1964 (the IDBI Act). Initially, IDBI Ltd. was set up as a wholly-owned subsidiary of Reserve Bankof India (RBI) to provide credit and other facilities for the development of industry. In 1976, the ownership of IDBILtd. was transferred to the Government of India and it was entrusted with the additional responsibility of acting asthe principal financial institution for co-ordinating the activities of institutions engaged in financing, promotion ordevelopment of industry.

Over the last four decades, IDBI’s role as catalyst to industrial development has encompassed a broad spectrum ofactivities. IDBI Ltd.had financed all types of industrial concerns covered under the provisions of the IDBl Act irrespective ofthe size or form of organisation. IDBI Ltd. had primarily provided finance to large and medium industrial enterprisesengaged or to be engaged in the manufacture, processing or preservation of goods, mining, shipping, transport, hotelindustry, information technology, medical and health, leasing generation and distribution of power, maintainance, repair,testing, servicing of vehicles, setting up of industrial estates as also in the research and development for promotion ofindustrial growth. IDBI Ltd. had also been assigned a special role for co-ordinating the activities of institutions engaged infinancing, promoting or developing industries.

In the past, the Government had provided direct and indirect financial assistance and support to IDBI Ltd. includingaccess to low cost fund and assistance by way of restructuring of high cost liabilities. The Government, however,has no legal obligations to provide financial assistance or support to IDBI Ltd., which had been extended from timeto time considering the unique role of IDBI Ltd. in the industrial development of the country. The structural changesin the industrial sector including the opening up of the economy and the ongoing disintermediation in the financialsector had affected the credit profile of IDBI Ltd.. The sources and availability of cheap long term funds have declinedresulting in difficulties in operations as a stand alone DFI. To impart more flexibility in its operations and enable it todiversify on both asset and liability side and thereby expand its scope of operations, IDBI Ltd. took up bankingoperations.

Provisions of the IDBI Repeal Act, 2003

The transfer of the undertaking of IDBI to IDBI Ltd. was effected on October 1, 2004, the ‘Appointed Date’ as notifiedby the Central Government, pursuant to the provisions of the Industrial Development Bank (Transfer of Undertakingand Repeal) Act, 2003 (Repeal Act) proposing the repeal of IDBI Act, 1964. As provided therein, IDBI Ltd., the newCompany shall carry on Banking business in accordance with the provisions of the Banking Regulation Act, 1949,in addition to the business which was being carried out by IDBI as a Development Financial Institution (DFI). Thenew Company shall not require a Banking licence as the same is provided in the Repeal Act. All fiscal and otherconcessions, licences, benefits, privileges and exemptions granted to IDBI in connection with the affairs andbusiness of IDBI under any law for the time being in force (including those granted by the IDBI Act prior to its repeal),were deemed to have been granted to the IDBI Ltd. RBI, vide its notification dated April 15, 2005 has classified IDBILtd. as “Other Public Sector Banks” considering its shareholding pattern in view of the assurance to the Parliamentgiven on 8th December, 2004 by the Finance Minister during the discussion on the Repeal Bill, 2003 that theGovernment Holding in IDBI Ltd. would always be above 51%.

Pursuant to Section 4(1) of the IDBI Repeal Act, 2003 the erstwhile shareholders of IDBI, including the Government,will from the appointed date, become pro rata shareholders of IDBI Ltd. The Government’s current shareholding inIDBI Ltd. is 52.8%. The provisions of Memorandum and Articles of Association of IDBI Ltd. requires that the “CentralGovernment being a shareholder of the Company, shall at all times maintain not less than 51% of the issued capitalof the Company”, as mentioned above.

Persuant to section 9 of IDBI Repeal Act, 2003, notwithstanding anything contained in any other law for the timebeing in force, the shares, bonds and debentures of the Company shall be deemed to be approved securities forthe purposes of the Indian Trusts Act, 1882 and the Insurance Act, 1938.

Pursuant to Section 13(a) of IDBI Repeal Act, 2003, in every Act, rule, regulation or notification in force on theappointed day, for the words “Industrial Development Bank of India”, wherever they occur, the words “Industrial

Development Bank of India Limited” shall be substituted.

The Government of India had issued a notification F.No.8(10)/2004-IF-I dated July 2, 2004 whereby the provisionsof the Repeal Act came into force on July 2, 2004.

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Industrial Development Bank Of India LimitedConstitution

Industrial Development Bank of India Limited (IDBI Ltd.), the successor of Industrial Development Bank of India (IDBI)has been incorporated as a Banking Company on September 27, 2004 under the Companies Act, 1956. TheCompany has received Certiicate for Commencement of Business on September 28, 2004. The main object of theCompany, as per its Memorandum and Articles of Association, is “to acquire by transfer or otherwise the undertakingof the Industrial Development Bank of India (IDBI), a Corporation established under the Industrial Development Bankof India Act, 1964 (18 of 1964) together with all its business, assets, rights, powers, authorities” etc. The CentralGovernment shall at all times maintain not less than 51% of the issued capital of IDBI Ltd.

The main objects of IDBI Ltd. includes (a) to establish and carry on business of banking in all forms within Indiaand outside India, (b) to finance, promote or develop industry and assist in the development of Industries. As perthe Memorandum and Articles of Association, the new company can grant loans and advances directly as well asby way of refinance in India as well as for export of capital goods, commodities merchandise or execution of turnkeyprojects outside India. IDBI Ltd. can also discount / rediscount bills of exchange and promissory notes, extenddeferred payment guarantees (DPG), guarantee loans, underwrite issue of capital and engage in the business ofletter of credit (LCs). IDBI Ltd. is also empowered to act as debenture trustee, provide merchant banking andconsultancy services and acquire the undertaking of any institutution engaged in grant of financial assistance forthe promotion and development of industries. The object clause is detailed in the appendix.

Conversion to a Banking Company

The new company, IDBI Ltd. has been set up as a Government Company. It has been incorporated on September27, 2004 with the Registrar of Companies (RoC), Mumbai and has received the Certificate for Commencement ofBusiness on September 28, 2004. RBI vide its notification dated September 30, 2004, has included IndustrialDevelopment Bank of India Limited in the second schedule of the RBI Act. The Central Government has issuedNotification declaring 1st day of October, 2004, as the ‘Appointed date’ on which the undertaking of the IDBI hasbeen transferred to, and has been vested in, the Industrial Development Bank of India Ltd. as provided in the RepealAct. IDBI Ltd. has commenced Commercial banking business w.e.f. October 1, 2004.

Notwithstanding the conversion of IDBI into a Banking Company, the then Finance Minister in his interim Budget2004-05 had stated that the Government is committed to perserving and strengtheing IDBI’s role as a developmentalfinancial institution. Since the restructured IDBI will have the requisite expertise and experience in project appraisal,funding and co-ordination, it was decided to designate IDBI Ltd. as the Lead Development Financial Institution. IDBILtd. shall carry on banking business in addition to the developmental financing business which was being carriedout by the erstwhile IDBI.

Regulatory Forebearance

The IDBI Repeal Act, 2003 enabled IDBI Ltd. to become a banking company without the need to obtain a separatebanking licence under the Banking Regulation Act, 1949. IDBI Ltd. enjoys certain regulatory forbearance as providedfor in the Repeal Act, 2003, including exemption from compliance with Statutory Liquidity Ratio (SLR) requirementsunder the Banking Regulation Act for the first five years. In addition, notwithstanding anything contained in theBanking Regulation Act, 1949 the Central Government may in consultation with RBI, by notification, direct that anyof the provisions of that act specified in the notification shall not apply to the IDBI Ltd. or shall apply only with suchexemption, modifications and the adaptation as may be specified in that notification.

The forbearance extended to IDBI Ltd. by RBI include:

- exemption from the limit of 30% stipulated under section 19(2) of BR Act in respect of the outstanding exposureby way of equity investment as on the appointed date. The exposure is to be brought within the stipulated limitwithin a period of 5 years.

- permission to issue bonds of varying maturity in respect of undisbursed commitments as on the appointed date.

- exclude all outstanding foreign currency borrowings of erstwhile IDBI including the ECB of USD 300 million fortextile restructuring package approved by Government of India from prescribed limit of 25% of unimpaired TierI Capital of the Bank for overseas foreign currency borrowings of IDBI Ltd. Accordingly, IDBI Ltd. is eligible toborrow further foreign currency loans to the extent of 25% of its unimpaired Tier I Capital, in addition to its existingoutstanding foreign currency borrowings.

- special securities of Rs.9000 crore received in consideration of transfer of assets to SASF, to be classified asHTM investment and kept out of the prescribed ceiling of 25% stipulated for ceiling on HTM investments.


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MERGER OF ERSTWHILE IDBI BANK LTD.

To create a more conducive environment for the transition and to give fillip to the business operations of the newentity, the then IDBI Board decided that for effective transition to a banking company, IDBI Ltd. should leverage onits banking subsidiary, IDBI Bank Ltd. The Scheme of Amalgamation/Merger of IDBI Bank Ltd. with IDBI Ltd. hasbeen approved separately at the Extraordinary General Meetings (EGMs) of IDBI Ltd. and IDBI Bank Ltd. held onFebruary 23, 2005 and February 25, 2005 respectively. The Reserve Bank of India(RBI) has given its approval forthe amalgamation of IDBI Bank Ltd. with IDBI Ltd. under Sub-section (4) of Section 44A of the Banking RegulationAct, 1949. The amalgamation has become effective from April 2, 2005. In conformity with the terms of the Schemeof Amalgamation approved by RBI, IDBI Ltd. has issued 100 equity shares for 142 equity shares held by theshareholders of IDBI Bank Ltd. IDBI Ltd. has extinguished the shares held by it in the IDBI Bank Ltd. prior to merger.As on June 30, 2005, the Central Government’s shareholding in IDBI Ltd.(post merger) is at 52.83%.

Benefits of Merger

The merger has brought in significant benefits in terms of enhanced size and improved quality of balance sheet, lowercost of funds, extended branch network, a higher technology platform, lean workforce, alongwith a wide array of retailand wholesale products. This has benefitted all the stakeholders by increased value creation, alongwith theconvenience of a universal bank. The potential to reap the benefits of economies of scale and the convenience ofsingle-window servicing to clients is a major advantage. The immediate opportunity for the Bank has come from theaccess to cheaper short-term retail funds. This has enabled the Bank to lower its cost of liability and price its productsattractively. Enlarging the clientele base either through market penetration, product diversification or market development,market segmentation and providing structured products under a single roof are the other opportunities for the Bank.Also, the enlarged capital base of the bank has provided impetus to expanding business. The inhouse knowledgeand expertise in long Term finance, including project finance, coupled with the skill of retail financing, has enabledthe merged entity to emerge as a preferred source of finance from all segments of the market.

The scheme of Amalgamation has become effective from October 1, 2004. The salient features of the Scheme ofAmalgamation as approved by RBI are as under:

Scheme of Amalgamation – Salient features

• Since both IDBI Ltd. and IDBI Bank Ltd are Banking Companies, the scheme of amalgamation of IDBI Bank Ltd.(Transferor Bank) with IDBI Limited (Transferee Bank) is being effected pursuant to Section 44A and other relevantprovisions of the said Act.

• The scheme would be effective from the Appointed Date i.e. 1st October 2004 and shall become operative from theEffective Date viz. the date on which the scheme is sanctioned by RBI.

• All the assets and liabilities of IDBI Bank shall be transferred to and vest in IDBI Ltd

• All the employees of IDBI Bank in service on the Effective Date shall become the employees of IDBI Ltd on such datewithout any break or interruption in service and on emoluments and benefits and terms and conditions of servicewhich are not less favourable than those subsisting with reference to the Transferor Bank as on the Effective Date.

• Post merger of IDBI Bank, on and with effect from the Effective Date, the existing business and employees of the IDBIBank and IDBI Ltd respectively, would be organized as separate strategic business units (the SBUs) named as theCommercial Bank SBU (CBSBU) and the Development Bank SBU (DBSBU) within IDBI Ltd. with the overlapping andcommon functions if any, being housed in one of the SBU’s based on skill – sets available, as may be determined bythe Board of Directors of IDBI Ltd., in order to leverage effective performance for the combined entity.

• The SBU structure would be continued until the Board of Directors of the IDBI Ltd determine that the human resourcesand operating policies of both SBUs are sufficiently harmonized, subject however to a minimum period of three years.

• Upon coming into effect of the said scheme and in consideration of the transfer of and vesting of all the said assetsand liabilities and the entire undertaking of IDBI Bank to IDBI Ltd in terms of the scheme, IDBI Ltd shall allot 100 (onehundred) equity shares of IDBI Ltd of the face value of Rs.10/- each credited as fully paid up in the capital of the IDBILtd to those members of the IDBI Bank whose names are recorded in its Register of Members on the Record Date forevery 142 (one hundred forty-two) equity shares of the face value of Rs.10/- each held by the said members. IDBI Bank’ssecurities that have become the securities of IDBI Ltd shall be listed and/or admitted to trading as securities of IDBILtd. on the relevant Stock Exchange (s) in India.

The Scheme of Amalgamation has become effective from October 1, 2004

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Integration Process

The major strategic/operational decisions for both the SBUs are taken by the Board and committees constituted byit. To give further impetus to the integration process, corporate heads have been appointed to integrate operationsin major functional areas viz. Treasury, Credit, Retail Banking, Legal and Recoveries, Risk Management, Internal Audit,InformationTechnology, Finance and HRD.

OfficesIDBI Ltd has its Registered Office at Mumbai and has an all India presence through its branch network. It operatesthrough a network of five Zonal offices (one each in Chennai, Guwahati, Kolkata, Mumbai and New Delhi), 154 branchoffices, eight extension counters and 351 ATMs. as on August 31, 2005

Government HoldingGovernment Holding

The authorised and paid up capital of IDBI Ltd. is Rs.1250 crore and Rs.723.04 crore respectively as on June 30th,2005. Post-merger, the Central Government’s shareholding in IDBI Ltd. is 52.80%. The provisions of Memorandumand Articles of Association of IDBI Ltd. require that the “Central Government being a shareholder of the Company,shall at all times maintain not less than 51% of the issued capital of the Company. IDBI Ltd. has been categorisedas “Other Public Sector Bank” by the RBI with effect from April 30, 2005.


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PRODUCTS AND SERVICESThe illustrative list of products and services offered by IDBI Ltd. include project financing, film financing, corporateloans, assistance under technology upgradation funds Scheme , direct discounting of bills, refinance, bills rediscounting,working capital finance, loans syndication, derivative products etc with special focus on project financing, infrastructurefinancing and corporate loans. IDBI Ltd. also offers a host of retail banking products including anytime anywherebanking, home loans, personal loans, loans against securities, IPO facilities, overdraft facilities, investment advisoryservices, card product /services etc. In additon, IDBI Ltd. also offers other products incuding e-banking solutions,trade finance, as aiso various treasury products, supply chain management, loan against credit card receivable, etc

Products and Services for Corporate and Commercial Customers

Project Finance

IDBI Ltd. has played a pioneering role in providing project assistance for fixed capital formation in the country. Projectfinance is provided both in rupee and foreign currencies for green-field projects and also for expansion,diversification and modernization purposes. A risk-based approach to project financing is followed and the Bank hasconsiderably increased its business operations under project financing and currently has a well-diversified industryportfolio in its business domain. IDBI Ltd. is committed to fund all bankable projects and will continue to provideterm finance to Indian industry as a part of its mandated role in providing development finance for the economicdevelopment of the country.

Infrastructure FinanceFFucture Finance

Financing infrastructure projects has been IDBI’s key focus area since the opening up of the infrastructure sectorto the private sector. IDBI Ltd. has been providing assistance to the key infrastructure industries viz. electricitygeneration, telecom services, roads & bridges and ports.

With a view to accelerating the pace of investments in the infrastructure sector, several initiatives have been takenby the Government, particularly in promoting public-private partnership. In the power sector alone, investments ofthe order of Rs.9,00,000 crore by 2011-12 has been envisaged to add sufficient capacity for meeting the requirementof power of the country. In the recent Union Budget for 2005-06, the Government has also announced a schemeof Viability Gap Funding and formation of a Special Purpose Vehicle (SPV) to facilitate further investment ininfrastructure sector. With economic development, there will be greater demand for infrastructure finance especiallyfor water, transport, housing, electricity, health & sanitation and education. The India Vision 2020 of PlanningCommission visualizes significant infrastructure requirement of the nation and suggests the roadmap for increasinginvestment in the infrastructure sector. With a proper legal and regulatory framework in place, private participationin infrastructure projects is expected to increase. With the conducive policies of the Government and the improvementin the investment climate, considerable funding opportunities for IDBI Ltd. exist in the infrastructure sector.

Non-Project Finance

Non-project finance has been a major product of IDBI Ltd. to lend for relatively shorter maturities. The volume ofbusiness in these segments has also increased considerably. The Bank provides both foreign currency and rupeeloans mainly in the form of corporate loans, working capital and treasury products. IDBI Ltd. has been focusing onfunding non-project related activities and working capital to well-rated companies.

Technology Upgradation Fund Scheme(TUFS)

The Indian Textile Industry, despite occupying a unique position in the Indian economy, suffers from severetechnological obsolescence and lack of economies of scale. Technology Upgradation Fund Scheme (TUFS) forTextiles & Jute Industries launched by Ministry of Textiles, Government of India (GoI) on April 1, 1999 initially for aperiod of five years (since extended by three years to cover sanctions up to March 31, 2007), aims at a focussedand time-bound programme for modernisation through technology upgradation in the industry. While the thrust ofthe Scheme is on post-spinning segments (weaving, processing and garmenting), spinning segment has also beenincluded under the Scheme, subject to fulfillment of certain value addition norms. IDBI Ltd in its role as Nodal Agencyfor the Textile Industry (Non-SSI Textile Sector) under TUFS examines the eligibility of the loans sanctioned by PrimaryLending Institutions (PLIs) from TUFS angle and administers interest reimbursement out of funds placed by Govt.of India for this purpose, apart from financing eligible projects under the Scheme.

Environmental Protection Schemes

IDBI Ltd. is the Financial Agent (FA) for the World Bank (WB) funded “Ozone Depleting Substances (ODS) Phase-out Project for Consumption Sector - ODS I & II – USD 51.25 million ” since 1994-95. IDBI Ltd. as an FA isresponsible for appraising projects, administering and disbursing grant out of Ozone Trust Fund (OTF) andoverseeing implementation of the projects aimed at phasing out the use of ODS in the industry.

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Money Market Products:

IDBI Ltd. offers the following money market products and services-

Commercial Paper

INR Derivatives

IDBI Ltd. offers the following under this category:

1. Interest Rates Swaps (IRS)

IDBI Ltd. contracts to exchange a fixed interest rate liability for a floating interest rate liability or vice versa, on behalf ofits clients. The principal amount is not exchanged, with only the differences in cash flows being settled. Capitaladequacy norms as per RBI guidelines are being followed. Benchmark rates from NSE MIBOR, Reuters MIBOR, T-Bills rates are normally used.

2. Rupee-Dollar Interest Rate and Currency Swap

IDBI Ltd. enters into agreements involving exchange of liability in US Dollars for a liability in Indian rupees or vice-versa,and may also include exchange of fixed rate liability for floating rate liability or vice-versa. Swaps are used for hedgingcurrency and/or interest rate risk, or for liability management.

3. Forward Rate Agreements (FRA’s)

IDBI offers FRA’s, which are contracts to exchange interest payments for a specified period starting from a pre-specified start date in the future. These instruments are used to manage interest rate risk.

4. Forward ContractsIDBI enters into agreements to exchange a predetermined amount of one currency for another at a specific rate ofexchange on a specified future date. These instruments are generally used to hedge against exchange ratefluctuations.

Overnight Index Swaps

An Overnight Index Swap (OIS) is a fixed/floating interest rate swap with the floating rate tied to a daily overnight ratereference. The term of the swap generally ranges from one week to one year.

Capital Market

IDBI Ltd. offers a suite of products in the Capital Markets segment. They are:

Stock brokers :The Stock Broking service of IDBI Ltd. helps to transfer funds and securities across locations, which in turn en-hances fund management and pay-in, pay-out capabilities specially needed in today’s rolling settlement scenario.

Clearing bank : IDBI is a Clearing Bank in both equity and derivative segment with the National Stock Exchange (NSE).

Bank guarantee:IDBI Ltd. provides bank guarantees to the National Stock Exchange (NSE) on behalf of member brokers to meet theirsecurity deposit, base capital and margin requirements.

Providing fund trusts :PF Trusts invest in PSU bonds and government securities among other investment avenues. Al l the above mentionedsecurities can be held in the Demat Account opened by the PF Trust with IDBI Ltd.

Trade Finance

Trade financing from IDBI Ltd. includes:

Bill Discounting - Inland and Foreign :Bill discounting is a short tenure financing instrument for companies willing to discount their purchase / sales bills toprocure short-term funds.


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Channel Financing :Channel Financing facility serves an important medium in providing financial aid to the supply and marketing channels ofvarious manufacturing companies, thereby enhancing their cash-flow management. Channel Finance gives support tothe commercial relationship between the Bank’s clients, their suppliers and customers.

Export Discounting - Pre and Post Shipment :IDBI Ltd. extends finance to exporters both at the pre-shipment stage as well as the post-shipment stage. Pre-shipmentadvance in the form of packing credit is made available to eligible exporters for the purpose of purchasing, manufacturing,packing and shipping of goods meant for exports. Post-shipment advance is extended in the form of negotiation, purchaseor discount of export bills drawn under letters of credit, confirmed orders or export contracts.

Letters of Credit - Inland and Foreign :A letter of credit facilitates orderly movement of trade. Banks are not connected with the quality or quantity of the goods, butonly with the documents, which should be in apparent tenor conforming to the terms and conditions of letter of credit. Letterof credit can be issued for inland and foreign transactions.

Bank Guarantee - Inland and Foreign :IDBI Ltd. is actively involved in providing non-funded facilities like bank guarantees to its constituents. The guaranteesissued by the Bank are either financial or performance guarantees, both inland and foreign. Bank guarantee is a contractto perform the promise or discharge the liability of a third person in case of his default.

Commodity Financing backed by Warehouse receipts

The Bank has recently launched a product, viz. , Commodity Financing backed by Warehouse Receipt to improve itsagriculture lending portfolio. The product seeks to build a portfolio of advances wherein the credit risk shifts from balancesheet to the underlying commodity. The Bank needs to take a view on the commodity, its marketability, tradeability, storageetc. to finance it rather than financials as on a date. The product is being offered to two target segments i.e. traders andprocessors of agri commodities and secondly to the farmers at the retail level.

Forex Service

IDBI Ltd. opens Letters of Credit (LCs) and effects Foreign Currency (FC) remittances on behalf of its assistedcompanies for import of goods and services. IDBI Ltd. also disburses FC loans to its clients for end-uses aspermitted under the prevailing External Commercial Borrowings (ECBs) guidelines. Forex service operations of IDBILtd. are under Quality Management System as per ISO 9001:2000 standards. IDBI Ltd. also provides various tradefinance products viz. Letters of Credit, Standby Letters of Credit, Bank Guarantees, Collections, Remittances, ForwardContracts, Packing Credit, Post Shipment Finance, Maturity Factoring, Invoice Discounting and Trade Advisory.

Other Corporate Products

Current accounts :IDBI Ltd. offers eight roaming current accounts, each tailored to suit the needs of various segmants.

Term Deposits :IDBI Ltd. offers Term Deposits for different periods ranging from 15 days to 60 months. The period can agreed upon by theBank and the customer at the time of creating the deposit and may later be varied by mutual consent.

Certificate of Deposits (CDs):A CD is a marketable receipt of funds, deposited with a bank for a fixed period of time. The main feature of a CD is that itcan be either registered or be in a bearer form. The minimum period of maturity of a CD is 15 days.

Corporate Payroll Account :This product from IDBI Ltd. gives employers complete freedom from cash disbursement and account reconciliations. Theemployees will be eligible for all the benefits and facilities that come along with the savings accounts.

Product and Services for Retail Customers

During the last few years Indian banking industry witnessed a spectacular growth in the retail segment. The highergrowth of retail loans has been attributed mainly from the housing, automobile and personal loan segments.Considering this robust growth and immense opportunities in this sector, IDBI Ltd. has given a major thrust to thesesegments. With a view to be in the forefront among its peer banks, IDBI Ltd. offers many new innovative retail bankingproducts.

LoansLoan against securities :The Loan against Securities is an overdraft facility against securities. This overdraft facility gives an individual easy andflexible access to short-term funds without the need to sell securities.

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IPO Finance :IDBI Ltd. provides financing to individuals for applying to an initial public offering (IPO) of select companies. The entireapplication amount will be offered as a loan against some margin money collected from the individual.

Personal loans :Personal Loans from IDBI Ltd. comes with an insurance cover. The insurance cover helps in paying off the EquatedMonthly Instalments (EMIs), in case of any untoward happening.

Home loans :Home Loans are sanctioned for constructing a home, purchasing a ready built house/flat, residential plot and for re-financing existing loans availed from other banks or housing finance companies.

Deposit products

Suvidha Fixed Deposits : These deposits have the following salient features :• Anytime access to deposits• Deposits across tenures of 15 days to 9 years• Various Options to suit investor’s needs.

Pride Salary Account :This is an exclusive salary account for individuals serving as defence personnel for the country in the army, navy, airforceor the BSF.

Pension accounts :IDBI Ltd. has been authorised to disburse Central Civil and Defense pension payments by RBI across 92 branches.

Cards

IDBI International Debit-cum-ATM card :This card enables the customer to access the IDBI account from anywhere in the world. In addition to withdrawal of moneyfrom any of the Bank’s ATMs, it also allows money withdrawal from the associated bank’s ATMs.

IDBI Gift Card :The IDBI GiftCard allows a person to purchases goods and services at over 1.8 lakh merchant establishments in India thataccept Visa cards.

IDBI World Currency Card :The World Currency Card is a prepaid multi currency card that provides the convenience of making purchases andwithdrawing cash while travelling almost anywhere abroad.

Other Retail Products & Services

Preferred Banking

Preferred Banking is targetted at the top-end customers of the Bank. It offers high networth customers exclusive privilegesand convenience for their banking and investment needs.

Insurance Products

Health Insurance :IDBI Ltd. offers a product called ‘FamilyCare’ in association with Bajaj Allianz General Insurance, one of the leading privategeneral insurance companies. The FamilyCare Policy is a complete health insurance plan that covers the policyholder,his/her spouse and two dependant children up to the age of 21 years.

Life Insurance : IDBI Ltd. markets the products of Birla Sun Life Insurance, one of the leading providers of life insurance products.

NRI Services

IDBI Ltd. offers basic NRI banking products like Non Resident Rupee Checking Account, Non Resident Rupee TermDeposits and Foreign Currency Non Resident Deposit.

Demat account

This service converts the securities to dematerialised form.

Investment services :

The Relationship Managers advise the customers on various investment avenues after thoroughly understanding theirinvestment profile. Subsequently they support the customers by tracking the investments on a regular basis.


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Online payment services :

The Internet Banking facility offers online payment facility linked to merchant websites/e-shops serving as a paymentgateway. The Bank offers this facility to any agency requiring online payment services such as online shopping malls,online share trading agency, AMCs selling mutual funds online and ISPs (Internet Service Providers) requiring registra-tion/subscription through Internet.

Card to Card Money Transfer :

This service enables the Bank’s customers to transfer money from their Bank account or Visa card to any other Visa debitor credit card across the country.

Mobile phone refills :

This service enables prepaid users to get mobile phone refills through any of the following modes, viz., Internet, ATMs,Short Messaging Service (SMS)

Stamp duty payment :

The Government of Maharashtra and the Government of Gujarat have authorized IDBI Ltd. to collect stamp duty.

Tax payment :

This service enables individuals and corporates to pay the following taxes, viz., direct taxes, indirect taxes and state taxes.

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BUSINESS STRATEGYThe strong fundamentals of the Indian economy, as evident from the robust industrial output, export growth and swellingforex reserves, will provide a conducive environment for rapid business development for IDBI Ltd across different markets,products and client groups. This is evidenced by the significant investment activity taking place in the economy with severalcompanies considering expansion of capacities / diversification / backward integration, etc.

Post-merger and operating as a banking company, IDBI Ltd has started offering the whole range of banking services to itscorporate and retail customers. Leveraging its large client base, IDBI has seek to cross-sell short-term and fee-basedproducts to its corporate customers while extending its retail reach by focussed branch expansion.

Over the next couple of years, the Bank would seek to optimise its mix of development (long-term) lending (as mandatedby Parliament) and retail banking. This would be achieved by enlarging its corporate asset base with robust but selectivelending in the non-project and Infrastructure segments with simultaneous expansion of its fee-based activities and retailofferings. IDBI Ltd. would thus leverage its core competencies in project / Infrastructure financing while creating additionalbusiness opportunities in the retail and commercial banking space. In the retail segment, IDBI Ltd. will strive to increaseits market share and make its presence felt by launching newer products and innovative services.

The focus over the next couple of years would also be on reducing the level of high cost borrowings and replacing thesewith lower cost wholesale borrowings and a larger deposit base. IDBI Ltd has been permitted by RBI with regard toborrowing in the bond market and it would seek to optimally use this dispensation to effectively manage its cost of funds.IDBI Ltd. has been permitted by RBI to raise funds of less than five year maturity to meet its normal borrowing requirementsvis a vis other banks where banks are permitted to borrow in the bond market for maturities of five years and above andonly to refinance their infrastructure lending.

Going forward, IDBI Ltd. would aim to quickly grow its current account / savings accounts and deposit base to be able tophase out around 30% of its bond outstandings over the next four to five years. The aim would be to reduce its cost ofborrowings by approximately 50-60 bps each year over the next few years through a combination of lower cost refinancingand expansion of deposit base, assuming interest rates remain range bound. This is expected to lead to an improvementin margins considering that most of the restructuring / pre-payments on the assets side of the balance sheet have alreadytaken place and are reflected in the balance sheet.

With the cost of funds being brought down over the next couple of years, IDBI Ltd. would then focus on building up its SLRrequirements. While IDBI Ltd. has been maintaining its CRR requirements from the first day of conversion to a BankingCompany, IDBI Ltd. has a five year forbearance from RBI for maintaining SLR requirements. With some firmness in theinterest rate scenario of late IDBI Ltd. would seek to build on this portfolio after interest rates have stabilised and after thedeposit base has seen some growth over the next couple of years.

Recovery would continue to be a key focus area for IDBI Ltd. Recovery from fully written-off and highly provided for cases isexpected to contribute a significant amount to profitability and IDBI would concentrate on recovering a major part of theseloans over the next few years. Additionally, the Stressed Asset Stabilisation Fund (SASF) Trust has targeted to recoveraround Rs.1500 crore during 2005-06 from assets transferred by IDBI Ltd. to the Trust is expected to recover 70-75% of theassets transferred to the SASF over the next 3-4 years. This would improve cash flows apart from boosting income asthese funds will be used for normal operations.

IDBI Ltd. would be looking at building up a branch network of around 500 branches by 2007-08. IDBI plans to take the totalnumber of branches to around 200 by end March 2006. Additionally, IDBI Ltd. plans to open around 135 ATMs, both on andoff site taking the number of ATMs to over 465 by end March 2006.

On the Technology front, IDBI Ltd. is integrating and upgrading IT platforms and systems. The IT initiative would enable theBank to provide technology-driven services with wider touch points, streamlined operations and improved MIS reportingand analysis. It is also planned to set up a data center / disaster recovery center, migrate to Basle II and unify ALM andTreasury functions. On a parallel front, IDBI Ltd. is in the process of setting up an integrated Treasury function that wouldenable it to centralise Treasury functions and provide a wider range of Treasury based services permitted to it after gettinga full dealers license. Total Capital expenditure on account of the branch expansion / Treasury integration / IT initiatives isexpected to be in the range of around Rs.100 crore.

The renewed focus on robust business processes, cost optimization and sound risk management systems will enableIDBI Ltd. to regain the sharp competitive edge and become more customer savvy.

Institutional Development and Promotional Activities

The developmental activities of IDBI Ltd. have included a range of promotional services to build an institutionalstructure for entrepreneurship development, credit delivery and capital market development.

(a) Institutional DevelopmentThe erstwhile IDBI had been playing a major role in sponsoring / supporting several institutions for the developmenof an effective institutional structure for financing Indian industry. The major institutions that have been sponsoredare SIDBI, Export-Import Bank of India (EXIM Bank), Industrial Investment Bank of India Ltd. (IIBI) formerly known


49

as Industrial Reconstruction Bank of India (IRBI), SCICI Ltd (since merged with ICICI) and Tourism FinanceCorporation of India Ltd (TFCI). In addition, IDBI Ltd., as the nodal agency, promoted the North Eastern Develop-ment Finance Corporation Ltd, (NEDFi) for catering to the finance and development needs of the North-Easternregion of India. IDBI Ltd. is also one of the promoters of Infrastructure Development Finance Company Ltd (IDFC)which has special focus on providing finance and guarantee products to infrastructure projects. IDBI Ltd. is apromoter share holder in Asset Reconstruction Company of India Ltd.(ARCIL), IDBI Trusteeship Services Ltd.(ITSL) and Biotech Consortium Ltd. IDBI Ltd. had also promoted IDBI Bank Ltd. to carry out Commercial Bankingactivities, which has subsequently merged with IDBI Ltd.

(b) Capital Markets Development

The erstwhile IDBI has also played a major role in the development of Indian Capital Markets. It played a key rolein the formation of Securities and Exchange Board of India (SEBI) for effective regulation of the capital markets. Itsponsored National Stock Exchange of India Ltd. (NSE), which first introduced electronic trading in securities inIndia. IDBI Limited has sponsored/ supported the formation of Stock Holding Corporation of India Ltd (SHCIL),Credit Analysis and Research Ltd. (CARE), Investor Services of India Ltd. (ISIL) and OTC Exchange of India Ltd(OTCEI). In order to reduce paperwork and the difficulties associated with securities settlements, IDBI Limitedpromoted the National Securities Depository Ltd. (NSDL) in association with Unit Trust of India (UTI) and NSE.

(c) Money Market Institutions The erstwhile IDBI is one of the original subscribers to the capital of Discount and Finance House of India Ltd(DFHI) and Securities Trading Corporation of India Ltd (STCI), which are contributing significantly to the developmentof money markets. The erstwhile IDBI is one of the main promoters of The Clearing Corporation of India Ltd.(CCIL). It has been set up to facilitate clearing and settlement of dealings in all kinds of Securities and MoneyMarket instruments including Government Securities, Treasury Bills, Corporate Bonds, inter-bank transactionsin foreign exchange and dealings in derivatives.

As mentioned on page 80 of this Draft Offer Document, the erstwhile IDBI has promoted IDBI Capital MarketServices Ltd.(ICMS), as a wholly owned subsidiary, which is the largest primary dealer (PD) in India.

(d) Entrepreneurship DevelopmentThe erstwhile IDBI took the lead in setting up the Entrepreneurship Development Institute of India Ltd. (EDII) atAhmedabad as a national institute to foster entrepreneurship development. IDBI has also taken the lead increating similar institutions in some of the industrially less developed states. IDBI supported the establishmentof the Biotech Consortium of India Ltd., to assist in the promotion of bio-technology projects.The erstwhile IDBI sponsored industrial potential surveys in various parts of the country in 1970s which wasfollowed by setting up of a chain of Technical Consultancy Organisations (TCOs) in collaboration with otherfinancial institutions and banks. TCOs provide advisory services to entrepreneurs on product selection,preparation of feasibility studies and technology selection and evaluation.

Shareholding in InstitutionsThe shareholding of IDBI Limited in institutions other than its subsidiaries as on March 31, 2005 is given below.

Name of the Institution IDBI’s shareholding % to total equity of(Rs. Crore) the institution

Asset Reconstruction Company (India) Ltd. (ARCIL) 19.95 19.95Biotech Consortium India Ltd. 1.50 27.9Clearing Corporation of India Ltd. (CCIL) 2.75 5.05Credit Analysis and Research Ltd. (CARE) 2.08 26.0IDBI Trusteeship Services Ltd. (ITSL) 0.40 40.0IFCI Ltd. 121.43 19.0Infrastructure Development Finance Co. Ltd. (IDFC) 50.00 5.0Investor Services of India Ltd. (ISIL) 3.00 25.0National Securities Depository Ltd. (NSDL) 24.00 30.0National Stock Exchange of India Ltd. (NSE) 5.84 13.0Nepal Development Bank Ltd. 1.00 10.0North Eastern Development Finance Corporation Ltd. (NEDF) 25.00 25.0

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Over the Counter Exchange of India Ltd. (OTCEI) 1.70 17.0Securities Trading Corporation of India Ltd. (STCI) 36.42 7.3Small Industries Development Bank of India (SIDBI) 86.45 19.2State Financial Corporations (18)* 349.39 N.A.Stock Holding Corporation of India Ltd. (SHCIL) 3.57 17.0Tourism Finance Corporation of India Ltd. (TFCI) @ @Twin Function State Industrial Development Corporations* 41.30 N.A.

Erstwhile Unit Trust of India ** 2.50 50.0

The budget for 1998-99 provides for transfer of IDBI’s shareholding in SFCs to SIDBI under Section 4(H)of the SFCs (Amendment) Act 2000.

@ IDBI Ltd. - shareholding in TFCI as on 31.03.2005 was Rs.1000/- only (100 shares)

** contribution to initial unit capital.

Lending Policies

1. Direct Assistance

Financing CriteriaIDBI Ltd. regularly monitors the composition of its asset portfolio in terms of industry-wise exposure, return,overall domestic and global trends in these industries, demand-supply gap, capacity built up as also thefuture potential. Industry research provides inputs to operating Departments and facilitates appraisal andfollow-up work. IDBI Ltd. maintains a large updated data base of industry trends built up over a period of years.IDBI Ltd. is in the process of updating the present credit risk evaluation system and convert it into atechnology-driven module.Lending RatesInterest rates on specific loans are normally fixed within a band (3.5% at present) over the PLR (10.25%at present) depending upon the risk perception of the project, the track record of the borrower, the industryoutlook, market conditions, etc..

Credit Approval ProcessThe credit delivery mechanism has been redesigned for more effective credit delivery. The customer basehas been segmented into corporate and mid-corporate divisions, with industry focussed groups in thesedivisions. A dedicated group has been constituted to deal with infrastructure related projects. All sanctionsand credit related matters are approved by specific Committees. Different committees are formed to assessand approve credit proposals depending on the size and complexities of the proposals. Major committeesconstituted are the Integrated Credit Committee at the Head Office and Zonal Committees at the zonal level.Proposals outside the powers of Credit and Zonal Committees are referred to the Executive Committee.

The functions and the composition of various committees are given under the head ‘ManagementCommittees’ below.

2. Indirect AssistanceLimits for refinancing and lines of credit are fixed taking into consideration other resources available. UnderBills Rediscounting, IDBI Ltd. extends annual limits to commercial banks, Electricity Boards, State RoadTransport Organisations and Corporations. The limits are reviewed periodically. Since the credit risk inindirect finance is borne by the primary lender, IDBI Ltd. fixes uniform interest rates for refinance assistanceto primarly lenders (SFCs / SIDCs), in tune with the movement in prime lending rates for such finance.

Management Committees

Integrated Credit CommitteeThe Integrated Credit Committee (ICC) approves the sanction of assistance upto specified limits including such caseswhere the limit exceeds the powers of Zonal Committees (ZC). Cases for assistance above the threshold limits of theIntegrated Credit Committee are refered to the Executive Committee. ICC is headed by the senior most Executive Directorof the Bank and has other senior executives of the Banks as members. The functions of the Credit Committee includescreening the proposals for assistance received at the HO and those in BOs involving assistance exceeding the thresholdlimit for ZCs for a detailed appraisal, sanctioning assistance under the powers delegated to it by the Board of Directorsfrom time to time, reviewing the progress/ performance of assisted projects periodically and taking necessary actions.Review the quality of the portfolio, asset classification, provisioning etc. at quarterly intervals, dealing with and approving


51

cases of restructuring of liabilities and one time settlements of dues and review the policies, products, pricing etc. relatingto direct finance operations and initiate action, as may be considered necessary.

Zonal Committees

Four Zonal Committees (ZC) have been constituted viz. Western ZC at Mumbai, Northern ZC at New Delhi, SouthernZC at Chennai and Eastern and North Eastern ZC at Kolkata. The ZC comprise of Chief General Manager (CGM)for the respective Zone as the Chairman and has other senior officers from the zone as its members.The functions of the Zonal Committees include screening the proposals from the branches in their respective Zones,with exposure within their delegated authority for taking up detailed appraisal, sanctioning assistance under thepowers delegated to it by the Board of Directors, reviewing the progress and performance of assisted projectsperiodically and take appropriate action, reviewing the quality of portfolio, asset classification, provisioning etc, atquarterly intervals and reviewing the operational targets, performance, profitability etc. of individual branches.

Investment Committee

Investment Committee (IC) considers proposals for sanction of equity type assistance to projects. The Committeealso screens all investment / disinvestment proposals except those relating to strategic investments. The InvestmentCommittee (IC) is headed by an Executive Director and has other senior officers from the Bank as its members.

Asset Liability Management CommitteeThe Committee monitors the profile of maturing assets and liabilities on a regular basis and suggests appropriatefunding/liability structures to match the profile of asset products. The Committee is headed by Chairman andManaging Director and comprises 8 senior executives.

Human Resources CommitteeThe Committee serves as a regular forum to communicate and implement policies, processes and other activitiesrelating to HRD across the entire IDBI Group. It also facilitates the identification and intra-company transfer of bestpractices.

Rating Committee

The Rating Committee has been constituted for the purpose of approving the internal rating of corporates alreadyin the portfolio of IDBI Ltd. as also those being considered for assistance by IDBI Ltd. The committee is headedby Corporate Head, Risk Management Group and comprises four other senior members.

OPERATIONS

IDBI converted to a banking company and subsequently, merged IDBI Bank with itself w.e.f. from Oct. 1, 2004.The figures for the outstanding portfolio as on March 31, 2005 given below and those of the earlier periods are notcomparable since the figures of March 2005 are those of the merged entity. The sanctions, disbursements andoutstanding portfolio for FY 2001, 2002, 2003 and the 18 month period ended September 2004 in respect of theerstwhile IDBI are presented below. Similar figures for the six-month accounting period ended 31 March 2005 arepresented separately.

Sanctions (erstwhile IDBI) (Rs. crore)Year ended March 31 2001 2002 2003 2004(Effective sanctions net of cancellations) (Sept)Direct FinanceRupee Loans 10195.00 5329.14 4289.59 10019.9Foreign Currency Loans 770.50 1095.41 1189.24 467.2Underwriting and Direct Subscriptionsto shares, bonds and debentures ofindustrial concerns 3253.51 2697.34 322.71 280.2Equipment Leasing 250.00 12.00 2.50 -Sub Total (A) 14469.01 9133.89 5804.04 10767.3

Guarantee for loans and deferred payments 14.07 230.87 21.00 191.1Total Direct Finance (B) 14483.08 9364.76 5825.04 10958.4

Indirect FinanceRefinance of Industrial loans 363.02 187.32 58.34 18.8

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Bills Finance 285.68 122.95 86.72 31.3Loans to and Investments in sharesand bonds of financial institutions 246.15 293.43 130.02 233.6Others 512.88 226.31 113.64 -

Total Indirect finance (C) 1407.73 830.01 388.72 283.7Total Sanctions (B+C) 15890.81 10194.77 6213.76 11242.1

Disbursements (erstwhile IDBI)Year ended March 31 2001 2002 2003 2004

Direct Finance

Rupee Loans 11293.90 6182.08 4888.68 6125.1

Foreign Currency Loans 1253.50 1246.81 1180.28 157.9

Underwriting and Direct Subscriptions to shares, bondsand debentures ofindustrial concerns 3381.55 2923.43 161.96 493.0

Equipment Leasing 254.81 12.00 - 2.50

Sub Total (A) 16183.76 10364.32 6230.92 6778.5

Guarantee for loans and deferred payments - - - -

Total Direct Finance (B) 16183.76 10364.32 6230.92 6778.5

Indirect Finance

Refinance of Industrial loans 331.72 158.79 43.86 34.4

Bills Finance 201.75 84.95 60.76 21.5

Loans to and Investments in sharesand bonds of financial institutions 287.58 315.50 119.59 226.1

Others 483.74 251.90 117.14 -

Total Indirect finance (C) 1304.79 811.14 341.35 282.0

Total Disbursements (B+C) 17488.55 11175.46 6572.27 7060.5

Six Months ended March 31, 2005 Sanctions Disbursements(Effective sanctions net of cancellations) (DBSBU) (DBSBU)Direct FinanceRupee Loans 13868.59 6019.35Foreign Currency Loans 907.94 328.00Underwriting and Direct Subscriptionsto shares, bonds and debentures ofindustrial concerns 1333.64 410.87Equipment Leasing - -Sub Total (A) 16110.17 6758.22Guarantee for loans and deferred payments 189.71 -Total Direct Finance (B) 16299.88 6758.22Indirect FinanceRefinance of Industrial loans 0.27 0.27Bills Finance 1.13 0.86Loans to and Investments in sharesand bonds of financial institutions 112.55 97.85Others 75.00 25.00Total Indirect finance (C) 188.95 123.98Total (B+C) 16488.83 6882.20


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Outstanding PortfolioThe following table provides a breakdown of outstanding portfolio of loans, investments and guarantees of IDBI Ltd.as on March 31, 2001 to March 31, 2003 and as on September 30, 2004. (Rs. crore)

As at March 31 2001 2002 2003 30.9.2004

Direct FinanceRupee Loans 39484 38460 37898 26674Foreign Currency Loans 6618 6522 5677 4413Underwriting and direct subscription 6673 7514 6405 5093to shares, bonds and debentures ofIndustrial concernsEquipment leasing 1300 1148 955 519

Sub total (A) 54075 53644 50935 36699

Guarantees for loans and 4617 4011 3369 2370deferred payments

Total Direct Finance (B) 58692 57655 54305 39069

Indirect Finance

Refinance of Industrial loans 1666 1643 1490 1244Bills finance 1443 965 612 267Loans to and investments in shares &bonds of financial institutions of whichi) Shares of FIs 1341 1010 1066 1020ii) Loans to and Bonds of FIs 140 249 253 346iii) Consideration receivable form SIDBI 755 525 164 –iv) Others 0 0 0 –

Total Indirect Finance (C) 5346 4392 3586 2876Total (B+C) 64038 62047 57890 41945Annual Growth rate (%) (0.9) 6.10 (6.7) (18.4)*

*AnnualisedOutstanding Portfolio as at March 31, 2005 (Rs. Crore)

Cash & Balances with Reserve Bank of India 2375.90Balances with Banks & Money at Call and Short Notice 3277.26

InvestmentsInvestments in IndiaGovt. Securities 14898.25Shares 2689.66Debentures and Bonds 5305.03Subsidiaries and/or JV 314.06Others (CPs units in MF’s) 1830.85 25037.85Investments outside India 16.84 25054.69

AdvancesBills Purchased &Discounted/Rediscounted 2356.28Cash Credit, Overdraft andLoans Repayable on Demand 1283.69Term Loans 41773.60 45413.57

Total 76121.42Guarantee given on behalf of constituents 3188.60Guarantees given by the Issuer to third partiesThe Outstanding guarantees for loans and deferred payments amounted to Rs.3189 crore as on March 31, 2005as compared to Rs.2,370 crore as on September 30, 2004. The guarantees extended are solely on account ofnormal business operations and are subject to prudential applicable norms. Guarantees extended by IDBI Ltd. arenormally secured by assets/ way of charge over the fixed assets of the assisted company.

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Industrywise Break Up

IDBI’s loan portfolio is well diversified among industries. The major outstandings are to the iron and steel, PowerGeneration, Financial Services, Telecom services and Cotton Textiles, which together accounted for about 44% ofthe outstandings as at June 30, 2005. As a prudential measure, the Board of Directors of IDBI Ltd. has recentlydecided at its Board meeting held on April 29, 2005, that exposure to each industry could be restricted to a maximumof 20% of IDBI’s industry portfolio or Rs.10000 crore, whichever is less. The following table shows the breakdown,by industry category, of outstanding as on June 30, 2005.

Industry Outstanding O/s amt. as Outstanding of top 5 Outstanding of topamount % of total companies as a % 10 companies as

(Rs.crore) outstanding of total o/s to a % of total o/sthe industry to the industry

Iron and steel 7222.93 15.18 62.90 82.13Electricity Generation 4114.28 8.65 57.78 75.43Financial Services 3418.76 7.18 64.43 86.41Telecom Services 3376.27 7.09 67.78 98.01Cotton Textiles 2568.50 5.40 26.52 37.60Refineries & Oil Exploration 1673.65 3.52 100.00 100.00Cement 1611.22 3.39 69.66 87.54Fertilizers 1596.47 3.35 99.62 100.00Services (Others) 1451.68 3.05 65.41 80.58Petrochemicals 1215.70 2.55 77.33 95.18Artificial Fibres 1202.85 2.53 67.43 81.94Petroleum and Coal 1030.10 2.16 100.00 100.00Electronics 910.87 1.91 88.43 94.73Sugar 819.01 1.72 29.86 51.78Textiles 759.02 1.59 81.72 88.06Other industries* 14617.45 30.73 - -Total O/S 42235.15* Total of all industries excluding top 15

Industry-Wise break up of outstandings in respect of top 10 borrowers as a percentage of total Assets as on March31, 2005 is given in the table below.

Borrower Industry Outstanding Total Loan Quality of Write off/as % to total Disbursed till the asset Provisionassets as on March 31, 2005* (Rs. crore)

March 31, 2005 (Rs. crore)

A Iron & Steel 4.08 1796.82 Standard NilB Refineries & Oil Exploration 3.71 1626.68 Standard Nil

C Electricity Generation 2.57 1459.57 Sub-Standard 8.8D Iron & Steel 2.18 874.60 Standard NilE Iron & Steel 2.14 1376.94 Standard NilF Financial Services 1.85 566.01 Standard Nil

G Iron & Steel 1.71 849.71 Standard Nil H Electronics 1.63 946.89 Standard Nil I Financial Services 1.56 1569.70 Standard Nil J Services (Others) 1.40 586.76 Standard Nil

*Total amount disbursed does not indicate total amount outstanding as on March 31, 2005.

Credit Exposure as percentage to Capital funds and as percentage to total assets

As on March 31, 2005 As % to Capital funds As % to Total ExposureThe largest single borrower 20.41 4.08The largest borrower group 34.79 6.95The 10 largest single borrowers 114.29 22.83

The 10 largest borrower groups 148.16 29.60


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Deployment of funds raised by issue of Infrastructure BondsThe deployment of funds in respect of Infrastructure Bonds issued by IDBI Ltd. has been in accordance with therelevant tax guidelines.

Investments

IDBI Ltd. has in its portfolio quoted investments aggregating Rs.7862 crore as on March 31, 2005 (which are booked atcost) whose market value amounted to Rs.8663 crore. As on March 31, 2005, IDBI Ltd. had debentures and bonds ofRs.5305 crore in its portfolio. All the debentures are secured by hypothecation/mortgage of fixed assets. In case ofdebentures amounting to Rs.665 crore, the final security by way of mortgage was yet to be created as on March 31, 2005.The creation of final security is a time consuming process as it usually involves title investigation on all the borrowersproperties/assets mortgaged/to be mortgaged in favour of IDBI Ltd., obtaining No Objection Certificate for creation ofcharge/mortgage from other lenders who are existing charge holders, obtaining letters ceding pari passu charge fromother lenders, obtaining permission to create mortgage from various lessors, NOC from Income Tax Authorities, etc. Thecreation of final security in respect of the cases underlying the aforesaid debentures is under process primarily due to theabove reason. IDBI Ltd. is vigorously following up with the concerned companies for early creation of final security.

The investment portfolio of IDBI Ltd. is predominantly of long term and strategic nature. Temporary diminution in value ofsecurities arises on account of price volatility due to factors and forces affecting the stock market, interest rates, etc. IDBILtd. has been classifying its investment portfolio and making appropriate provision for diminution in value as per RBIguidelines issued from time to time in this regard. The investments are classified under the following categories (i) Heldto Maturity, (ii) Available for Sale (iii) Held for Trading. These investments were valued according to the prevailing valuationnorms.

Provision for Depreciation on Investments (Excluding Debentures) Rs. in crore

Opening Balance as on September 30, 2004 63.89Add : Addition during the period -Less : Amount recovered/write-off 20.06Closing balance as on March 31, 2005 43.83

Note : During the year ended March 31, 2002 and 2003, Rs.25 crore each was appropriated from profits toInvestment Fluctuation Reserve Account. As on March 31, 2003, the balance in the Investment Fluctuation ReserveAccount was Rs.50 crore and as on September 30, 2004, the same was Rs.100 crore. A sum of Rs. 92 crorewas added to the investment fluctuation reserve on account of the merger with the addition of Rs. 200 crore duringthe six-month period ended March 31, 2005, the balance in the investment fluctuation reserve totalled to Rs. 392crore.

Treasury Operations

IDBI’s Treasury operates with primary focus of maintaining adequate liquidity to meet its requirements. Treasuryefficiently manages surplus funds with an appropriate portfolio mix of G-Sec and corporate securities, consistentwith risk perceptions and within the investment policy framework outlined by the Board. These investments are madewith the objective of maximising returns, without compromising on safety and liquity needs. To mitigate market risksand to generate adequate returns, IDBI’s Treasury has in place an adequate Risk Management philosophy governedthrough risk management tools such as Duration, Modified Duration, PV01 and Value at Risk (VaR) for G-Sec. TheForex operations of treasury focus on corporate line service like providing exchange rate cover on clients’ foreigncurrency (FC) both on Principal and Interest rate. The treasury has been proactivly interacting with its clients toprovide derivative hedging products to cover their forex liabilities extending beyond one year.

During the six months period ended March 31, 2005 IDBI Ltd. transferred SLR and non-SLR securities, totallingRs.1992.3 crore, from Available for Sale (AFS) and Held for Trading (HFT) categories to Held to Maturity (HTM)category as per RBI guidelines.

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Asset Classification, income recognition, provisioning for non-performing loans and NPA strategy

Asset Classification

IDBI Ltd. has evolved a comprehensive health code system for assessing the quality of advances so as to be ableto monitor effectively and follow-up each individual advance. All advances are reviewed at regular intervals withreference to factors like past performance, immediate and future prospects and asset backing. In addition, theborrower’s balance sheets and profit and loss accounts are critically analysed and information relating to creditrecord with other institutions/banks, quality of management, the industrial environment in which the borroweroperates and relevant technological issues is monitored to enable IDBI Ltd. to have a complete picture of the riskprofile of its assets.

The quality of portfolio is subjected to continual monitoring, through review by senior executives.

In line with RBI guidelines issued from time to time, the loan portfolio is being classified as performing and non-performing assets for the purpose of income recognition and provisioning. The criteria for the classification are:

Performing/Standard Assets

Loan Assets in respect of which interest and principal are received regularly and where arrears of interest and/orprincipal, if any, do not exceed 90 days as at the end of the financial year, are classified as performing assets(standard assets). A general provision of 0.25% on outstanding standard assets is made.

Non-performing Assets

Loan assets where interest and/or principal instalments are in arrears beyond 90 days are classified as non-performing assets (NPAs). NPAs are further sub-classified into sub-standard, doubtful and loss assets as follows:

Sub-standard assets

Sub-standard assets are those which are non-performing for a period not exceeding twelve months. In addition,companies which have been exhibiting signs of weaknesses in their viability or whose viability has been weakeneddue to delayed implementation are also classified within the sub-standard category.

Doubtful assets

A doubtful asset is one which has remained non-performing for a period exceeding twelve months and which is notconsidered as a loss asset. A major portion of assets under this category relate to “sick” companies referred to theBoard for Industrial and Financial Reconstruction (BIFR) and awaiting finalisation of rehabilitation packages.

Loss assets

A loss asset is one where loss has been identified but the amount has not been written off, wholly or partly. In otherwords, such an asset is considered uncollectible and of such little value that its continuance as a bankable assetis not warranted although there may be some salvage or recovery value.

The aforesaid norms, as applicable to banking companies are being adopted by IDBI Ltd. w.e.f. October 1, 2004,i.e. from the date of conversion into a bank. The erstwhile IDBI had continued to adopt 180 day norms for recognitionof NPAs, as was applicable to DFIs.

Income Recognition

While income in respect of the performing assets is accounted for on an accrual basis, income from non-performingassets is recognised only on cash basis ( i.e. treated as income on actual receipt )

Provisioning for Non Performing LoansLoan assets (including bonds & debentures acquired in the primary market) and other assistance portfolios areclassified based on record of recovery as Standard, Sub-standard, Doubtful and Loss. Provision is made for assetsas per Guidelines issued to term lending institutions by Reserve Bank of India, as under:

1. Standard assets – A global provision of 0.25% on outstanding standard assets2. Sub-Standard Assets – 10% of loan/assistance3. Doubtful assets – 100 % of unsecured portion plus 20% / 30% / 50% / 60% /

75% /100% of secured portion depending on the period forwhich the loan / assistance has remained doubtful.

4. Loss Assets – The entire loan is written off.


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Asset classification as per RBI Guidelines

The following table provides a summary of loan assets of IDBI Ltd. in accordance with RBI classification in thelast five years. The figures till September 30, 2004 pertain to the erstwhile IDBI while March 31, 2005 figures pertainto merged entity. (Rs. crore)

Gross Provisions Net Assets % to total % of provisionsAssets and write-offs after prov and write-offs

(before w/o) (cumulative) and w/o to gross assets31st March, 2001Standard 48107 0 48107 85.2 0.00Sub-standard 3518 504 3014 5.3 14.3Doubtful 8686 3330 5356 9.5 38.3Loss 1026 1026 0 0.0 100.0Total 61337 4860 56477 100.0 7.931st March, 2002Standard 49107 0 49107 88.3 0.0Sub-standard 2831 321 2511 4.5 11.3Doubtful 10466 6476 3990 7.2 61.9Loss 1152 1152 0 0.0 100.0Total 63556 7949 55607 100.0 12.531st March, 2003Standard 44311 22 44289 85.8 0.1Sub Standard 3353 444 2910 5.6 13.2Doubtful 11478 7058 4420 8.6 61.5Loss 1175 1175 0 0 100.0Total 60317 8699 51619 100.0 14.430th September, 2004Standard 35885 73 35812 98.0 0.2Sub-standard 458 48 410 1.0 10.5Doubtful 4137 3665 472 1.0 88.6Loss 1178 1178 0 0.0 100.0Total 41658 4964 36694 100.0 11.931st March, 2005Standard 47994 0 47994 98.3 0.0Sub Standard 571 50 521 1.0 8.5Doubtful 568 242 326 0.7 42.6 Loss 76 76 0 0.0 100.0

Total 49209 368 48841 100.00 0.75

The above conforms to classification norms issued by RBI from time to time. IDBI Ltd. has made full provisionsin respect of all its non-performing assets as per RBI norms. Further, all loan assets of IDBI Ltd. are secured andprovide recourse to the borrower. Net NPAs, adjusted for the value of collateral, account only for a marginalproportion of total assets, as in the following table :

Net NPAs - Details of Assets for 5 years

The figures till September 30, 2004 pertain to the erstwhile IDBI while March 31, 2005 figures pertain to the mergedentity. (IDBI Ltd.) (Rs.crore)

As on March 31 & Sept. 30, 2004 2001 2002 2003 30.9.04 (18 months)

No. of cases # 1392 525 630 103Gross Principal Outstanding of NPAs 13230 14449 16007 5774Gross interest outstanding (#) 7029 8646 5366 6963Gross total outstanding 20259 23095 21373 12736

Net Outstanding of NPAs 8371 6500 7330 882Total net Assets 56478 55607 51619 36694

%of Net NPAs to Total Assets 14.82 11.69 14.20 2.4%of Net NPAs (net of collateral) to Total Assets @ 1.67 1.81 2.27 1.17

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As on March 31, 2005 (Merged entity) (6 months)

No. of cases # 87Gross Principal Outstanding of NPAs 5372Gross interest outstanding (#) 6790Gross total outstanding 12162Net Outstanding of NPAs 848Total net Assets 48841%of Net NPAs to Total Assets 1.74NPA net of Collateral (asset shortage) 426%of Net NPAs (net of collateral) to Total Assets @ 0.87# Direct Finance

@ Value of collateral represents asset cover available against direct finance assets only.Write off during the years ended March 31, 2002 and March 31, 2003 aggregated Rs.3142 crore and Rs.907 crorerespectively. Write offs during 18 months period ended September 30, 2004 aggregated Rs.1450 crore. However,where a loan is written off partially or fully, it does not necessarily mean that the loan will not be recoverable by IDBILtd. Intensive efforts towards the recovery of the outstanding balances continue. As and when funds are realisedin respect of such outstandings, they are credited to the revenue account.

Classification of Assets/ Liabilities based on Interest rate band (June 30, 2005) (Rs. crore)

Less than 10% 10% - < 12% 12% - < 14% 14% & above

Standard Assets 54092 7126 5440 2152 Net NPAs 770* Rupee Liabilities 49076 4054 2821 4360**

* All net NPAs are put in <10% category** Around Rs. 4000 crore i.e. 92% of the high cost borrowings are maturing within one year. All FC liabilities are predominantly at floating rate of interest and presently carry interest rates below 9%.

Movement in NPAs (Rs.crore)

ParticularsGross NPAs as on October 1,2004 1342.69Add : Additions during the accounting year 186.59Less : Reductions during the accounting year 313.39Gross NPAs as on March 31, 2005 1215.89Net NPAs as on March 31, 2005 847.49* Net of Transfers to SASF

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

October 2004 - March 2005 (Rs.crore)

Opening balance as on October 1, 2004 463.59Add : Provisions made during the period 132.07Less : Write-off / write-back of excess provision 227.26Closing balance as on March 31, 2005 368.40

Restructured Accounts

Loan assets subjected to restructuring during the period October 2004-March 2005(Rs. in Crore)

Other than CDR scheme Under CDR scheme Total

1. Amount of Standard Assets 2484.46 380.56 2861.27subjected to restructuring

2. Amount of Sub-standard Assets 26.68 0.00 26.68subjected to restructuring

3. Amount of Doubtful Assets 0.06 0.00 3.81subjected to restructuringTotal 2511.20 380.56 2891.76


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Restructured Accounts - Top 5 Industries (October 2004 - March 2005)

Sl. Industry Net Outstanding(Rs. in crore)

1 Iron & Steel 575.41 2 Cotton Textiles 429.25 3 Drugs & Pharmaceuticals 302.46 4 Food (Others) 279.00 5 Non-Ferrous 257.71

List of Top 10 Accounts Restructured cases as on March 31, 2005

Sl. Company Name Net Outstanding(Rs. in crore)

1 Borrower No. 1 437.882 Borrower No. 2 287.143 Borrower No. 3 265.394 Borrower No. 4 249.635 Borrower No. 5 219.606 Borrower No. 6 113.247 Borrower No. 7 85.208 Borrower No. 8 60.079 Borrower No. 9. 44.9310 Borrower No. 10 42.73

Industry-wise classification of NPAs

Industry-wise outstanding NPAs for direct finance (excluding investments) as a percentage to total NPAs for the past3 years ended March 31, 2003, for the 18 month period ended September 30, 2004 and March 31, 2005 is givenin the table below.

As on March 31, 2003 Sept. 30, 2004 March 31, 2005

Industry NPA o/s % NPA o/s % NPA o/s %(Rs.Crore) (Rs.Crore) (Rs.Crore)

Cotton Textiles 822 12.70 101 17.30 45 8.63Electricity Generation 15 0.23 79 13.58 169 32.73Food (Others) 461 7.12 56 9.64 10 1.84Textiles 178 2.75 44 7.54 3 0.64Metal Products 355 5.50 40 6.86 47 9.07Services (Others) 82 1.25 40 6.78 73 14.10Electrical Machinery 118 1.82 31 5.3 68 13.16Iron & Steel 1393 21.54 27 4.59 21 4.14Artificial Fibres 178 2.76 26 4.39 0.27 0.05Automobile Ancillaries 54 0.83 23 3.92 15 2.86Chemical (Others) 324 5.01 18 3.00 23 4.42Hotel 67 1.04 12 2.10 0.31 0.06Chemical and chemical products # # 3 0.50Basic Industrial Chemicals 80 1.23 12 2.06 4 0.75Non-Metallic (Others) 67 1.04 10 1.76 2 0.30Services 102 1.58 8 1.41 8 1.59Non-Ferrous 131 2.02 7 1.24 6 1.17Paper & Paper Products 193 2.98 4 0.71 3 0.56Drugs & Pharmaceutical 235 3.63 4 0.61 3 0.54Other Industries 159 2.46 20 3.44 10 2.02Information Technology # # 2 0.29

# - not classified separately

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Top 10 Non performing assets as on March 31, 2005(Rs. crore)

Sl. Name of the Gross o/s Net o/s* Industry No company

1. Borrower 1 187.98 169.18 Electricity Generation2. Borrower 2 58.09 58.09 Services (Others3. Borrower 3 40.18 40.18 Electrical machinery4. Borrower 4 84.57 33.83 Metal Products5. Borrower 5 28.14 28.14 Cotton Textiles6. Borrower 6 25.84 25.84 Electrical Machinery7. Borrower 7 53.48 21.39 Iron & Steel8. Borrower 7 19.54 18.54 Services (Others)9. Borrower 9 14.51 14.51 Metal Products10. Borrower 10 16.30 13.81 Chemical(Others)

*Net of write off/provision

NPA Strategy

Asset Quality

IDBI Ltd. is focusing on quality lending. It has developed sophisticated credit analysis and loan monitoring system.IDBI Ltd. has been following a well formulated conservative accounting policy regarding income recognition evenbefore RBI guidelines on the above subject were prescribed. IDBI Ltd. has strictly followed RBI’s guidelines for assetclassification, income recognition and provisioning. As on September 30, 2004, standard assets of IDBI Ltd.constituted 97.6% of loan portfolio.

IDBI Ltd. has initiated several measures for containment of NPAs. The Bank has set up Close Monitoring Cells(CMCs) for constantly monitoring the performance of assisted companies to improve recovery and initiate timelyremedial action. IDBI Ltd. has put in place a comprehensive recovery policy, which would help in efficientmanagement of its efforts as also standardisation of the systems and procedures across departments and offices.

In order to improve the credit quality, credit approval and delivery systems have been further strengthened. In thecase of infrastructure sector a three tier security mechanism – letter of credit, escrow facility and governmentguarantee has been adopted. Under the escrow cover, the escrowable capacity is being assessed by independentagencies acceptable to the lenders. A condition for opening Trust and Retention Account is also stipulated for largeprojects for depositing all funds and proceeds to be utilised in a manner and priority as agreed to by the Bank andthe client. Through this account entire cash flow is monitored during the implementation period and operation phaseof the projects. The Bank often appoints reputed consultants as Lenders’ engineers for monitoring the implementationof the project, as well as various financial and technical parameters during the operation of the project. The Bankhas also been resorting to stipulation of additional security such as pledge of promoters’ equity and other collateralas also conversion of loan to equity, etc.

Stressed Assets Stabilisation Fund (SASF)

The Union Budget for 2004-05 provided for creation of a Special Purpose Vehicle (SPV) by way of a Trust namely“Stressed Asset Stailisation Fund”, for acquiring the stressed assets of IDBI Ltd. to the extent of Rs.9000 crore.Accordingly, SASF was constituted as a Trust vide Trust deed dated September 27, 2004. The Government hasextended a loan of Rs.9000 crore to the Trust on a cash neutral basis. The amount of Rs.9000 crore has beeninvested in non-interest bearing special Government of India securities in the form of 20 year bonds which havebeen exchanged for NPAs for the like amount at net loan outstanding level in respect of 636 cases involving grossprincipal at Rs.12945 crore.On becoming operational with effect from October 1, 2004, SASF has been accorded the status of a financialinstitution to take advantage of the provisions of the Recovery of Debts due to Banks and Financial Institutions Act1993 by approaching Debt Recovery Tribunal as well as SARFAESI Act 2002 and CDR mechanism for resolutionof stressed assets.• SASF has adopted a three - pronged strategy for resolution of stressed assets acquired from IDBI Ltd..• Preventive measures by way of restructuring debt assets in respect of units which have not lost long-term

viability.• Remedial measures by way of One Time/Negotiated Settlement of dues where units have lost long-term viability.• Legal measures by way of filing recovery suit against the company/promoters in DRT taking over the units under

the provisions of SARFASESI Act 2002,SASF has adopted a Committee-based approach and has put in place committees like Committee of Officers andExecutive Committee for expeditious resolution of cases. A screening Committee (comprising Retd. Justice Shri M.L.Pendse, Shri P. N. Shah, a practising Chartered Accountant and Shri G. A. Nayak, retired banker) has been constitutedto examine the properiety of cases with settlement below net loan outstanding.


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The Trust has so far resolved 137 cases with gross principal outstanding at Rs.1767 crore and net loan outstandingat Rs.1511 crore. Settlement amount including future receipts is estimated at Rs.2301 crore.

The Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act,2002

NPA containment measures adopted by IDBI Ltd. as mentioned above have been further strengthened by theSecurtisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. Theprovisions of the Act are applicable to NPAs only. The Act provides legal framework for (i) securitisation of financialassets by setting up of Securitisation Company (SC) or Reconstruction Company (RC), (ii) Reconstruction of assetsthrough SC or RC, and (iii) foreclosure of NPA accounts. The Act provides for transfer of financial assets from banksand FIs to SC or RC on mutually agreed terms and conditions notwithstanding anything contained in any other lawor agreement. Under the Act, the SC and RC can effect change of management, sale or lease the business,reschedule the dues, enter into settlement of dues, take possession of the secured assets or enforce the securityinterest by selling the secured assets.The Act also gives powers to certain types of secured creditors viz. SC/RC, FIs, banks, Debenture Trustees appointedby FIs and banks, International Finance Corporation and any other institution or Non Banking Finance Company(NBFC) as may be notified by Central Government to enforce their security interest in respect of NPA accounts withoutgoing through the long and cumbersome judicial process for recovery of their dues.

Upto March 31, 2005, IDBI Ltd. issued notices under Section 13(2) of the Act ton 24 defaulting borrowers with anaggregated principal outstanding of Rs. 394 crore. In addition, IDBI Ltd. conveyed its consent to the lead institutionfor taking action under the Act in respect of another 29 borrowers with principal outstanding amounting to Rs. 443crore. Of the 53 borrowers on whom IDBI Ltd. had served notice/given consent to other creditors to serve notice, 16borrowers approached the Bank for settlement of dues and a few of them submitted One Time Settlement (OTS)proposals.

Apart from the above 53 borrowers, IDBI Ltd. sought the consent of other creditors for serving notice on 12 otherborrowers with aggregate principal outstanding of Rs. 101 crore. IDBI Ltd. seized assets of two units under theSARFAESI Act, 2002. IDBI Ltd. also recovered Rs. 146 crore from various borrowers through the said Act.

Asset Reconstruction Company (India) Ltd. (ARCIL)

IDBI Ltd., ICICI Bank, SBI and some other institutions/ banks have together set up ARCIL with an initial authorisedcapital of Rs. 20 crore and paid-up capital of Rs. 10 crore. ARCIL became fully operational from August 29, 2003 afterobtaining license from the RBI. IDBI Ltd. has identified several cases for transfer to ARCIL and has already completedthe transfer of 20 cases involving an outstanding of Rs.460 crore as on March 31, 2005.

Corporate Debt Restructuring (CDR) mechanism

To improve the quality of its asset portfolio and arrest any deterioration, IDBI Ltd. has also initiated action under CDRmechanism. The objective of the CDR system is

(a) to ensure a timely and transparent mechanism for restructuring of corporate debts of viable entities affected bycertain internal and external factors, and(b) to minimise losses to the creditors and other stakeholders through an orderly and co-ordinated restructuringprogramme.As on March 31, 2005, FIs/Banks have submitted 162 applications to the CDR Cell involving an aggregate amountof Rs77,898 crore. The CDR Empowered Group has approved final schemes in 124 cases involving aggregateassistance of Rs.71,853 crore. 35 cases have been rejected/closed. The remaining 3 cases involving an amountof Rs.180 crore are under various stages of processing. For the six month period ended March 31, 2005, IDBI Ltd’sloan assets of Rs. 380.56 crore was subjected to restructuring, all of which pertained to Standard Assets.

Resource Management

The principal sources of outstanding funds of IDBI Ltd. are (i) borrowings from the Government and RBI, (ii)borrowings by way of Government guaranteed bonds(SLR Bonds) (iii) private placement and public issues ofunsecured bonds (iv) market related borrowings including certificates of deposit and fixed deposits, (v) foreigncurrency borrowings. The outstanding amounts under the various sources are given below. On conversion into aBanking Company, IDBI Ltd. now has access to demand liabilities by way of saving, deposit and current accountswhich were not available to it earlier. IDBI Ltd. can also borrow in the overnight call and notice market to meet itsshort term fund requirement. This enables IDBI Ltd. to more effectively manage its liquidity requirements.

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Debt Outstanding

Set forth below is a summary of the outstanding debt of IDBI Ltd. as on March 31, 2001 to March 31, 2003 andSeptember 30, 2004 (Rs. crore)

As at March 31, 2001 2002 2003 30.09.2004

Bonds and Debentures

a.Issued in India 42047 41762 40618 42373b.Issued outside India 1771 1857 1180 1376

Deposits 2639 3384 4330 3864Borrowings

a.From RBI 1440 0 0 0b.From GOI 1269 198 174 8c.from other sources (i) Inside India 0 120 235 1005 (ii) Outside India 7253 6561 4951 3622

Total 56419 53882 51488 52248

Debt Outstanding (As on March 31, 2005) (Rs. Crore)

DepositsDeposits of Branches in IndiaDemand Deposits From Banks 45.53 From Others 3841.13 3886.66Saving Bank Deposits 1891.89Term Deposits From Banks 1082.73 From Others 8241.36 9324.09 15102.64

Deposits of Branches outside India -- 15102.64

Borrowings

Borrowings in IndiaRBI - --Other Banks 2357.48Other Institutions & Agencies GOI 7.77 Tier I Bond issued to GOI 2130.50 Bonds Guaranteed by GOI 5419.36 Others 34202.70 41760.33 44117.81

Borrowings outside India 5887.73 50005.54Total 65108.18


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Top 25 Borrowings of IDBI Ltd. under various schemes as on March 31, 2005

Scheme Amount (Rs.Cr) Interest rate (%)* Maturity@ Date of borrowing

Borrowing 1 2188 5.50-7.20 3-10 Yrs 20-04-2005Borrowing 2 1586 5.50-6.75 5-15 Yrs 02-04-2004Borrowing 3 1334 11.00-14.00 5-10 Yrs 16-11-1998Borrowing 4 1312 4.75 5 Yrs 03-03-2004Borrowing 5 1226 12.50-14.00 3-10 Yrs 05-04-1999Borrowing 6 1209 12.50-14.00 3-7 Yrs 11-09-1999Borrowing 7 1094 5.125 5 Yrs 17-12-2004Borrowing 8 825 1 yr G-sec+45 bps 3 Yrs 29-09-2004Borrowing 9 797 5.50-6.25 3-11 Yrs 05-03-2004Borrowing 10 750 Libor+0.34 13 Yrs 22-01-1999Borrowing 11 588 5.75-6.50 3-15 Yrs 12-01-2004Borrowing 12 534 8.00-9.00 3-10 Yrs 17-01-2003Borrowing 13 530 5 yr G-sec+115 bps 5 Yrs 16-01-2004Borrowing 14 519 8.25-9.60 3-9.10 yrs 25-11-2002Borrowing 15 513 6.75-7.85 3-10 yrs 04-03-2003Borrowing 16 486 7.00-7.60 3-10 yrs 25-04-2003Borrowing 17 379 10.50-11.50 3-6.4 yrs 05-01-2001Borrowing 18 345 5 yr G-sec+130 bps 5 yrs 09-03-2004Borrowing 19 292 8.75-9.75 5-10 yrs 12-09-2002Borrowing 20 279 5.80 5 yrs 25-02-2005Borrowing 21 245 9.00-10.50 3-10 yrs 05-02-2002Borrowing 22 223 9.25-10.25 3-10 yrs 15-03-2002Borrowing 23 213 9.00-10.00 3-10 yrs 30-04-2002Borrowing 24 113 10.50-11.00 3-6.7 yrs 30-03-2001Borrowing 25 100 2 yr G-sec+15 bps 3 Yrs 05-10-2004

* In case of issues offering more than one structure / instrument, interest rate band is indicated@ In case of issues offering more than one structure / instrument, maturity band is indicated.NotesAll borrowings of IDBI Ltd. are unsecured in nature.• The promoters/ directors have not given any personal guarantees for collaterally securing any borrowings.• IDBI Ltd. has not defaulted on any of its previous borrowings including the above-mentioned borrowings and

has not sought any roll over facility on the same.

Restructuring of LiabilitiesIn view of the difficulties faced by certain industries viz. steel, textile, etc. IDBI Ltd. has been extending relief toselect corporates in these sectors after examining the viability, by way of reschedulement of principal, reductionin interest rates/ stepping-up of interest payments in line with the revised cash-flow projections. Since there is nocorresponding change in the terms of liabilities raised for financing these assets, this creates asset-liabilitymismatch. In a declining interest rate scenario, the liabilities to finance these assets would have been raised ata higher cost. While, wherever call options on the liabilities are available, IDBI Ltd. has been exercising the same.In case of other liabilities, IDBI Ltd. has been pursuing with some of the large investors for accepting prepayment.

In this backdrop, the issue was taken up with the Govt. of India (GOI), to help in reducing interest cost in respectof IDBI’s liabilities. It was agreed that the liabilities of IDBI to public sector Banks/ Institutions/ UTI/ Army GroupInsurance Fund will be restructured from the appointed date March 1, 2003 as under:

(i) The interest rate on the liabilities will be reset to 8% p.a. and the difference between the document rate & 8%p.a. would be paid by GOI by way of bonds payable on March 31st of each financial year

(ii) All select banks & institutions would on maturity of the existing investment, re-invest the amount in IDBI Bondsfor the same tenor as the initial investment at the then prevailing market rates. Army Group Insurance Fund(AGIF) would, however, have an option to decide whether to reinvest.

(iii) The characteristics of the bonds on reinvestment viz. SLR/ non-SLR would remain the same as that of originalinvestment.

In order to implement the restructuring proposal & make it administratively simpler, IDBI Ltd., after discussion withGOI, has decided to continue paying interest at the document rate to the select Banks/Institutions, with the differenceto be claimed by IDBI Ltd. directly from GOI. Thus, the essence of the proposal now is reinvestment of amount onmaturity at the then prevailing market rates for the period of original maturity, with no loss to the banks/ institutions.

All the 35 banks/ institutions, except AGIF and UTI, have accepted the scheme. AGIF has opted to keep out of thescheme due to the nature of the fund and as requested by them, their entire outstanding liabilities have been repaid/prepaid, at par. UTI is also not participating in reinvestment but the interest differential on its investment is beingpaid by GOI.

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Industrial Development Bank Of India LimitedThe total liabilities, which will be reinvested in IDBI Bonds on maturity in terms of the scheme, aggregate to Rs.14678cr. These are falling due upto FY 2012-13. The total liabilities which were reinvested upto March 31, 2005(cumulative) aggregated Rs.4172 crore. The total liabilities which will be reinvested in the 12 month period endingMarch 31, 2006 aggregate Rs.2,835 crore.

As mentioned earlier, IDBI Ltd. would pay interest at the document rate to the select banks/institutions and claimthe interest differential between the document rate and 8% p.a. from GOI. This would have the effect of reductionin interest cost debited to the P&L Account of IDBI Ltd.. The total reduction in the interest cost for the 6 month periodended March 31, 2005 amounted to Rs.318.15 crore representing the interest differential accrued/ reimbursable byGOI. The total interest differential to be received from GOI over the 5 years period works out to about Rs.2500 crore.On the liquidity front, the restructuring has resulted in elongating the maturity profile of the liabilities.

Outstanding Foreign Currency Borrowings as on September 30, 2005

Sr. Lender/paying Date of Amount Outstanding as Last date of Rate ofNo. Agent Agreement Drawn on 30.09.05 Repayment Interest(%)

1. Borrowing 1 19.11.1985 USD 20mln USD 1.00 mln 01.11.2005 USTB+ 0.5

2 Borrowing 2 27.05.1987 USD 30 mln. EUR 1.36 mln 25.02.2007 6M Euribor + 0.70USD 1.33 mln 05.12.2006 6M LIBOR + 0.70

USD 1.23 mln 05.12.2006 6M LIBOR + 0.70

3 Borrowing 3 21.11.1988 USD 40 mln USD 2.59 mln 17.03.2008 6M LIBOR+ 0.60

USD 3.10 mln 04.08.2008 6M LIBOR+ 0.70

USD 2.41 mln 15.10.2008 6M LIBOR+ 0.70

4 Borrowing 4 29.12.1989 JPY 8.93 bln JPY 1.25 bln 29.12.2007 4.9 Fixed

5 Borrowing 5 14.07.1991 DEM 96.27mln EUR 7.26 mln 31.10.2010 6M EURIBOR+0.70

6 Borrowing 6 13.12.1991 DEM 98.52mln EUR 16.09 mln 02.07.2010 Variable-currently4.5%

7 Borrowing 7 21.11.1994 USD 26.33mln USD 14.93 mln 15.07.2014 Variable

8 Borrowing 8 30.03.1995 USD 150 mln USD 77.79 mln 15.07.2009 Variable-Currently 6.14%

9 Borrowing 9 22.01.1996 USD 300 mln USD150.00 mln 10.01.2009 6M LIBOR + 0.3410 Borrowing 10 30.09.1996 USD 50 mln USD 26.47 mln 29.12.2009 6M LIBOR+0.75

11 Borrowing 11 16.12.1997 USD50.09mln USD 24.77 mln 01.04.2010 6M LIBOR+ 0.0295(Weighted Avg)

12 Borrowing 12 13.12.1999 USD 50 mln. USD 25.00 mln 16.03.2009 6M LIBOR+ 1.10

13 Borrowing 13 03.06.2002 USD 75 mln. USD 75 mln. 13.06.2007 3M LIBOR+0.90

14 Borrowing 14 03.06.2002 USD 8.26 mln USD 8.26 mln 15.07.2023 6M LIBOR+0.60

15 Borrowing 15 01.01.2003 JPY 2.366 bln JPY 2.366 bln 21.01.2006 JPY6MLIBOR+ 1.0516 Borrowing 16 20.03.2003 USD 80 mln USD 80 mln 09.04.2008 6M LIBOR + 1.3017 Borrowing 17 18.06.2003 USD 20 mln USD 20 mln 03.07.2006 6M LIBOR + 1.0518 Borrowing 18 25.02.2004 USD 300 mln USD 300 mln 03.03.2009 4.75 Fixed

19 Borrowing 19 17.12.2004 USD 250 mln USD 250 mln 23.12.2009 5.125 Fixed20 Borrowing 20 25.03.2005 JPY 5.245 bln JPY 5.245 bln 07.04.2010 JPY 6M LIBOR +0.70

Total Foreign Currency liability outstanding as on September 30, 2005 : USD 1.172 billion (equivalent to INR5,160.10 crores, converted at FEDAI closing rate for the month ended September 2005)


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Call Option to IDBI Ltd. on previous Flexibonds Public Issues/ Private Placements (March 31, 2005)

Instrument Date Amount (Rs. crore)

Flexibonds-4 Deep Discount Bonds 11.11.2005 59.72Flexibonds-11 Regular Income Bonds(Option C) 05.02.2009 47.68

Regular Income Bonds(Option D) 05.02.2009 0.46Flexibonds-19 Regular Income Bonds(Option E) 12.01.2013 & 107.45

12.01.2016Flexibonds-21 Regular Income Bonds(Option D) 20.04.2013 & 19.05

20.04.2016Flexibonds-22 Regular Income Bonds (option A) 20.04.2010 25.20

Regular Income Bonds (option B) 20.04.2010 1.66Regular Income Bonds (option D) 20.04.2012 19.64Regular Income Bonds (option E) 20.04.2012 1.95

Omni 2002 B RRB III 26.09.2007 0.77Omni 2003 G Regular Income Bonds 12.01.2013 &

12.01.2016 25.0

Debt Servicing Track Record

IDBI Ltd. has a consistent record of paying principal instalments and interest on all loans, bonds and deposits ondue dates.

Risk Management

IDBI Ltd. in the course of its operations is exposed to various risks like Credit Risk (mainly on account of theborrowers and other counter-parties’ inability to meet their repayment commitments), Market Risk (arising out ofmovement of market values/interest rates impacting earning potential, fair valuation or realisable value of theportfolio), Liquidity Risk (impacts capacity to raise necessary funds to meet debt servicing requirements anddisbursements), Exchange Risk (arising from movement of exchange rates of foreign currency) and Operational Risk(includes risks arising from operational processes including technology, manpower, procedures etc). The riskphilosophy of IDBI Ltd. is guided by the twin objectives of enhancement of shareholder value and optimum allocationof capital.

Risk Management Process

(a) Credit RiskThe credit risk is assessed as a part of project appraisal, which considers various parameters. Management, trackrecord of the promoters and the company, technology, overall capacity, demand and supply scenario, competitors,industry environment etc. are assessed to evaluate the credit risk which will in turn decide the assistance level andthe spread chargeable (credit spread) over the bench mark interest rate. All sanctions are committee based toensure better discussion / evaluation. While the appraisal system assesses the Credit Risk quality, exposure limitsset for individual companies, groups and industries facilitate in limiting the credit risk quantity. IDBI Ltd. also hasa 10 point grading system of Health codes for its borrowers. Further, IDBI Ltd. has a data base of its borrowerswhich is updated regularly.The Bank’s Board of Directors at its meeting held during August 2000, approved the proposed implementation ofa Credit Risk Management System (CRMS) in IDBI Ltd. CRMS is a three-tier structure comprising of Board level RiskManagement Committee (RMC), a Rating Committee (RC) and a Credit Risk Management Group (CRMG). RMCcomprising of three Directors of Board, enunicates the overall risk philosophy, lays down strattegies and policiesin accordance with the former and reviews progress of implementation of the risk management framework. RC,comprising of six senior executives, approves the internal ratings allotted alongwith the rating report containingindustry features, company perspective, financial analysis, rating rationale, risk factors and risk mitigation issues.CRMG plays a vital role in establishing a credit rating system suited to the business of IDBI Ltd. and the bank’sspecific requirements and eventually having a Credit Risk Management System in place. Internal Credit RatingModels are used extentively for final assesment of corporate as well as retail loan in line with the best practicesin banking. These ratings will, over a period of time be an important factor in the bank in credit sanction/review,portfolio analysis, setting exposure norms, credit pricing, capital adequacy assesment etc. The bank is also in theprocess of back testing and measuring accuracy of predictive capability of its rating models. A senior Officer fromCRMG attends credit committee meetings to provide independent risk evaluation inputs, to facilitate appropriatecredit decisions.

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Thus, Credit Risk Management, both at the transaction level as well as at the portfolio level, aims at building upsound asset quality and long term profitability of the bank and encompasses activities like risk identification, riskmeasurement, risk mittigation and risk based pricing.(b) Market Risk

Interest Rate RiskThe market risk arises from movement in market values including interest rate levels which in turn may be impactedby various economic and political factors, change in policies/regulatory framework etc. Movement in market rateswill have an impact on the fair valuation/realisability of adequate returns on the portfolio including investments inGovernment securities, corporate bonds, equities, etc. IDBI Ltd. addresses this risk through the continuousevaluation of movement in market rates, analysis of past trends, stress test through rate shocks, scenario analysisetc. IDBI Ltd. has a separate group for assessment of interest rate risk on a continuous basis. Further, the interestrate on lending is normally fixed on the date of each disbursement which to a great extent limits the risk as comparedto fixing the lending rate at the time of sanction.

Liquidity RiskIDBI Ltd. will be exposed to the liquidity risk in case of low market liquidity which may in turn result in IDBI Ltd.not being able to raise necessary funds from the market to meet its operational/debt servicing requirements. Asasset portfolio of IDBI Ltd. matures faster than the liability portfolio (while assets have periodic repayment ofprincipal, major portion of liabilities have bullet repayments) the cash flows are relatively favourable. The borrowingis also timed considering the overall market liquidity apart from requirement of funds. IDBI Ltd. maintains areasonable level of investment in liquid securities which could be encashed at short notice.

Exchange RiskIDBI Ltd. has a portion of its assets and liabilities contracted in foreign currencies. As a matter of policy, IDBI Ltd.maintains a currency wise matching of assets and liabilities. IDBI Ltd. makes foreign currency loans on terms thatare similar to its foreign currency borrowings thereby transferring the foreign exchange risk to the borrower. Theforeign currency cash balances of IDBI Ltd. are generally maintained abroad in currencies matching with theunderlying borrowings. IDBI also operates a USD denominated Single Currency Pool (SCP) and the interest raterisks under SCP are hedged through basis swaps. Therefore IDBI Ltd. is not exposed to risk of foreign exchangefluctuations.

(c) Operational Risk

Internal Audit Department of IDBI Ltd. conducts periodic operational audit and suggests procedures for improvingthe systems, procedures, documentation, etc. so as to mitigate operational risk. IDBI Ltd. periodically reviews itssystems and procedures through internal groups or with the help of outside consultants. Treasury Operations ofIDBI Ltd. have been certified under ISO 9002.

Asset & Liability Management (ALM)

With progressive financial deregulation, especially after the financial sector reforms of 1991, there has been agradual enlargement of the Bank’s exposure to market risks. IDBI Ltd. recognizes that these market risks, mainlyinterest rate, liquidity and foreign exchange need to be measured, monitored and managed. IDBI Ltd. has an AssetLiability Management Committee (ALCO) to manage market risks in a coordinated manner. With a view to furtherrefine the market risk management systems, IDBI Ltd. has with the approval of its Board defined the ALM policies,charter and procedures, taking into account the best practices followed internationally. IDBI Ltd. has also definedits market risk philosophy and has specified ALM policies and charter, tolerance levels, monitoring and reportingsystems etc. in terms of the operational guidelines issued by RBI in December 1999. IDBI Ltd. has been preparingLiquidity Gap Reports for liquidity risk management and Interest Rate Sensitivity Reports as also Duration andModified Duration to control the impact on Net Interest Income(NII) and Economic Value of Equity(EVE)

Maturity profile of assets and liabilities of IDBI Ltd. as on March 31, 2005 is as follows : (Rs. crore)

Outstanding Upto Over 1 yr Over 3 yrs Over TotalAmount 1 yr to 3 yrs to 5 yrs 5 yrs

Liabilities1. Capital 722 0 0 0 722 7222. Reserves and Surplus 5207 0 0 0 5207 52073. Deposits 15103 5950 7345 1628 180 151034. Borrowings 53883 12022 12926 11201 17733 538835. Current Liabilities & Provisions 6445 685 495 2157 3108 6445

A. Total 18 81m8onth 81360 18658 20766 14986 26951 81360


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Assets

1. Cash 119 119 0 0 0 1192. Balances with RBI 2256 678 747 456 377 22563. Balances with other banks 3277 3277 0 0 0 32774. Investments 25144 5484 4356 4427 10877 251445. Loans & Advances 45786 12736 9745 6766 16539 457866. Fixed Assets 428 0 0 0 428 4287. Other Assets 4349 1091 153 1380 1726 4349. B. Total 81360 23385 15001 13028 29946 81360Gap (B-A) 0 4727 (5766) (1958) 2995Cumulative gap 4727 (1038) (2996) 0

As can be observed from the Table on Maturity profile of Assets and Liabilities as on March 31, 2005, there are negativegaps of Rs.5766 crore in over 1 year to 3 years bucket and Rs. 1958 crore in over 3 years to 5 years time bucket.However, the maturity buckets upto 1 year have positive gaps of Rs. 4727 crore. On a cumulative basis also thereis negative gap of Rs.1038 crore in over 1 year to 3 years bucket and Rs. 2996 crore in over 3 years to 5 years timebucket. The table does not take into account the effect of relending of these repayments from clients and fresh borrowingsin future. Any gap resulting in any of the maturity buckets at any future date will be managed dynamically through suitablestructuring of maturity profile of investment products and the asset portfolio.

Maturity profile of assets and liabilities of IDBI Ltd. as on September 30, 2004 was as follows : (Rs. crore)


Outflows1. Capital 653 0 0 0 653 6532. Reserves and Surplus 5182 0 0 0 5182 51823. Notes,Bonds & Debentures 42374 4628 14546 6501 16699 423744. Deposits 3863 1303 1141 1374 46 38635. Borrowings 6011 1527 1904 2456 124 60116. Current Liabilities & Provisions 5763 986 145 2536 2097 5763

A. Total 63846 8444 17736 12866 24800 63846Inflows1. Cash 12 12 0 0 0 122. Remittances in transit 0 0 0 0 0 03. Balances with RBI 0 0 0 0 0 04. Balances with other banks 2072 2072 0 0 0 20725. Investments 23864 6114 3625 3644 10481 238646. Loans & Advances 33621 5363 9709 7204 11345 336217. Fixed Assets (excl. Assets on lease) 388 0 0 0 388 3888. Other Assets 3890 869 65 1293 1663 3890 B. Total 63846 14430 13398 12142 23877 63846Gap (B-A) 0 5986 (4338) (724) (924)Cumulative gap 5986 1648 923 0

The table on Maturity profile of Assets and Liabilities as on September 30, 2004 shows negative gaps of Rs.4338crore in over 1 year to 3 years bucket, Rs.724 crore in over 3 years to 5 years bucket and Rs.924 crore in over 5 yearsbucket. However, the maturity buckets of upto 1 year have positive gaps of Rs. 5986 crore. On a cumulative basis,there is no negative gap in any of the time bucket. The table does not take into account the effect of relending of theserepayments from clients and fresh borrowings in future. Any gap resulting in any of rthe maturity buckets at any futuredate will be managed dynamically through suitable structuring of maturity profile of investment products and the assetsportfolio.

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Maturity profile of assets and liabilities of IDBI Ltd. as on March 31, 2003 is as follows : (Rs. crore)


Outflows1. Capital 654 0 0 0 654 6542. Reserves and Surplus 6325 0 0 0 6325 63253. Notes,Bonds & Debentures 40594 4906 12475 3955 19259 405944. Deposits 4329 2446 832 835 216 43295. Borrowings 6564 1674 2851 1290 748 65646. Current Liabilities & Provisions 4650 3259 448 93 850 4650

A. Total 63116 12284 16606 6173 28052 63116Inflows

1. Balances with RBI 5 4 1 0 0 52. Balances with other banks 1372 1372 0 0 0 13723. Investments 9467 2072 1517 1161 4718 94674. Loans & Advances 47584 8195 12737 9687 16965 475845. Fixed Assets (excl. Assets on lease) 330 0 0 0 330 3306. Other Assets 4356 1944 711 128 1574 4356 B. Total 63116 13587 14966 10975 23587 63116Gap (B-A) 1303 (1640) 4802 (4465)Cumulative gap 1303 (337) 4465 0

The table on Maturity profile of Assets and Liabilities as on March 31, 2003 given above shows negative gaps ofRs.1640 crore in over 1 year to 3 years bucket and Rs.4,465 crore in over 5 years time bucket. However, the maturitybuckets of upto 1 year and over 3 years to 5 years have positive gaps of Rs. 1,303 crore and Rs.4,802 crorerespectively. On a cumulative basis, there is a small negative gap of Rs.337 crore in the upto 1 year time bucket.This situation has arisen because the balance sheet of IDBI Ltd. is relatively Assets sensitive and the assets arematuring faster than liabilities. The table does not take into account the effect of relending of these repayments fromclients and fresh borrowings.


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KEY INDUSTRY REGULATIONS

Capital Adequacy Requirements

IDBI Ltd. is subject to the capital adequacy requirements of the RBI, which is based on the guidelines of the BaselCommittee on Banking Regulations and Supervisory Practices, 1998. With a view to adopting the Basel Committeeframework on capital adequacy norms which takes into account the elements of risk in various types of assets in thebalance sheet as well as off-balance sheet business and also to strengthen the capital base of banks, RBI decided in April1992 to introduce a risk asset ratio system for banks (including foreign banks) in India as a capital adequacy measure.This requires us to maintain a minimum ratio of capital to risk adjusted assets and off-balance sheet items of 9.0%, atleast half of which must be Tier I capital.

The total capital of a banking company is classified into Tier I and Tier II capital. Tier I capital, i.e., the core capital, providesthe most permanent and readily available support against unexpected losses. It comprises paid-up capital and reservesconsisting of any statutory reserves, free reserves and capital reserve as reduced by equity investments in subsidiaries,intangible assets, and losses in the current period and those brought forward from the previous period. A bank’s deferredtax asset is to be treated as an intangible asset and deducted from its Tier I capital.

Tier II capital, i.e., the undisclosed reserves and cumulative perpetual preference shares, revaluation reserves (at adiscount of 55.0%), general provisions and loss reserves (allowed up to a maximum of 1.25% of risk weighted assets),hybrid debt capital instruments (which combine certain features of both equity and debt securities) and subordinated debt.Any subordinated debt is subject to progressive discounts each year for inclusion in Tier II capital and total subordinateddebt considered as Tier II capital cannot exceed 50.0% of Tier I capital. Tier II capital cannot exceed Tier I capital.With a view to the building up of adequate reserves to guard against any possible reversal of the interest rate environmentin the future due to unexpected developments, the RBI has advised banks to build up an investment fluctuation reserve ofa minimum of 5.0% of the bank’s investment portfolio within a period of five years from fiscal 2001. This reserve has to becomputed with respect to investments in Held for Trading and Available for Sale categories. Investment fluctuation reserveis included in Tier II capital. Though investment fluctuation reserve is also considered general provision for Tier II but thesame is not be subjected to the ceiling of 1.25% of risk weighted assets.

Risk adjusted assets and off-balance sheet items considered for determining the capital adequacy ratio are the weightedaggregate of specified funded and non-funded exposures. Degrees of credit risk expressed as percentage weighting areassigned to various balance sheet asset items and conversion factors to off-balance sheet items. The value of each itemis multiplied by the relevant weight or conversion factor to produce risk-adjusted values of assets and off-balance-sheetitems. Guarantees and letters of credit are treated as similar to funded exposure and are subject to similar risk weight. Allforeign exchange and gold open position limits carry a 100.0% risk weight. A risk weight of 2.5% to cover market risk hasto be assigned in respect of the entire investments portfolio over and above the risk weight for credit risk. Banks arerequired to assign a 100.0% risk weight for all state government guaranteed securities issued by defaulting entities. Theaggregate risk weighted assets are taken into account for determining the capital adequacy ratio.

As per regulatory requirements, banks have to maintain a capital to risk asset ratio of 9.0%. However, as per RBI guide-lines issued in September, 2002, in addition to other conditions to be complied with for declaration of dividend withoutapproval of RBI, capital to risk asset ratio must also be maintained at 11.0%.

Asset Classification and Provisioning

In April 1992, the RBI issued formal guidelines on income recognition, asset classification, provisioning standards andvaluation of investments applicable to banks, applicable from the financial year 1992-93, which are revised from time totime. As per these guidelines, the basis of treating various credit facilities as non-performing are set forth below.

Non-Performing Assets

An advance is a non-performing asset where:• interest and/or installment of principal remained overdue for a period of more than 90 days in respect of a term

loan;• the account remained “out-of-order” for a period of more than 90 days in respect of an overdraft or cash credit (If

the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power or there are nocredits continuously for 90 days as on the date of balance sheet or credits are not enough to cover the interestdebited during the same period, then such accounts are treated as “out of order”);

• the bill remained overdue for a period of more than 90 days in case of bills purchased and discounted;• if the interest and/or principal remained overdue for two harvest seasons but for a period not exceeding two half-

years in the case of an advance granted for agricultural purposes. With effect from September 30, 2004, a loangranted for short duration crops will be treated as a non-performing asset, if the installment of principal or interest

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thereon remains overdue for two crop seasons. With effect from September 30, 2004, a loan granted for longduration crops will be treated as a non-performing asset, if the installment of principal or interest thereonremains overdue for one crop season. (Crops with crop season longer than one year are long duration crops,andcrops, which are not long duration crops are treated as short duration crops); or

• any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Once the account has been classified as a non-performing asset, the unrealized interest and other incomealready debited to the account is derecognised and further interest is not recognised or credited to the incomeaccount unless collected.

Asset Classification

Non-performing assets are classified as described below:• Sub-Standard Assets: Assets that are non-performing assets for a period not exceeding 18 months. With effect

from March 31, 2005, a sub-standard asset is one, which has remained NPA for a period less than or equal to 12months.

• Doubtful Assets: Assets that are non-performing assets for more than 18 months. With effect from March 31,2005, an asset is classified as doubtful if it remains in the sub-standard category for 12 months.

• Loss Assets: Assets on which losses have been identified by the bank or internal or external auditors or the RBIinspection but the amount has not been written off fully.

There are separate guidelines for projects under implementation, which are based on the achievement offinancial closure and the date of approval of the project financing.

The RBI has separate guidelines for restructured assets under the corporate debt restructuring mechanism and underother mechanisms. A fully secured standard asset can be restructured by reschedulement of principal repayments and/or the interest element, but must be separately disclosed as a restructured asset. The amount of sacrifice, if any, in theelement of interest, measured in present value terms, is either written off or provision is made to the extent of the sacrificeinvolved. Similar guidelines apply to sub-standard assets, and to doubtful assets, in the case of restructuring of assetsunder the corporate debt restructuring mechanism. The sub-standard accounts which have been subjected to restructur-ing, whether in respect of principal instalment or interest amount, are eligible to be upgraded to the standard category onlyafter the specified period, i.e., a period of one year after the date when first payment of interest or of principal, whichever isearlier, falls due, subject to satisfactory performance during the period.

Provisioning and Write-Offs

Provisions are based on guidelines specific to the classification of the assets. The following guidelines apply to thevarious asset classifications:• Standard Assets: A general provision of 0.25% is required.• Sub-Standard Assets: A general provision of 10.0% on total outstanding should be made. The unsecured

exposures which are identified as sub-standard would attract additional provision of 10%, i.e., a total of 20% onthe outstanding balance.

• Doubtful Assets: A 100.0% provision/ write-off of the unsecured portion of advances, which are not covered byrealizable value of the security. In cases where there is a secured portion of the asset, depending upon the periodfor which the asset remains doubtful, a 20.0% to 100.0% provision is required to be made against the securedasset as follows:

• Up to one year: 20.0% provision• One to three years: 30.0% provision• More than three years:

1. In respect of outstanding stock of non-performing assets as on March 31, 2004: 50.0% provision, which hasbecome 60 per cent with effect from March 31, 2005, 75 per cent with effect from March 31, 2006 and 100 per centwith effect from March 31, 2007.2. In respect of assets, which have been doubtful for over three years on or after April 1, 2004, provision has beenraised to 100% with effect from March 31, 2005.

• Loss Assets: The entire asset is required to be written off or provided for.

While the provisions indicated above are mandatory, banks are encouraged to make higher provisions over and above themandatory level.


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Regulations relating to Making Loans

The provisions of the Banking Regulation Act govern the making of loans by banks in India. The RBI issues directionscovering the loan activities of banks. Some of the major guidelines of RBI, which are now in effect, are as follows:

• The RBI has prescribed norms for bank lending to non-bank financial companies and financing of public sectordisinvestment.

• The banks should charge interest on loans/advances/cash credits/overdrafts or any other financialaccommodation granted/provided/renewed by them or discount usance bills in accordance with the directives oninterest rates on advances issued by RBI from time to time. Banks are free to determine their own lending ratesbut each bank must declare its benchmark prime lending rate as approved by its board of directors. Benchmarkprime lending rate is determined on the basis of various parameters, which inter alia, include cost of funds,operating expenses, capital charge and profit margin. Each bank should also indicate the maximum spread overthe benchmark prime lending rate for all credit exposures other than retail loans over Rs. 200,000. The interestcharged by banks on advances up to Rs. 200,000 to any one entity (other than most retail loans) must not exceedthe benchmark prime lending rate. Banks are also given freedom to lend at a rate below the prime lending ratein respect of creditworthy borrowers and exporters on the basis of a transparent and objective policy approved bytheir boards. Interest rates for certain categories of advances are regulated by the RBI. Banks are also free tostipulate lending rates without reference to their own benchmark prime lending rates in respect of certainspecified categories of loans.

• In terms of Section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances on thesecurity of its own shares. A bank is also prohibited from entering into any commitment for granting any loans oradvances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner,manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a companyregistered under Section 25 of the Companies Act, or a Government company) of which, or the subsidiary or theholding company of which any of the directors of the bank is a director, managing agent, manager, employee orguarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is apartner or guarantor. There are certain exemptions in this regard as the explanation to the Section provides that‘loans or advances’ shall not include any transaction which the RBI may specify by general or special order as notbeing a loan or advance for the purpose of such Section. We are in compliance with these requirements.

Legislation introduced in the Indian Parliament to amend the Banking Regulation Act has proposed to prohibit lending torelatives of directors and to non-subsidiary companies that are under the same management as the banking company,joint ventures, associates or the holding company of the banking company. There are guidelines on loans secured byshares, debentures and bonds, money market mutual funds, fixed deposits receipts issued by other banks, gold/silverbullion etc. in respect of amount, margin requirement and purpose.

Regulations relating to Sale of Assets to Asset Reconstruction Companies

The Securitisation Act provides for sale of financial assets by banks and financial institutions to asset reconstructioncompanies. The RBI has issued guidelines to banks on the process to be followed for sales of financial assets to assetreconstruction companies. These guidelines provide that a bank may sell financial assets to an asset reconstructioncompany provided the asset is a non-performing asset. A bank may sell a standard asset only if the borrower has aconsortium or multiple banking arrangement, at least 75% by value of the total loans to the borrower are classified as non-performing and at least 75% by value of the banks and financial institutions in the consortium or multiple bankingarrangement agree to the sale. The banks selling financial assets should ensure that there is no known liability devolvingon them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold.Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall onultimate realisation. However, banks may sell specific financial assets with an agreement to share in any surplus realisedby the asset reconstruction company in the future. While each bank is required to make its own assessment of the valueoffered in the sale before accepting or rejecting an offer for purchase of financial assets by an asset reconstructioncompany, in consortium or multiple banking arrangements where more than 75% by value of the banks or financialinstitutions accept the offer, the remaining banks or financial institutions are obliged to accept the offer. Consideration forthe sale may be in the form of cash, bonds or debentures or security receipts or pass through certificates issued by theasset reconstruction company or trusts set up by it to acquire the financial assets. Any loss on sale must be charged to theprofit and loss account, but any gains must be used for meeting losses on sale of other financial assets. For computingcapital adequacy, a risk weight of 102.5% is applied to instruments received by banks as consideration for sale of financialassets to asset reconstruction companies.

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Directed Lending

Priority Sector Lending

The RBI requires commercial banks to lend a certain percentage of their net bank credit to specific sectors (known aspriority sectors), such as agriculture, small-scale industry, small businesses and housing finance. Total priority sectoradvances should be 40.0% of net bank credit with agricultural advances required to be 18.0% of net bank credit andadvances to weaker sections required to be 10.0% of net bank credit, and 1.0% of the previous year’s net bank creditrequired to be lent under the Differential Rate of Interest scheme. Domestic scheduled commercial banks having shortfallin lending to priority sector are allocated amounts for contribution to the Rural Infrastructure Development Fund estab-lished in National Board for Agricultural and Rural Development. Any shortfall by foreign banks in the amount required tobe lent to the priority sectors may be required to be deposited with the Small Industries Development Bank of India. TheRBI requires banks to make advances towards housing finance. This can be in the form of home loans to individuals orsubscription to the debentures and bonds of the National Housing Bank and housing development institutions recognisedby the Government of India. The RBI also periodically issues instructions/directives to banks with regard to providing creditfacilities to minority communities.

Export Credit

The RBI also requires commercial banks to make loans to exporters at concessional rates of interest. This enablesexporters to have access to an internationally competitive financing option. Pursuant to existing guidelines, 12.0% of abank’s net bank credit is required to be in the form of export credit. We provide export credit for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies.

Credit Exposure Limits

As a prudent measure aimed at better risk management and avoidance of concentration of credit risk, the RBI hasprescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individualborrowers and to all companies in a single group (or sponsor group).The limits set by the RBI are as follows:

Credit exposure ceiling for a single borrower shall not exceed 15.0% of capital funds. Group exposure limit is 40.0% ofcapital funds. In case of financing for infrastructure projects, the single borrower exposure limit is extendable by another5.0%, i.e., up to 20.0% of capital funds and the group exposure limit is extendable by another 10.0%, i.e. up to 50.0% ofcapital funds. Capital funds are the total capital as defined under capital adequacy standards (Tier I and Tier II capital).

A bank may, in exceptional circumstances, with the approval of its board of directors, consider enhancement of theexposure over the above specified limits, up to a further 5% of capital funds. Exposure shall include credit exposure (funded and non-funded credit limits) and investment exposure (including under-writing and other similar commitments) as well as certain types of investments in companies. The sanctioned limits oroutstandings, whichever are higher, are considered for arriving at the exposure limit. Non-fund exposures are to bereckoned at 100% of the limit or outstandings, whichever is higher.

Credit exposure is the aggregate of:• all types of funded and non-funded credit limits;• facilities extended by way of equipment leasing, hire purchase finance and factoring services;• advances against shares, debentures, bonds and units of mutual funds to stock brokers and market makers;• bank loan for financing promoters’ contributions;• bridge loans against equity flows/issues; and• financing of initial public offerings.

Investment exposure comprises of the following elements:• investments in shares and debentures of companies acquired through direct subscription, devolvement arising

out of underwriting obligations or purchase from secondary markets or on conversion of debt into equity;• investment in public sector undertaking bonds through direct subscription, devolvement arising out of

underwriting obligations or purchase made in the secondary market;• investments in commercial papers issued by corporate bodies or public sector undertakings; and• investments in debentures, bonds, security receipts, pass through certificates issued by a securitisation or

reconstruction company. However, initially, since only a few securitisation and reconstruction companies arebeing set up, banks will be allowed to exceed prudential exposure on account of such investments on a case-to-case basis.


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To ensure that exposures are evenly distributed, the RBI requires banks to fix internal limits of exposure to specific sectors.These limits are subject to periodic review by the banks.

Regulations relating to Investments and Capital Market Exposure Limits

There are no limits on the amount of investments by banks in non-convertible debt instruments. However, credit exposurelimits specified by the RBI in respect of lending to individual borrowers and borrower groups also apply in respect of theseinvestments. Pursuant to the RBI guidelines, the exposure of banks to capital markets by way of investments in shares,convertible debentures, units of equity-oriented mutual funds and loans to brokers, should not exceed 5.0% of outstandingdomestic advances (excluding inter-bank lending and advances outside India and including commercial paper) at March31 of the previous fiscal year and investments in shares, convertible debentures and units of equity-oriented mutual fundsshould not exceed 20.0% of the bank’s net worth. In April 1999, the RBI, in its monetary and credit policy, stated that theinvestment by a bank in subordinated debt instruments, representing Tier II capital, issued by other banks and financialinstitutions should not exceed 10.0% of the investing bank’s capital including Tier II capital and free reserves.

In December 2003, the RBI issued guidelines on investments by banks in non-Statutory Liquidity Ratio securities issuedby companies, banks, financial institutions, central and state government sponsored institutions and special purposevehicles. These guidelines apply to primary market subscriptions and secondary market purchases. Pursuant to theseguidelines, banks are prohibited from investing in non-Statutory Liquidity Ratio securities with an original maturity of lessthan one year, other than commercial paper and certificates of deposits. Banks are also prohibited from investing inunrated securities. A bank’s investment in unlisted non-Statutory Liquidity Ratio securities may not exceed 10.0% of itstotal investment in non-Statutory Liquidity Ratio securities as at the end of the preceding fiscal year. These guidelines willnot apply to investments in security receipts issued by securitisation or reconstruction companies registered with the RBIand asset backed securities and mortgage-backed securities with a minimum investment grade credit rating. Theseguidelines have been effective from April 1, 2004, with provision for compliance in a phased manner by January 1, 2005.

Consolidated Supervision Guidelines

In fiscal 2003, the RBI issued guidelines for consolidated accounting and consolidated supervision for banks. Theseguidelines became effective April 1, 2003. The principal features of these guidelines are:• Banks are required to prepare consolidated financial statements intended for public disclosure.• Banks are required to submit to the RBI, consolidated prudential returns reporting their compliance with various

prudential norms on a consolidated basis, excluding insurance subsidiaries. Compliance on a consolidatedbasis is required in respect of the following main prudential norms:- Single borrower exposure limit of 15.0% of capital funds (20.0% of capital funds provided the additional

exposure of up to 5.0% is for the purpose of financing infrastructure projects);- Borrower group exposure limit of 40.0% of capital funds (50.0% of capital funds provided the additional

exposure of up to 10.0% is for the purpose of financing infrastructure projects);- Deduction from Tier I capital of the bank, of any shortfall in capital adequacy of a subsidiary for which

capital adequacy norms are specified; and- Consolidated capital market exposure limit of 2.0% of total on-balance sheet assets (excluding

intangible assets and accumulated assets). Within the total limit, investment in shares, convertiblebonds and debentures and units of equity-oriented mutual funds should not exceed 10.0% of the bank’sconsolidated net worth.

Banks’ Investment Classification and Valuation Norms

The salient features of the RBI’s guidelines on investment classification and valuation are given below:

• The entire investment portfolio is required to be classified under three categories: (a) held to maturity; (b) held fortrading; and (c) available for sale. Banks should decide the category of investment at the time of acquisition.

• Held to maturity investments compulsorily include (a) recapitalisation bonds, (b) investments in subsidiariesand joint ventures and (c) investments in debentures deemed as advance. Held to maturity investments alsoinclude any other investment identified for inclusion in this category subject to the condition that such investmentscannot exceed 25.0% of the total investment excluding recapitalisation bonds and debentures.

• Profit on sale of investments in this category should be first taken to the profit and loss account and thereafter beappropriated to the capital reserve account. Loss on sale will be recognised in the profit and loss account.

• Investments under the Held for Trading category should be sold within 90 days; in the event of inability to sell dueto adverse factors including tight liquidity, extreme volatility or a unidirectional movement in the market, the unsoldsecurities should be shifted to the Available for Sale category.

• Profit or loss on the sale of investments in both Held for Trading and Available for Sale categories is taken in theprofit and loss account.

• Shifting of investments from or to held to maturity may be done with the approval of the board of directors once a

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year, normally at the beginning of the accounting year; shifting of investments from Available for Sale to Held forTrading may be done with the approval of the board of directors, the asset liability management committee or theinvestment committee; shifting from Held for Trading to Available for Sale is generally not permitted.

In September 2004, the Reserve Bank of India announced that it would set up an internal group to review the investmentclassification guidelines to align them with international practices and the current state of risk management practices inIndia, taking into account the unique requirement applicable to banks in India of maintenance of a statutory liquidity ratioequal to 25.0% of their demand and time liabilities. In the meanwhile, the Reserve Bank of India has permitted banks toexceed the limit of 25.0% of investments for the held to maturity category provided the excess comprises only statutoryliquidity ratio investments and the aggregate of such investments in the held to maturity category do not exceed 25.0% ofthe demand and time liabilities. The Reserve Bank of India has permitted banks to transfer additional securities to the heldto maturity category as a one time measure during fiscal 2005, in addition to the transfer permitted under the earlierguidelines. The transfer would be done at the lower of acquisition cost, book value or market value on the date of transfer.

Held to maturity securities are not marked to market and are carried at acquisition cost or at an amortized cost if acquiredat a premium over the face value.Securities classified as Available for Sale or Held for Trading are valued at market or fairvalue as at the balance sheet date. Depreciation or appreciation for each basket within the Available for Sale and Held forTrading categories is aggregated. Net appreciation in each basket, if any, that is not realised is ignored, while netdepreciation is provided for. Investments in security receipts or pass through certificates issued by asset reconstructioncompanies or trusts set up by asset reconstruction companies should be valued at the lower of the redemption value ofthe security receipts / pass-through certificates, and the net book value of the financial asset.

Restrictions on Investments in a Single Company

No bank may hold shares in any company, whether as owner or as pledge or mortgagee, exceeding the lower of 30.0% ofthe paid up share capital of that company and 30.0% of its own paid up share capital and reserves, whichever is less,except as statutorily provided.

Limit on Transactions through Individual Brokers

Guidelines issued by the RBI require banks to empanel brokers for transactions in securities. These guidelines alsorequire that a disproportionate part of the bank’s business should not be transacted only through one broker or a fewbrokers. The RBI specifies that not more than 5.0% of the total transactions in securities through empanelled brokers canbe transacted through one broker. If for any reason this limit is breached, the RBI has stipulated that the board of directorsof the bank concerned should be informed on a half-yearly basis of such occurrences.

Prohibition on Short-Selling

The RBI does not permit short selling of securities by banks.

Regulations Relating to Deposits

The RBI has permitted banks to independently determine rates of interest offered on term deposits. Primary (urban) co-operative banks are permitted to pay interest on current account deposits at rates not exceeding 0.5% per annum. Further,banks may only pay interest of 3.5% per annum on savings deposits. In respect of savings and time deposits acceptedfrom employees, we are permitted by the RBI to pay an additional interest of 1.0% over the interest payable on depositsfrom the public.

Domestic time deposits have a minimum maturity of 15 days (seven days in respect of deposits over Rs. 1.5 million) anda maximum maturity of 10 years. Time deposits from NRIs denominated in foreign currency have a minimum maturity ofone year and a maximum maturity of three years.

The RBI has permitted banks the flexibility to offer varying rates of interests on domestic deposits of the same maturitysubject to the following conditions:• Time deposits are of Rs. 1.5 million and above; and• Interest on deposits is paid in accordance with the schedule of interest rates disclosed in advance by the bank

and not pursuant to negotiation between the depositor and the bank.

The RBI has stipulated that the interest rate on NRE deposits accepted before July 17, 2003 should not exceed 250 basispoints and interest rates on those NRE deposits accepted before September 15, 2003 should not exceed 100 basispoints over the US dollar LIBOR/ swap rates for the corresponding maturity. Further, NRE deposits contracted effectiveclose of business in India on October 18, 2003 should not exceed 25 basis points over the US dollar LIBOR/ swap ratesfor the corresponding maturity, and those contracted effective close of business in India on April 17, 2004 should notexceed the LIBOR/ swap rates for US dollar of corresponding maturity.


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Deposit Insurance

Demand and time deposits of up to Rs. 100,000 accepted by Indian banks have to be compulsorily insured with theDeposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the RBI. Banks are required to pay theinsurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annualbasis. The cost of the insurance premium cannot be passed on to the customer.

Regulations relating to Knowing the Customer and Anti-Money Laundering

The RBI has issued several guidelines relating to identification of depositors and has advised banks to put in placesystems and procedures to control financial frauds, identify money laundering and suspicious activities, and monitor highvalue cash transactions. The RBI has also issued guidelines from time to time advising banks to be vigilant while openingaccounts for new customers to prevent misuse of the banking system for perpetration of frauds.

The RBI requires banks to open accounts only after verifying the identity of customers as to their name, residence andother details to ensure that the customer is opening the account in his own name. To open an account, a prospectivecustomer is required to be introduced by an existing customer who has had his own account with the bank for at least sixmonths and has satisfactorily conducted that account, or a well-known person in the local area where the prospectivecustomer resides. If the prospective customer does not have an introducer, the prospective customer is required to submitdocuments such as his identity card, passport or details of bank accounts with other banks. It must be made incumbentupon him to provide sufficient proof of his antecedents before the account is allowed to be opened.

The Prevention of Money Laundering Act, 2002 has been passed by Indian Parliament and has received the assent of thePresident of India on January 17, 2003. The Act seeks to prevent money laundering and to provide for confiscation ofproperty derived from, or involved in, money laundering and for incidental and connected matters.

Legal Reserve Requirements

Cash Reserve Ratio

A banking company is required to maintain a specified percentage of its demand and time liabilities, excluding inter-bankdeposits, by way of balance in current account with the RBI. The cash reserve ratio can be a minimum of 3.0% and amaximum of 20.0% pursuant to Section 42 of the Reserve Bank of India Act, 1934. In September 18, 2004, the cash reserveratio was made 4.75%. From October 2, 2004, it has been increased to 5%.

Paid up capital, reserves, credit balance in the profit and loss account of the bank, amount availed of as refinance from theRBI, and apex financial institutions, provision for income tax in excess of the actual estimated liabilities, specified interbank term deposits/term borrowing liabilities are excluded from the calculation of the cash reserve ratio:The RBI pays no interest on the cash reserves up to 3.0% of the demand and time liabilities and pays interest on theeligible cash balances, currently at the rate of 3.5%. Earlier, interest was paid by the RBI at the bank rate.The cash reserve ratio has to be maintained on an average basis for a fortnightly period and should not be below 70.0%of the required cash reserve ratio on any day of the fortnight.

Statutory Liquidity Ratio

In addition to the cash reserve ratio, a banking company is required to maintain a specified minimum percentage of its netdemand and time liabilities by way of liquid assets like cash, gold or approved securities. The percentage of this liquidityratio is fixed by the RBI from time to time, and it can be a minimum of 25.0% and a maximum of 40.0% pursuant to Section24 of the Banking Regulation Act. At present, the RBI requires banking companies to maintain a liquidity ratio of 25.0%. TheBanking Regulation (Amendment) and Miscellaneous Provisions Bill, 2003 introduced in the Indian Parliament proposedto amend Section 24 of the Banking Regulation Act to remove the minimum Statutory Liquidity Ratio stipulation, therebygiving the RBI the freedom to fix the Statutory Liquidity Ratio below this level.

Regulations on Asset Liability Management

At present, the RBI’s regulations for asset liability management require banks to draw up asset-liability gap statementsseparately for rupee and for four major foreign currencies. These gap statements are prepared by scheduling all assetsand liabilities according to the stated and anticipated re-pricing date, or maturity date and behaviour studies that may beconducted by banks. These statements have to be submitted to the RBI on a quarterly basis. The RBI has advised banksto actively monitor the difference in the amount of assets and liabilities maturing or being re-priced in a particular periodand place internal prudential limits on the gaps in each time period, as a risk control mechanism. Additionally, the RBI hasasked banks to manage their asset-liability structure such that the negative liquidity gap in the 1-14 day and 15–28 daytime periods does not exceed 20.0% of cash outflows in these time periods. This 20.0% limit on negative gaps was mademandatory with effect from April 1, 2000. It is not mandatory for banks to lay down internal norms in respect of negativeliquidity gaps for time periods greater than one year.

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Foreign Currency Dealership

The RBI has granted IDBI Ltd. a full-fledged authorised dealers’ licence to deal in foreign exchange through our desig-nated branches. Under this licence, IDBI Ltd. has been granted permission to:• engage in foreign exchange transactions in designated convertible currencies;• open and maintain foreign currency accounts abroad;• raise foreign currency and rupee denominated deposits from NRIs;• grant foreign currency loans to on-shore;• open documentary credits;• grant import and export loans;• handle collection of bills, funds transfer services;• issue guarantees; and• enter into derivative transactions and risk management activities that are incidental to our normal functions

authorised under our organizational documents.

The foreign exchange operations are subject to the guidelines specified by the RBI under the Foreign Exchange (Manage-ment) Act, 1999. As an authorised dealer, IDBI Ltd. required to enrol as a member of the Foreign Exchange DealersAssociation of India, which prescribes the rules relating to foreign exchange business in India.

Authorised dealers, (AD) are required to determine their limits on open positions and maturity gaps in accordance with theRBI’s guidelines and these limits are approved by the RBI. Further, ADs are permitted to hedge foreign currency loanexposures of Indian corporations in the form of interest rate swaps, options, currency swaps and forward rate agree-ments, subject to certain conditions.

Statutes Governing Foreign Exchange and Cross-Border Business Transactions

The foreign exchange and cross border transactions undertaken by banks are subject to the provisions of the ForeignExchange Management Act as per regulations prescribed by FEDAI.

Restriction on Transfer of Shares

For public sector banks the RBI monitors the ceilings on FII/NRI/PIO investments on a daily basis. For effective monitoringthe RBI has fixed cut off points lower than the actual ceilings which is 18% for public sector banks. Once the aggregate netpurchase of equity shares reaches the cut off points further acquisition of equity shares by FIIs/NRIs/PIOs requiresapproval of the RBI. However, the foreign shareholding cannot exceed 20% of the paid up capital of the bank in terms ofSection 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. In addition, the provisions of theSEBI Takeover Regulations apply and must be complied with.

Prohibited Business

The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited fromengaging in business activities other than the specified activities.

Reserve Fund

Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 25.0% of theprofits of each year before dividends. If there is an appropriation from this account, the bank is required to report the sameto the RBI within 21 days, explaining the circumstances leading to such appropriation. The Government of India may, onthe recommendation of the RBI, exempt a bank from the requirements relating to reserve fund.

Restrictions on Payment of Dividends

Pursuant to the provisions of the Banking Regulation Act, a bank can pay dividends on its shares only after all itscapitalised expenses (including preliminary expenses, organization expenses, share selling commission, brokerage,amounts of losses and any other item of expenditure not represented by tangible assets) have been completely written off.The Government of India may exempt banks from this provision by issuing a notification on the recommendation of theRBI. We require to secure exemptions from the MoF, GoI from the provisions of the Banking Regulation Act for non paymentof dividend.

Further, as per RBI guidelines on payment of dividend, only those banks which comply with the following minimumprudential requirements are eligible to declare dividend with the prior approval of the RBI:• Capital to risk asset ratio of at least 9% for the preceding two accounting years and for the accounting year for

which it proposes to declare dividend.• Net non-performing assets of less than 7%. In case any bank does not meet the above CRAR norm, but is having


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a CRAR of at least 9% for the accounting year for which it proposes to declare a dividend, it would be eligible todeclare a dividend provided its net NPA ratio is less than 5%.

• The dividend pay out ratio does not exceed 40%.• The proposed dividend is payable out of the current year’s profit.• The financial statements pertaining to the financial year for which the bank is declaring a dividend should be free

of any qualifications by the statutory auditors, which have an adverse bearing on the profit during that year.• Compliance with restrictions as to payment of dividends and the setting up of a reserve fund as per Sections 15

and 17 of the Banking Regulation Act, 1949.

RBI has also notified that banks may also declare and pay interim dividends out of the relevant account period’s profitwithout the prior approval of the RBI if they satisfy the minimum criteria above, and the cumulative interim dividend is withinthe prudential cap on dividend payout ratio (40%) computed for the relevant accounting period. Declaration and paymentof interim dividend beyond this limit would require the prior approval of the RBI.

Restriction on Share Capital and Voting Rights

Public sector banks can issue equity shares as per the SEBI Guidelines. The paid up capital of corresponding new banksmay be increased by such amounts as the board of directors of the corresponding new bank may, after consultation withthe RBI and with the previous sanction of the central government, raise by public issue of shares in such manner as maybe prescribed, so however that the central government’s shareholding does not fall below 51% of the paid up capital of thebank.

No shareholder of the corresponding new bank, other than the central government, shall be entitled to exercise votingrights in respect of any shares held by them in excess of one percent of the total voting rights of all the shareholders of thecorresponding new bank.

Appointment of the Chairman and Managing Director and Other Directors

The number of Directors shall not be less than three and more than 12, or such other number as may be determinedfrom time to time by the Company in General Meeting- The Board of Directors of the Company shall consist of : Chairman on whole-time basis appointed by the

Central Government, two whole-time Directors nominated by the Central Government who shall not be liableto retire by rotation, two directors who shall be officials of the Central Government nominated by the CentralGovernment, two Directors from amongst persons having special knowledge and professional experience incertain specified spheres, five Directors who have special knowledge or practical experience in respect of oneor more of the matters specified in section 10-A(2)(a) of the Banking Act to be elected by the shareholders atthe General Meeting of whom atleast two Directors shall be elected by shareholders other than the CentralGovernment and other than banks and institutions of which majority shareholding is with the CentralGovernment

- Not less than 51% of the total number of members of the Board of Directors shall consist of persons, whoshall have special knowledge or practical experience in any of the matters mentioned in section 10-A(2)(a) ofthe Banking Act and who do not suffer from any of the disqualification mentioned in the Articles, the Act and theBanking Act.

- The Chairman and the whole-time director shall hold office for such term not exceeding five years as theCentral Government may specify in this behalf and any person so appointed shall be eligible for re-appointment.

Regulatory Reporting and Examination Procedures

The RBI is empowered under Section 27(2) of the Banking Regulation Act to inspect a bank. In 1995, RBI introduced asystem of off-site monitoring and surveillance, with the primary objective of monitoring the financial condition of banks inbetween on-site examinations.

The RBI monitors prudential parameters at quarterly intervals. To this end and to enable off-site monitoring and surveil-lance by the RBI, banks are required to report to the RBI on aspects such as:• assets, liabilities and off-balance sheet exposures;• risk weighting of these exposures, the capital base and the capital adequacy ratio;• unaudited operating results for each quarter;• asset quality;• concentration of exposures;• connected and related lending and the profile of ownership, control and management;• ownership, control and management;

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• structural liquidity and interest rate sensitivity;• subsidiaries, associates and joint ventures;• consolidated accounts and related financial information;• information on risk based supervision;• analysis of balance sheet; and• other prudential parameters.

The RBI also conducts periodic on-site inspections on matters relating to the bank’s portfolio, risk management systems,internal controls, credit allocation and regulatory compliance, at intervals ranging from one to three years.

Penalties

The RBI may impose penalties on banks and their employees in case of infringement of regulations under the BankingRegulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of theregulations. The penalty may also include imprisonment.

Assets to be Maintained in India

Every bank is required to ensure that its assets in India (including import-export bills drawn in India and RBI approvedsecurities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and timeliabilities in India.

Subsidiaries and other investments

A bank requires the prior permission of RBI to incorporate a subsidiary. A bank is required to maintain an “arms’ length”relationship in respect of its subsidiaries and in respect of mutual funds sponsored by it in regard to business parameterssuch as taking undue advantage in borrowing/lending funds, transferring/selling/buying of securities at rates other thanmarket rates, giving special consideration for securities transactions, in supporting/financing the subsidiary and financingclients through them when the Bank itself is not able or is not permitted to do so.

Restriction on Creation of Floating Charge

Prior approval of the RBI is required for creating floating charge on our undertaking or our property. Currently, all ourborrowings including bonds are unsecured.

Maintenance of Records

We are required to maintain books, records and registers. The Banking Companies (Period of Preservation of Records)Rules, 1985 require a bank to retain records of books, accounts and other documents relating to stock and share registerfor a period of three years.

Secrecy Obligations

Under Section 13 of the Bank Acquisition Act, our Bank is statutorily bound to maintain secrecy about the affairs of itsconstituents, except in circumstances in which it is, in accordance with law or practices and usages customary amongbankers, necessary or appropriate for the bank to divulge such information.

Regulations governing Offshore Banking Units

The Government and the RBI have permitted banks to set up offshore banking units in special economic zones, which arespecially delineated duty free enclaves deemed to be foreign territory for the purpose of trade operations, duties and tariffs.The key regulations applicable to offshore bank units include, but are not limited to, the following:• No separate assigned capital is required. However, the parent bank is required to provide a minimum of US$ 10

million to its offshore banking unit;• Offshore banking units are exempt from cash reserve ratio requirements;• The RBI may exempt a bank’s offshore banking unit from statutory liquidity ratio requirements on specific application

by the bank;• An offshore banking unit may not enter into any transactions in foreign exchange with residents in India, unless such

a person is eligible under the existing exchange control regulations to invest/maintain foreign currency accountsabroad;

• All prudential norms applicable to overseas branches of Indian banks apply to offshore banking units. The offshorebanking units are also required to follow the best international practice of 90 days’ payment delinquency norm forincome recognition, asset classification and provisioning;

• Offshore banking units are required to adopt liquidity and interest rate risk management policies prescribed bythe RBI in respect of overseas branches of Indian banks as well as within the overall risk management and assetand liability management framework of the bank subject to monitoring by the bank’s board of directors at prescribedintervals;


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• Offshore banking units may operate and maintain balance sheets only in foreign currency and are not allowed todeal in Indian rupees except for having a special rupee account out of the convertible funds in order to meet theirdaily expenses. These branches are prohibited from participating in the domestic call, notice, term etc. moneymarket and payment system;

• The loans and advances of offshore banking units would not be reckoned as net bank credit for computing prioritysector lending obligations;

• Offshore banking units must follow the ‘Know Your Customer’ guidelines and must be able to establish theidentity and address of the participants in a transaction, the legal capacity of the participants and the identity of thebeneficial owner of the funds;

• A bank cannot borrow from its offshore banking unit; and• The exposures of an offshore banking unit in the domestic tariff area should not exceed 25% of its total liabilities

as at the close of business of the previous working day, at any point of time.

Regulations and Guidelines of SEBI

SEBI was established to protect the interests of public investors in securities and to promote the development of, and toregulate, the Indian securities market. Banks are subject to SEBI regulations for equity and debt capital issuances, as wellas underwriting, banker to the issue, custodial, depositary participant and debenture trusteeship activities. These regula-tions provide for registration with the SEBI for each of these activities, functions and responsibilities. Banks are requiredto adhere to a code of conduct applicable for these activities.

Foreign Ownership Restrictions

For public sector banks the RBI monitors the ceilings on Non Resident investments on a daily basis. For effectivemonitoring the RBI has fixed cut off points lower than the actual ceilings which is 18% for public sector banks. Once theaggregate net purchase of equity shares reaches the cut off points further acquisition of equity shares by Non Residentsto the ceiling of 20% requires approval of the RBI, beyond which Non Residents are not allowed to acquire shares.

Special Status of Banks in India

The special status of banks is recognised under various statutes including the Sick Industrial Companies Act, 1985,Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation Act. As a bank, we are entitledto certain benefits under various statutes including the following:

The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides for establishment of Debt RecoveryTribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial Institution or to a consor-tium of banks and Public Financial Institutions. Under this Act, the procedures for recoveries of debt have been simplifiedand time frames been fixed for speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court orother authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certaincircumstances.

The Sick Industrial Companies Act, 1985, provides for reference of sick industrial companies, to the Board for Industrialand Financial Reconstruction. Under it, other than the board of directors of a company, a scheduled bank (where it has aninterest in the sick industrial company by any financial assistance or obligation, rendered by it or undertaken by it) may referthe company to the BIFR.

The Sick Industrial Companies Act, 1985 has been repealed by the Sick Industrial Companies (Special Provisions)Repeal Act, 2004 (“SICA Repeal Act”). However, the SICA Repeal Act, which is due to come into force on a date to be notifiedby the central government in the official gazette, has not yet been notified. On the repeal becoming effective, the provisionsof the Companies Act will apply in relation to sick companies, under which the reference must be made to the NationalCompany Law Tribunal, and not the Board for Industrial and Financial Reconstruction.

The Securitisation Act focuses on improving the rights of banks and financial institutions and other specified securedcreditors as well as asset reconstruction companies by providing that such secured creditors can take over managementcontrol of a borrower company upon default and/or sell assets without the intervention of courts, in accordance with theprovisions of the Securitisation Act.

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HISTORY AND CORPORATE STRUCTURESignificant Milestones in the History of the IDBI Ltd.

MILESTONES• IDBI was set up in July 1964 by an Act of Parliament as a fully owned subsidiary of RBI• Ownership of IDBI transferred to the GOI in 1976• Intended as an apex financial institution; a leader and chief coordinator for institutions at National and State levels• Played a dominant role in balanced development of the industrial sector• Set up SIDBI as a wholly-owned subsidiary to address the specific needs of the small scale sector• Played a significant role in the development of the capital market in terms of initial support for setting up of the SEBI,

NSE, CARE, SHCIL, ISIL, NSDL• Accessed the domestic retail market for the first time in 1992 with its Deep Discount Bond registering path-breaking

success. Has successfully issued debt under 23 series of “Flexibonds” becoming the pioneer in branded debt in theIndian market.

• In 1994, IDBI Act amended to permit public ownership• Initial Public Offering of Equity in July 1995 - raised over Rs.2000 crore• IDBI Board decides to covert to a Banking Company; December 2003 the Parliament passes the IDBI Repeal Act.• July 2004, Government notifies the IDBI Repeal Act thus setting in motion the process of IDBI converting to a Banking

Company• October 1, 2004 converted to a Banking Company viz the Industrial Development Bank of India Limited, under the BR

Act; to undertake all types of banking activities in addition to development banking role.• April 2005, merged its banking arm viz IDBI Bank Ltd., with itself; effective date of merger October 1, 2004• Government stake now at around 53%; as per the Articles of Association of the new Company, GOI, as the major

shareholder will continue to hold atleast 51% equity at all times.

The main objects of IDBI Ltd. Includes:

(a) to establish and carry on business of banking in all forms within India and outside India(b) to finance, promote or develop industry and assist in the development of Industries.

As per the Memorandum and Articles of Association, the new company can grant loans and advances directly aswell as by way of refinance in India as well as for export of capital goods, commodities merchandise or executionof turnkey projects outside India. IDBI Ltd. can also discount / rediscount bills of exchange and promissory notes,extend deferred payment guarantees (DPG), guarantee loans, underwrite issue of capital and engage in thebusiness of letter of credit (LCs). IDBI Ltd. is also empowered to act as debenture trustee, provide merchantbanking and consultancy services and acquire the undertaking of any institution engaged in grant of financialassistance for the promotion and development of industries. The object clause is detailed in the appendix.

Subsidiaries

IDBI Capital Market Services Ltd.

IDBI Capital Market Services Limited (ICMS) was established in December 1993 as a wholly owned subsidiary ofIDBI Ltd., to offer a broad range of Capital Market related services. The Company’s business activities include BondTrading, Retail Distribution,Mutual Funds Distribution, Broking, Client Asset Management, Depository Services,Merchant Banking etc.

ICMS is one of the Primary Dealers( PDs) accredited by the Reserve Bank of India to act as a market maker inGovernment Securities. The Company has achieved one of the highest outright turnovers in goverment securitiesamong all PDs for the past four consecutive years. During 2004-05, ICMS achieved total turnover in GovernmentDated Securities of over Rs. 2,11,000 crore. ICMS is at the forefront in building a retail debt market in India and isalso an active institutional equity broker having membership of both BSE & NSE. During FY 2004-05, ICMS recordedtotal turnover of over Rs.4400 crore in equity broking. ICMS also manages the portfolio of exempted provident andpension funds. Assets under management as on March 31, 2005 exceeded Rs. 32,000 crore. ICMS also acts asan arranger in the private placement market for institutional and corporate debt and also markets products like equity,debt, mutual fund instruments, RBI relief bonds etc. through its nation-wide network of sub-agents. As a DepositoryParticipant, the Company offers its institutional and individual clients the facility to maintain their investments insecurities in electronic form. ICMS has recently started merchant banking and corporate advisory services acticityand has completed several assignments like lead management of public issue, techno-economic viability studies,appraisal, loan syndication etc.


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Board of Directors

Name Designation BackgroundShri V.P. Shetty, Chairman (w.e.f. August 23, 2005) CMD, IDBIShri Sushil Muhnot MD & CEO (w.e.f. 10.04.04) CGM, IDBI (On Deputation)Shri O. V. Bundellu, ED, IDBIShri B. R. Gupta Ex-ED, LICShri Shailesh Haribhakti Chartered AccountantShri S. Ravi Chartered AccountantShri K.N. Gangurde Former-MD, STCIShri Bishwajit Bhattacharyya Advocate Supreme Court

The abridged Balance Sheet and Profit and Loss Account of ICMS are given below:

Abridged Balance Sheet (Rs. crore)

As on March 31, 2002 2003 2004 2005Paid-up capital 150.0 200.0 200.0 200.0Reserves & Surplus 238.2 315.4 380.5 305.3Borrowings 1656.6 398.3Current Liabilities & provisons (including loans) 187.8 304.0 425.3 136.9Total liabilities 1995.0 3039.3 2662.4 1040.5Total Assets 1995.0 3039.3 2662.4 1040.5

Profit and Loss Account (Rs. crore)For the year ended March 31, 2002 2003 2004 2005

Total Income 469.9 503.9 438.7 1.92Total Expenditure 99.8 136.6 122.8 76.22Profit/(Loss) before tax 370.1 367.4 315.9 (74.3)Profit/(Loss) after tax 234.0 228.1 200.7 (74.3)

IDBI Intech Ltd.IDBI Intech Ltd. (Intech) was set up as a wholly owned subsidiary of the Bank in March 2000 to undertake InformationTechnology (IT) related activities. Information Technology, not being a permissible business for banking companiesunder Section 19 of the Banking Regulations Act, 1949, the Bank has decided to exit from the IT business and isin the process of winding up of the operations of Intech.IDBI Home Finance Limited (IHFL)In order to make a foray into retail financing, the Bank, in September 2003, acquired the entire shareholding of TataFinance Ltd. in Tata HomeFinance Ltd., at par, for a total consideration of Rs.49.98 crore. The company has sincebeen renamed as IDBI Homefinance Ltd.

Board of Directors

Name Designation BackgroundShri V.P. Shetty Chairman CMD, IDBIShri M.O. Rego M.D. GM, IDBI (on deputation)Shri Jitender Balakrishnan ED, IDBI

Shri G. Soundararajan Former CGM (L), IDBIShri Y.P. Gupta Former Chairman, LICShri F.J. da Cunha ED, TATA Finance,

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Balance Sheet (Rs. crore)

As on 31st March 2003 2004 2005

LiabilitiesPaid up Equity Capital 49.98 50.00 79.98Reserves & Surplus 4.17 12.02Loans 405.52 446.00 874.66Deferred Tax Liabilities 0.57 0.20 -Total Liabilities 455.47 500.36 939.66AssetsHousing Loans 442.41 485.20 922.59Net Fixed Assets 3.87 5.30 4.62Net Current Assets 9.19 9.39 12.13Defer Tax Asset 0.00 0.24Misc Expenditure 0.47 0.08 Total Assets 455.47 500.36 939.66

Profit and Loss Account (Rs. Crore)

For the year ended March 31, 2003 2004 2005

Net Interest Income 11.82 11.82 18.04Fees and Other Income 4.88 4.88 8.48Total Income 16.70 16.70 26.52Provisions & write-offs 0.90 0.96Profit Before Tax 4.36 4.35 10.32Profit After Tax 3.35 3.36 7.84Book Value (Rs. per share) 10.74 10.74 11.49

The net interest income increased by 53% from Rs.11.82 crore in FY 2003-04 to Rs.18.04 crore in FY 2004-05. Thetotal income correspondingly rose by 59% from Rs.16.70 crore in FY 2003-04 to Rs.26.52 crore in FY 2004-05. Thiswas due to combination of increase in interest income and relatively less increase in interest costs. Fees and otherincome increased by 74% resulting in the increase of total income (net of finance charges) by about 59%. Totalexpenditure increased by 33% from Rs.11.45 crore in FY 2003-04 to Rs.15.24 crore during FY 2004-05. Profit aftertax increased by 133% from Rs.3.36 crore in FY 2003-04 in FY 2003-04 to Rs.7.84 crore in FY 2004-05. Cash surplusfrom operations duirng FY 2004-05 was Rs.9.40 crore as compared to Rs.5.42 crore during FY 2003-04.As on March 31, 2005, IHFL’s capital adequacy ratio was 17.98%, while its debt - equity ratio was 9.22:1. Net NPAsreduced to 1.33% as on March 31, 2005 from 1.81% as on March 31, 2004. During FY 2004-05, the book value pershare increased to Rs.11.49 as against Rs.10.74 in FY 2003-04.

Awards and recognition Signal achievements during 2004-05:

• First Bank in Asia-Pacific to launch Money Transfer service using the Card-to-Card mode of transaction, whichfacilitates transfer of money by the Bank’s customers to any VISA Credit/Debit cardholder in India, including throughATM/ Internet Banking mode.

• First Bank in India to launch online payment of Direct Taxes through the Internet.• First Bank in India to launch International Travel Cards in six foreign currencies viz. US Dollar, Euro, British Pound,

Canadian Dollar, Australian Dollar and Singapore Dollar, which are accepted at all VISA card outlets.• First and only Bank in India to introduce a web-enabled ATM with audio capabilities.• In recognition of its superior technology orientation in the delivery process, IDBI Ltd. won awards in four out of seven

categories at the Banking Technology Awards 2004, organized by Indian Banks Association (IBA). This included thefirst prize for both, ‘Best use of IT in retail banking’ and ‘Best Corporate Banking IT Initiative’.

• Received first prize in “Reserve Bank Rajbhasha Shield Competition 2003-04” for excellent performance in implementation of Official Language Policy of Government of India and encouraging progressive use of Rajbhasha inRegion ‘C’.

• International Financing Review (IFR), a global publishing house which releases rankings for Investment BankingHouses for financial products, has ranked IDBI Ltd. as No. 9 in the Asia-Pacific region, both in the category ofMandated Loan Arrangers and Book Runners for Syndicated Loans, during H1 2005, the only Indian/South Asian Bankto be listed in either Category.

• Sanjay Sharma, Corporate Head Technology Officer, IDBl Ltd, received the ‘Innovator Award’ at the EnterpriseConnect Awards 2005, sponsored by Cyber India Online.


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MANAGEMENT

The following table sets forth details regarding our Board of Directors as of the date of filing the Draft Offer Document withSEBI:Board of Directors

Name Tenure Age Qualification Other Directorships/Membership

1. Shri V.P. Shetty From March 3, 58 B.Com Chairman of Board of TrusteesS/o Late Shri. H.S.Shetty 2005 till the C.A.I.I.B Stressed Assets StabilisationChairman & Managing Director date of his Fund of IndiaIndustrial Development superannua- IDBI Pension Fund Trust

Bank of India Limited tion or until Chairman of the Board Cuffe ParadeCuffe Parade futher orders DirectorsMumbai 400 005 IDBI Capital Markets Services

Ltd. (ICMS)IDBI Home FinanceChairman of ExecutiveCommitteeIndian Institute of Banking &FinanceDy. ChairmanIndian Bank’s AssociationPresident,Governing Council,Entrepreneurship DevelopmentInstitute of IndiaDirectorExport Import Bank of IndiaInfrastructure DevelopmentFinance Co. Ltd. (IDFC)MembershipLife Insurance Corporation of IndiaLtd.Board of Governors,Management DevelopmentInstitute (MDI)Board of Directors, Association ofDevelopment Financinginstitutions in Asia and the Pacific(ADFIAP), ManilaExecutive ManagementCommittee, Association ofDevelopment and IndustrialBanks in Asia (ADIBA), VietnamGoverning Board, South AsianDevelopment Fund (SADF), KarachiBanking Standard DevelopmentBoardBankers Training CollegeManaging Committee,Associated Chambers ofCommerce and Industry ofIndia (ASSOCHAM)AGM, Madras School of EconomicsNational Science and TechnologyEntreprenuership DevelopmentBoard (NSTEDP)Standing Technical AdvisoryCommittee on Financial Regulationof RBIGoverning Council, Indian Institute of

84

Industrial Development Bank Of India LimitedBanking and Finance


2. Shri Vinod Rai From 57 Masters Degree DirectorS/o Late Shri. B. N. Rai July 15, 2005 in Economics ICICI Bank LtdAdditional Secretary (FS) until further and Public IFCI Ltd.Department of Economic Affairs orders Policy Bank of Baroda(Banking Division), SIDBIJeevan Deep Building, IDFC Ltd.10, Parliament Street,New Delhi - 100 001.

3. Dr. Ajay Dua From 58 M.A. (Economics), DirectorS/o Late Shri. H.R.Dua July 25, 2005 M.Sc.(Economics), EXIM BankSecretary, Ministry of until further Ph.D.(Economics), ASIAN Productivity OrganisationCommerce & Industry, orders Dip. in -Department of Industrial Business ChairmanPolicy & Promotion, Management National Productivity CouncilGovernment of India, MarketingUdyog Bhavan, Management & PresidentNew Delhi-110001 Diploma in Council of Assocn. of Central

Russian Pulp & Paper Research InstituteLanguage

Treasurer & Member, GeneralCommitteeDelhi Golf Club Ltd.

4. Shri Analjit Singh From May 02, 51 Graduate School ChairmanS/o Dr. Bhai Mohan Singh 2005 for a of Management - Max India Ltd.Executive Chairman period of Boston Max New York Life InsuranceMax India Limited 3 years University, U.S.A. Co. Ltd.Max House Masters in Max Ateev Ltd.1, Dr. Jha Marg Business Neeman Medical InternationalOkla Phase III Administration. plc. UKNew Delhi - 110 020 School of Neeman Medical International

Management - plc. USABoston Neeman - ICIC, Costa RicaUniversity, U.S.A. Neeman Medical InternationalB.S. in Business NV, NetherlandsAdministration, Neeman Medical InternationalCum Laude. BV, NetherlandsDeans ListSriram College Max Medical Services Pvt. Ltd.of Commerce - Liquid Investment & Trading Co.Delhi University, Mohair Investment & TradingIndia Co. (P) Ltd.Economics Boom Investments (P) Ltd.Honors. Dynavest India (P) Ltd.

Chairman & ManagingDirectorMax Healthcare Institute Ltd.Hutchison Max Telecom Ltd.Max Visions Inc., USAHero Honda Motors Ltd.Indian School of BusinessDirectorBrain Reserves Pvt. Ltd.Grow Talent Co. Ltd.Max Healthstaff International Ltd.Trophy Holdings Pvt. Ltd.Acquire Talent Services Ltd.Malsi Holdings Ltd.


85

Hero Corporate Services Ltd.


5. Padmashree Ms. Lila From August 2, 61 Mechanical ChairpersonPoonawalla 2005 & Engineer DeLaval Ltd.W/o Shri. Firoz Poonawalla thereafter Fila Rozil Exports Pvt. Ltd.Fili Villa, Survey No.23 until her La Roz EleganceBaner Road, Balewadi successor Lila Poonawalla FoundationPune - 411 045 assumes office TIFAC - Food Processing

or till further Ashta No Kai India Trustorders Poona Blind Men’s Associationwhichever is Directorearlier Neilsoft Ltd.

Beeyu Overseas Ltd.Pragati Leadership InstitutePvt.Ltd.Indian Institute of ForeignTradeScience and Technology Park -Pune UniversitySymbiosis InternationalEducational CentrePune University Mgt. Business AcademyInternational Institute of Information TechnologyFair & Lovely FoundationPune Citizens Police FoundationWorld Wild Fund-India, PuneDivision

6. Shri K. Narasimha Murthy From August 48 B.Sc., F.C.A., DirectorS/o Shri K.S. Rama Rao 18, 2005 for F.I.C.W.A. Srikari ManagementPartner-Narsimha Murthy & Co 3yrs and Consultants Pvt. Ltd.(Cost Accountants firm) thereafter Independent Director104, Pavani Estate, until his LIC Housing Finance Ltd.Himayat Nagar, successor PartnerHyderabad –500 029 assumes Narasimha Murthy & Co

office and Advisor to Govt. of Andhrashall be Pradesheligible for Privatisation of Hyderabadre-election International Airport,{subject toArticles Gangavaram Port and116 (1)(e), other Projects.112 and 134} Member - Prasara

Bharathi RestructuringCommitteeAdvisory Committee ofAdministrative Staff College of India,Hyderabad

7. Shri. R.V. Gupta From August 67 B.A.(Honours) DirectorS/o Shri. K.V.Gupta 18, 2005 for Economics & Goodyear India Ltd.9, Anand Lok, 3yrs and Course on Delhi Safe Deposit Co. Ltd.August Kranti Marg, thereafter Development, DCM Engineering Ltd.New Delhi - 110049 until his Cambridge. Honda Siel Power Products Ltd.

successor Mawana Sugars Ltd.assumes Nominee Directoroffice and shall Seshasayee Paper and Board Ltd.be eligible forre-election{sub to Articles 116(1)(e), 122&134}

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Industrial Development Bank Of India LimitedName Tenure Age Qualification Other Directorships/

Membership

8. Shri H. L. Zutshi From August 63 B.E. (Hons) NilS/o Late Shri. P.N.Zutshi 18, 2005 for MechanicalD-25, Defence Colony, 3yrs and Engg.New Delhi - 110 024 thereafter SMDP(Oxford)

until hissuccessorassumesoffice and shallbe eligible forre-election{sub to Articles 116(1)(e), 122&134}

9 Dr. D. Veerendra Heggade From August 56 NilS/o Shri. D. R. Heggade 18, 2005 forDharmadhikari 3yrs andSri Kshetra Dharmasthala thereafterDharmasthala Post - 574 216 until hisBelthangady T.Q., Karnataka successor

assumesoffice and shallbe eligible forre-election{sub to Articles 116(1)(e), 122&134}

10 Shri A. Sakthivel From August 57 Diploma in Chairman & Managing DirectorS/o Shri. C.S.Arumugam 18, 2005 for Automobile Netaji Apparel Park, TirupurNo. 6,Kumarvel Colony 3yrs and Engineering Poppys Inn P. Ltd., TirupurS.N.V.S. Layout, thereafter Chairman & DirectorKonguMain Road, until his Poppys Spinning Mills P. Ltd.,Tirupur - 641 607 Successor Tirupur,Tamil Nadu assumes Poppys Tours P. Ltd., Tirupur,

office and Poppys Hotels P. Ltd., Tirupurshall be Poppys Knitwear P. Ltd., Tirupureligible for Chairmanre-election Apparel Export Promotion{subject to Council, New DelhiArticles 116 Tirupur Infrastructure(1)(e), 122 Development Co. Ltd., Tirupurand 134} Director

Bay Resorts Ltd., ChennaiPartnerMorning Glory Knitters, TirupurCompact Knit, TirupurPoppys Packs, TirupurPoppys Art, TirupurMemberExecutive Committee,Federation of Indian Chamberof Commerce and Industry,New Delhi


87

Borrowing Powers of Directors:

Subject to the provisions of these Articles, the Directors may, from time to time by a resolution passed at a meeting of theBoard and not by circulation, borrow moneys generally for the purpose of the Company.

Provided that the Directors shall not borrow moneys, where moneys to be borrowed together with the moneys alreadyborrowed by the Company, apart from temporary loans obtained in its ordinary course of business and except as other-wise provided hereafter, shall exceed the aggregate of the paid up capital of the Company and its free reserves, that is tosay, reserves not set apart for any specific purpose.

Provided however that :(i) Nothing contained hereinabove shall apply to any sums of moneys borrowed by the Company from any other bankingcompany or from the Reserve Bank, State Bank of India or any other banks established by or under any law for the timebeing in force; and

(ii) The acceptance by the Company in the ordinary course of business of deposits of moneys from the public repayableon demand or otherwise and withdrawals by cheques, drafts, orders or otherwise shall not be deemed to be a borrowingof moneys by the Company.

Remuneration of the Directors

Shri V. P. Shetty was appointed as Chairman of IDBI Ltd. vide GOI’s letter No.F.No.8(4)/2005-IF-I dated March 01, 2005with effect from the date of assumption of charge of the post, till the date of his superannuation or until further orders,whichever is earlier. Shri V. P. Shetty assumed charge as Chairman of IDBI Ltd. on March 03, 2005. The post of Chair-man was redesignated as Chairman and Managing Director (CMD) as per alteration in Article 116(1)(a) of the Articles ofAssociation approved in the First Annual General Meeting held on August 18, 2005.Salary and dearness pay: Shri V. P. Shetty is entitled to receive Rs.26,000 per month as salary plus dearness pay, asremuneration during his term as CMD of IDBI Ltd.

Other perquisites and benefits: In addition to the above, Shri V. P. Shetty is entitled to entertainment allowance up to aceiling of Rs.6000 per annum, rent free furnished accommodation, use of an official car, leave and leave travel conces-sion, provident fund, medical benefits and gratuity.

Other Directors on the Board of IDBI Ltd. (other than Government official Directors ) receive only sitting fees from theBank @ Rs.5000 for attending meeting of the Board of Directors, Executive Committee and Audit Committee and @Rs.2,500 for attending the meetings of other Committees of the Board.

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Shareholdings of the Directors

As on March 31, 2005 none of the Directors hold any shares in IDBI Ltd.

Interests of Directors

No company was assisted during October 1, 2004 - March 31, 2005 in which any of the Directors of IDBI Ltd. wasinterested.

Changes in the Board of directors during last 3 years

Name of Director Change Date of Change Reason

a) Between April 1, 2002 – March 31, 2003

Shri S. K. Purkayastha Ceased 19th July, 2002 Relinquished charge as Govt. nominee

Shri D.C. Gupta Appointed 19th July, 2002 Appointed vice Shri. S. K. Purkayastha

Shri R.V.Gupta Appointed 3rd August, 2002 Elected by share-holders at AGM

Dr. J.J. Irani Appointed 3rd August, 2002 Elected by share-holders at AGM

Shri M.G. Bhide Appointed 3rd August, 2002 Elected by share-holders at AGM

Shri T.M. Nagarajan Retired 30th September, 2002 Retired as Whole-time Director(Deputy Managing Director)

Shri D.C. Gupta Ceased 31st October, 2002 Relinquished charge as Govt. nominee

Smt. Vineeta Rai Appointed 31st October, 2002 Appointed vice Shri D.C. Gupta

b) Between April 1, 2003 – March 31, 2004

Dr. J. J. Irani Resigned 20th June, 2003 Resigned as Director

Shri V. Govindarajan Ceased 2nd July, 2003 Relinquished charge as Govt. nominee

Shri Rajeeva Ratna Shah Appointed 2nd July, 2003 Appointed vice Shri. V. Govindarajan

Smt. Vineeta Rai Ceased 10th July, 2003 Relinquished charge as Govt. nominee

Shri N.S. Sisodia Appointed 10th July, 2003 Appointed vice Smt. Vineeta Rai

Shri H. L. Zutshi Appointed 23rd August, 2003 Elected by Share-holders at AGM

Shri P.P. Vora Ceased 30th September, 2003 Expiry of term of office

Shri M. Damodaran Appointed 1st October, 2003 Appointed as Chairman & Managing Director

Shri Rajeeva Ratna Shah Ceased 27th November, 2003 Relinquished charge as Govt. nominee

Shri Lakshmi Chand Appointed 27th November, 2003 Appointed vice Shri Rajeeva Ratna Shah

Shri M. G. Bhide Resigned 30th January, 2004 Resigned as DirectorShri R. N. Dhoot Resigned 27th March, 2004 Resigned as Director

c) During the period April 1, 2004 – March 31, 2005

Shri Lakshmi Chand Ceased July 1, 2004 Relinquished charge as Govt. nomineeShri Ashok Jha Appointed July 1, 2004 Appointed Vice Shri Lakshmi ChandDr.K. S. Parikh Resigned August 31, 2004 Resigned as DirectorShri M. Damodaran Resigned February 18, 2005 Resigned as ChairmanShri J. N. Godbole Appointed February 18, 2005 Appointed as Whole time DirectorShri J. N. Godbole Ceased March 3, 2005 Expiry of term of office

Shri V. P. Shetty Appointed March 3, 2005 Appointed as Chairman


89

d) During the period April 1, 2005 – September 5, 2005

Name of Director Change Date of Change Reason

Shri N. S. Sisodia Resigned April 1, 2005 Resigned as DirectorShri Analjit Singh Appointed May 2, 2005 Appointed as DirectorShri A. K. Jha Resigned July 11, 2005 Resigned as DirectorShri Vinod Rai Appointed July 15, 2005 Appointed as DirectorDr. Ajay Dua Appointed July 25, 2005 Appointed as DirectorMs Lila Poonawalla Appointed August 2, 2005 Appointed as DirectorShri Shekhar Datta Resigned August 5, 2005 Resigned as DirectorShri K. Narasimha Murthy Ceased August 18, 2005 First Director, held office until close of

& Appointed first AGM and re-elected by shareholderat the first AGM

Shri. R.V.Gupta Ceased August 18, 2005 First Director, held office until close of& Appointed first AGM and re-elected by shareholder

at the first AGMShri. H.L.Zutshi Ceased August 18, 2005 First Director, held office until close of

& Appointed first AGM and re-elected by shareholderat the first AGM

Dr. D. Veerendra Appointed August 18, 2005 Elected by Shareholders at 1st AGMHeggadeShri. A. Sakthivel Appointed August 18, 2005 Elected by Shareholders at 1st AGM

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Organization Structure *

SHRI V. P. SHETTY, CHAIRMAN & MANAGING DIRECTOR

DBSBU CBSBU

Executive Director Executive Director Legal Adviser Chief Executive Officer

Shri O. V. Bundellu Shri B. Jitender Shri G. M. Ramamurthy Shri G. V. Nageshwar Rao

International Resources Corporate Finance Legal .Domestic Resources Corporate Support & credit BoardCustomer Relations Monitoring Recovery Management Cell Project Appraisal Rehabilitation FinanceForex Services Priority Sector Central AccountsSpecialised Treasury Venture Capital TaxationHuman Resources Mid-CorporateAdministration & Premises (Zonal & Branch Offices)New Business Opportunities Indirect FinanceCorporate Strategy & Strategic Investment PlanningPress & Public RelationStatutory & Regulatory Compliance

♦ Department s(Independent Charge) Corporate Debt Restrturing Cell, Credit Risk Management Group, Jawaharlal Nehru Institute for Development Banking

♦ Internal Audit and Vigilance reports directly to Chairman.* as on October 25, 2005

Key Managerial Personnel

Chairman and Managing DirectorShri V.P. Shetty

Principal Executive Officers

Name & Age Date of Qualifications Details of Work SharesDesignation (yrs) joining Previous employment Experience held

IDBI Ltd. Total in inIDBI Ltd. IDBI Ltd.

Shri O.V. 55 Oct. 29, M.Sc, M.F.M, Manager 31 y 23 y 320Bundellu, 1981 CAIIB-I Indian Bank 9 m 10 mExecutive Director

Shri J. 56 July 10, B.E. (Mech), Assistant Engineer 32 y 27 y 320Balakrishnan 1978 D.I.M. Star Industrial Textile 8 m 1 mExecutive Director Enterprises Ltd

Shri G.M. 59 July 14, B.Sc, B.L, CAIIB, Law Officer 36 y 27 y 320Ramamurthy, 1978 Praveen, D.L.L, Canara Bank 8 m 1 mLegal Adviser D.C.L, D.T.L, C.S

* The services of Shri R. Jayaraman Iyer, ED have been assigned to Stock Holding Corporation of India Ltd. fromMarch 30, 2005


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CBSBU, CEO Shri G V Nageswara RaoIntegration Team - Corporate HeadsShri O. V. Bundellu, ED Corporate Head - Investment & Treasury (CHI&T)Shri J. Balakrishnan, ED Corporate Head - Credit Officer (CHCO)Shri G. M. Ramamurthy, LA Corporate Head - Legal, Secretarial & Recovery (CHLSR)Shri. B.P.Singh, CGM Corporate Head - Human Resources (CHHR)Shri. L.P.Aggarwal Corporate Head - Financial Officer (CHFO)Pramod Vaidya Corporate Head - Risk Management (CHRM)Shri Ranjan Ghotgalkar Corporate Head - Retail Banking & Branch Operations (CHRB)Shri Pradeep Patil Corporate Head - Internal Audit and Regulatory Compliance(CHARC)Shri Sanjay Sharma Corporate Head - Technology Officer (CHTO) In addition, Shri M. R. Srinivasan is functioning as Adviser (Banking), Shri K. R. Ganapathy as Adviser (InformationTechnology) and Shri K. V. Hegde as Adviser (International Banking) .

Changes in Key Managerial Personnel

Sr. No. Name Date of becoming Date of Cessation Reason for Changekey managerial

1. Shri V. Venkateshwarlu 01/01/1998 01/05/2003 Retirement on Superannuation2. Shri B. D. Ushir 01/07/1998 01/09/2002 Retirement on Superannuation3. Shri R. S. Agarwal 01/12/1999 01/11/2002 Retirement on Superannuation4. Shri J. N. Godbole 01/12/1999 18/02/2005 Voluntary Retirement5. Shri A. K. Doda 02/05/2000 01/01/2005 Voluntary Retirement6. Shri R. Jayaraman Iyer 06/12/2000 30/03/2005 Assignment to SHCIL7. Shri S. G. Gulati 13/08/2001 01/11/2003 Retirement on Superannuation8. Shri R. J. Bedekar 25/02/2002 01/10/2002 Voluntary Retirement9. Dr. K. Kameswara Rao 25/02/2002 01/06/2002 Retirement on Superannuation10. Shri K. Sivaprakasam 10/12/2002 11/10/2005 Voluntary Retirement11. Shri O. V. Bundellu 10/12/2002 - Continuing12. Shri G. M. Ramamurthy 10/12/2002 - Continuing13. Shri S. Gajendran 01/01/2003 01/08/2004 Retirement On superannuation14. Shri Jitender Balakrishnan 01/07/2004 - Continuing

Apart from the above, Shri M.R. Srinivasan has been appointed as Adviser (Banking) for a period of two years w.e.f.November 11, 2004 on contract basis with an option to continue the contract after completion of one year. Shri K. R.ganapathy has been appointed as adviser (IT) for a period of one year w.e.f. August 25, 2004 on contract basis and hiscontract has been renewed for another one year w.e.f. 25.8.2005

Human ResourcesAs on August 31, 2005, IDBI Ltd. (DBSBU) had 2339 employees (Figure excludes staff on deputation - 20, on foreignleave - 3) of whom 1158 are officers including professionals in accountancy, management, engineering, law,computers, economics and banking. IDBI Ltd. has a good and cordial relationship with its employees and theirAssociation/Union. Since inception in 1964, no major industrial action has been resorted to by employees of IDBILtd. During the last three years, there were three occasions of general strike resorted to by the Bank’s employees.

CBSBU has 2437 Officers as on August 31, 2005.

Details of ESOP

Grant date Number of Exercise Price Options exercised Options LapsedOption (Rs) as at 31/3/05 as at 31/3/05

Tranche I Aug 22, 2000 118310 18.76 118310 -Tranche II Oct 1, 2000 2024970 20.06 1231732 657260Tranche III Jan 1, 2001 237990 21.51 181217 55000Tranche IV Apr.1, 2001 3030600 20.94 1919400 756178Tranche V Oct.1, 2201 596580 18.45 380409 174529

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Tramche VI Apr 1, 2002 4577250 16.82 2565799 1007781Tranche VII Dec.1, 2002 76860 20.07 50907 -Tranche VIII Apr 1, 2003 3049690 21.34 1288225 704286Tranche IX Apr 1,2004 2331000 35.88 - 211500Tranche X July 1,2004 450000 40.89 - -

Payment or benefits to officers of IDBI Ltd.Except as stated in the Draft Offer Document, no amount or benefit has been paid or given or is intended to be paid orgiven to any of our officers except the normal remuneration for services rendered as Directors, officers or employees.


93

PROMOTERS

Government of India ( GoI) is the promoter, which holds 52.80% of the paid up equity share capital of IDBI Ltd. as onSeptember 30, 2005. and will hold at least 51% of the paid up equity share capital in the future.

Payment or Benefit to GoIThe promoters are not eligible for any payments or benefits from IDBI Ltd. in the normal course, other than the declara-tion of dividends as recommended by the Board of Directors and approved by the shareholders. Dividend payouts shallbe subject to the guidelines issued by RBI as mentioned on page76 of the Offer Document.

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RELATED PARTIES TRANSACTIONSThe details pertaining to related party transactions are as follows:

l IDBI Ltd.

Key Management Personnel Gross Salary Outstanding Interestincluding perquisites balances on

of loans loans

Shri V.P. Shetty Rs.44,576/- Nil NilChairman (from March 2005)Shri J. N. Godbole Rs.99,739/- Nil NilWhole time director (from Feb’05 to March’05)

Shri M Damodaran Rs.1,09,555/- Nil NilChairman (from Oct’04 to Feb’05)

IDBI Capital Market Services Ltd.:

(Rs. lakh)

Key Management Personnel Remuneration includes pay, allowances During Oct 04-Mar 05and reimbursements as under:

S. Muhnot Remuneration 1.89Managing Director

Pension scheme contribution 0.26

Perquisites & benefits 2.65(as reimbursements to IDBI)

l IDBI Homefinance Ltd.

Key Management Personnel Nature of transaction

Shri Melwyn Rego Cost to company includes salary, allowances,Managing Director & CEO perquisite etc. 4.09


95

CORPORATE GOVERNANCE

Corporate governance is administered in IDBI Ltd. through the Board and five committees of the Board, i.e, theExecutive Committee, Audit Committee, Investors Grievances Committee, Risk Management Committee. FraudsMonitoring Committee. However, the primary responsibility of upholding high standards of corporate governance inits operations and providing necessary disclosures within the framework of legal provisions and banking conventionswith commitment to enhance the shareholders’ value, lies with the Board of IDBI Ltd.

IDBI Ltd. regularly complies with SEBI guidelines in respect of Corporate Governance specially with respect toconstitution of the Board and its various committees.

The BoardThe general superintendence, direction and management of the affairs and business of IDBI Ltd. is vested in theBoard of Directors which exercises all powers and does all acts and things which may be done by IDBI Ltd asper Memorandum & Articles of Association of the Bank. The Board may direct that any power exercisable by it mayalso be exercised by the Chairman and Managing Director(CMD), Wholetime Director or any Committee of the Board.

As per the Articles of Association, the Board of IDBI Ltd. shall have not less than three and not more than 12 Directorsor such other number as may be determined by the company in general meeting from time to time. Not less than51% of the directors shall consist of persons, who shall have special knowledge or practical experience in any ofthe matters mentioned in section 10-A(2)(a) of the Banking Regulations Act. Presently there are 10 (ten) Directorson the Board consisting of the CMD, two officials of the Government of India nominated as Directors by GoI, twoDirectors from amongst persons having special knowledge and professional experience nominated by GoI and fiveDirectors elected by shareholders as per Article 116(1)(e). Shri V.P. Shetty holds charge as CMD of IDBI Ltd. w.e.f.March 3, 2005, till the date of his superannuation or until further orders, whichever is earlier. Two GovernmentDirectors nominted by GoI, will hold office till further orders. The two Directors nominated by GoI, i.e., Shri.AnaljitSingh and Ms.Lila Poonawalla, would hold office upto May 2, 2008 and August 1, 2008 respectively. 5 Directorselected by shareholders from August 18, 2005 for 3 years and thereafter until their successor assumes office andshall be eligible for reelection (Subject to Article 116(1)(e), 122 and 134). Out of the 10 directors, Chairman andManaging Director is the only Executive Director, 2 GOI officials are non-Executive Directors and the other 7 directorsare in the category of independent directors.

The primary responsibility of the Board includes:

1. Maintaining high standards of corporate governance and compliance with various laws and regulations.2. Shaping the policies and procedures of the Bank.3. Monitoring performance of the organization and evolving the growth strategy.4. Setting up various prudential risk management limits.5. Overseeing financial management of the Bank and approving various products and their policies.

The Executive CommitteeThe Executive Committee, presently comprising of 5 Directors including the CMD of IDBI Ltd. as the CommitteeChairman, deals with all matters other than policy matters and those speifically required to be considered by theBoard under the Companies Act, 1956, the Banking Regulations Act, 1949 and the Memorandum and Articles ofAssociation. The Executive Committee also exercises such other powers as may be delegated to it by the Board.

The Executive Committee is comprised of following members:

1. Shri. V.P.Shetty - Chairman and Managing Director2. Shir Vinod Rai - Additional Secretary (FS)3. Shri. K. Narasimha Murthy4. Shri. H.L. Zutshi5. Shri. R.V. Gupta

Audit Committee

Audit Committee presently comprises of 5 directors with four of them being independent and one independentdirector qualified as Chartered and Cost Accountant as Chairman of the Committee. Senior Executives of IDBI Ltd.are invited as and when considered necessary. The Audit Committee acts as an interface between the managementand the statutory and internal auditors overseeing the internal audit functions. The functions of the Audit Committeeare as per Section 292A of the Companies Act, 1956 and Clause 49 of the listing agreement and include, inter alia,the following :

1. To provide direction and oversee audit functions of the Bank.2. To review periodically financial statements xchange and legal requirements concerning financial statements.

- Any related party transactions i.e. transactions of the bank of material nature, with promoters or the

96


management, their subsidiaries or associates etc. that may have potential conflict with the interests of thebank at large.

3. Review with management, external and internal auditors, adequacy of internal control system.4. Discussions with internal auditors and in house Audit Committee.5. Review action taken on inspection reports of RBI and Statutory Auditors Report.6. Review action taken on major findings of internal audit reports having bearing on policy, business risk, control

and corporate governance.7. To review cases of fraud and action taken.8. Such other matters as may be delegated by the Board.

The Audit Committee is comprised of following members:

1. Shri. K. Narasimha Murthy - Chairman2. Dr. Ajay Dua - Secrtary (IPP)3. Shri. H.L. Zutshi4. Shri. R.V. Gupta5. Shri A. Sakthivel

Investors’ Grievances CommitteeThe Committee presently consists of 3 independent Directors. The Committee looks into the redressal ofshareholders’ and investors’ grievances mainly relating to transfer of shares/bonds, non-receipt of annual accounts,dividend, interest etc.

The Investor’s Grievances Committee is comprised of following members:

1. Shri. R.V. Gupta - Chairman2. Shri. K. Narasimha Murthy3. Shri. H.L. Zutshi

Risk Management Committee (RMC)Risk Management Committee of the Board has been constituted with 5 Directors including CMD of IDBI Ltd. asthe Chairman of the Committee. The broad terms of reference include assessing various risks associated with thebusiness of the company, their mitigation and addressing issues relating to Asset Liability mismatch.

The Audit Committee is comprised of following members:

1. Shri. V.P.Shetty - Chairman and Managing Director2. Dr. Ajay Dua, Secretary (IPP)3. Shri. K. Narasimha Murthy4. Shri. Analjit Singh5. Smt. Lila PoonawallaFrauds Monitoring Committee (FMC)

A Frauds Monitoring Committee of the Board has been constituted in terms of the RBI guidelines and presentlyconsists of 5 members including CMD of IDBI Ltd. as Chairman of the Committee.

The Frauds Monitoring Committee is comprised of following members:

1. Shri. V.P.Shetty - Chairman and Managing Director2. Shri. R.V. Gupta3. Shri. Analjit Singh4. Dr. D. Veerendra Heggade5. Shri. A. Sakthivel


97

CURRENCY OF PRESENTATION

In this Draft Offer Document all references to “Rupees” and “Rs” are to the legal currency of India, all references to “USD”and “$” are to the legal currency of United States of America, all references to “EURO” and “ª” are to the legal currency ofEuropean Economic Union and Yen and “¥” are to the legal currency of Japan. The “USD/$”, “EURO/ ª” and “Yen/¥” arereferred to as “Foreign Currency” in this Draft offer document.

98


FINANCIAL INFORMATION

Auditor’s Report

The Board of DirectorsIndustrial Development Bank of India Ltd.IDBI Tower,World Trade Complex,Cuffe Parade, Mumbai - 400 005

Dear Sirs,

We have examined the accounts of erstwhile Industrial Development Bank of India (IDBI) for the 2 financial yearsemded 31st March 2002. These accounts have been audited by other firms of chartered accounts and for the purposeof preparing this report, we have relied on their audit reports. We have also examined the accounts for the year ended31st March 2003 and for the eighteen months ended September 30, 2004 of erstwhile IDBI and for the six monthsended March 31st, 2005 of Industrial Development Bank of India Ltd. (IDBI Ltd.). We report as follows,

1. The profits of IDBI for the 3 financial years ended 31st March 2003 and for the eighteen months ended September30, 2004 and Assets and Liabilities as at that date are extracted from the aforesaid accounts, which were drawn up inaccordance with Regulation 14 of the Industrial Development Bank of India Regulations, 1994. The profits of IDBI Ltd.for the six months ended 31st March 2005 and the assets and liabilities as on that date are extracted from the afore-said accounts, which were drawn up in Form A & B respectively of the Third Schedule to the Banking Regulation Act,1949.

2. The profits read together with the notes appearing hereunder and the Significant Accounting Policies as also thenotes appearing under the head “Adjustments resulting from audit qualifications, material amounts relating to adjust-ments for previous years and changes in accounting policies”, have been arrived at after charging all expenses andafter making such adjustments and regroupings as are, in our opinion, considered appropriate and are set out asfollows.

3. There is no significant deviation from accounting standards applicable to listed companies. There are no materialnotes/qualification in the Auditor’s Report which has a significant impact on the financials or bearing on the financialstatus of the company.

We have also examined the attached consolidated Balance Sheet of IDBI Ltd. and its subsidiaries as on March 31,2005 and the consolidated Profit and Loss A/c. for the six months then ended and report that the said financial state-ments have been prepared by IDBI Ltd. in accordance with the requirements of Accounting Standard (AS) 21, Consoli-dated Financial Statements, (AS) 23 Accounting for Investments in Asociates in Consolidated Financial Statementsand (AS) 27 Financial Reporting of Interests in Joint Ventures, issued by the Institute of Chartered Accountants of India,except to the extent that (a) Statement of calculation of minority interest and, (b) Consolidated Cah Flow Statement,have not bee furnished.

Balance sheet(Rs. ‘000)

Capital and Liabilities As onSchedule 31-Mar-05

Capital and Liabilities

Capital 1 721 77 50

Reserves and Surplus 2 5204 49 52

Employees' stock options (grants) outstanding 2 13 05

Deposits 3 15102 63 84

Borrowings 4 50005 54 40

Other Liabilities and Provisions 5 10323 66 62--------------------------

TOTAL 81360 24 93--------------------------


99

ASSETS

Cash and balances with Reserve Bank of India 6 2375 89 54

Balances with banks and money at call and short notice 7 3277 26 52

Investments 8 25054 69 20

Advances 9 45413 56 86

Fixed Assets 10 889 41 89

Other Assets 11 4349 40 92--------------------------

TOTAL 81360 24 93--------------------------

Contingent Liabilities 12 60049 73 14

Bills for collection 1207 57 06Notes to Accounts and Significant Accounting Policies 17 & 18

100


Profit and Loss Accounts of erstwhile IDBI( Rs.crore)

Year ended March 31 / 2001 2002 2003 18 mnths.18 months period ended 30/9/04/ period ended

30th Sept. ‘04

Income from Operations (After writing off bad debts and/or making provisions for Bad & Doubtful Debts andother necessary and expedient provisions)A)Interest & Discount 6191 5862 5219 5743B)Income from investments 757 761 516 1062

C) Commission & Brokerage, etc. 188 130 73 61 D) Net Profit on sale of Investment 535 278 419 1146

E)Other Income 164 145 144 211Total Income 7835 7176 6371 8223ExpenditureA)Interest paid on deposits,borrowings, etc. 6595 6250 5434 7080B)Accelerated write-off of bad and –– 2500 –– –doubtful debtsLess : Withdrawn from special reserve –– (2500) –– –u/s36(1)(viii) of IT Act, 1961C)Establishment expenses 84 117 95 182D)Depreciation 230 223 199 242E)Other Expenditure 192 171 188 257F) Provisions and contingencies(excluding provision for tax & deferred tax) - - - -Gross Expenditure 7101 6761 5916 7761Profit before Taxation 734 415 455 462Less : Provision for Taxation (43) (10) (92) (67)Add : Deferred Tax Income –– 19 38 70Profit after Taxation 691 424 401 465Excess Income tax/Interesttax provision of earlier yearswritten back — — — –Balance of Profit 691 424 401 465Balance of profit b/f from last year 201 62 316 476Transfer from :

Venture Capital Fund – – – 179Reserve Fund – – – 1500

Profit available for appropriation 892 486 717 2620Transfer to :Statutory reserves -- -- -- --Reserve Fund 300 -- -- 93Accelerated Provisions – – – 1500Investment Equalisation Reserve — –– — –-Investment Fluctuation Reserve –– 25 25 50Special Reserve u/s 36(1)(viii) of I.T. Act, 1961 120 30 75 30Venture Capital Fund 50 — — –IDBI EXIM(J) Special Fund — — — —Contingency Reserve — — — —Capital Reserve — 12 31 110Proposed dividend onRedeemable Preference Shares 25 — — –Proposed dividend onequity shares 294 98 98 98Tax on Dividend 36 — 12 13Surplus 62 316 476 726Total 892 486 717 2620

The above figures have been rounded off to the nearest crore. Wherever the actual figure is less than Rs 50 lakhs,they have not been reflected. Adjustments resulting from audit qualifications, material amounts relating toadjustments for previous years and changes in accounting policies.


101

( Rs.crore)Year ended March 31 / 2001 2002 2003 18 mnths.18 months period ended 30/9/04/ period ended

30th Sept. ‘04

Profit after tax and after extra Ordinary items 691 424 401 465Prior period items (3) (13) — –Diminution in value of investments 68 — — –Adjusted Profit after tax 756 411 401 465

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

Notes to Adjustments1. We have taken the view that adjustments to profits in respect of the following : a) Material amounts relating to previous years although events triggering off the profit/loss occurred in a subsequent year. b) Extraordinary items c) Changes in accounting policies, and d) prior period items, are required to be done as per the SEBI guidelines in respect of only those items which are disclosed in the audited financial statements of the five accounting/financial years.

2. Prior Period Items : These represent the net difference between prior period incomes and prior period expensescharged to the Profit and Loss Account of the relevant years.

3. Diminution in value of Investments : From the year 2000-2001 net appreciation/depreciation in investments iscredited/charged to the Profit and Loss account as against the earlier policy of charging/adjusting the permanentdiminution if any in the value of shares, bonds and debentures to the Investment Equalisation Reserve.

102


Profit and Loss account for the six months ended March 31, 2005 of IDBI Ltd.(Rupees in '000s)

Schedule 6 months ended31-Mar-05

--------------------------I. Income

Interest earned 13 2655 72 38Other income 14 627 12 40

--------------------------TOTAL 3282 84 78

--------------------------II. Expenditure

Interest expended 15 2467 87 14Operating expenses 16 453 96 24Provisions and contingencies [refer Schedule 19 note 3] 53 75 74

--------------------------TOTAL 2975 59 12

--------------------------III. Profit/Loss

Net profit / (loss) for the year 307 25 66Profit / (loss) brought forward 878 91 78

--------------------------TOTAL 1186 17 44

--------------------------IV. Appropriations

Transfer to statutory reserves 77 00 00Transfer to capital reserves 10 00 00Transfer to Investment Fluctuation Reserves 200 00 00Transfer to Special Reserve under section 36(1)(viii) of the Income Tax Act, 1961 50 00 00Transfer to other reservesProposed dividend 54 13 31Tax on proposed dividend 7 59 22Balance carried over to balance sheet 787 44 91

--------------------------TOTAL 1186 17 44

--------------------------Notes to Accounts and Significant Accounting Policies 17 & 18Earning per share (Rs.) [refer Schedule 17 note 14]- Basic 4.26- Diluted 4.25


103

Schedules forming Part of Accounts(Rupees in ‘000s)

As on 31-Mar-05Schedule 1 - CapitalAuthorised Capital125 00 00 000 Equity Shares of Rs.10 each 1250 00 00

----------------------------1250 00 00

----------------------------Issued, Subscribed and Paid-up Capital65 28 80 406 Equity Shares of Rs.10 each fully paid upInitial capital of 50 006 equity shares 5 00Transferred and vested 65 28 30 400 equity shares 652 83 04 652 88 046 88 94 616 Equity Shares to be issued to the shareholders of Transferor Bank(including 8 20 200 equity shares against ESOPs excercised during the period)* 68 89 46

----------------------------721 77 50

----------------------------* Represents the value of equity shares of the Transferee Bank to be issued as on March 31, 2005, in exchange for theoutstanding number of equity shares of the Transferor Bank, as consideration for Amalgamation (refer Schedule 17note 2 )Schedule 2 - Reserves and Surplus

I. Statutory ReserveBalance transferred and vested -Addition on merger 96 86 01Additions during the period 77 00 00Deductions during the period -

________ 173 86 01

II. Capital ReserveBalance transferred and vested 153 29 19Addition on merger 15 03 47Additions during the period 10 00 00Deductions during the period _

________ 178 32 66

III. Share PremiumBalance transferred and vested 1624 46 43Addition on merger 123 14 42Additions during the period 1 69 11Deductions during the period _

_________ 1749 29 96IV. Revenue and other reserves

(a) General ReserveBalance transferred and vested 2401 03 78Add :Adjustments on merger [refer Schedule 17 note 4 (c) ] 28 59 13Additions during the period _Less :

Amount transferred to floating provision [refer Schedule 17 note 6 (b)] 579 00 00Unamortised expenses adjusted (net) [refer Schedule 17 note 1 (c)] 104 26 76Adjustments on merger [refer Schedule 17 note 4 (d)] 47 99 95Deductions during the period 0 1698 36 20

----------------------------

104


(Rupees in ‘000s)As on 31-Mar-05

(b) Venture Capital FundBalance transferred and vested _Additions during the period _Deductions during the period _ _

----------------------------

(c) Staff Welfare FundBalance transferred and vested 33 85 29Additions during the period 1 30 71Deductions during the period 3 00 41

________ 32 15 59(d) IDBI EXIM (J) Special Fund

Balance transferred and vested 1 69 15Additions during the period 0Deductions during the period 0 1 69 15

----------------------------(e) Investment Fluctuation Reserve

Balance transferred and vested 100 00 00Addition on merger 92 00 00Additions during the period 200 00 00Deductions during the period 0

__________ 392 00 00

(f) Special Reserve under Section 36(1)(viii) of the Income Tax Act, 1961Balance transferred and vested 6 35 04Additions during the period 0Deductions during the period 0

__________ 6 35 04

(f) Special Reserve created and maintained under Section 36(1)(viii) ofthe Income Tax Act, 1961Balance transferred and vested 135 00 00Additions during the period 50 00 00Deductions during the period 0 185 00 00

----------------------------V. Balance in Profit and Loss Account 787 44 91

_________Total 5204 49 52

Schedule 3- DepositsA. I. Demand Deposits

i) From banks 45 53 04ii) From others 3841 12 36

----------------------------3886 65 40

II. Saving Bank Deposits 1891 89 21III. Term Deposits


----------------------------9324 09 23

____________Total 15102 63 84


105

As on31-Mar-05(Rupes in ‘000s)

B. i) Deposits of branches in India 15102 63 84ii) Deposits of branches outside India 0

__________Total 15102 63 84

Schedule 4 - BorrowingsI. Borrowings in India

i) Reserve Bank of India 0ii) Other banks 2357 48 22iii) Other institutions and agencies

a) Government of India borrowings 7 76 78b) Tier I bonds issued to Government of India 2130 50 00c) Bonds guaranteed by GoI 5419 36 35

d) Others 34202 69 74

II. Borrowings outside India 5887 73 31----------------------------

Total 50005 54 40----------------------------

Secured borrowings included in I and II above - Rs.1275 98 22 thousandSchedule 5 - Other Liabilities and ProvisionsI. Bills payable 45 02 924II. Inter-office adjustments (net) 0III. Interest accrued 1680 99 08IV. Unsecured Redeemable Bonds 3877 82 95

(Subordinated for Tier II Capital)V. Deferred tax liability (net) [refer Schedule 17 note 15] 24 14 88VI. Prudential provisions against standard assets 183 75 61VII. Dividend and dividend tax payable on Equity Shares 61 72 53VIII. Receipts in respect of cases transferred to SASF 46 58 31IX. Floating provisions [refer Schedule 17 note 6] 2029 31 00X. Others 1969 03 02

----------------------------Total 10323 66 62

----------------------------Schedule 6 -Cash and Balances with Reserve Bank of IndiaI. Cash in hand 119 45 11II. Balances with Reserve Bank of India

i) in current account 2256 44 37ii) in other accounts 6

----------------------------Total 2375 89 54

----------------------------Schedule 7 - Balances with Banks and money at call and short noticesI. In India

i) Balances with banksa) in current accounts* 187 00 40b) in other deposit accounts 2493 44 08

ii) Money at call and short noticea) with banks 10 50 00b) with other institutions 50 00 00

----------------------------Total 2740 94 48

----------------------------II. Outside India

i) in current accounts 145 02 51ii) in other deposit accounts 380 48 21iii) Money at call and short notice 10 81 32Total 53 63 204

----------------------------Grand Total 3277 26 52

----------------------------* includes Rs.5967 lakhs remitted by branches through non correspondent banks

106


(Rupees in '000s)As on31-Mar-05

Schedule 8 - InvestmentsI. Investments in India in

i) Government securities 14898 25 20ii) Other approved securities 0iii) Shares 2689 65 75iv) Debentures and Bonds 5305 03 64v) Subsidiaries and / or joint ventures 314 05 67vi) Others (CP’s, units in MF’s) 1830 85 04

----------------------------Total 25037 85 30

----------------------------

II. Investments outside India ini) Government securities (including local authorities) 0ii) Subsidiaries and / or joint vebtures abroad 0iii) Others investments (shares) 16 83 90

----------------------------Total 16 83 90

----------------------------Grand Total 25054 69 20

----------------------------Investments in Indiai) Gross value of investments 25123 38 55ii) Aggregate provision for depreciation 85 53 25

----------------------------iii) Net investment 25037 85 30

----------------------------Investments outside Indiai) Gross value of investments 16 83 90ii) Aggregate provision for depreciation 0

----------------------------iii) Net investment 16 83 90

----------------------------Schedule 9 - AdvancesA. i) Bills purchased and discounted / rediscounted 2356 27 79

ii) Cash credits, overdrafts and loans repayable on demand 1283 68 86iii) Term Loans 41773 60 21

----------------------------Total 45413 56 86

----------------------------B. i) Secured by tangible assets* 40282 32 49

ii) Covered by bank / government guarantees** 1421 24 69iii) Unsecured 3709 99 68

----------------------------Total 45413 56 86

----------------------------C. I. Advances in India

i) Priority Sector 4319 22 00ii) Public Sector 3496 03 81iii) Banks 276 23 13iv) Others 37322 07 92

----------------------------Total 45413 56 86

----------------------------II. Advances outside India


107

As on 31-Mar-05(Rs.’000)

i) Due from banks -ii) Due from others -

a) Bills purchased, discounted and rediscounted -b) Syndicated loans -c) Others -

----------------------------Total -

----------------------------Grand Total( C I and C I I ) 45413 56 86

----------------------------* Includes advances secured against book debts** Includes advances secured against letters of credit issued by other banks

Schedule 10 - Fixed AssetsI. Premises [refer Schedule 17 note 7]

Transferred and vested 368 77 17Additions during the period 76 10Deductions during the period 3 41 77Depreciation to date 81 67 04 284 44 46

----------------------------Other fixed assets (including furniture & fixtures)

Transferred and vested 312 98 66Additions during the period 20 89 21Deductions during the period 1 97 52Depreciation to date 195 85 73 136 04 62

----------------------------III. Assets given on Lease

Transferred and vested 1818 37 04Lease adjustment account 30 04 23Deductions during the period 90 14 65Depreciation to date 1284 96 22Provisions for non-performing assets 11 44 00 461 86 40

----------------------------IV. Capital work-in-progess [refer Schedule 17 note 9] 7 06 41

----------------------------Total 889 41 89

----------------------------Schedule 11 - Other AssetsI. Inter-office adjustment (net) 14 68 85II. Interest accrued 705 21 74III. Tax paid in advance / tax deducted at source (net) 1822 24 15IV. Stationery and Stamps 5 98 83V. Non-banking assets acquired in satisfaction of claims 187 29 54VI. Expenses / Disbursements in respect of cases transferred to SASF 12 71 77VII. VRS expenses not written-off 32 83 64VIII. Others 1568 42 40

----------------------------Total 4349 40 92

----------------------------Included in ‘Other assets - Others’ are deposits aggregating Rs.47 69 62 thousand placed with Clearing Corporation ofIndia Limited, of which Rs.43 99 62 thousand is in the form of government securities (including treasury bills)

108


As on 31-Mar-05(Rupees in ‘000s)

Schedule 12 - Contingent LiabilitiesI. Claims against the bank not acknowledged as debts 391 74 23II. Liability for partly paid investments _III. Liability on account of outstanding forward exchange contracts 18419 46 16IV. Guarantees given on behalf of constituents

a) in India 3188 59 55b) outside India _

V. Acceptances, endorsements and other obligations 2324 14 38VI. Currency Swaps 2792 44 20VII. Options 2368 68 58VIII. Interest Rate Swaps 25687 22 80IX. Forward Rate Agreements 3038 32 10X. Capital commitment 3 65 78XI. On account of disputed Income tax, Interest tax, penalty and interest demands* 1793 23 31XII. Other items for which the bank is contingently liable 42 22 05

----------------------------Total 60049 73 14

----------------------------Additional demands raised on account of disputed tax liabilities is Rs.3944 31 73 thousand. The demand includesRs.2174 86 38 thousand in respect of which the Bank has favourable appellate decisions in its own cases in earlieryears. The net contingent liability is Rs.1769 45 35 thousand.

Six months ended 31-Mar-05(Rupees in ‘000s)

Schedule 13 - Interest EarnedI. Interest / discount on advances / bills 2185 65 00II. Income on investments 395 45 35III. Interest on balances with RBI and other inter-bank funds 70 46 28IV. Others 4 15 75

----------------------------Total 2655 72 38

----------------------------Schedule 14 -Other IncomeI. Commission, exchange and brokerage 130 67 05II. Profit on sale of investments (net) 342 27 14III. Profit / (Loss) on revaluation of investments (net) (6 60 67)IV. Profit on sale of land, bulidings and other assets (net)* 12 77 27V. Profit on exchange transactions (net) 28 28 89VI. Dividend income from subsidiary companies and / or joint ventures in India 98 53VII. Miscellaneous Income (including lease income) 118 74 19

----------------------------Total 627 12 40

----------------------------* includes loss on account of discarding of obsolete assets aggregating to Rs.12.16 lakhsSchedule 15 - Interest ExpendedI. Interest on deposits [refer Schedule 17 note 10] 354 29 31II. Interest on Reserve Bank of India / inter-bank borrowings 48 22 58III. Others 2065 35 25

----------------------------Total 2467 87 14

----------------------------

Schedule 16 - Operating ExpensesI. Payments to and provisions of employees 149 33 79II. VRS expenditure written-off [refer Schedule 18 note K] 8 20 91III. Rent, taxes and lighting* 25 91 11


109

IV. Printing and stationery 7 84 85V. Advertisement and publicity 16 18 70VI. Depreciation on bank’s property 22 60 77VII. Depreciation on leased assets 61 40 51VIII. Director’s fees, allowances and expenses 17 36IX. Auditors’ fees and expenses (including branch auditors) 47 30X. Law Charges 2 74 98XI. Postage, Telegram, Telephone, etc. 14 11 36XII. Repairs and maintenance 10 32 59XIII. Insurance 5 98 58XIV. Other expenditure 128 63 43

----------------------------Total 453 96 24

----------------------------* Includes operating lease rentals for office and employee related residential premises.

Schedule 17

A Transfer and Vesting of Undertaking of Industrial Development Bank of India

1 (a) Consequent to the notification of the appointed day under the Industrial Development Bank (Transfer of Undertakingand Repeal) Act, 2003 (Repeal Act), the undertaking of Industrial Development Bank of India (the Bank) has beentransferred to, and vested in Industrial Development Bank of India Ltd. (IDBI Ltd.) with effect from October 1, 2004.

(b) “Transferred and vested” indicated in the Schedule means value vested on account of (a) above.

(c) Upon such transfer and vesting, an amount of Rs. 1042676 Thousand (net of deferred tax of Rs. 601665Thousand thereon) representing unamortised expenses relating to Bonds/Borrowings in the books of the Bank,being intangible assets in terms of Section 15 of the Banking Regulation Act, 1949, has been considered inaccordance with Accounting Standard 26, by eliminating such expenses with a corresponding adjustment to thevested balance of Revenue Reserves.

B Amalgamation of IDBI Bank Ltd. with IDBI Ltd.

2 The Reserve Bank of India has, in exercise of powers under Section 44A of the Banking Regulation Act, 1949,approved on April 2, 2005 a Scheme of Amalgamation of IDBI Bank Ltd. (the “Transferor Bank”) with IDBI Ltd. (the“Transferee Bank”). IDBI Bank Ltd. was a banking company under the provisions of the Banking Regulation Act, 1949.The salient features of the Scheme are as follows:

i. The consideration for the amalgamation is 100 equity shares of Rs. 10 each of the Transferee Bank for every 142equity shares of Rs. 10 each held by the shareholders of the Transferor Bank.

ii. The appointed date for the merger is October 1, 2004.

iii. The effective date of Amalgamation for accounting purposes is October 1,2004.

iv. The effective date of the Scheme is April 2, 2005.

3 No adjustment has been made to the book values of assets and liabilities of the Transferor Bank, except for eliminationof inter-entity balances.

4 a. The Pooling of Interests method of accounting is used to reflect the Scheme of Amalgamation approved by theReserve Bank of India, the statutory authority to sanction approval of Amalgamation of banking companies. All theassets, liabilities and reserves have been recorded at their existing carrying amounts

b. The Reserves of the Transferor Bank have been dealt with as follows:

i. The balance of “Profit and Loss Account” amounting to Rs. 1525403 Thousand has been credited to theProfit and Loss Account.

ii. The balance of “Statutory Reserve Account” amounting to Rs. 968601 Thousand has been credited to theStatutory Reserve Account.

iii. The balance of “Share Premium Account” amounting to Rs. 1231442 Thousand has been credited to theShare Premium Account.

iv. The balance of “Investment Fluctuation Reserve Account” amounting to Rs. 920000 Thousand has beencredited to the Investment Fluctuation Reserve Account.

110


v. The balance of Revenue and other Reserves amounting to Rs. 150347 Thousand has been credited to therespective Revenue and other Reserve accounts.

c. The difference between the amount recorded as share capital to be issued and the amount of share capital of theTransferor Bank amounting to Rs. 285913 Thousand has been adjusted in General Reserve.

d. The excess of the carrying amount of the Transferee Bank’s holding in the Equity Capital of the Transferor Bank,over the face value, amounting to Rs. 479995 Thousand has been adjusted in General Reserve.

5 In terms of the approval of the Scheme by the Reserve Bank of India the effective date for accounting purposes hasbeen adopted as October 1, 2004 and consequently the financial statements for the period ended March 31, 2005have been prepared accordingly.

C Notes forming Part of the Accounts

(In these Notes, the term “IDBI Bank” means IDBI Bank Ltd., which was amalgamated with Industrial DevelopmentBank of India Ltd. (“IDBI Ltd.”) with effect from April 2, 2005).

6 a. While the RBI’s guidelines on Asset Classification, provisioning and income-recognition are followed, IDBI Ltd.has difference of opinion in interpretation of RBI guidelines in certain cases vis-à-vis view taken in RBI InspectionReport for the year ended March 31, 2003, which are in the process of being resolved. Pending resolution of suchdisputes, IDBI Ltd. has continued to adopt the same interpretation of RBI guidelines in respect of such cases.

b. Pursuant to approval of Reserve Bank of India, a floating provision of Rs. 20790000 Thousand as on October 1,2004, has been made by utilization of Accelerated provisions of Rs. 15000000 Thousand and by withdrawal ofRs. 5790000 Thousand from General Reserve of the Transferee Bank, towards the provisioning requirementsthat may arise on settlement of such disputes and any possible decline in value of the loan assets granted priorto October 1, 2004.

c. Restructuring concessions granted aggregating to Rs. 496900 Thousand in respect of loans granted prior toOctober 1, 2004 have been adjusted against the floating provision on determination of the extent of decline invalue of loan assets.

7 Premises include Leasehold Land of Rs. 1302396 Thousand.

8 Other assets include Rs. 100000 Thousand being investments in preference shares, pending completion of formalitiesof dematerialisation.

9 Work-in-progress includes Rs. 42183 thousand in respect of a residential building which is under construction onland sub-leased to IDBI Ltd.. The sub-lease has not yet been ordered for registration in its favour and disputes havingarisen, the matter is sub-judice.

10 GOI reimburses the amount representing difference between the document rate of interest and 8% p.a. on liabilitiestowards select Banks / Institutions. The interest expenditure debited to Profit & Loss Account is after taking intoaccount such credit of Rs. 2527002 Thousand for the period ended March 31, 2005 on paid / accrued basis.

11 IDBI Ltd. treats the investments attributable to dividend income, as made out of Bank’s net worth, which are non-interest bearing.

12 Disclosure of details pertaining to related party transactions in terms of Accounting Standard (AS 18)

Key Management Gross Salary including Outstanding InterestPersonnel perquisites balances of on loans

loans2004-05:Shri V.P. Shetty Rs.44,576/- Nil NilChairman (from March 2005)

Shri J. N. Godbole Rs.99,739/- Nil NilWhole time director (from Feb’05 to March’05)

Shri M Damodaran Rs.1,09,555/- Nil NilChairman (from Oct’04 to Feb’05)


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13 Employees’ Stock Options

IDBI Bank employees are covered by an Employee Stock Option Scheme. In terms of the Scheme, the following stockoptions of IDBI Bank have been granted to eligible employees of the Transferor Bank(‘ESOPs’):

Year Ended Number of OptionsMarch 31, 2001 23 81 270March 31, 2002 3627 180March 31, 2003 46 54 110March 31, 2004 30 49 690March 31, 2005 27 81 000Total 1 64 93 250

The details of these ESOPs are as follows:

Grant date Number of Exercise options OptionsOptions Price exercised lapsed

(Rs.) As at March As at March31, 2005 31, 2005

Tranche I : August 22, 2000 1 18 310 18.76 1 18 310 0Tranche II : October 1, 2000 20 24 970 20.06 12 31 732 6 57 260Tranche III : January 1, 2001 2 37 990 21.51 1 81 217 55 000Tranche IV : April 1, 2001 30 30 600 20.94 19 19 400 7 56 178Tranche V : October 1, 2001 5 96 580 18.45 3 80 409 1 74 529Tranche VI : April 1, 2002 45 77 250 16.82 2 565 799 10 07 781Tranche VII : December 1, 2002 76 860 20.07 50 907 0Tranche VIII : April 1, 2003 30 49 690 21.34 1 288 225 7 04 286Tranche IX : April 1, 2004 2331 000 35.88 2 11 500 _Tranche X : July 1, 2004 4 50 000 40.89 0 0

The vesting schedule for the above tranches is 40% after 1 year, 30% after 2 years and 30% after 3 years.

The exercise price has been determined on the basis of the average of the high-low price of the Transferor Bank’sequity shares, as quoted on the National Stock Exchange of India Ltd. during the twelve months preceding the date ofgrant of the options, as approved by the shareholders of the Transferor Bank

Pursuant to the rights equity share issue of IDBI Bank in the previous year, the Remuneration Committee of IDBI Bankhad made adjustment to the price and number of options granted and outstanding as at that date. The detailsprovided in the above tables reflect those adjustments.

Pursuant to clause 3.5 of the Scheme of Amalgamation and the adjustment approved by the RemunerationCommittee of IDBI Bank, the outstanding options granted to IDBI Bank employees would be converted into options ofIDBI Bank in the swap ratio fixed for the exchange of equity shares. All other terms and conditions of the ESOS Schemeof the IDBI Bank shall apply to the options issued in lieu thereof. As the formalities relating to the issue of options inIDBI Ltd. are yet to be completed, the details given in the above tables reflect the position pertaining to the IDBI Bank.

14. Earnings per Share (EPS)

Six months ended March31, 2005

Net profit considered for EPS calculation (Rs. thousand) 3,07, 25 68

Weighted average number of equity shares considered for basic EPS 72,12,06,843

Earning per share (Basic) (Rs.) 4.26

Add : Dilutive impact of employee stock options granted 23,97,583

Weighted average number of equity shares considered for diluted EPS 72,36,04,426

Earnings per share (Diluted) (Rs.) 4.25

Face value per Equity share (Rs.) 10.00

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15 Deferred Tax, Net:

(Rs. ‘000)

For the six months As at March 31,ended March 31, 2005 2005

Deferred tax asset

NPA provisions 9 14 42 35 14 98

Other provisions (65 87) 20 43 73

Lease equalisation reserve (23 38 32) 14 44 83---------------------------- ----------------------------

Total (A) (14 89 77) 70 03 54---------------------------- ----------------------------

Deferred tax liabilityDepreciation on fixed assets (44 62 57) 94 18 42

---------------------------- ----------------------------Total (B) (44 62 57) 94 18 42

---------------------------- ----------------------------Deferred tax liability / (asset) (net) (A) - (B) (59 52 34) 24 14 88

Adjustment on account of unamortised expenses (60 16 65)written-off [refer note 1 (c)]

Schedule – 18 : Significant Accounting Policies

(In these policies the term “IDBI Bank” means IDBI Bank Ltd, which has been amalgamated with Industrial DevelopmentBank of India Ltd. with effect from April 2, 2005).

A. Basis of preparation

The financial statements are prepared under the historical cost convention in accordance with generally accepted accountingprinciples, the accounting standards as applicable and extant guidelines of Reserve Bank of India.

B. Reserves and Surplus

(i) Capital reserve

The amount appropriated to Capital Reserve represents the profit on sale/redemption of investments intended to be‘Held to Maturity’, after being adjusted for tax and statutory reserve transfer.

(ii) Share premium

Expenses directly incurred in connection with public issues of equity shares, such as legal and professional, post-age, advertisement etc, are adjusted against Share premium.

(iii) Investment Fluctuation Reserve

Appropriation of profits are being made to an investment fluctuation reserve, whereby it is intended to appropriateamounts to the investment fluctuation reserve each year, such that by March 31, 2006, the balance in this reserveequals 5 per cent of the investments other than those that are ‘Held to Maturity’

C. Income Recognition

1. Interest income, lease rentals and other dues are reckoned as accrued, in accordance with the directives issued byRBI from time to time regarding Income Recognition.

2. Underwriting / guarantee commissions are reckoned on accrual basis, except for guarantees issued by IDBI Bank,where commission not exceeding Rs.1 lakh is reckoned on issue of the guarantee.

3. Commission on letters of credit (LCs) issued by IDBI Bank is recognised as income over the period of the LC, exceptfor LC commission not exceeding Rs.1 lakh, which is recognised on issue of the LC. Commission on other LCs isreckoned on receipt.

4. Front-end fees, loan syndication charges, appraisal fees, fees for merchant banking, debenture trusteeship andother financial services are accounted on receipt.

5. Discount received in respect of Bills discounted / rediscounted, Commercial Paper and Certificates of Deposit isapportioned over the period of usance of the instruments.

6. Final dividend on shares held in Industrial Concerns and Financial Institutions is recognised as income on dates ofdeclaration and interim dividend is recognised as income when received.


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D. Advances and Provisions

(i) As per RBI Guidelines, loan assets and other assistance portfolios (including debentures in the nature of advances)are to be classified as Standard, Sub-standard, Doubtful and Loss subject to provision / write-off, as under:

1 Standard Assets 0.25% of loan / assistance2. Sub-Standard assets 10% of loan / assistance.3. Doubtful assets 100 % of unsecured portion plus 20% / 30% / 50% / 100% * of

secured portion depending on the period for which the loan /assistance have remained doubtful.

4. Loss Assets The entire assistance is to be provided / written off.

* In respect of the stock of NPAs which had been classified as ‘doubtful for more than three years as on March 31,2004, the increase in provisioning requirement is applied in a phased manner over a three year period.

On the above basis and keeping in view the record of recovery and other relevant factors, the requirements ofprovisions / write-off are being determined.

(ii) Loan Assets are shown net of provision / write-off for sub-standard /doubtful / Loss assets.

(iii) Assets that are classified as other than standard are upgraded and reclassified as standard on satisfactoryperformance, and in accordance with RBI directives.

E. Investments

1. In determining acquisition cost of an investment :

(a) Brokerage, commission and stamp duty paid in connection with acquisition of securities are treated as revenueexpenses,

(b) Interest accrued upto the date of acquisition of securities (i.e. broken period interest) is excluded from theacquisition cost and recognised as interest expense.

2. In terms of extant Guidelines of the Reserve Bank of India, the entire investment portfolio is categorised as “Held toMaturity”, “ Available for Sale” and “Held for Trading”. The investments under each category are further classified as i)Government securities ii) other approved securities iii) Shares iv) Debentures and Bonds v) Subsidiaries / jointventures vi) Others (CP, Mutual Fund Units, etc.).

3. The debentures / bonds / preference shares deemed to be in the nature of advance, are subject to the usualprudential norms.

4. Investments acquired with the intention to hold till maturity are categorised under Held to Maturity. Such investmentsare carried at acquisition cost unless it is more than the face value, in which case the premium is amortised over theperiod remaining to maturity. Diminution, other than temporary, in the value of investments in subsidiaries / jointventures under this category is provided for each investment individually. Profit on sale of investments in this categoryare appropriated to the Capital Reserve Account at the end of financial year.

5. Investments acquired with the intention to trade by taking advantage of the short-term price/interest rate movementsare categorised under Held for Trading. The investments in this category are revalued as a whole and net deprecia-tion is recognised in the profit and loss account. Net appreciation, if any, is ignored. The book value of individual scripsis not changed.

6. Investments which do not fall within the above two categories, are categorised under “Available for Sale”. The indi-vidual scrips under this category are revalued at quarterly intervals and net depreciation under any of the six classifi-cations mentioned above, is recognised in the profit and loss account. Net appreciation under any classification isignored. The book value of individual scrips is not changed.

7. The basis for periodical valuation of investments categorised as Held for Trading and Available for sale are asfollows:

l Treasury Bills are valued at carrying cost,

l In respect of traded/quoted investments, the market price is taken as available from the trades/quotes on thestock exchanges, price of SGL Account transactions, price list of RBI and prices declared by PDAI/FIMMDAperiodically; and

l The unquoted shares / units are valued at break-up value / repurchase price & Net Asset Value. The unquotedfixed income securities are valued on YTM basis with appropriate mark-up over the YTM rates for Central Govern-ment securities of equivalent maturity.

8. Investments are shown net of provisions.

9. Profit / loss on sale of investments are booked on accrual basis.

10. Upfront incentives received on subscription to securities are recognised as income.

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F. Fixed Assets and depreciation

1. Premises and other fixed assets are carried at cost.

2. Depreciation on assets acquired during the course of leasing business is provided on straight-line method pro-ratafrom the month in which lease rentals commence over the primary period of lease.

3. Depreciation is charged over the estimated useful life of a fixed asset on SLM basis. The rates of depreciation for fixedassets are:

Assets Depreciation Rate

Premises 1.63% SLM

Furniture and fixtures 8.33% SLM

Electrical installation and machinery 8.33% SLM

Motor vehicles 20% SLM

Computers 33.33% SLM

Automated Teller Machines 12.50% SLM

VSAT equipment 10% SLM

Consumer durables with IDBI Bank employees 20% SLM

Consumer durables with other employees 8.33% SLM

4. Leasehold land is amortised over the period of lease.

5. Cost of computer application software in excess of Rs.2.5 lakh is capitalised and is depreciated over its useful life, notexceeding 5 years.

G. Leased Assets

Assets given under a finance lease prior to April 1, 2001:The amount of Lease Equalisation representing the differencebetween the annual lease charge and the depreciation provided on leased assets in the books is adjusted in the Profit &Loss Account with corresponding adjustment to the value of leased assets through a separate lease adjustment account.

Assets given under a finance lease on or after April 1, 2001 are recognised as a receivable at an amount equal to the netinvestment in the lease. Lease rentals are apportioned between principal and interest on the IRR method. The principalamount received reduces the net investment in the lease and interest is recognised as revenue. Initial direct costs suchas legal costs, brokerage costs, etc. are recognised immediately in the Profit and Loss Account.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term, areclassified as operating leases. Operating lease payments are recognized as an expense in the Profit and Loss accounton a straight-line basis over the lease term.

H. Foreign Currency Transactions

1. Income and expenditure is accounted at the actual exchange rates of remittance. Amounts pending remittance areaccounted at the closing FEDAI rates. Gains / losses on account of the difference between such closing FEDAI ratesand actual exchange rates of remittance are accounted for in the profit and loss account. Foreign currency assets andliabilities are translated at closing FEDAI rates.

2. Forward Exchange Contracts and net income / expenditure thereon are accounted for on the settlement date.

3. Outstanding forward exchange contracts are revalued at rates of exchange notified by the FEDAI for specified maturi-ties and the resulting profits/losses are included in the profit and loss account.

4. Contingent liability in respect of outstanding forward exchange contracts is stated at the contracted rates of exchange.

5. Contingent liability in respect of guarantees, acceptances, endorsements and other obligations are stated at therates of exchange notified by FEDAI at year-end.

I. Derivative transactions

In Transactions designated as ‘Hedge’:.

1. Net interest payable / receivable on derivative transactions is accounted for on accrual basis.

2. On premature termination of Hedge swaps, any gain / loss is recognised over the shorter of the remaining contractuallife of the swap or the remaining life of the asset or liability.

3. Redesignation of hedge swaps by change of underlying liability is accounted as the termination of one hedge andacquisition of another.

4. Where the hedge is designated with an asset or liability that is carried at market value or lower of cost or market value


115

in the financial statements then the hedge would also be marked to market with the resulting gain or loss recorded asan adjustment to the market value of designated asset or liabilities.

Transactions designated as ‘Trading’:

5. Outstanding derivative transactions designated as ‘Trading’, which includes interest rate swaps, cross currencyswaps, cross currency options and forward rates agreements, are measured at their fair value which provides for themarket risk on these transactions. The resulting profits/ losses are included in the profit and loss account. Premiumis recorded as a balance sheet item and transferred to Profit and Loss Account on maturity/ cancellation.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal creditpolicy. Provisioning of overdue customer receivable on derivative contracts are made as per RBI provisioning guide-lines

J. Employee Benefits

(i) Gratuity charged to profit and loss account is on the basis of premium charged by LIC under its Group GratuityScheme.

(ii) Leave encashment determined based on actuarial valuation at the year end, is fully provided for.

(iii) IDBI Bank employees are covered under a superannuation scheme. Under this scheme, 10 per cent of the employ-ees’ annual basic salary is contributed to the Fund, which is administered by LIC. There is no liability for futuresuperannuation fund benefits other than the annual contribution, which is charged to the profit and loss account overthe period to which it relates.

Other employees are covered by a Pension Scheme. Pension Liability, determined based on actuarial valuation at theyear end, is fully provided for.

(iv) Contributions for provident fund are charged to the profit and loss account.

(v) IDBI Bank employees are covered by an Employee Stock Option Scheme. The intrinsic value of the options isexpended on a straight-line basis over the vesting period.

K. Voluntary Retirement Scheme

Expenditure in respect of employees retired under Voluntary Retirement Scheme is written off in five equal annual instalments

L. Interest Expenditure on Borrowings

The interest expenditure on borrowings is accounted for on accrual basis.

M. Securitisation Transactions

Securitisation of various consumer loans result in the sale of these assets to special-purpose entities (‘SPVs’), which, inturn issue securities to investors. Financial assets are partially or wholly derecognised when the control of the contractualrights that comprise the securitised assets is lost. In case of such sale, where the consideration received from the SPV incash and/or in a form other than cash, equals the carrying value of loan assets sold, the income on the non-cashconsideration received is recorded on an accrual basis, and where the consideration received from the SPV in cash and/or in a form other than cash exceeds the carrying value of the loan assets, the difference is accounted as income upfrontafter making provision for projected delinquencies and future servicing costs

N. Income Tax

Tax expense comprises both current and deferred taxes. Current incometax is measured at the amount expected to bepaid to the tax authorities in accordance with the Indian Income Tax Act. Deferred income taxes reflect the impact of currentyear timing differences between taxable income and accounting income for the period and reversal of timing differencesof earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at thebalance sheet date. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficientfuture taxable income will be available against which such deferred tax assets can be realized.

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Consolidated Balance Sheet as on March 31, 2005(as per Schedule III of Banking Regulation Act, 1949) (Rupees in ‘000s)

Capital and Liabilities Schedule As on 31-Mar-05Capital 1 721 77 50Reserve and Surplus 2 5514 42 72Employees’ stock options (grants) outstanding 2 13 05Deposits 3 15102 63 85Borrowings 4 51190 93 43Other Liabilities and Provisions 5 10467 53 56

--------------------------------Total 82999 44 11

--------------------------------AssetsCash and balances with Reserve Bank of India 6 2376 42 81Balances with banks and money at call and short notice 7 3313 22 18Investments 8 24728 11 17Advances 9 46326 89 04Fixed Assets 10 914 17 43Other Assets 11 5340 61 48

--------------------------------Total 82999 44 11

--------------------------------Contingent Liabilities 12 60054 17 89Bill for collection 1207 57 06Notes to Accounts and Significant Accounting Policies 17 &18

Profit and Loss account for the six months ended March 31, 2005(as per Schedule III of Banking Regulation Act, 1949)

(Rupees in ‘000s)Sch Six months ended

31 - Mar -05I. Income

Interest earned 13 2720 50 37Other income 14 631 94 52

--------------------------------TOTAL 3352 44 89

--------------------------------II. Expenditure

Interest expended 15 2509 72 80Operating expenses 16 468 74 79Provisions and contingencies 55 39 88

--------------------------------TOTAL 3033 87 47

--------------------------------III. Profit/Loss

Net profit / (loss) for the year 318 57 42Profit / (loss) brought forward 857 94 41

--------------------------------TOTAL 1176 51 83

--------------------------------

IV. AppropriationsTransfer to statutory reserves 80 90 00Transfer to capital reserves 10 00 00Transfer to Investment Fluctuation Reserve 200 00 00Transfer to Special Reserve under section 36(1)(viii) of the Income Tax Act, 1961 50 00 00Tax adjustment of earlier years 86 90Transfer to other reserves _Proposed dividend 54 13 31Tax on proposed dividend 7 59 22Balance carried over to balance sheet 773 02 40

--------------------------------TOTAL 1176 51 83

--------------------------------Notes to Accounts and Significant Accounting Policies 17 & 18Earnings per share (basic & diluted) (Rs.)-Basic 4.42-Diluted 4.40


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Schedule 1 -CapitalAuthorised Capital125 00 00 000 Equity Shares of Rs.10 each 1250 00 00

--------------------------1250 00 00--------------------------

Issued, Subscribed and Paid-up Capital652880406 Equity shares of Rs.10 each fully paid upInitial capital of 50 006 equity shares 5 00Transferred and vested 65 28 30 400 equity shares 652 83 0468894616 Equity Shares to be issued to the shareholders ofTransferor Bank (including 820200 equity shares againstESOPs exercised during the period*) 68 89 46

--------------------------721 77 50

--------------------------* Represents the value of equity shares of the Transferee Bank to be issued as on March 31, 2005, in exchange for theoutstanding number of equity shares of the Transferor Bank, as consideration for Amalgamation (refer note 3)Schedule 2 - Reserves and SurplusI. Statutory Reserve

Balance as on October 1, 2004 255 16 26Additions during the year 77 00 00Deductions during the year -------------------------- 33 21 626

II. Capital ReserveBalance as on October 1, 2004 168 32 66Additions during the year 10 00 00Deductions during the year -------------------------- 178 32 66

III. Share PremiumBalance as on October 1, 2004 1747 60 85Additions during the year 1 69 11Deductions during the year _

-------------------------- 1749 29 96IV. Revenue and other reserves

(a) General ReserveBalance as on October 1, 2004 1858 10 56Additions during the period _Deductions during the period _

-------------------------- 1858 10 56(b) Venture Capital Fund

Balance as on October 1, 2004 _Additions during the year _Deductions during the year _

(c) Staff Welfare FundBalance as on October 1, 2004 33 85 29Additions during the year 1 30 71Deductions during the year 3 00 41 32 15 59

--------------------------

(d) IDBI EXIM (J) Special FundBalance as on October 1, 2004 1 69 15Additions during the year _Deductions during the year _

-------------------------- 1 69 15 ---------

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(e) Investment Fluctuation ReserveBalance as on October 1, 2004 192 00 00Additions during the year 200 00 00Deductions during the year _

-------------------------- 392 00 00(f) Special Reserve under Section 36(1)(viii) of the Income Tax Act, 1961

Balance as on October 1, 2004 6 35 04Additions during the year _Deductions during the year _

-------------------------- 6 35 04(g) Special Reserve created & maintained under Section 36(1)(viii) of the

Income Tax Act, 1961Balance as on October 1, 2004 137 41 10Additions during the year 53 90 00Deductions during the year _

-------------------------- 191 31 10V. Balance in Profit and Loss Account 773 02 40

--------------------------Total 5514 42 72

--------------------------

Schedule 3 - DepositsA. I. Demand Deposits


--------------------------3886 65 40--------------------------

II. Saving Bank Deposits 1891 89 21III. Term Deposits


--------------------------9324 09 24--------------------------

TOTAL 15102 63 85--------------------------

B. i) Deposits of branches in India 15102 63 85ii) Deposits of branches outside India --

--------------------------TOTAL 15102 63 85

Schedule 4 - BorrowingsI. Borrowings in India

i) Reserve Bank of India _ii) Other banks 3146 38 85iii) Other institutions and agencies

a) Government of India borrowings 7 76 78b) Tier I bonds issued to Government of India 2130 50 00c) Commercial Paper 80 00 00d) Bonds guaranteed by GoI 5419 36 35e) Others 34519 18 14

II. Borrowings outside India 5887 73 31--------------------------------

Total 51190 93 43--------------------------------

Secured borrowings included in I & II above Rs.2268 56 09 thousands


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Schedule 5 - Other Liabilites and Provisions

I. Bills payable 450 29 24II. Interest accrued 1684 38 69III. Unsecured Redeemable Bonds 3877 82 95

(Subordinated for Tier II Capital)IV. Deferred tax liability (net) 25 44 65V. Prudential provisions against standard assets 183 75 61VI. Dividend and dividend tax payable on Equity Shares 61 72 53VII. Receipts in respect of cases transferred to SASF 46 58 31VIII. Floating Provisions 2029 31 00IX. Others 2108 20 58

--------------------------------TOTAL 10467 53 56

--------------------------------Schedule 6 - Cash and Balances with Reserve Bank of IndiaI. Cash in hand 119 98 38II. Balances with Reserve Bank of India

i) in current account 2256 44 37ii) in other accounts 6

--------------------------------TOTAL 2376 42 81

--------------------------------Schedule 7 - Balances with Banks and money at call and short noticesI. In India

i) Balances with banksa) in current accounts* 202 16 04b) in other deposit accounts 2514 24 10* includes Rs.5967 lakhs remitted by branches through non correspondent banksii) Money at call and short noticea) with banks 10 50 00b) with other institutions 50 00 00

--------------------------------Total 2776 90 14

--------------------------------II. Outside India

i) in current accounts 145 02 51ii) in other deposit accounts 380 48 21iii) Money at call and short notice 10 81 32

--------------------------------Total 536 32 04

--------------------------------Grand Total 3313 22 18

--------------------------------Schedule 8 - InvestmentsI. Investments in India in

i) Government securities 14899 78 62ii) Other approved securities --iii) Shares 2690 15 75iv) Debentures and Bonds 5267 03 64v) Subsidiaries and / or joint ventures 25 97 99vi) Others (CP’s, units in MF’s) 1828 31 27

--------------------------------Total 24711 27 27

--------------------------------

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II. Investments outside India ini) Government securities (including local authorities) --ii) Subsidiaries and / or joint vebtures abroad --iii) Others investments (shares) 16 83 90

--------------------------------Total 16 83 90

--------------------------------Grand Total 24728 11 17

--------------------------------

III. Investments in Indiai) Gross value of investments 24796 80 52ii) Aggregate provision for depreciation 85 53 25

--------------------------------iii) Net investment 24711 27 27

--------------------------------IV. Investments outside India

i) Gross value of investments 16 83 90ii) Aggregate provision for depreciation --

--------------------------------iii) Net investment 16 83 90

--------------------------------Schedule 9 - AdvancesA. i) Bills purchased and discounted / rediscounted 2356 27 79

ii) Cash credits, overdrafts and loans repayable on demand 1283 68 86iii) Term Loans 42686 92 39

--------------------------------46326 89 04

--------------------------------B. i) Secured by tangible assets* 41203 65 00

ii) Covered by bank / government guarantees** 1421 24 69iii) Unsecured 3701 99 35

--------------------------------Total 46326 89 04

--------------------------------C. I. Advances in India

i) Priority Sector 4319 22 00ii) Public Sector 3496 03 81iii) Banks 276 23 13iv) Others 38235 40 10

--------------------------------Total 46326 89 04

--------------------------------II. Advances outside India --i) Due from banks --ii) Due from others --a) Bills purchased, discounted and rediscounted --b) Syndicated loans --c) Others --Total 0

--------------------------------Total ( C I and C I I ) 46326 89 04

--------------------------------* Includes Advances secured against book debts** Includes Advances secured against Letters of Credit issued by other Banks

Schedule 10 - Fixed AssetsI. Premises

Balance as on October 1, 2004 382 15 06Additions during the period 1 43 76Deductions during the period 3 50 93Depreciation to date 85 59 81 294 48 08

--------------------------------II. Other fixed assets (including furniture & fixtures)

Balance as on October 1, 2004 322 57 62Additions during the period 23 48 39Deductions during the period 2 08 77Depreciation to date 201 53 66 142 43 58

--------------------------------


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III. Assets given on LeaseBalance as on October 1, 2004 1818 37 04Lease adjustment net of provisions 30 04 23Deductions during the period 90 14 65Depreciation to date 1284 96 22Provisions for non-performing assets 11 44 00 461 86 40

--------------------------------IV. Capital work-in-progess 15 39 37

--------------------------------Total 914 17 43

Schedule 11 - Other AssetsI. Inter-office adjustment (net) 14 68 85II. Interest accrued 720 98 66III. Tax paid in advance / tax deducted at source (net) 1943 99 87IV. Stationery and Stamps 5 98 82V. Non-banking assets acquired in satisfaction of claims 187 29 54VI. Expenses / Disbursements in respect of cases transferred to SASF 12 71 77VII. VRS expenses not written-off 32 83 64VIII. Others 2422 10 33

--------------------------------Total 5340 61 48

--------------------------------

Included in ‘Other assets - Others’ are deposits aggregating Rs.47,69,62 thousand placedwith Clearing Corporation of India Limited, of which Rs.43,99,62 thousand is in the form ofgovernment securities(including treasury bills)

Schedule 12 - Contingent LiabilitiesI. Claims against the bank not acknowledged as debts 391 74 23II. Liability for partly paid investmentsIII. Liability on account of outstanding forward exchange contracts 18419 46 16IV. Guarantees given on behalf of constituents

a) in India 3188 97 01b) outside India

V. Acceptances, endorsements and other obligations 2324 14 38VI. Currency Swaps 2792 44 20VII. Options 2368 68 58VIII. Interest Rate Swaps 25687 22 80IX. Forward Rate Agreements 3038 32 10X Capital commitment 7 73 06XI On account of disputed Income tax, Interest Tax , penalty and interest demands* 1793 23 31XII Other items for which the bank is contingently liable 42 22 06

--------------------------------Total 60054 17 89

--------------------------------

* Additional demands raised on account of disputed tax liabilities is Rs. 3944 31 73 thousand. The demandincludes Rs. 2174 86 38 thousand in respect of which the Bank has favourable appellate decisions in its owncases in earlier years. The net contingent liability is Rs. 1769 45 35 thousand.

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Six months ended March 31, 2005(Rupees in ‘000s)

Schedule 13 - Interest EarnedInterest / discount on advances / bills 2185 70 92Income on investments 395 54 86Interest on balances with RBI and other inter-bank funds 70 46 28Others 68 78 31

--------------------------------Total 2720 50 37

--------------------------------Schedule 14- Other Income

Commission, exchange and brokerage 131 97 84Profit on sale of investments (net) 337 27 96Profit/(Loss) on revaluation of investments (net) (6 60 67)Profit on sale of land, bulidings and other assets (net)** 12 72 79Profit on exchange transactions (net) 28 28 89Income earned by way of dividends, etc. from subsidiary companiesand / or joint ventures abroad/ in India 98 53Miscellaneous Income (including lease income) 127 29 18

--------------------------------Total 631 94 52

--------------------------------**Includes Loss on account of discarding of obsolete assets aggregating to Rs. 1216 thousand

Schedule 15 - Interest ExpendedInterest on deposits 354 29 31Interest on Reserve Bank of India / inter-bank borrowings 67 63 80Others 2087 79 69

--------------------------------Total 2509 72 80

____________

Schedule 16 - Operating ExpensesPayments to and provisions of employees 152 84 57VRS expenditure written- off 8 20 91Rent, taxes and lighting* 30 39 89Printing and stationery 8 12 64Advertisement and publicity 16 91 20Depreciation on bank’s property 23 78 10Depreciation on leased assets 61 40 51Director’s fees, allowances and expenses 18 75Auditors’ fees and expenses (including branch auditors) 55 25Law Charges 3 95 88Postage, Telegram, Telephone, etc. 14 77 63Repairs and maintenance 11 47 63Insurance 6 02 41Other expenditure 130 09 42

--------------------------------Total 468 74 79

--------------------------------* Includes operating lease rentals for office and employee related residential premises.


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17 Notes forming part of the Accounts1. Basis of accounting:

The financial statements are prepared as per historical cost convention in accordance with the statutory provisionsand accounting principles generally accepted in India. The consolidated financial statements have been preparedusing uniform accounting policies for like transactions and other events in similar circumstances. Where it is notpracticable, in view of statutory/regulatory requirements, accounting policies as mandated by respective statutes/regulatory authorities have been followed.

2. Principles of consolidation:a) The consolidated financial statements include the accounts of Industrial Development Bank of India Ltd. (parent

company) and all of its subsidiaries as defined in Accounting Standard (AS) 21 ‘Consolidated Financial State-ments’ issued by the Institute of Chartered Accountants of India. The financial statements of the subsidiariesused in the consolidation are drawn upto the same reporting date as that of the Bank i.e., 6 months ended March31, 2005.

b) The financial statements of the Bank and its subsidiaries have been combined on a line by line basis by addingtogether the book-values of like items of assets, liabilities, income & expenses.

c) The subsidiaries considered in the consolidated financial statements are:

Name of the company Country of % of equity capitalIncorporation held as at March 31, 2005

IDBI Capital Market Services Ltd. (ICMS) India 100

IDBI Intech Ltd. (IIL) India 100

IDBI Homefinance Ltd. India 100

d) Though the Bank holds more than 20% of voting power in certain entities, the same are not treated as investmentin an Associate under AS 23, mainly either due to lack of significant influence or such investments are notconsidered as material investments requiring consolidation as an Associate under AS 23 ‘Accounting for Invest-ments in Associates’.

e) IDBI does not presently have any joint ventures requiring proportionate consolidation as defined under AS 27‘Financial Reporting of Interests in Joint Ventures’.

3. Changes in composition of the groupThe following changes have taken place in the composition of the group during the accounting year ended March 31,2005:-

IDBI Ltd.

Consequent to the notification of the appointed day under the Industrial Development Bank (Transfer of Undertakingand Repeal) Act, 2003 (Repeal Act), the undertaking of Industrial Development Bank of India (the Bank) has beentransferred to, and vested in Industrial Development Bank of India Ltd. (IDBI Ltd.) with effect from October 1, 2004.

IDBI Bank

The Reserve Bank of India has, in exercise of powers under Section 44A of the Banking Regulation Act, 1949,approved on April 2, 2005 a Scheme of Amalgamation of IDBI Bank Ltd. (the “Transferor Bank”) with IDBI Ltd. (the“Transferee Bank”). IDBI Bank Ltd. was a banking company under the provisions of the Banking Regulation Act, 1949.The salient features of the Scheme are as follows:i. The consideration for the amalgamation is 100 equity shares of Rs. 10 each of the Transferee Bank for every 142

equity shares of Rs. 10 each held by the shareholders of the Transferor Bank.ii. The appointed date for the merger is October 1, 2004.iii. The effective date of Amalgamation for accounting purposes is October 1, 2004.iv. The effective date of the Scheme is April 2, 2005.In these Notes, the term “IDBI Bank” means IDBI Bank Ltd., which has been amalgamated with IDBI Ltd with effectfrom April 2, 2005.

IDBI Homefinance Ltd.

Consequent to acquisition of Tata Finance Ltd’s holding, with effect from September 9, 2003, Tata Homefinance Ltdhas become a subsidiary of IDBI Ltd. Subsequently, the subsidiary’s name has been changed to IDBI HomefinanceLtd. The erstwhile holding company Tata Finance Ltd.(TFL) has agreed to indemnify company against any housingloan sanctioned upto September 7, 2003(date of divesting the investment by TFL) becoming a non performing assetwithin three years from the effective date. This indemnity includes expenses related to recovery action and shortfall in

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the realization of amount, subject to an overall cap of Rs.5 crores. Financial statements are not adjusted to reflect anyimpact of this indemnity.

IDBI Intech Ltd.

IDBI Ltd. holds 99.99% of the paid share capital of IDBI Intech Ltd. The Board of Directors of IDBI has decided that itwould exit Information Technology business altogether and IDBI Intech Ltd. has been advised to take necessary stepsto wind up the company in terms of section 484 of the Companies Act, 1956. During the year, out of the two divisionsviz. software development and contact center, IDBI Intech Ltd had initiated steps to close down Software DevelopmentDivision. The contracts in respect of ongoing projects of the said division were terminated. The damages/claims, ifany, arising out of such termination of contracts has not been quantified. Further with effect from July 1, 2004 theoperations of Call Center Division has also been suspended. The members in their extraordinary meeting have alsopassed the resolution for the disposal of Contact Center. Any damages/claims arising out of suspension of serviceshave not been ascertained & not provided for.

4. Segment Reporting

The company has disclosed Business segment as the Primary segment. Segments have been identified taking intoaccount the nature of business, the differing risks and returns, the organisation structure and internal reportingsystem.

The following segments have been Identified:

a. Wholesale Bankingb. Retail Bankingc. Treasuryd. OthersSegment Revenue, segment results, segment assets and segment liabilities includes the respective amountsidentifiable to each of the segments as also amounts allocated on a reasonable basis as estimated by the manage-ment.

Assets and Liabilities that cannot be allocated between the segments are shown as a part of unallocated assets andliabilities respectively.

The company caters mainly to the needs of the domestic markets as such there are no reportable geographicalsegments.

(Rs.Crore)Sr. No. Particulars Accounting period

ended 31.03.2005(6 months)

1 Segment RevenueWholesale Banking 3033.90Retail Banking 525.97Treasury 529.65Others 6.35Total 4095.87Less :- Inter-segment revenue 743.42Net income from operations 3352.45

2 Segment Results -Profit/(loss) before taxWholesale Banking 239.57Retail Banking 49.59

Treasury 29.84 Others (0.43) Total profit 318.573 Segment assets Wholesale Banking 69890.39

Retail Banking 9625.23 Treasury 1509.84 Others 21.39 Unallocated corporate assets 1952.59 Total Assets 82999.44


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4 Segment liabilities Wholesale Banking 71738.71

Retail Banking 9736.85 Treasury 980.26 Others 11.76 Unallocated corporate liabilities 531.86 Total Liabilities 82999.445 Capital Expenditure Wholesale Banking 5.75

Retail Banking 16.92 Treasury 0.06 Others 2.19 Total 24.926 Depreciation Wholesale Banking 71.62

Retail Banking 12.59 Treasury 0.36 Others 0.62 Total 85.19

5. As required by Accounting Standard AS-18 “Related Parties Disclosure” issued by The Institute of Chartered Accoun-tants of India, the disclosure of details pertaining to related party transactions are as follows:

IDBI Ltd.

Key Management Personnel Gross Salary Outstanding Interestincluding perquisites balances on

of loans loans

Shri V.P. Shetty Rs.44,576/- Nil NilChairman (from March 2005)Shri J. N. Godbole Rs.99,739/- Nil NilWhole time director (from Feb’05 to March’05)

Shri M Damodaran Rs.1,09,555/- Nil Nil(from Oct‘04 to Feb ‘05)

l IDBI Capital Market Services Ltd.:

(Rs. lakh)

Key Management Personnel Remuneration includes pay, allowances During Oct 04-Mar 05and reimbursements as under:

S. Muhnot Remuneration 1.89Managing Director

Pension scheme contribution 0.26

Perquisites & benefits 2.65(as reimbursements to IDBI)

l IDBI Homefinance Ltd.

Key Management Personnel Nature of transaction

Shri Melwyn Rego Cost to company includes salary, allowances,Managing Director & CEO perquisite etc. 4.09

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6. Earning per share (EPS)

Six months endedMarch 31, 2005

Net Profit considered for EPS calculation (Rs. thousand) 318,57,42

Weighted average number of equity shares considered for basic EPS 72,12,06,843

Earning per share (Basic) (Rs.) 4.42

Add: Dilutive impact of employee stock options granted 23,97,583

Weighted average number of equity shares considered for diluted EPS 72,36,04,426

Earning per share (Diluted) (Rs.) 4.40

Face value per Equity share (Rs.) 10.00

7. IDBI’s stock broking subsidiary has been raising Demand Loan under the scheme of Liquidity Support to PrimaryDealers and availing Liquidity Adjustment Facility, both from the Reserve Bank of India from time to time against thepledge of Dated Govt. Securities and Treasury Bills. It has also been raising resources under Collateralised Borrow-ing and Lending Obligations (CBLO) from the Clearing Corporation of India Ltd., against the pledge of Dated Govt.Securities and Treasury Bills. The outstanding CBLO borrowing on March 31, 2005 is Rs.22492.24 lakhs against thepledge of Dated Govt. Securities/Treasury Bills for face value of Rs.29800.00 lakhs.

8. Additional statutory information disclosed in separate financial statements of the parent and the subsidiaries havingno bearing on the true and fair view of the consolidated financial statements and also the information pertaining to theitems which are not material have not been disclosed in the consolidated financial statement in view of the generalclarification issued by ICAI.

18. Significant Accounting Policies

A. Income RecognitionIDBI Ltd.

i. Interest income, lease rentals and other dues are reckoned as accrued, in accordance with the directives issued byRBI from time to time regarding Income Recognition.

ii. Underwriting / guarantee commissions are reckoned on accrual basis, except for guarantees issued by IDBI Bank,where commission not exceeding Rs.1 lakh is reckoned on issue of the guarantee.

iii. Front-end fees, loan syndication charges, appraisal fees, fees for merchant banking, debenture trusteeship andother financial services are accounted on receipt.

iv. Discount received in respect of Bills discounted/rediscounted, Commercial Paper and Certificate of Deposits isapportioned over the period of usance of the instruments.

v. Final dividend on shares held in Industrial Concerns and Financial Institutions is recognised as income on dates ofdeclaration and interim dividend is recognised as income when received.

vi. Commission on letters of credit (LCs) issued by IDBI Bank is recognised as income over the period of the LC, exceptfor LC commission not exceeding Rs.1 lakh, which is recognised on issue of the LC. Commission on other LCs isreckoned on receipt.

ICMS

vii. The difference between the acquisition cost and redemption value of discounted debt securities, held as on theBalance Sheet date, is apportioned on time basis and recognised as accrued income.

viii. In respect of discounted debt securities, discount earned represents the excess of sales and redemption proceedsand the value of closing stock over purchases and the value of opening stock of such securities.

ix. Total consideration paid or received on purchase or sale, on outright basis, of coupon-bearing debt securities isidentified separately as principal consideration and accrued interest. Amount paid as accrued interest on purchase,and received on sale, of such securities is netted and reckoned as expense or income by way of interest.

x. Interest on fixed coupon debt securities, held as on the Balance Sheet date, is accrued for the expired period at thecoupon rate. Interest on floating rate securities is accrued at rates determined as per the terms of the issue.

xi. Profit or loss on sale of securities represents the excess of sales and redemption proceeds and the value of closingstock over purchases and the value of opening stock of such securities. The same is recognised on the basis ofsettlement dates in case of securities settled at SGL account with RBI and bond transactions and trade dates in othercases.


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xii. Where, in a primary floatation of securities, the value of securities devolved or allotted exceeds or is equal to the valueof securities underwritten, the whole of the underwriting fee received is reduced from the cost of the security. Wherethe value of securities devolved or allotted is less than the value of securities underwritten, that proportion of theunderwriting fee received is reduced from the cost as the value of securities devolved or allotted bears to the value ofsecurities underwritten and the balance fee received is considered as income.

xiii. Brokerage and commission earned on secondary market operations is recognised on the basis of trade dates.Brokerage and commission in respect of issue marketing and resource mobilisation is accrued to the extent ofavailability of information. Depository, Portfolio Management and other fees are accounted for on accrual basis.

IDBI Intech Ltd.

xiv. Revenue from software contracts is recognised on achievement of milestone basis. Sale of products is recognisedon transfer of property of goods as per agreed terms. The Softwares sold, on which propriety rights continue with thecompany, are not valued. Annual Technical Services is recognised proportionately over the period in which theservices are rendered. Revenue from Contact Center is recognised upon receipt of confirmation of sales.

IDBI Home Finance Ltd.

xv. Interest income on housing loan is accounted on accrual basis except interest on non-performing asset, ChequeBounce Charges and Overdue Interest, which are recognized as and when received.

B. Investments

IDBI Ltd.

1. In determining acquisition cost of an investment:

a) Brokerage, commission and stamp duty paid in connection with acquisition of securities are treated as revenueexpenses,

b) Interest accrued upto the date of acquisition of securities (i.e. broken period interest) is excluded from the acquisitioncost and recognised as interest expense.

2. In terms of extant Guidelines of the Reserve Bank of India, the entire investment portfolio is categorised as “Held toMaturity”, “ Available for Sale” and “Held for Trading”. The investments under each category are further classified as i)Government securities ii) other approved securities iii) Shares iv) Debentures and Bonds v) Subsidiaries / jointventures vi) Others (CP, Mutual Fund Units, etc.).

3. The debentures / bonds / preference shares deemed to be in the nature of advance, are subject to the usualprudential norms.

4. Investments acquired with the intention to hold till maturity are categorised under Held to Maturity. Such investmentsare carried at acquisition cost unless it is more than the face value, in which case the premium is amortised over theperiod remaining to maturity. Diminution, other than temporary, in the value of investments in subsidiaries / jointventures under this category is provided for each investment individually. Profit on sale of investments in this categoryis appropriated to the Capital Reserve Account at the end of financial year.

5. Investments acquired with the intention to trade by taking advantage of the short-term price/interest rate movementsare categorised under Held for Trading. The investments in this category are revalued as a whole and net deprecia-tion is recognised in the profit and loss account. Net appreciation, if any, is ignored. The book value of individual scripsis not changed.

6. Investments which do not fall within the above two categories, are categorised under “Available for Sale”. Theindividual scrips under this category are revalued at quarterly intervals and net depreciation under any of the sixclassifications mentioned above, is recognised in the profit and loss account. Net appreciation under any classifica-tion is ignored. The book value of individual scrips is not changed.

7. The basis for periodical valuation of investments categorised as Held for Trading and Available for sale are asfollows:

• Treasury Bills are valued at carrying cost,• In respect of traded/quoted investments, the market price is taken as available from the trades/quotes on the stock

exchanges, price of SGL Account transactions, price list of RBI and prices declared by PDAI/FIMMDA periodically; and• The unquoted shares / units are valued at break-up value / repurchase price & Net Asset Value. The unquoted fixed

income securities are valued on YTM basis with appropriate mark-up over the YTM rates for Central Governmentsecurities of equivalent maturity.

8. Investments are shown net of provisions.

9. Profit / loss on sale of investments are booked on accrual basis.

10. Upfront incentives received on subscription to securities are recognised as income.

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ICMS

i. Securities and other financial assets acquired and held for earning income by way of dividend and interest andfor the purpose of capital appreciation are classified as long term investments and are valued at their cost ofacquisition. Decline in their value, if any, other than temporary, is recognised.

ii. Securities acquired with the intention of short-term holding and trading are considered as stock-in-trade andregarded as current assets.

iii. In respect of investments and securities acquired as stock-in-trade, brokerage, stamp duty and securities trans-action tax payable are considered to arrive at the cost. However, in respect of sale of securities held as stock-in-trade, brokerage, stamp duty and securities transaction tax are written off as revenue expenditure.

iv. Securities held as stock-in-trade category-wise are valued at lower of cost or market/fair value. Cost is derived byfollowing the FIFO method considering only outright transactions. Market value is determined based on marketquotes for actual trades and where such quotes are not available, fair value is determined, in the case of debtsecurities, with reference to yields on securities of similar maturity and credit standing, and in the case of equities, with reference to the break-up value as per the last balance sheet. Each security is valued individually. Thedepreciation, if any, for each security is provided and the appreciation, if any, is ignored. This is a change from theprevious accounting policy of considering each type of security as a separate category for the purpose of valuation. Had such change not been made the losses of the company would have been lower by Rs. 702.23 lakhs andthe stock in trade would be overvalued to that extent.

v. Premium paid on government securities held as investment is amortized over the tenor of the instrument.

C. Fixed Assets and Depreciation :-

IDBI Ltd.

1. Premises and other fixed assets are carried at cost.

2. Depreciation on assets acquired during the course of leasing business is provided on straight-line method pro-ratafrom the month in which lease rentals commence over the primary period of lease.

3. Depreciation is charged over the estimated useful life of a fixed asset on SLM basis. The rates of depreciation for fixedassets are :

Assets Depreciation RatePremises 1.63% SLMFurniture and fixtures 8.33% SLMElectrical installation and machinery 8.33% SLMMotor vehicles 20% SLMComputers 33.33% SLMAutomated Teller Machines 12.50% SLMVSAT equipment 10% SLMConsumer durables with IDBI Bank employees. 20% SLMConsumer durables with other employees. 8.33% SLM

4. Leasehold land is amortised over the period of lease.

5. Cost of computer application software in excess of Rs.2.5 lakh is capitalised and is depreciated over its useful life, notexceeding 5 years.

ICMS

I. Fixed Assets are valued at original cost less accumulated depreciation.

II. Depreciation is provided on Written Down Value method on a pro-rata basis.

III. Intangible assets are amortized as under:

Computer Software : at 33.33% for the full year.

Stock Exchange membership Card: at 4.75% on straight line method

The Stock Exchange Card is amortised over more than 10 years as the useful life of the Card, the managementbelieves will be for a period exceeding 10 years.

IV. The cost incurred on development of website is treated as an intangible asset under development and the samewill be amortized after it becomes operational.


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IDBI Intech Ltd.

V. Fixed Assets are stated at cost of acquisition, including any cost attributable for bringing the asset to its workingcondition for its intended use, less accumulated depreciation. Depreciation on fixed assets is provided on writtendown value method, at rates specified in the Schedule XIV to the Companies Act, 1956 except in respect ofcomputers, which are depreciated at the rate of 60%. Depreciation on additions to/deletions from fixed assets isprovided on pro rata basis from/up to the date of such addition/deletions as the case may be.

Capital work-in –progress includes the cost of fixed assets that are not yet ready for their intended use, expendi-ture related and incurred during implementation of project and advances paid to acquire fixed assets. Assetsunder capital work in progress are not depreciated.

Assets taken on lease are accounted for in accordance with the Accounting Standard (AS)-19 ‘Leases ‘ issued byThe Institute Of Chartered Accountants of India.

IDBI Homefinance Ltd.

VI. Depreciation on fixed assets has been provided on Straight Line Method at the rates and in the manner pre-scribed in Schedule XIV to the Companies Act, 1956 except hard furnishing assets (furniture, fixtures and com-puters) purchased for its employees, depreciation has been charged at the rate of 25% and cost of improvementto lease hold premises has been amortized over the lease period. Intangible asset are amortized pro rata over aperiod of 60 months from the month of put to use.

VII. Fixed Assets are stated at cost less accumulated depreciation. All costs including taxes, freight, finance chargesand incidental expenses attributable to the acquisition and installations of fixed assets as well as the subse-quent improvements thereto are capitalized. Renovation expenses incurred on leasehold premises giving ben-efit of enduring nature are capitalized. Intangible asset are stated at cost less depreciation.

D. Leased Assets

IDBI Ltd.

Assets given under a finance lease prior to April 1, 2001:The amount of Lease Equalisation representing the differ-ence between the annual lease charge and the depreciation provided on leased assets in the books is adjusted inthe Profit & Loss Account with corresponding adjustment to the value of leased assets through a separate leaseadjustment account.

Assets given under a finance lease on or after April 1, 2001 are recognised as a receivable at an amount equal to thenet investment in the lease. Lease rentals are apportioned between principal and interest on the IRR method. Theprincipal amount received reduces the net investment in the lease and interest is recognised as revenue. Initial directcosts such as legal costs, brokerage costs, etc. are recognised immediately in the Profit and Loss Account.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term, areclassified as operating leases. Operating lease payments are recognized as an expense in the Profit and Lossaccount on a straight-line basis over the lease term.

E. Foreign Currency Transactions

IDBI Ltd.

1. Income and expenditure is accounted at the actual exchange rates of remittance. Amounts pending remittance areaccounted at the closing FEDAI rates. Gains / losses on account of the difference between such closing FEDAI ratesand actual exchange rates of remittance are accounted for in the profit and loss account. Foreign currency assets andliabilities are translated at closing FEDAI rates.

2. Forward Exchange Contracts and net income / expenditure thereon are accounted for on the settlement date.

3. Outstanding forward exchange contracts are revalued at rates of exchange notified by the FEDAI for specified maturi-ties and the resulting profits/losses are included in the profit and loss account.

4. Contingent liability in respect of outstanding forward exchange contracts is stated at the contracted rates of exchange.

5. Contingent liability in respect of guarantees, acceptances, endorsements and other obligations are stated at therates of exchange notified by FEDAI at year-end.

IDBI Intech Ltd.

Transactions denominated in foreign currency are recorded at the exchange rate prevailing on the date of transac-tions. Foreign monetary assets and liabilities are translated at rate prevailing as on the date of balance sheet. Theresulting exchange rate difference in transaction are recognised in the Profit and Loss account for the year.

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F. Derivative transactions

IDBI Ltd.

In Transactions designated as ‘Hedge’:

1. Net interest payable / receivable on derivative transactions is accounted for on accrual basis.

2. On premature termination of Hedge swaps, any gain / loss is recognised over the shorter of the remainingcontractual life of the swap or the remaining life of the asset or liability.

3. Redesignation of hedge swaps by change of underlying liability is accounted as the termination of one hedgeand acquisition of another.

4. Where the hedge is designated with an asset or liability that is carried at market value or lower of cost or marketvalue in the financial statements then the hedge would also be marked to market with the resulting gain or lossrecorded as an adjustment to the market value of designated asset or liabilities.

Transactions designated as ‘Trading’:

5. Outstanding derivative transactions designated as ‘Trading’, which includes interest rate swaps, cross currencyswaps, cross currency options and forward rates agreements, are measured at their fair value which provides forthe market risk on these transactions. The resulting profits/ losses are included in the profit and loss account.Premium is recorded as a balance sheet item and transferred to Profit and Loss Account on maturity/ cancella-tion.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internalcredit policy. Provisioning of overdue customer receivable on derivative contracts are made as per RBI provision-ing guidelines

ICMS

i. Initial Margin payable at the time of entering into futures contract/sale of options is adjusted against the depositswith the exchanges in the form of fixed deposits, cash deposits and securities.

ii. Transactions in Future contracts are accounted as Purchase and Sales at the notional trade value of the contract.The open interest in futures as at the Balance sheet date is netted by its notional value.

iii. The difference in the settlement price or exchange closing price of the previous day and exchange closing priceof the subsequent day, paid to or received from the exchange is treated as Mark to Market Margin. The balance inthe Mark to Market Margin Account represents the net amount paid or received on the basis of movement in theprices of open interest in futures contracts till the balance sheet date. Net debit balance in the Mark to MarketMargin Account is charged off to revenue whereas net credit balance is shown under current liabilities.

iv. Premium paid or received on purchase and sale of options and the difference paid or received on exercise ofoptions is accounted as Purchases or Sales. In case of open interest in options sold as on the balance sheetdate, provision is made for the amount by which the premium prevailing on the Balance sheet date exceeds thepremium received for those options. The excess of premium received over the premium prevailing on theBalance sheet date is not recognised. Similarly, in case of options bought, provision is made for the amount bywhich the premium paid for the option exceeds the premium prevailing on the Balance sheet date and the excessprevailing on the Balance sheet date over the premium paid is ignored. In case of multiple open positions,provision is made or excess premiums are ignored after netting off the balances in buy as well as sell positions.

G. Interest Rate Swaps in case of ICMS:-

Assets and Liabilities in respect of notional principal amount of Interest Rate Swaps are netted. Gain or loss onInterest Rate Swaps is accounted for on due dates as per the terms of the contract. The net interest income orexpense in respect of contracts outstanding as at the year-end is accounted on accrual basis.

H. Repo Transactions in case of ICMS:-

i. The difference between total consideration paid on purchase, and received on sale, is treated as interest and shownas interest expense on Repo Transactions and interest income on Reverse Repo transactions.

ii. Securities held as stock-in-trade, as on the Balance Sheet date, include securities purchased in Reverse Repotransactions and exclude securities sold in Repo transactions. Securities purchased in Reverse Repo transactionsare valued at lower of cost or market value.

iii. Accrued interest paid on purchase, on Reverse Repo transactions outstanding as on the Balance Sheet date, isshown under current assets as Reverse Repo Interest Adjustment Account. Accrued interest received on sale, onRepo transactions outstanding as on the Balance Sheet date, is shown under current liabilities as Repo Interest

Adjustment Account. The difference between holding rate and the Repo rate, in respect of Repo transactions out-


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standing as on the Balance Sheet date, is shown as Repo Price Adjustment Account. Net debit balance in the RepoPrice Adjustment Account is provided for in the Profit and Loss account whereas net credit balance is shown undercurrent liabilities.

iv. In case of transactions where the security sold is dated government security and is outstanding on the Balance sheetdate, the difference in the clean price of both the legs is accrued proportionately on time basis as Repo interestincome accrued but not due till the Balance sheet date and neither the coupon of the security nor the expense isaccrued at the contract rate during the tenor of repo. However, in cases where the security sold is a discountedinstrument, accrual of interest expense at the contract rate and discount at the original discount rate till the Balancesheet date is continued during the tenor of the repo transaction.

v. Similarly, in case of reverse repo transactions where the security bought is dated government security and outstand-ing on the Balance sheet date, coupon and difference in the clean price of both the legs is proportionately accrued ontime basis till the Balance sheet date and the net result is accounted as interest income. However, in cases wheresecurity purchased is a discounted instrument, accrual of the interest income at the contract rate is done till theBalance sheet date.

I. CBLO Transactions in case of ICMS:-

i. Transactions for borrowing and lending under CBLO are recorded at their discounted values. The difference paid orreceived on redemption is treated as discount paid on CBLO in case of borrowing and discount earned on CBLO incase of lending. For this purpose, redemption of lending transaction also includes subsequent transfer of CBLO.

iI. The difference between the discounted value on the borrowing date or the lending date as the case may be, and theredemption value of the instrument, outstanding on the Balance sheet date is apportioned on the time basis andrecognised as expense or income respectively.

J. Provisions For Assets

IDBI Ltd.

As per RBI Guidelines, loan assets and other assistance portfolios (including debentures in the nature of advances)are to be classified as Standard, Sub-standard, Doubtful and Loss subject to provision / write-off, as under:

1. Standard Assets 0.25% of loan / assistance2. Sub-Standard assets 10% of loan / assistance.3. Doubtful assets 100 % of unsecured portion plus 20% / 30% / 50% / 100% * of

secured portion depending on the period for which the loan /assistance have remained doubtful.

4. Loss Assets The entire assistance is to be provided / written off.* In respect of the stock of NPAs which had been classified as ‘doubtful for more than three years as on March 31,2004, the increase in provisioning requirement is applied in a phased manner over a three year period.

On the above basis and keeping in view the record of recovery and other relevant factors, the requirements ofprovisions / write-off are being determined.

(ii) Loan Assets are shown net of provision / write-off for sub-standard /doubtful / Loss assets.

(iii) Assets that are classified as other than standard are upgraded and reclassified as standard on satisfactoryperformance, and in accordance with RBI directives.

K. Securitisation Transaction:

IDBI Ltd.

Securitisation of various consumer loans result in the sale of these assets to special-purpose entities (‘SPVs’),which, in turn issue securities to investors. Financial assets are partially or wholly derecognised when the control ofthe contractual rights that comprise the securitised assets is lost. In case of such sale, where the considerationreceived from the SPV in cash and/or in a form other than cash, equals the carrying value of loan assets sold, theincome on the non cash consideration received is recorded on an accrual basis and where the considerationreceived from the SPV in cash and/or in a form other than cash exceeds the carrying value of the loan assets, thedifference is accounted as income upfront after making provision for projected delinquencies and future servicingcosts

L. Employee Benefits

IDBI Ltd.

(i) Gratuity charged to profit and loss account is on the basis of premium charged by LIC under its Group GratuityScheme.

(ii) Leave encashment determined based on actuarial valuation at the year end, is fully provided for.

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(iii) IDBI Bank employees are covered under a superannuation scheme. Under this scheme, 10 per cent of theemployees’ annual basic salary is contributed to the Fund, which is administered by LIC. There is no liability forfuture superannuation fund benefits other than the annual contribution, which is charged to the profit and lossaccount over the period to which it relates.

Other employees are covered by a Pension Scheme. Pension Liability, determined based on actuarial valuationat the year end, is fully provided for.

(iv) Contributions for provident fund are charged to the profit and loss account.

(v) IDBI Bank employees are covered by an Employee Stock Option Scheme. The intrinsic value of the options isexpended on a straight-line basis over the vesting period.

ICMS

The Company’s contribution on account of retirement benefits in the form of Provident Fund and SuperannuationFund is charged to revenue. Gratuity benefits are ascertained on actuarial basis and also charged to revenue.Provision for leave encashment is made on actual accrued leave basis.

IDBI HomeFinance Ltd.

The company’s liabilities towards Gratuity and Superannuation to the employees are covered by a group policy withLife Insurance Corporation of India and payments are made to the fund maintained with Life InsuranceCorporation of India. Liability on account of encashment of leave is provided on the basis of Actual Valuation.

IDBI Intech Ltd

Contribution to Provident Fund and Family Pension Scheme are accounted on accrual basis and charged to Profit &Loss Account for the year.

M. Interest Expenditure on Borrowings

The Interest Expenditure on borrowings is accounted for on accrual basis.

N. Turnover

ICMS

Purchases and sales of dated government securities, treasury bills and other securities are disclosed in the Profitand Loss Account, with a view to indicating the turnover of funds of the company and include only outright transactions.For this purpose, sales also include redemption proceeds, if any, when these securities are held by the company tillthe date of maturity.

O. Voluntary retirement scheme

Expenditure in respect of employees retired under Voluntary Retirement Scheme is written off in five equal annualinstalments.

P. Miscellaneous Expenditure

ICMS

Preliminary expenses are written off in ten equal yearly instalments.

IDBI Home finance Ltd.

Preliminary expenses comprise incorporation and other start-up costs, which are amortized over a period of 10 yearson a straight-line method from the date of incorporation. Deferred Revenue Expenditure includes Expenses at thetime of start up/re-launch of the business, Cost of software and are amortized pro-rata over a period of 36 months fromthe month of incurring the expenses or accrual of benefits whichever is later.

IDBI Intech Ltd.

Preliminary expenses are amortised over a period of five years.

Q. Income Tax

Income Taxes are computed using the tax effect accounting method, where taxes are accrued in the same period therelated revenue and expenses arise. The differences that result between the profit offered for income taxes and theprofit as per the financial statements are identified and thereafter a deferred tax asset or deferred tax liability isrecorded for timing differences, namely the differences that originate in one accounting period and reverse in another,based on the tax effect of the aggregate amount being considered. The tax effect is calculated on the accumulatedtiming differences at the end of the accounting period based on prevailing enacted or substantially enacted regula-tions. Deferred tax assets are recognized only if there is reasonable certainty that they will be realized and arereviewed for the appropriateness of the respective carrying values at each balance sheet date.


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R. Accounting Standards

Mandatory Accounting Standards as applicable to the Bank in accordance with the RBI guidelines issued from timeto time are followed.

S. Housing Loans

Housing Loans and instalments due from borrowers are secured by:

a) Equitable mortgage of property and/or

b) Assignment of Life Insurance Policies and/or

c) Company guarantees or personal guarantees and/or

d) Undertaking to create a security.

Sd/N.D.AnklesariaPartnerMembership No.10250December 15, 2005Mumbai

Sorab S. Engineer & Co.Chartered Accountants

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Unaudited Financial Results for the Quarter ended June 30, 2005(Rs. Crore)

Particulars Quarter Accounting ended 30-06-2005 period ended

31-3-2005(6 months)

(Unaudited) (Audited)1. Interest earned (a)+(b)+(c)+(d) 1331.85 2655.72(a) Interest/discount on advances/bills 1062.20 2185.65(b) Income on investments 226.16 395.45(c) Interest on balances with Reserve Bank of Indiaand other inter bank funds 42.04 70.46(d) Others 1.45 4.162. Other Income 268.83 627.13A. TOTAL INCOME (1+2) 1600.68 3282.853. Interest Expended 1241.20 2467.874. Operating Expenses (e)+(f) 201.08 453.96(e) Payments to and provisions for employees 58.20 149.34(f) Other operating expenses 142.88 304.62B. TOTAL EXPENDITURE (3)+(4)(excluding Provisions and Contingencies) 1442.28 2921.83C. OPERATING PROFIT (A-B)(Profit before Provisions and Contingencies) 158.40 361.02D. Other Provisions and Contingencies (net) 49.89 53.76 - of which provision for non-performing assets 48.57 72.54 - Provision for Taxes 1.32 (18.78)E. Net Profit (C-D) 108.51 307.265. Paid-up equity share capital 723.04 721.776. Reserves excluding Revaluation reserves(as per balance sheet of Previous accounting year) 5170.647. Analytical Ratios(i) Percentage of shares held by Government of India 52.83 52.89(ii) Capital Adequacy Ratio 16.2% 15.5%(iii) Earning per Share (Rupees) (not annualised) 1.50 4.26Diluted 1.50 4.25(iv) (a) Amount of gross non-performing assets 1270.17 1215.90

(b) Amount of net non-performing assets 770.43 847.49(c) % of gross NPAs 2.47% 2.47%(d) % of net NPAs 1.51% 1.74%

(v) Return on assets (annualised) 0.53% 0.78%8. Aggregate of Non Promoter Shareholding·No. of shares 340863212 339997022

·Percentage of Shareholding 47.17 47.11

Published results for the comparative quarter of previous year of erstwhile Industrial Development Bank of India isfurnished hereunder:

Audited Financial Results for the Quarter ended June 30, 2004 (Rs. Crore)

Sr. No. Particulars Quarter ended 30-6-20041 Income from operations 13402 Other income 393 Total Expenditure

(a) Staff cost 25(b) Bond issue expenses w/off 21(c) Other expenditure 25Total expenditure (except interest cost) 71

4 Interest cost 1177


135

5 Profit before Depreciation and Provisions (1+2-3-4) 1316 Depreciation 977 Bad and doubtful debts/ investments written-off/provided for 218 Profit before tax (5-6-7) 139 Provision for taxation 210 Deferred tax debit / (credit) (12)11 Net profit (8-9-10) 2312 Paid up Equity Share Capital (Face value Rs.10 per share) 65313 Reserves excluding Revaluation Reserves14 Earning Per Share (Rs.)

- Basic/ Diluted 0.3615 Aggregate of Non-promoter Shareholding

-Number of shares 271102400 -Percentage of shareholding 41.53

Segment Information for the quarter ended June 30, 2005

1 Segment Revenue

Wholesale banking 1467

Retail Banking 275

Treasury 264

Total 2006 Less: - Inter-segment revenue 405

Net income from operations 16012 Segment Results -Profit/(loss) before tax Wholesale banking 92

Retail Banking 17

Treasury 1

Total 110 Less: Other unallocable expenditure net of unallocable income 0

Total profit before tax 110 Income taxes 1

Net profit 1093 Capital employed (segment assets - segment liabilities) Wholesale banking 3979

Retail Banking 211

Treasury 56

Unallocated 1760

Total 6006

Notes:(1) The above results have been taken on record by the Board of Directors of the Industrial Development Bank of India

Ltd. (the Bank) at its meeting held on July 30, 2005.(2) Consequent to the notification of October 1, 2004 as the appointed day under the Industrial Development Bank

(Transfer of Undertaking and Repeal) Act, 2003 (Repeal Act), the undertaking of the erstwhile IndustrialDevelopment Bank of India has been transferred to, and vested in the Bank. IDBI Bank Ltd., a subsidiary of thebank amalgamated with Bank. The above results pertain to the Bank as the merged entity incorporating operationof erstwhile IDBI Bank Ltd.

(3) The working results for the quarter have been arrived at after considering provisions for Bad & Doubtful Debts,Income Tax and other usual and necessary provisions on an estimated basis, keeping in view the record of

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recovery and other relevant factors. The Bank has received RBI Inspection report for accounting period endedSeptember 30, 2004 and is in the process of seeking further clarifications on interpretation of RBI guidelines andpending such clarification, in certain cases, the Bank has continued to adopt the same interpretation as in earlieryears.

(4) Other income includes income from non-fund based banking activities including commission, fees, foreignexchange earnings, earnings from derivative transactions and profit and loss (including revaluation) frominvestments.

(5) There were 414 investor grievances pending as on April 1, 2005. During the quarter, the bank received 15376investor grievances. Out of the aggregate grievances, 15461 have been redressed during the quarter and 329grievances are pending for resolution at the end of the quarter.

(6) The above results for the quarter ended June 30, 2005 have been subjected to ‘Limited Review’ by the StatutoryAuditors of the Bank, as per the Listing Agreements with The Stock Exchange, Mumbai and The National StockExchange of India Limited.


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Unaudited Financial Results for Quarter/Half Year ended September 30, 2005

(Rs. Crore)Particulars Quarter ended Half year ended Accounting period ended

September 30, 2005 September 30, 2005 March 31, 2005(6 months)

(Unaudited) (Unaudited) (Audited)

1.Interest earned (a)+(b)+(c)+(d) 1223.27 2555.12 2655.72 (a) Interest/discount on advances/bills 979.86 2042.06 2185.65 (b) Income on investments 213.32 439.47 395.45 (c) Interest on balances with Reserve Bank of India and other inter bank funds 28.32 70.37 70.46 (d) Others 1.77 3.22 4.16

2. Other Income 344.90 613.73 627.13

A Total Income (1+2) 1568.17 3168.85 3282.85

3 Interest Expended 1268.21 2509.41 2467.87

4 Operating Expenses (e)+(f) 175.19 376.27 453.96 (e) Payments to and provisions for employees 53.50 111.70 149.34 (f) Other operating expenses 121.69 264.57 304.62

B Total Expenditure (3)+(4)(excluding Provisions and Contingencies) 1443.40 2885.68 2921.83

C Operating Profit (A-B)(Profit before Provisions and Contingencies) 124.77 283.17 361.02

D Other Provisions and Contingencies (net) (7.07) 42.82 53.76 (i) of which Provision for non-performing assets (2.45) 46.12 72.54 (ii) Provision for Taxes (4.62) (3.30) (18.78)

E Net Profit (C-D) 131.84 240.35 307.26

5 Paid-up equity share capital 723.04 723.04 721.77

6 Reserves excluding Revaluation reserves(as per balance sheet of Previous accounting year) ------ ------ 5170.64

7 Analytical Ratios (i) Percentage of shares held by Govt. of India 52.80 52.80 52.89 (ii) Capital Adequacy Ratio 16.30% 16.30% 15.50% (iii) Earning Per Share (Rupees) (not annualised) Basic 1.82 3.33 4.26 · Diluted 1.82 3.32 4.25 (iv) (a) Amount of gross non-performing assets 2228.06 2228.06 1215.90 (b) Amount of net non-performing assets 614.93 614.93 847.49 (c) % of gross NPAs 4.36% 4.36% 2.47% (d) % of net NPAs 1.24% 1.24% 1.74% (v) Return on assets (annualised) 0.64% 0.59% 0.78%

8 Aggregate of Non Promoter Shareholding· No. of shares 34 12 62 955 34 12 62 955 33 99 97 022- Percentage of Shareholding 47.20 47.20 47.11

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PUBLISHED RESULTS FOR THE COMPARATIVE QUARTER OF PREVIOUS YEAR OF ERSTWHILE INDUSTRIAL DEVELOP-MENT BANK OF INDIA IS FURNISHED HEREUNDER:

AUDITED FINANCIAL RESULTS FOR QUARTER ENDED SEPTEMBER 30, 2004(Rs. Crore)

Sr. No. Particulars Quarter endedSept 30, 2004

1 Income from operations 15292 Other income 293 Total Expenditure

(a) Staff cost 39 (b) Bond issue expenses w/off 19(c) Other expenditure 28Total expenditure (except interest cost) 86

4 Interest cost 11885 Profit before Depreciation and Provisions (1+2-3-4) 2846 Depreciation 367 Bad and doubtful debts/ investments written-off/provided for 1318 Profit before tax (5-6-7) 1179 Provision for taxation 010 Deferred tax debit / (credit) 011 Net profit (8-9-10) 11712 Paid up Equity Share Capital (Face value Rs.10 per share) 65313 Earning Per Share (Rs.) - Basic/ Diluted 1.78 14 Aggregate of Non-promoter Shareholding

-Number of shares 27 11 02 400 -Percentage of shareholding 41.53

SEGMENT INFORMATION (Rs. crore)

Sr. No. Particulars Quarter ended Half year endedSept 30, 2005 Sept 30, 2005

1 SEGMENT REVENUEWholesale banking 1418.66 2885.99

Retail Banking 311.05 586.01 Treasury 324.60 588.10

Total 2054.31 4060.10 Less: - Inter-segment revenue 486.14 891.25 Net income from operations 1568.17 3168.85

2 SEGMENT RESULTS -PROFIT/(LOSS) BEFORE TAXWholesale banking 83.04 174.51Retail Banking 25.17 42.50Treasury 19.01 20.04Total 127.22 237.05 Less: Other unallocable expenditurenet of unallocable income 0 0Total profit before tax 127.22 237.05Income taxes (4.62) (3.30)Net profit 131.84 240.35


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3 CAPITAL EMPLOYED(SEGMENT ASSETS - SEGMENT LIABILITIES)

Wholesale banking 3628.31 3628.31Retail Banking 634.52 634.52Treasury 98.95 98.95 Unallocated 1776.23 1776.23Total 6138.01 6138.01

Notes:

(1) The above results have been taken on record by the Board of Directors of the Industrial Development Bank ofIndia Ltd. (the Bank) at its meeting held on October 20, 2005.

(2) Consequent to the notification of October 1, 2004 as the appointed day under the Industrial Development Bank(Transfer of Undertaking and Repeal) Act, 2003 (Repeal Act), the undertaking of the erstwhile Industrial Development Bank of India has been transferred to, and vested in, the Bank. IDBI Bank Ltd., a subsidiary of the Bankamalgamated with the Bank. The above results pertain to the Bank as the merged entity incorporating operations of erstwhile IDBI Bank Ltd.

(3) The working results for the quarter/half year have been arrived at after considering provisions for Bad & DoubtfulDebts, Income Tax and other usual and necessary provisions on an estimated basis, keeping in view the recordof recovery, policies and practices consistently followed by the Bank and other relevant factors.

(4) As on March 31, 2005, a sum of Rs. 2029.31 crore was available as floating provision for provisioning towardsany possible decline in value of the assets created prior to October 1, 2004. With the concurrence of RBI, thefloating provision has been fully utilized for making specific provisions and reversal of unrealized income forcertain assets considered as non-performing by RBI in its Inspection Reports and which continued to be non- performing as on September 30, 2005. Certain assets considered as non-performing by RBI in its above-referredInspection Reports, have already become performing in conformity with RBI Guidelines, requiring no provisions.

(5) Provision for taxes includes provision for Fringe benefit tax of Rs. 4.43 crore.(6) Other income includes commission, fees, earnings from forex/derivative transactions and profit and loss (in

cluding revaluation) from investments.(7) There were 329 investor grievances pending as on July 1, 2005. During the quarter, the Bank received 15860

investor grievances. Out of the aggregate grievances, 15724 have been redressed during the quarter and 465grievances were pending for resolution at the end of the quarter.

(8) The above results have been subjected to ‘Limited Review’ by the Statutory Auditors of the Bank, as per the Listing Agreements with Bombay Stock Exchange Ltd. and The National Stock Exchange of India Limited.

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MANAGEMENT DISCUSSIONThe following discussion and analysis should be read in conjunction with the financial statements of IDBI Ltd.andrelated notes which appear on the foregoing pages and under the Auditors Report on page 98

Unaudited result of operations for the three month period ended June 30, 2005

IDBI Ltd. earned a net profit of Rs 109 crore for the 3 month period ended June 30, 2005 as against Rs. 307 crorefor the six month period ended March 31, 2005. As on June 30, 2005, aggregate assets was Rs 82,659 crore asagainst Rs. 81,360 crore on March 31,2005. Deposits was Rs.16,851 crore as against Rs.15,003 crore on March31, 2005. The net non-performing assets (NPAs) was Rs. 770 crore on June 30, 2005 as against Rs 847 croreon March 31, 2005. In percentage terms, as of June 30, 2005, net NPAs to net advances ratio was down to 1.5 %from 1.7% as of March 31, 2005. The Bank’s Capital Adequacy Ratio(CAR) stood at 16.2% on June 30, 2005 asagainst 15.5% on March 31, 2005.

Result of operations for the six month period ended March 31, 2005

Figures as on March 31, 2005 are for the merged entity and hence are not comparable with the previous periods. IDBILtd.’s total income during the 6 month period ended March 31, 2005 was Rs. 3283 crore. Total expenditure beforedepreciation and tax was Rs. 2732 crore for the six months ended March 31, 2005. Gross Profit(after interest but beforedepreciation and tax) amounted to Rs. 371 crore for the six months ended March 31, 2005. After making provisions fordepreciation and tax net of deferred tax of Rs. 82 crore and Rs. 9 crore respectively for the six month period endedMarch 31, 2005, the Profit after Tax for this period stood at Rs. 307 crore. Aggregate assets of the Bank as on March 31,2005 was Rs. 81360 crore.

Result of Operations for the 18 months period ended September 30, 2004 and 12 months period year endedMarch 31, 2003

IDBI’s total income during 18 months period ended September 30, 2004 was Rs. 8223 crore April-March 2003 wasRs.6371 crore as against Rs.6371 crore during 12 months period ended March 31, 2003. Total expenditure beforedepreciation and tax was Rs.7519 crore for the 18 months period ended September 30, 2004 as against Rs. 5717crore for the 12 months period ended March 31, 2003. Gross Profit (after interest but before depreciation and tax)amounted to Rs.704 crore for the 18 months period ended September 30, 2004 as against Rs.654 crore for 12 monthsperiod ended March 31, 2003. After making provisions for depreciation and tax net of deferred tax of Rs.242 crore andRs.3 crore respectively for 18 months period ended September 30, 2004 and Rs. 199 crore and Rs. 54 crorerespectively for the 12 months period ended March 31, 2003, Profit after Tax for the 18 months period ended September30, 2004 stood at Rs. 465 crore as against Rs.401 crore for the 12 months period ended March 31, 2003. Aggregateassets of the Bank as on September 30, 2004 was Rs. 63846 crore as against Rs.63116 crore over Rs.66643 croreas on March 31, 2003.

Result of Operations for the year ended March 31, 2003 compared to the year ended March 31, 2002

IDBI’s total income during April-March 2003 was Rs.6371 crore as against Rs.7176 crore during April-March 2002.Total expenditure before depreciation and tax decreased to Rs.5717 crore from Rs.6538 crore during the same periodin the previous year i.e. by Rs.821 crores mainly due to interest cost on loan funds. Gross Profit (after interest butbefore depreciation and tax) amounted to Rs.654 crore as against Rs.638 crore during April-March 2002. After makingprovisions for depreciation and tax of Rs.199 crore and Rs.92 crore respectively and also after taking into accountdeferred tax credit of Rs.38 crore, Profit after Tax for the year ended March 31, 2003 stood at Rs.401 crore as againstRs.424 crore during the corresponding period of the previous fiscal year. Aggregate assets of the Bank as on March31, 2003 decreased by 5.3% to Rs.63116 crore over Rs.66643 crore as on March 31, 2002.

Result of Operations for the year ended March 31, 2002 compared to the year ended March 31, 2001

IDBI’s total income during April-Mar 2002 was Rs.7176 crore as against Rs.7835 crore during April-Mar 2001. Totalexpenditure before depreciation and tax decreased to Rs.6538 crore from Rs.6871 crore during the same periodin the previous year i.e. by Rs.333 crore mainly due to interest cost on loan funds. Gross Profit (after interest butbefore depreciation and tax) amounted to Rs.638 crore as against Rs.964 crore during April-Mar 2001. After makingprovisions for depreciation and tax of Rs.223 crore and Rs.10 crore respectively and also after taking into accountdeferred tax credit of Rs.19 crore, Profit after Tax for the year ended March 31, 2002 stood at Rs.424 crore as againstRs.691 crore during the corresponding period of the previous fiscal. Aggregate assets of the Bank as on March 31,2002 decreased by 7.2% to Rs.66643 crore over Rs.71783 crore as on March 31, 2001.


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IDBI Ltd. confirms that1. There have been no unusual or infrequent events or transactions, since the date of the Auditors Report dated

December 15, 2005 contained herein.2. There are no significant economic changes that materially affected or are likely to materially affect income from

continued operations.3. There are no known trends or uncertainties that have had or are likely to have a material adverse impact on the

revenue or income from continuing operations.4. There have been no changes in the activity of the Issuer which may have had a material effect on the statement

of profit/ loss for the last five years.5. The Government of India had issued a notification F.No.8(10)/2004-IF-I dated July 2, 2004 whereby the provisions

of the Repeal Act came into force on July 2, 2004. The new company, IDBI Ltd. has been set up as a GovernmentCompany. It has been incorporated on September 27, 2004 with the Registrar of Companies (RoC), Mumbaiand has received the Certificate for Commencement of Business on September 28, 2004. RBI vide its notificationdated September 30, 2004, has included Industrial Development Bank of India Limited in the second scheduleof the RBI Act. The Central Government has issued notification declaring October 1, 2004, as the ‘Appointeddate’ on which the undertaking of the IDBI has been transferred to, and has been vested in, the IndustrialDevelopment Bank of India Ltd. as provided in the Repeal Act.IDBI Ltd. commenced Commercial banking business in a limited way w.e.f. October 1, 2004. The activities werebeing carried out through its existing branches spread at important commercial centres at various parts of thecountry. IDBI Ltd., as a banking company, has also deposited the amount of Cash Reserve Ratio (CRR) withthe Reserve Bank of India as required under the RBI Act.

6. The then IDBI Board felt that for effective transition to a banking company, IDBI should leverage on its existingbanking subsidiary, IDBI Bank Ltd. The then Board of Directors of IDBI and IDBI Bank Ltd., at their respectivemeetings held on July 29, 2004, have accorded an in-principle approval to the merger of IDBI Bank with IDBIsubject to approval by the shareholders, and other regulatory authorities as may be required. The mergerproposal has been approved, ratified and confirmed by the Board of IDBI Ltd. at its meeting held on October 1,2004. The Scheme of Amalgamation/Merger of IDBI Bank Ltd. with IDBI Ltd. has been approved separately atthe Extraordinary General Meetings (EGMs) of IDBI Ltd. and IDBI Bank Ltd. held on February 23, 2005 andFebruary 25, 2005 respectively. The Reserve Bank of India(RBI) has given its approval for the amalgamation ofIDBI Bank Ltd. with IDBI Ltd. under Sub-section (4) of Section 44A of the Banking Regulation Act, 1949. Theamalgamation has become effective from April 2, 2005. In conformity with the terms of the scheme ofamalgamation approved by RBI, IDBI Ltd. has issued 100 equity shares for 142 equity shares held by theshareholders of IDBI Bank Ltd. IDBI Ltd. has extinguished the shares held by it in the Bank prior to merger. Ason June 30, 2005, the Central Government’s shareholding in IDBI Ltd.(post merger) is at 52.83%.

7. The Union Budget for 2004-05 contained a provision of Rs.9000 crore for extending a loan to a Special PurposeVehicle (SPV), to be formed as a Trust, for creation of Stressed Assets Stabilisation Fund (SASF) for IDBI. Theprovision of Rs.9000 crore would be invested in non-interest bearing, zero percent speciasecurities to be issuedby the Central Government (GOI), in the form of 20 year bonds. The SASF would in turn take over IDBI’s net NPAsto the extent of Rs.9000 crore in exchange of the special securities issued by GOI. The transfer of assets byIDBI to the SASF will be at the net present value at which the assets are reflected in the books of IDBI. Therecoveries made by the SASF will be routed to IDBI Ltd. through the Government of India and bonds of anequivalent amount will be extinguished, thereby reducing the liability of the Government of India 20 years downthe line, to honour the bonds. The SASF has been constituted as a Trust under the Indian Trusts Act. The relativeTrust Deed has been executed on September 24, 2004. NPAs/Stressed Assets of a Net Value of Rs.9000 crorehas been transferred w.e.f. September 30, 2004 by the erstwhile IDBI to SASF.

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Key Financial Ratios of erstwhile IDBI(Rs. crore)

Sr No Year ended March 31, 2001 2002 2003 Sept.2004

(18mths)

Profitability and Efficiency Ratios1 Average cost of funds (%) 9.3 9.2 8.54 7.6*2 Average cost of loan funds (%) 11.8 11.5 10.52 9.3*3 Return on average assets (%) 10.9 10.4 9.82 8.6*4 Return on average net worth (%) 7.3 5.4 5.90 4.9*5 Standard assets to total assets (%) 85.2 88.4 85.80 97.66 Average income earning assets (Rs.Cr) 64657 62996 60244 59036$

7 Average interest earning assets (Rs.Cr) 57285 55969 52170 43346$

7a Average Loan and Investment Portfolio 62625 60890 57691 5673$

8 Average interest bearing liabilities (Rs.Cr) 56799 55151 52685 51868$

9 Gross Interest Income (Rs.Cr) 7775 7174 6641 7846$

9a Gross Interest and Investment Income 7942 7396 6845 849710 Net Interest Income (Rs.Cr) 6782 6401 5531 6154$

11 Net Profit Margin* (%) 1.0 0.6 0.6 0.512 Margin (%) (3-1) 1.6 1.2 1.28 1.04*13 % of avg. int. earning assets to avg. 100.86 101.48 99.02 83.57

int. bearing liabilities (7/8 %)14 Interest expense apportioned to 6782 6441 5488 6045$

interest earning assets15 Net Interest income based on apportioned 993 733 1152 1801

interest expense (9-14)16 Net interest margin ( 15/ 7 %) 1.7 1.3 2.21 2.8*17 Gross yield (9/7 %) 13.6 12.8 12.73 12.1*18 Yield spread ( 17-2)% 1.7 1.3 2.21 2.819 Average share capital and reserves to

average total assets(%) 12.6 11.4 10.48 10.1$

Capital Ratios20 Average shareholders’ equity to

average assets (%) 12.6 11.4 10.48 10.1$

21 Debt to Equity 6.7 8.7 7.9 9.4#

22 Capital Adequacy Ratio (%) 15.8 17.9 18.7 18.223 NDSCR@ 1.5 1.6 1.2 1.4

Growth Ratios24 Total assets (%) (0.7) (7.2) (5.3) (3.1)*25 Direct Assistance Portfolio (%) 8.4 (0.8) (5.1) (19.0)*26 Net worth (%) 1.1 (27.9) 4.4 (9.9)*

Equity Information27 Earnings per Equity Share (EPS) 9.4 6.5 6.2 7.12$

4.75*28 Return on Assets (RoA) (%) 10.9 10.4 9.8 8.6*29 Income (Net of provisions) to Avg. assets (%) 7.3 5.4 5.9 4.8*30 PE Ratio 12.331 Cost to Income Ratio (%) - 1.9 2.1 2.1

Average wherever calculated are average of opening and closing balance.* Annualised$ 18 months

Average loan and investment portfolio as indicated in 7a includes total loans and advances and investments asshown in the balance sheet. Net interest and investment income as shown in 15a represents the income attributableto such assets.

@ NDSCR has been calculated after excluding prepayments made by IDBI Ltd. during the year by exercisingcall option.


143

Notional Debt Service Coverage Ratio (NDSCR) is computed as follows : Net Profit after tax+ interest & principal instalment on loans+non-cash profitsNDSCR = ————————————————————————————————————————————————————————————————————————- -————————- -——————————————— Interest on borrowings+ principal instalments on loans+ apportioned principal instalment during the year on bonds

Rs.465 cr + Rs.19261 cr + Rs.1979 cr Rs.21705 cr = ——————————————————————————————————————————————— = —————————————— = 1.4 Rs.8123 cr + Rs.7725 cr + Rs.24 cr Rs.15872 cr

Average balances are the average of outstandings at the end of the year and at the end of the previous year.All ratios are rounded off to a single decimal place.# As per SEBI guidelines, in case of bonds convertible at the option of the investors, 50% of the amount is to betreated as Debt (and the balance 50% as equity). The DER on that basis would be 6.5:1. However, the Tier I Bondsof Rs.2130 crore held by GOI are convertible at the request of IDBI Ltd. Ltd.(Issuer) and not only at the option ofGOI(Investor).

Notes to ratios alongwith reference serial no.(1) Average Cost of Funds is interest and financial cost as a percentage of the average of total liabilities.(2) Average cost of loan funds is ratio of interest and financial expenses to average borrowings.(3) Return on Average Assets is total income net of provisions and write offs, as a percentage of the average of

total assets.(4) Return on average net worth is Adjusted Profit after tax less dividend on Preference Shares as a percentage

of average net worth (excluding earmarked reserves).(5) Standard assets are assets in respect of which no interest payment/ principal repayment is overdue beyond

90 days.(6) Average Income Earning Assets represent average of total assets less non-income earning assets.(7) Average interest earning assets consist of average loan assets + bill finance + debentures + equipment leasing.(8) Interest income is before write-offs and provisions.(9) Interest income consists of income from interest earning assets(10) Net Profit Margin is Adjusted Profit after tax as a percentage of average Assets(11) Interest expense include financial expenses on borrowings(12) Debt Equity Ratio is total borrowings plus contingent liability on account of guarantees issued as a proportion

of net worth less earmarked reserves.(13) Capital Adequacy Ratio is as per RBI’s circular dated March 29, 1994 and related subsequent guidelines.

Key Financial Ratios of IDBI Ltd. for six months ended/as on March 31, 2005

Sl. RatioNo.1 Average cost of total liabilities* 6.2%2 Average yield on total assets* 8.2%3 Margin (%) (2-1)* 2.1%4 Average cost of borrowed funds [incl deposits] (%)* 7.4%5 Average cost of deposits* 4.8%6 Average yield on earning assets* 8.8%7 Average yield on Advances* 10.1%8 Spread (%) (6-4)* 1.4%9 Low cost deposits to total deposits 38.3%10 Low cost deposits to total borrowed funds 8.4%11 Return on average assets (%)* 0.8%12 Return on average net worth (%)* 10.7%13 Net Interest Margin* 0.5%14 Non-Interest Income to Average Assets* 1.6%15 Operating Expenses to Average Assets* 1.2%16 Provisions & contingencies to Average Assets* 0.1%17 Cost to Net Income Ratio 55.7%18 Overhead Efficiency Ratio 138.2%19 Staff Expenses to Total Expenses 5.1%20 Business per Employee (Rs. Crore) 13.5

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20a Business per Employee (Rs. Crore) 29.421 Profit per Employee (Rs. Crore)* 0.122 Gross NPA Ratio (%) 2.5%23 Net NPA Ratio (%) 1.7%24 Coverage Ratio 6.2%25 Risk Wtd. Assets to Total Assets 75.9%26 Total Capital Adequacy Ratio (%) 15.5%27 Tier I CAR 11.9%28 Book Value per share (Rs.) 81.729 EPS (Rs.)* 8.530 P/E Ratio 10.7* AnnualisedAs IDBI Ltd. is a Banking Company w.e.f. October 1, 2004, DER and NDSCR have not been calculated afterSeptember 30, 2004.

Notes to Ratios alongwith Reference serial no.1 Interest expenses / Average total liabilities

2 Total income / Average total assets

4 Interest expenses / Average (borrowings + deposits+ Tier II capital)5 Interest on deposits / Average deposits6 Total income / Average (total assets - other assets - fixed assets + assets on lease)7 Interest income on Advances / Average advances9 (Demand + Savings Bank deposits) / Total deposits10 (Demand + Savings Bank deposits) / (Borrowings + Deposits+ Tier II capital)11 Net profit / Average total assets12 Net profit / Average Net worth13 (Interest Income - Interest Expenses) / Average total assets14 Other Income / Average total assets15 Operating expenses / Average total assets16 Provisions & contingencies / Average Assets17 Operating expenses / (Total Income - Interest expenses)18 Other Income / Operating expenses19 Staff expenses / (Interest expenses + operating expenses)20 (Deposits + Advances) / No. of Employees20a (Deposits + Borrowings (incl. Tier II Bonds) + Advances + Investments less SLR and other liquid investments-MFs, CPs) / No. of Employees21 Net profit / No. of Employees22 Gross NPAs / Total Gross Loan assets23 Net NPAs / Total Net Loan assets24 (Net Worth - net NPA) / Total Assets25 Risk Wtd. Assets to Total Assets26 (Tier I + Tier II capital) / Risk wtd. Assets27 Tier I capital / Risk wtd. Assets

28 Net worth / No. of equity shares 29 Net Profit / No. of equity shares 30 Closing share price on March 31, 2005 / EPS


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Key Changes in Accounting Policies:The accounts upto September 30, 2004, of Industrial Development Bank of India (IDBI), then a statutorycorporation constituted under the IDBI Act, 1964, had been drawn up in conformity with the provisions of theIDBI Act. Subsequent to the conversion of IDBI into a Banking Company, under the Companies Act, w.e.f. October1, 2004, the accounts have been drawn up in conformity with the provisions of the Banking Regulation Act. Theaccounting policies followed before and after conversion are similar.

TaxationIDBI Ltd. was exempted from income tax by virtue of specific exemption granted under Sec 35 of the IDBI Act, 1964.IDBI Ltd. became liable to pay income tax from the assessment year 1992-93 onwards, after Sec. 35 of the IDBIAct was repealed by Finance (No.2) Act, 1991.

The status of IDBI’s pending tax assessments and appeals as on March 31, 2005 is as follows:

Income Tax

Assessment Year Status1992-93,1993-94,1994-95 Appeal against order passed by AO u/s 143(3) rws263 pending before CIT(A)1998-99 and 1999-00 Appeal against order of reopened assessment pending before CIT(A).

No demand is outstanding.1994-95 to 2000-01 Appeal filed before ITAT on original assessment.2002-03, 2003-04, 2004-05 Appeal against AO’s Order pending before CIT(A)1992-93 to 2000-01 Appeals against penalty orders passed by AO pending before CIT(A)

Wealth TaxAssessment Year Status

2003-2004, 2004-05 Returns of wealth have been filed. Adequate provisions have been made to coverthe wealth tax liability. The assessments have not been completed so far.

Interest Tax

Assessment Year Status

1994-95 to 2000-01 Appeal filed before ITAT against order passed by CIT(A).

Contingent Liability - Tax : The additional demand raised by the Income Tax Department on account of IncomeTax, Wealth Tax and Penalty is Rs.3944.31 crore. The additional demands include Rs.2174.86 Crores in respectof matters in which IDBI Ltd. has favourable decisions in its own case in the earlier years. Thus the amount ofcontingent liability on account of tax in dispute is Rs.1769.45 Crores.

Statement of Tax Computation (Rs. crore)

For the year ended March 31, 2003 2004 2005Tax at notional rate (A) 121 119 166Tax SheltersPermanent nature– Deduction under Sec.36(1)(viii) 0 0 0Deduction under Sec.80M– Income exempt from tax 0 0 43 –Indexation Benefit 30 49 185– Reinvestment 15 0 0Timing DifferenceDifference between tax depreciation and book depreciation (26) 3 (46)– Other adjustments 10 2 (20)Total Tax Shelters (B) 29 54 162Provision for Tax (A – B) 92 65 4** Tax provision for year ended 31.3.2005 has been made under Section 115JB of the Income Tax Act, at Rs.40.50crores.

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OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS

The outstanding litigations as on September 30, 2005 aggregate to Rs.388.02 crore with respect to 76 cases. Thereare no outstanding litigations involving IDBI Ltd. pertaining to matters which are likely to adversely affect theoperations and finances of IDBI Ltd. Category wise breakup of the cases is given below:

(Rs.Crore)Category Number of Cases Amount involved

Suits filed by borrowers 15 294.38Suits filed by other parties 22 24.37Property disputes 6 19.29Miscellaneous cases 19 43.56Misc consumer court cases 14 6.42*Total 76 388.02

*Amount not quantifiable in one case.The claims made in these cases are being contested by IDBI Ltd. and in the view of the Bank, they will not haveany material adverse effect on IDBI Ltd. There are no outstanding litigations involving any of the directors of IDBILtd.

Since the date of the last audited Balance Sheet, no circumstances have arisen which adversely affected or are likelyto adversely affect operations or profitability of IDBI Ltd., or the value of its assets, or its ability to pay its liabilitieswithin the next twelve months. It may however be mentioned that IDBI Ltd., along with other Indian lenders is aparty to an arbitration proceedings under an inter creditor agreement, governed by English Law. The arbitrationproceedings are currently underway in London. The claims/damages against IDBI Ltd., as one of the parties, is notascertainable at this stage.

Name of the party Case No. Amount in Brief ParticularsRs. (lakhs)

Batliwala & Karani Suit No. 280 4334.00 IDBI entered into a ready forward contract with M/s.of 1996- Bombay Batliwala & Karani for purchase and sale of 3

High Court crore units of Unit Trust of India. M/s. Batliwala &Karani (B & K) filed a suit in Bombay High Courtalleging that IDBI refused to perform its part of thecontract and claimed specific performance of theagreement including dividend, rights, benefits andaccruals or alternatively for payment Rs. 43.34 crore byway of damages.

Universal Comptronics Delhi High Court 512.24 Universal Comptronics Ltd. (UCL) had availed term-IPA 5 of 1992 loans from HFC and HSIDC. It also availed Seed

Capital Assistance from IDBI in form of a Soft Loan.HFC & HSIDC initiated proceedings for recovery of theirdues as arrears of land revenue pursuant to which theproperties of UCL were auctioned. UCL filed anIndigent Person Application (IPA) in the Delhi HighCourt for recovery of Rs. 512.24 lacs by way of damages from HFC, HSIDC, IDBI & UBI, inter alia, on theground that during pendency of the writ petition No.7825 of 1987 filed by UCL in Punjab & Harynana HighCourt the properties were wrongfully auctioned inviolation of the High Court orders.

G.T.Jarani & Others Bombay High Court 730.00 There were disputes between two promoter groups of-Suit no. 3499 of 1993 Sima Hotels & Resorts Ltd. an assisted concern. Shri

G.T. Jarani and others (Jarani family group) filed suitagainst Sima Hotels & Resorts Ltd., IDBI, IFCI, ICICIand Others ,inter alia, claiming damages caused bythe company (headed by Dugal family group) andothers, alleging collusion or conspiracy with the Dugalgroup to cause loss to Jarani group by delayingcompletion of the project and becoming privy to mis-utilisation of the funds.


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R.K.Chabbra & Special Civil Suit No. 210.64 IDBI sanctioned financial assistance to Hospitalityothers 115/2001/B before Resorts Ltd. The company failed to repay the

Civil Judga, Goa loan amount and pay interest and other charges toIDBI. The management of the company was changedand the new management of the company paid thedues to IDBI. The Ex-directors of the company filed asuit for damages on the ground that they were distressed to sell their shareholding.

Multi Colour Bombay High Court 16310.00 Multicolour Offset Ltd. availed Foreign Currency loan forOffset Ltd. -Suit No. 507 of 2000 import of certain machinery. It committed defaults in

respect of the loan and a suit was filed against thecompany and guarantors. The company filed a suitagainst its machinery suppliers,IDBI and Sh.C.P.Philipand Sh. J.John employees of IDBI alleging, inter-aliathat the machinery supplied was outdated and thatIDBI opened LCs without stipulating a condition of pre-shipment inspection.

Shri. Bhagwandas High Court, Calcutta 1200.00 Sh. Bhagwandas Agarwalla, the Promoter Director ofAgarwalla Civil Suit No. 122/2001 Bright Wires Ltd, has filed a suit seeking, inter alia a

decree for Rs.12 crores against ICICI, IDBI and others.He has alleged that he sustained loss as the nomineedirectors of the FIs supported the other promoter, whohad fabricated the accounts and also the property ofthe company was taken possession by the CourtReceiver appointed by the Bombay High court. ICICILtd, the Lead has entered into OTS with the companyand the company has paid their dues.

MMCW Cables C.S.No. 589 of 1166.00 IDBI had sanctioned financial assistance in the &Conductors 2001 in High Court form of term loan of Rs.1000 lacs to ModernPvt. Ltd. Calcutta Malleables Ltd. As a security for the loan MMCW

Cables & Conductors Pvt.Ltd. & 3 others pledgedshares held by them in the capital of ModernMalleables Ltd. in favour of IDBI. IDBI gave notice to thePledgors u/s 176 of Indian Contract Act but despitenotice company did not honour its commitment. MMCWCables & Conductors Pvt.Ltd. and 3 others filed suit inCalcutta High ourt against IDBI. Their contention isthat the shares been sold when the companycommitted defaults, it would have fetched Rs.1189 lacsmuch above the amounts of default by the company.

Claim for Non-DisbursementEureka Wires Calcutta High Court 9544.00 Eureka Wires Ltd. availed a loan under Venture Ltd.

- Suit No. 279 of 1994 Capital Fund Scheme of IDBI for setting up ademonstration plant for manufacture of electricalresistance wire with high chrome nickel content.It had alleged that the venture was successfullycompleted and Co. entered into a loan agreement with IDBI for a term loan of Rs.375 lacs forsetting up a commercial size project. Therewere defaults in respect of the VCF loan. Thecompany also did not comply with the pre-disbursement conditions and the loan was notdisbursed. The company alleged breach on thepart of IDBI and claimed Rs.95,44,36,500/-towards loss suffered by it in connection with thesetting up the commercial size project includingloss of profit and business to the extent ofRs.92,48,09,500/-.

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Miki Oriental Calcutta High Court 143.97 ICICI in participation with IDBI and IFCI sancPapers Mills - Suit No. 171 of 1995 tioned rupee term loan and foreign currency Ltd. loan aggregating Rs. 665 lakh (IDBI share being

Rs.262 Lacs). IDBI and IFCI, confirmed theirparticipation. The company filed a suit inCalcutta High Court against ICICI, IDBI and IFCIon the ground, inter alia, that the foreigncurrency loan agreement was executed andbased on the assurances of the institutions ithad proceeded with the implementation of theproject. Since the FIs did not disburse anymoney and cancelled the financial assistancesanctioned to the company, the company had toabandon the project and suffered loss/damages. The claim consists of loss of profit of Rs.74 lakhs and interest of Rs. 38.07 lakhs.

Nityananand City Civil Court, 432.50 Nityanand Cotspin Ltd., was sanctionedCotspin Ltd. Ahmedabad financial assistance but it failed to comply with

O.S.No. 1586 of 2000 pre-disbursement conditions and as such theloan amount was not disbursed. The companyfiled a suit against IDBI claiming compensation/damages for not disbursing the financialassistance sanctioned to it.

M.B. Industries High Court, Calcutta 1025.24 M.B Industries Ltd has filed a suit against IDBI,Ltd. Suit No. 130A of 1997 IFCI and ICICI jointly and severally claiming an

amount of Rs. 10,25,24,266/- on account of lossand damages suffered by it by reason of theinstitutions failing to disburse the foreigncurrency loan and opening of letters of credits intime.

Engser India High Court, Calcutta 305.00 IDBI sanctioned financial assistance in the formLtd. - Suit No. 63 of 2000 of term loan of Rs.110 lacs and direct subscrip

tion of equity of Rs.32 lacs to Engser India Ltd.Engser India Ltd. and Shri S.R.Budhia filed thecaptioned suit against IDBI alleging that sinceIDBI did not disburse the loan, the companycould not fulfill its obligations of the foreignorders and hence claimed an amount of Rs.305lacs.

Bhaskar Srachi High Court, Calcutta 360.00 IDBI had sanctioned a term loan of Rs.760 lacsLtd. - Suit no. 207 of 2002 to Bhaskar Srachi Ltd. for its project at Asansol,

in the State of West Bengal and the loanagreement was also executed. Subsequently,IDBI cancelled the loan as the last date of thedrawal of the loan expired and the company hadnot even acquired land for the project. Thecompany filed the present suit, claimingdamages of Rs.360 lacs against IDBI.

Sugan Pharma Ltd. National Consumer 615.71 IDBI sanctioned Rs.200 lacs to Sugan PharmaLimited Disputes Redressal under Project Finance Scheme with Industrial

Commission, Delhi Investment Bank of India (IIBI) for setting up aO.P. No. 271/2000 new unit for manufacture of Bulk Drug at Peritala

Village, Krishna District, in the State of AndhraPradesh. As the loans are not disbursed ontime and the unavailed/undisbursed balance


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loan amount was cancelled by IDBI and IIBI, thecompany filed complaints against IDBI and IIBI(separate complaints) to pay to the companyRs.615.71 Lakh towards loss suffered onaccount of the abnormal delay in disbursements/ cancellation of unavailed/undisbursedbalance loan amount.

Claims for RefundBallal Tourist State Consumer Disputes 2.35 IDBI sanctioned Rs.200 lacs to Ballal TouristHotel Pvt. Ltd. Redressal Commission Hotel Pvt. Ltd. The loan documents were

Bangalore Appeal No. executed and subsequently, the company971 of 2003 requested for cancellation of the loan and refund

of up-front fee. As we declined to refund thesame, the company filed Complaint No. 752/95before Consumer Disputes Redressal Forum,Bangalore against IDBI. Consumer Forum videorder dated June 30, 2003 allowed the Complaint and directed IDBI to refund a sum of Rs.2.1 lakh to the Company.

Hatsun Agro High Court, Madras 58.13 IDBI sanctioned term loans aggregating Rs 637Products Ltd. C.S. No. 513/2001 lakhs to the Company for its project at Salem, in

the State of Tamil Nadu. The Company approached IDBI for pre-payment of the loans. IDBIcharged an amount of Rs 51,42,895/- as premiafor prepayment of loans. The Company paid theamount. The above suit has been filed by theCompany to (i) declare charging of the premiaon prepayment, as provided in section 3.7 of theGeneral Conditions of the Loan Agreement, asopposed to public policy and declare the sameas null and void, (ii) declare that IDBI hascollected the sum of Rs 51,42,895/- underduress and illegally and hence not entitled toretain the same, (iii) directing IDBI to refund thesaid amount of Rs 51,42,895/- paid towardsprepayment premium on 5/10/2000 togetherwith interest at 18% p.a from 6/10/2000 till thefiling of suit amounting to Rs.6,69,562/- totalingRs 58,12,457/- together with interest at 18%from the date of plaint till payment.

Micro Bio-Med Suit No. 428 of 2004 32.00 Suit has been filed by the company for return ofExports Ltd. Before the City Civil up-front fee paid by it. IDBI has filed written

Court, Hyderabad statement denying the claim.

HAC Polytech Suit No. 245 of 2002 7.56 The company has filed the present suit aginstIndia Ltd. City Civil Court, Kolkata IDBI for seeking relief inter alia refund of up front

fee of Rs. 5.6 Lakh together with interestaggregating Rs. 7.56 Lakh.

Akash Optifibre Suit No. 165 of 2005 72.00 The assistance sanctioned to the company wasLtd. Delhi High Court cancelled, as it did not comply with the terms

and conditions. Company has filed a suitagainst IDBI for refund of upfront fee paid to IDBIand also claimed interest.

Claims for Interest

Fairgrowth Financial Misc. App. No. 30/2002 Amount Fairgrowth Financial services Ltd.(FFSL) wasServices Ltd. in special Court not notified under section 3 of the Special Court (

constituted quantified Trial of offences relating to transaction in

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under the Special Court Securities) Act, 1992 by the Custodian ap(Trial of offences relating to pointed under the said Act. Consequently all the Transaction and Securities) properties of FFSL stood attached. However on

Act, 1992 08.09.2001, the Custodian permitted FFSL totransfer to its name the unregistered shares ofvarious companies, and handed over to themabout 39 lakh share certificates. On scrutiny byFFSL, it was observed that 4475 shares , thoughpurchased by it, were still registered in thename of IDBI. Hence FFSL filed the suit seekingdirections to IDBI to forward duly attestedtransfer deeds, state on oath the corporatebenefits received by it from 1991-92 and to handover the same to FFSL with interest at 24% p.a.

Claims for Rent

Ashoka Industries O.S. No. 514 2.19 Ashoka Industries has filed a suit against IDBI forof 1999 arrears of rent in respect of the premises whichCourt of Principal were leased to Indiana Diary Specialties Ltd. anCivil Judge (Sr. Div) assisted company. The company filed an applicaBangalore tion for injunction

Premises mattersKGL Small Cases Court 1330.00 By exchange of letters between IDBI and M/s. Klassic

Bombay (L.E. & C Garments Pvt. Ltd. (KGL) acting on behalf of theSuit No. 111/132 of owners of the premises on the 1st & 2nd floor of Mittal

1990) Court, Nariman Point, Mumbai, IDBI took the premiseson leave and licence basis for a period of 10 years withan option to renew the license for a further period of 10years. After construction of IDBI Tower and shifting thedepartments of IDBI, IDBI allowed bare user of thepremises by SEBI and Stock Holding corporation ofIndia Ltd. (SHCIL) w.e.f. 1.7.1989 after intimating KGL.KGL served a notice on IDBI terminating/revokinglicence in respect of the premises and filed the suit u/s41 of the Presidency Small Causes Act, inter alia, forrecovery of possession of the said premises andmesne profits at Rs.35 lakhs p.m.

T.V.Patel Court of Small Causes, 328.77 T.V. Patel filed suit for possession of the suit premisesBombay T.E. & R Suit No. (Mahendra Towers), recovery of Rs. 2,75,45,078.75 as

220/238 of 2003 arrears of rent and Rs. 53,31,943/- as mesne profitfrom IDBI on the ground of non observance and nonperformance by IDBI of the terms and conditionscontained in the Sub Lease Deed dated 22.4.1980whereunder IDBI had acquired the property ( MahendraTowers) .

Smt. G.C.Kamala, High Court, Madras 100.00 The suit has been filed by Smt.G.C.Kamala, Sri HariSri Hari and others C.S. No. 406/2002 and 2 others praying for various reliefs against the

defendants including a declaration to set aside thesale in respect of the property purchased by IDBI anddeclare the sale as null and void abinitio and alsodirecting the defendants to hand over the possessionof suit property.

Shri. Shesh Narain Civil Judge, Kanpur 40.00 IDBI purchased a plot of land at Kanpur from S/ShriCivil Suit No. 208 of plus interest S.N.Garg and B.N.Garg vide Deed of Conveyance


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executed on March 12, 1987. Subsequently, anagreement to construct a building on the said plot ofland was entered into between IDBI and M/s.Garg &Associates (A partnership firm consisting of partner viz.Shri Rajender Garg, Shri Bhoop Narain Garg and Smt.Kamala Garg, W/o. Shri Shesh Narain Garg. ShriShesh Narain Garg has raised objections to theaforesaid construction deal entered into by IDBI with M/s.Garg & Associates and alleges that a ‘Package deal’was entered into between IDBI, M/s.Garg & Associatesand him under which it was agreed that he will be paid20% of amount payable for the construction of the saidbuilding. He claims that IDBI had deducted 20% fromamount of each bill payable to M/s.Garg & Associatesand failed to reimburse the same to him. He has nowfiled suit against IDBI for recovery of Rs.40 lakhs plusinterest.

Shir Tinu Dhirajlal Court of Civil Judge 8.39 Shir Tinu Dhirajlal Gandi and other has filed this suitGandi and other (S.D) at Gandhidham – against IDBI for directing IDBI to specifically perform

Kutch the MOU and lease deed dated 05.07.2004 executedbetween IDBI and Tinu Dhirajalal and in case theabove prayer is not allowed to direct IDBI to pay themonthly rent for lease period of 5 years w.e.f April 2004onwards.

Investor Complaint

Gyanchand Mootha Addl. District Judge, 0.79 Gyanchand Mootha has filed a suit for recovery of Rs.Jaipur 79912/- against IDBI and JF Laboratories Ltd. for the

Suit No. 57 of 1999 failure to provide services as a banker and as trustee.

Claims on CBSBU as on September 30, 2005(Amount in Rs.)

Sri Krishna Suit No. 246/2002 9,250 Disputed service charges in recollection of school feesPublic School District Consumer Forum

Jamshedpur

Mr. Kamlesh Kumar Suit No. 241/03 22,000 Disputed withdrawal on an a/c payee chequeDistrict Consumer Forum

Jamshedpur

Mr. Ratan Kumar CASE NO-20/ 03 DT 32000 Alleged encashment of cheque through forged02/02/2003 signature

Mr. Goutam Choudhury Suit dated 510,000 Claim for loss for sale of shares pledged as security26.02.2003

Ms. J.B.Pharma Suit No. 256/04 16,471 Interest claim for delayed credit of outstation chequeOffice of the Banking plus interest

Ombudsman,Jharkhand

Anand Service Suit No. 34/2005 38,938.52 Cash charges reversalStation Raipur

Mr.Mohd. Zaid Suit No. 4b/ 23,040 Fradulent withdrawal from the accountof 2005, Raipur

Mr.Vishwajeet Dey Suit No. 231/05 4,80,800 Cheque bounce relatedof Banking Ombudsman

Ranchi

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SB of Saurashtra Claim dt. 22.12.2004 1,61,000 The client,Naresh Chaudhary, opened an account byNorth Agra submitting PAN Card and Mobile Bill. Subsequently, the

client deposited forged Demand Drafts in Hubli andJabalpur Branches of our Bank, which were drawn onSBI of those respective centers and issued by StateBank of Saurastra, Jetpur. These DDs were cleared bySBI at both the above centers, and was reported forgedonly after 9/10 days of them being passed. When theAgra Branch got the news of the same, it froze theaccount of the client and tried to find out his address. Itwas found that there was no such address. By thattime the customer had withdrawn Rs. 2,00,000/- fromthe account.

Mr. Sandeep Bajaj Consumer Court 50000 IPO of IGL financed by IDBI Bank, but shares notAmritsar plus litigation allotted in 300 shares

cost

Mr. B.M.Sharma Consumer Dispute Amount not Not received IDBI Flexibonds applied in March 2004Redressal Forum specified

Amritsar

Mr. Poonak Gupta Claim dt. 15.03.2005 2,36,840 Allotment of IGL shares for the issue financed by the& others Amritsar client.

A.B.Das StateConsumer Disputes 5,00,000 Opportunity loss on not submitting application for plotRedressal Forum allotment (under home loan PUDA scheme) where

Chandigarh earnest money was received by the Bank but application did not reach PUDA

Ms. Archana Nigar Jaipur 5,423 Loss due to late disbursement resulting into pre emiinterest

Mr. Anand Ajmera Case No. 322/05 85,600 Loss incurred due to non-allotment of NTPC shares.Johari Bazar Customer was allotted wrong account number and

Jaipur hence the customer could not apply for the shares.

M/s. R.D.Metals KG Marg 575,000 A complaint has been lodged by M/s.R.D.Metals whohave alleged that a chq no.167247 drwn on syndicatebankt sadar bazar for Rs.5,75,000/- deposited bythem at kg mag on 11.10.2004 (HV) had not beencredited to the a/c of intended payee – Suncity Metals(058102000001007). They have further alleged that thechequehad been stoledn from our end, subsquntlypayee’s name was altered & presneted through HDFCBank & payment was obtained by fraudster.

Mr. Sunjay Case No. 139/05 96,000 Delay in loan disbursement leading to cancellation ofBhatnagar Consumer Forum allotment

RPU Delhi

Mr. Sudharam Jain Case No. 717/ 6,25,486 Delay in disbursal and subsequent non-disbursal04-05 (Re-finance)

Banking Ombudsman

Mr. Ramesh Srivastava 110:161/05-06 6 months Delay in disbursement of Sanction Amount leading toBanking Ombudsman interest on Interest levy by Noida Authority

5,80,000

Mr. K.S.Chandrashekhar Case No. 106/2005 40932Consumer Court (with interest)


153

& 1,07,500

Mr. Ashok Kumar Arbitrator/Asst. Registrar Not a direct financial claimCo-op. Societies, Gurgaon

Mr. Umesh K.Sharma Claim dt. 09.07.2004 7,26,000 Rejection of HUDA Financing applicationConsumer Court, Delhi

Mr. Sanjeev Bhatnagar Case No. 139/05 96,000 Delay in subsequent disbursementConsumer Court

Noida

Mr. Ajay Arora Consumer Court 75,000 Delay in account opening and dishonouring ofLudhiana cheques

Mr. Karanvir Singh Suit No. 611/2005 52,600 PSEB Security Deposit for old branch premisesSibba & Family District Consumer plus legal

Disputes Redressal cost 24,000 Forum, Chandigarh

Jayant Singh Suit No. 991/103 3,56,400 Delay in collection of outstation cheques of Rs. 16,400Tomar Consumer Court, Lucknow & Rs. 15,000

Ganpati Traders Civil Suit No. 179/05 6,02,083 Negligently opening account of Ganpati TradersNew Delhi resulting in encashment of stolen instruments

Krishna Mankar Claim dt. 10.06.2005 2000 Average balance chargesDistrict Consumer Forum

Dhar, M.P

Mukesh Kumar Case No. 152/05-06 10,300 Dishonour of cheque due to insufficient funds inAgrawal Banking Ombudsman customer’s SB account 037104000011635

New Delhi

Mr. Rajeev Gaur Court case filed on 57,500 Disputed ATM withdrawal23.12.2002

Central Bank Civil Suit No. 34/2002 3,88,000 Claim from Central Bank on account of payment oftheir fradulent DD

Mr. Rajiv District Consumer Forum 1,44,880 No delivery of vehicleKwatra New Delhi

Bijay Kumar Claim dt. 08.12.2004 12,000 Reimbursement of money in respect of Debit cardPalai Banking Ombudsman used on the ATM by a person other than the card holder

Rajendra Singh Claim dt. 31.01.2003 24000 Disputed ATM payment for never having received theChaubasia ATM card

Vikas Mehta Claim dt. 07.03.2005 95,000 Encashment of cheques in fradulently opened account

Richal Rupal Case No. 105/04 39,225 Delay in home loan disbursementUdaipur

Mr. Suresh Kumar Claim dt. 31.12.2004 1,00,000 Claim for non-credit of OCC of Rs. 40,000 on NagercoilKothari

M/s. Ramesh Kumar Claim dt. 13.04.2005 9,197 AQB chargesFateh Chand

Sujatha Devi Case No. 661/2004 9000 + Processing Fee refundIV Small Causes Court interest

Chennai

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M/s. Dolphin Art Claim dt. 01.12.2004 65,241 Cheques debited in the account, where cheques haveGlass Banking Ombudsman been signed singly by one partner

Priyanka A Suit No. 1447/2003 92,000 Non-allotment of shares of Maruti Udyog under IPOConsumer Disputes finance

Redressal Forum, Bangalore

Nirmala Praveen 109/2004-05 35,810Kumar & Office of the OmbudsmanH S Praveen Kumar Karnataka

R.Sreejit & SC No. 136/2004 22,690 Payment of 2% penal interest charged to them onDeepa Sreejit High Court, Karnataka plus interest prepayment

The Hubli Urban 225/2003 7,49,300 Claim for honouring of PAP cheques, which was paidCo-op Bank Ltd. Senior Division, Hubli by CCU Mumbai

Southern Slabs 104/05 25,58,400 Encashment of stolen SBI DD& Granites Senior Division, Hubli

Mr. Narayan Hegde 862/04 1,34,615.25 Deficiency of serviceConsumer Redressal

Forum, Mangalore

Kanageyan 281/2001 27,038 plus Loss for alleged delay in the execution of deliveryDistrict Consumer interest@ instructions

Forum, Madurai 24% p.a.

220/2004 1,00,400 Wrongful cheque returnDistrict Consumer

Forum, Madurai

Thoompumkal 235/3896/05-06 20,061 Cash abuser chargesTraders Banking Ombudsman

Trivandrum

Parichand Bothra 449/2005C & 450/2005C 1,21,57,314 Monthly rentals and service charges& Akhil Prints Pvt.Ltd.


155

Litigation against Subsidiaries

IDBI Capital Market Services Ltd. (ICMS)There is no litigation pending against ICMS (Litigation includes suits filed by borrowers. suits filed by other parties,property disputes, miscellaneous cases and miscellaneous consumer court cases)

IDBI Intech Ltd.(Rs. lacs)

Category Number of Cases Amount involvedSuits filed by borrowers nil nilSuits filed by other parties nil nilProperty disputes nil nilMiscellaneous cases 1 12.65Misc consumer court cases nil nilTotal 1 12.65

Case Details :Delhi Financial Corporation (DFC) : Notice of arbitration was received by IDBI Intech Ltd. on January 14, 2005, advisingIntech that, the dispute in respect of software development project, was being referred for arbitration and they hadappointed an arbitrator. Intech, vide its letter dated June 3, 2005, advised DFC that Shri. Rakesh Munjal was beingappointed by Intech as an arbitrator on its behalf. Subsequently, the Managing Director and Chief Executive Officer(MD&CEO) of Intech called upon Chairperson & Managing Director (CMD) of DFC on September 12, 2005 and bothparties agreed to settle the dispute through negotiation. Accordingly, settlement proposal was sent by Intech to DFCvide its letter dated September 15, 2005. In response, CMD, DFC made an oral counter proposal. Intech is currenlyengaged in negotiations with DFC for settlement of the issue. Meanwhile, both parties are not proceeding with arbitra-tion.

IDBI Home Finance Ltd. (IHFL)(Rs. in lacs)

Category Number of Cases Amount involvedSuits filed by borrowers 1* 4Suits filed by other parties 1# not ascertainableProperty disputes nil nilMiscellaneous cases nil nilMisc consumer court cases 4 0.1Total 6 4.1

Case Details

* Name of the Party Case No. Amount in Rs. Brief Particulars Ms. Pramila Sanadiya 287/2004 4,40,000 Mandatory injunction for disbursement of the

loan. The disbursement hasbeen withheldowing to non-compliance of pre-disbursementverification.

# Mr. Manish Patni 18798/2004 Not ascertainable The petitioner has approached the court interaliaagainst his dismissal from service and hassought reinstatement and/or compensation forloss of employment.

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OTHER REGULATORY AND STATUTORY APPROVALS

Authority to issue

The Issue of Bonds is being made pursuant to Articles 75 and 76 of the Articles of Association of IDBI Ltd. and relevantprovisions of the Companies Act, 1956. The Board of Directors of IDBI Ltd. at its meeting held on August 18, 2005, haspassed the Resolution approving the IDBI Flexibonds Umbrella Offer Document 2005-2006 for raising Rs.1500 crore withan option to retain additional subscription upto Rs.1500 crore aggregating Rs.3000 crore and authorised the Chairmanand Managing Director to carry out such amendments as may be necessary and finalise the Umbrella Offer Documentand the individual tranche documents. The aforesaid Resolution passed by the Board is within the overall borrowing limitunder Section 293(1)(d) of the Companies Act, 1956, as approved by the shareholders at its meeting held on September29, 2004.The Issue is made in accordance with the Guidelines for Issue of Capital by Designated Financial Institutions, SEBI(Disclosure and Investor Protection) Guidelines 2000.The Reserve Bank of India vide its letter dated September 24, 2004, has permitted IDBI Ltd. to issue Bonds upto anamount equivalent to the undisbursed commitments as on the appointed date i.e. October 1, 2004 . The undisbursedcommitements as on appointment date is Rs. 9200 Cr. The bank has issued bonds aggregating Rs. 2448 Cr. as on dateconforming to the dispensation given by RBI. Therefore as on date the amount of bonds which can be further issued is Rs.6748 Cr. The proposed Issue of Bonds of an aggregate amount of Rs.3000 crore is within the amount so specified by RBI.IDBI Ltd. can issue the Bonds proposed by it in view of the present approvals and no further approvals in general from anyGovernment Authority / RBI are required by IDBI Ltd. to undertake the proposed activity. IDBI Ltd. , in future, will secure anyother required approvals from the statutory authorities, if necessary.IDBI Ltd., being a public financial institution, has been raising resources both from domestic market and overseas marketin the form of unsecured borrowings. In respect of the monies borrowed from overseas markets, the erstwhile IDBI hadagreed to create pari passu charge if any other lender is offered security on the assets of IDBI Ltd. Since the resourcesraised by IDBI Ltd. are being utilised for the purpose of its business i.e. providing credit and other facilities to the industry,the assets of IDBI Ltd. are mostly in form of loans and advances. Hence it is proposed that the Bonds shall be unsecuredin nature in that they shall not be secured against any asset of IDBI Ltd. IDBI Ltd. has appointed a trustee to protect theinterest of the investors.

As per clause 2.2.4.1 of SEBI (DIP) Guidelines 2000, the eligibility provisions are not applicable in case of a BankingCompany set up under Banking Regulations Act, 1949. IDBI Ltd. , being a Banking Company set up under BankingRegulations Act, 1949 will not be subject to the eligibility provisions.

Prohibition by SEBI

IDBI Ltd. or its Directors, or any of the companies with which the Directors are associated with as directors or promoters,have not been prohibited from accessing or operating in the debt market under any order or direction passed by SEBI.

Eligibility for the Issue

As per clause 2.4.1 of SEBI (DIP) Guidelines’ 2000, the eligibility provisions are not applicable in case of a bankingcompany set up under Banking Regulation Act, 1949. IDBI Ltd., being a Banking Company set up under banking Regula-tion Act, 1949 will not be subject to the eligibility provisions.

Disclaimer

As required, a copy of the Offer Document has been submitted to SEBI.IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF OFFER DOCUMENT TO SEBI SHOULD NOT IN ANY WAYBE DEEMED OR CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANYRESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUEIS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THEOFFER DOCUMENT. THE LEAD MANAGER, SBI CAPITAL MARKETS LTD. HAS CERTIFIED THAT THE DISCLOSURES MADEIN THE OFFER DOCUMENT ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI GUIDELINES FOR DISCLO-SURE AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE THE INVES-TORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE.IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER IS PRIMARILY RESPONSIBLE FOR THE COR-RECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE OFFER DOCUMENT, THE LEADMERCHANT BANKER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE ISSUER DISCHARGES ITSRESPONSIBILITY ADEQUATELY. IN THIS BEHALF AND TOWARDS THIS PURPOSE, THE LEAD MANAGER, SBI CAPITALMARKETS LTD. HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED DECEMBER 21, 2005 IN ACCORDANCEWITH SEBI (MERCHANT BANKERS) REGULATIONS, 2000 WHICH READS AS FOLLOWS:


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1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIALDISPUTES ETC. AND OTHER MATERIALS IN CONNECTION WITH THE FINALISATION OF THE DRAFT OFFER DOCU-MENT PERTAINING TO THE SAID ISSUE.

2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH IDBI LTD., ITS DIRECTORS AND OTHEROFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING OBJECTS OF THEISSUE AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHEDBY IDBI LTD. , WE CONFIRM THAT:A) THE OFFER DOCUMENT FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND

PAPERS RELEVANT TO THE ISSUE;B) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES, INSTRUC-

TIONS ETC. ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALFHAVE BEEN DULY COMPLIED WITH; AND

C) THE DISCLOSURES MADE IN THE OFFER DOCUMENT ARE TRUE, FAIR AND ADEQUATE TO ENABLE THEINVESTORS TO MAKE A WELL INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE.

D) WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE OFFER DOCUMENT ARE REGISTERED WITH SEBI AND THAT TILL DATE SUCH REGISTRATION IS VALID.

THE LEAD MANAGER HAS ISSUED A FRESH DUE DILIGENCE CERTIFICATE DATED (_____________) WHICH REITERATESTHE STATEMENTS MADE IN THE CERTIFICATE DATED (___) REFERRED TO ABOVE AND STATES THAT ALL OBSERVA-TIONS MADE BY SEBI VIDE LETTER DATED [ * ] HAVE BEEN INCORPORATED IN THE OFFER DOCUMENT.

THE FILING OF THE OFFER DOCUMENT DOES NOT, HOWEVER, ABSOLVE THE ISSUER FROM ANY LIABILITIES ARISINGOUT OF MISSTATEMENTS IN THE OFFER DOCUMENT OR FROM THE REQUIREMENT OF OBTAINING STATUTORY OROTHER APPROVALS AS MAY BE NECESSARY FOR THE PROPOSED ISSUE. SEBI FURTHER RESERVES THE RIGHT TOTAKE UP, AT ANY POINT OF TIME, WITH THE LEAD MANAGER ANY IRREGULARITIES OR LAPSES IN THE OFFER DOCU-MENT.

Disclaimer in Respect of Jurisdiction

This Draft Offer Document has been registered in India in accordance with the provisions of the Act. This Issue ofBonds is made in India to persons resident in India and to NRIs. RBI vide its Notification No. FEMA 4/2000-RB datedMay 3, 2000 has granted general permission to NRIs to invest in the issue on repatriation and on non-repatriationbasis. Thisoffer is not being made to Foreign Institutional Investors (FIIs) as defined under the Indian laws.

This Offer Document does not constitute an offer to sell or an invitation to subscribe to the bonds offered herein, in anyother jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person, inwhose possession this Offer Document comes, is required to inform himself about and observe any such restrictions.

Disclaimer Clause of BSE

BSE has given vide its letter dated [ * ] permission to IDBI Ltd. to use BSE’s name in the Offer Document as one of thestock exchanges on which the bonds are proposed to be listed. BSE has scrutinised this Offer Document for itsinternal purpose of deciding on the matter of granting the aforesaid permission.BSE does not in any manner:• warrant, certify or endorse the correctness or completeness of any of the contents of this Draft Offer Document; or• warrant that this Company’s Bonds will be listed or will continue to be listed on BSE; or• take any responsibility for the financial or other soundness of this Company, its promoters, its management or any

scheme or project of this Companyand it should not for any reason be deemed or construed that this Draft Offer Document has been cleared or approvedby BSE. Every person who desires to apply for or otherwise acquires any securities of this Company may do sopursuant to independent inquiry, investigation, analysis and shall not have any claim against BSE whatsoever byreason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever.

Disclaimer Clause of NSE

As required, a copy of the Draft Umbrella Document has been submitted to NSE. NSE has given vide its letter dated ( )permission to IDBI Ltd. to use NSE’s name in the Draft Offer Document as one of the stock exchanges on which thesecurities are proposed to be listed. NSE has scrutinised the Draft Umbrella Offer Document for its limited internalpurpose of deciding on the matter of granting the aforesaid permission. It is to be distinctly understood that theaforesaid permission given by NSE should not in any way be deemed or construed that the Draft Umbrella OfferDocument has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the correctnessor completeness of any of the contents of the Draft Umbrella Offer Document; nor does it warrant that the securities willbe listed or will continue to be listed on NSE; nor does it take any responsibility for the financial or other soundness of

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this Company, its promoters, its management or any scheme or project of this Company.Every person who desires to apply for or otherwise acquire any of the securities may do so pursuant to indepen-dent inquiry, investigation and analysis and shall not have any claim against NSE whatsoever by reason of anyloss which may be suffered by such person consequent to or in connection with such subscription/ acquisitionwhether by reason of anything stated or omitted to be stated herein or any other reason whatsoever.

Disclaimer from IDBI Ltd. and Lead Manager

IDBI Ltd. and the Lead Manager, SBI Caps accept no responsibility for statements made otherwise than in the OfferDocument or in the advertisements or other material issued by or at the instance of IDBI Ltd. and any one placing relianceon any other source of information would be doing so at their own risk.

Filing of the Draft Shelf Offer Document

The Draft Shelf Offer Document was filed with SEBI on ( ) in Mumbai. A copy of this Offer Document, having attached theretothe ‘Material contracts & documents’ referred to elsewhere in the Offer Document, has been delivered for registration to theBombay Stock Exchange, National Stock Exchange of India and the Registrar of Companies, Maharashtra. A complete setof the said documents has been kept open for public inspection at the Head Office of IDBI. The Lead Managers and theBank shall make all information available to the public and investors at large and no selective or additional informationwould be available to any section of investors in any manner whatsoever.

Listing

Applications have been made to Bombay Stock Exchange Limited and the National Stock Exchange of India Ltd. forpermission to deal in and for official quotation of the Bonds. Bombay Stock Exchange Limited and the National StockExchange of India have given their in-principle approvals vide their letters dated ( ) and ( ) respectively. IDBI Ltd. shallcomplete all the formalities relating to the listing of the Bonds within seventy days from the date of closure of each tranche/issue. If the permissions to deal in and for an official quotation of bonds are not granted by any of the Stock Exchanges, IDBILtd. shall forthwith repay, without interest, all such moneys received from the applicants in pursuance of this OfferDocument. If such money is not repaid within eight days after IDBI Ltd. becomes liable to repay it (i.e. from the date ofrefusal or within 70 days from the date of closing of the subscription list, whichever is earlier), then IDBI Ltd. will be liableto repay the money, with interest, as prescribed under applicable regulations.

Impersonation

Any person who -(a) makes, in a fictitious name, an application to a body corporate for acquiring, or subscribing to, the bonds, or(b) otherwise induces a body corporate to allot, or register any transfer of, bonds therein to them, or any other person in

a fictitious name,shall be liable for legal consequences of such action.

Consents

Consents in writing from the Lead Managers, the Principal Marketing Co-ordinator, the Co-Managers, the Trustees to theBondholders, the Registrars and the Bankers to the Issue to act in their respective capacities have been obtained and filedwith The Stock Exchange, Mumbai, The National Stock Exchange of India Ltd. and the Registrar of Companies, Mumbaialong with a copy of this Offer Document and none of them have withdrawn their consent upto the date of delivery of a copyof this Offer Document to the said Stock Exchanges. M/s Sorab S. Engineer & Co., Chartered Accountants, (Ismail Building,381, Dr. D. Naoroji Road, Fort, Mumbai - 400 001) Auditors of IDBI Ltd. , and Tax Consultants to IDBI Ltd. have given theirwritten consent to the inclusion of their report in this Offer Document in the form and context in which they appear hereinand inclusion of their name as Tax Consultant and Auditors and such consent has not been withdrawn upto the date ofdelivery of a copy of this Offer Document to the said Stock Exchanges.

Issue Expenses

The expenses of this Issue include, among others, lead management fees, printing and distribution expenses,statutory advertisement expenses and listing fees. The estimated issue expenses are as follows:

Activity Expenses(In Rs. million)

Lead Management [ * ]Advertisement and Marketing Expenses [ * ]Printing and Stationery [ * ]Registrars Fee [ * ]Others [ * ]Total estimated Issue Expenses. [ * ]


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In addition to the above, listing fees will be paid by the Bank

Brokerage

IDBI Ltd. will pay brokerage to all the members of recognised Stock Exchanges and Bankers to the Issue on applicationsbearing their stamp in the Broker column in the following manner.• For individuals and HUFs, Brokerage shall be

(details of the brokerage structure to be inserted at the time of the tranche)• For investors other than individuals, brokerage will be paid as follows

(details of the brokerage structure to be inserted at the time of the tranche)• Apart from the brokerage indicated above, IDBI Ltd. may/may not, at its sole discretion, set aside an undisclosed/

disclosed amount as kitty for distribution among the top performing Lead team members/brokers etc., based on themobilisation/number of applications procured etc.

In case of overwriting etc. in the broker’s column, the decision of payment of brokerage will be made by IDBI Ltd. and wouldbe final/binding on all parties.The aggregate brokerage and kitty amount, if any, paid by IDBI Ltd. shall not exceed 1.5% of the total amount raised andretained by IDBI Ltd.

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Public IssuesDetails of all outstanding public bond issues as on 31.03.05 is furnished in the following table:

Year of Issue Type of Issue Amount Amount Amount Deemed Date of Rede Rating atof Issue retained outsta Date of closure mption the time

(Rs. crore) (Rs. crore) nding Allotment date of Issue(Rs. crore)

January 1997 Super Deposit Bond 750 1500 48 January January 31/1/2005Flexi-2 Monthly Income Bond 31, 1997 23, 1997 31/1/2005

Double Money Bond 31/8/2006September 1998 Regular Income Bond 750 1343 1486 November October 16/11/2005Flexi-4 Growing Interest Bond 16, 1998 17, 1998 16/11/2005

Deep Discount Bond 16/05/2016 ‘CAREEducation Bond 16/11/2007-12 AAA’ by

December 1998 Infrastructure Bond 750 1500 1209 February January 11/2/2006 CARE &Flexi-5 Growing Interest Bond 11, 1999 15, 1999 11/2/2006 ‘AAA’ by

Multi Option Bond 11/2/2006 CRISILRegular Income Bond 11/2/2006

February 1999 Regular Income Bond 750 1500 1227 April 5 March 5/4/2006Flexi-6 Growing Interest Bond and 15, 1999 5/4/2006

Retirement Bond March 27, 5/4/2008-13Infrastructure Bond 1999 27/3/2006

July 1999 Regular Income Bond 750 1500 3 September AugustFlexi-7 Growing Interest Bond 11, 1999 19, 1999 11/9/2008

Deep Discount Bond 11/9/2009Retirement Bond 11/9/2013

February 2000 Regular Income Bond 300 573 3 March March 27/3/2005 ‘AAA’ byFlexi-8 Growing Interest Bond 27, 2000 10,2000 27/3/2005 CRISIL &

Infrastructure ‘IndAAA’(Tax Saving) Bond 27/4/2007 by DCR

November 2000 Regular Income Bond 300 561 416 January December 5/1/2006 ‘AAA’Flexi-9 Growing Interest Bond 5, 2001 16, 2000 5/1/2006 b y

Money Multiplier Bond 5/5/2007 CRISILInfrastructure 5/5/2004 “LAAA” by(Tax Saving) Bond ICRA

February 2001 Regular Income Bond 300 599 128 March March 30/3/2006 andFlexi-10 Growing Interest Bond 30, 2001 2, 2001 30/3/2006 ‘Ind AAA’

Money Multiplier Bond 30/10/2007 by30/7/2004 FITCH

December 2001 Regular Income Bond 250 321 249 February January 5/2/2009 or 12 ‘AA+’ byFlexi-11 Growing Interest Bond 5, 2002 15, 2002 5/2/2007 CRISIL &

Money Multiplier Bond 5/4/2007 by ICRAInfrastructure or 5/5/2009 ‘LAA+’(Tax Saving) Bond 5/2/2005-07-09

or 5/8/2005February 2002 Regular Income Bond 250 333 224 March February 15/3/2009 or 12 ‘AA+’ byFlexi-12 Growing Interest Bond 15, 2002 25, 2002 15/3/2007 CRISIL &

Retirement Bond 15/3/2009 or 12 ‘LAA+’Infrastructure 15/3/2005 or 09 by ICRA(Tax Saving) Bond or 15/9/2005 & ‘IndAA+’

by FITCHMarch 2002 Regular Income Bond 250 319 331 April April 30/4/2009 or 12 ‘AA+’ byFlexi-13 Money Multiplier Bond 30, 2002 10, 2002 30/9/2009 or CRISIL &

Retirement Bond 30/11/11 ‘IndAA+Infrastructure 30/4/2009 OR 12 BY FITCH(Tax Saving) Bond 30/4/2005 OR 07 & ‘LAA’

OR 30/11/2005 by ICRAJuly 2002 Regular Income Bond 200 294 316 September August 12/9/2007 or 09 ‘AA+’ byFlexi-14 Money Multiplier Bond 12, 2002 16, 2002 12/11/2007 CRISIL &

Retirement Bond or 12/2/10 ‘IndAA+’Growing Interest Bond or 12/4/2012 by FITCH


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12/9/09 or 12 & ‘LAA’12/9/07 by ICRA

Year of Issue Type of Issue Amount Amount Amount Deemed Date of Rede Rating atof Issue retained outsta Date of closure mption the time

(Rs. crore) (Rs. crore) nding Allotment date of Issue(Rs. crore)

October 2002 Infrastructure 300 520 529 November November 25/11/05 or 08Flexi-15 (tax saving) Bond 25, 2002 2, 2002 or 25/5/06 or 09

Growing Interest Bond 25/11/07Money Multiplier Bond 25/7/07 or 25/5/10 ‘AA+’ byRegular Income Bond or 25/9/12 CRISIL &

25/11/07 or 09 ‘AA+(ind)’

November 2002 Infrastructure 250 536 535 January December 17/1/06 or 08 by FITCHFlexi-16 (tax saving) Bond 17, 2003 23, 2002 or 17/7/06 & ‘LAA’

Floating Rate Bond 17/1/06 or 08 by ICRARetirement Bond 17/1/10 or 13Regular Income Bond 17/1/10 or 13

January 2003 Infrastructure 300 515 513 January December 4/3/06 or 08Flexi-17 (tax saving) Bond 17, 2003 23, 2002 or 4/9/06 or 08

Money Multiplier Bond 4/4/10 or 4/5/12GrowingInterest Bond 4/3/08Regular Income Bond 4/3/10 or 13

March 2003 Infrastructure 350 486 487 April March 25/4/06 or 08Flexi-18 (tax saving) Bond 25, 2003 31, 2003 or 25/10/06 or 08

Money Multiplier Bond 25/10/10 or 12Fixed Option Floating 25/4/08

Option BondRegular Income Bond 25/4/10 or 13

December 2003 Infrastructure 300 588 589 January December 12/1/07 or 09Flexi-19 (Tax Saving) Bond 12, 2004 17, 2003 or 12/7/07

Money Multiplier Bond 12/1/11 or 15Retirement Bond 12/1/11 or 14Regular Income Bond 12/1/11 or 14

or 12/1/19

January 2004 Infrastructure 400 797 799 March February 5/3/07 or 09 AA+’ byFlexi-20 (Tax Saving) Bond 5, 2004 12, 2003 or 5/9/07 CRISIL &

Money Multiplier Bond 5/2/11 or 5/8/15 ‘AA+(ind)’Floating Rate Bond 5/3/09 by FITCHRegular Income Bond 5/3/11 or 14 & ‘LAA’ by

ICRA

March 2004 Infrastructure 500 1586 1586 April 20, March 29, 29/3/07 or 09

Flexi-21 (Tax Saving) Bond 2004 2004 or 29/9/07Floating Rate Bond 29/3/09Retirement Bonds 29/3/11 or 14Regular Income Bond 29/3/11 or 14

or 19

January 2005 Infrastructure (Tax 400 2188 2188 25.02.05 03.02.05 25/02/08 or 10 ‘AA+’ byFlexibonds-22 Saving) Bond or 12 or 25/08/08 CRISIL &

or 25/02/10 ‘AA+ (Ind)’Growing Interest Bond 25/02/10 by Fitch &Retirement Bond 25/02/12 or 15 ‘LAA+’ byRegular Income Bond 25/02/12 or 15 ICRA

March 2005* Infrastructure (Tax 400 279 279 20.04.05 29.03.05 20.04.10 or12 ‘AA+’ byFlexibonds - 23 Saving) Bond CRISIL &

‘AA+(Ind)’ byFitch &‘LAA+’ by ICRA

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* - Amount retained and amount outstanding data given as of June 30, 2005.a. CRISIL revised the rating of all the outstanding borrowings and bonds from ‘AAA’ assigned at the time of issue to ‘AA+’

in 2001. ICRA revised the rating from ‘LAAA’ to ‘LAA+’. FITCH revised the rating from ‘IndAAA’ to ‘IndAA+’. CARE hasrevised the rating from ‘CARE AAA’ to ‘CARE AA+’. The ratings in respect of Public Issue instruments of IDBI Ltd. werecarried out by CARE (promoted by erstwhile IDBI ) along with CRISIL, an independent Credit Rating Agency, prior tocommencement of SEBI (Credit Rating Agencies) Regulation, 1999. CARE will monitor the rating till the securitiesrated by it are outstanding.

b. State Bank of India, Mumbai Main branch, Mumbai Samachar Marg, Fort, Mumbai -400 023 is the debenture trusteefor Flexibonds series 4–7 and Bank of Maharashtra, Lokmangal, 1501, Shivajinagar, Pune – 411 005 is the deben-ture trustee for Flexibonds series 3, 8, 9 and 10. IL&FS Trust Co. Ltd. is the debenture trustee for Flexibonds-11-23.Flexibonds 2 – 22 are listed on the BSE and NSE.

c. The total amount of liabilities of Flexibonds as on March 31, 2005 due for redemption over the next 10 years is asfollows (Rs Crore)

Years Redemption Amount

2005-06 43132006-07 29632007-08 36512008-09 9272009-10 4382010-11 1102011-12 1562012-13 892013-14 892014-15 23

Private Placements

Details of private placements made during the last 3 years as on March 31, 2005 are furnished in the following table:(Rs. Crore)

Year of Issue Type of Issue Amount Month of Rating at the time ofmobilised Allotment Issue

2002 OMNI 2002 A 212 June 2002 ‘AA+’ by CRISIL, ‘IndAA+’ by FITCH & ‘LAA+’ by ICRA

2002 OMNI 2002 B 71 September 2002 ‘AA+’ by CRISIL, ‘AA+(ind)’ by FITCH & ‘LAA’ by ICRA

2003 OMNI 2003 A 68 February 2003 -do-2003 OMNI 2003 B 5 March 20032003 OMNI 2003 C 240 July 20032003 OMNI 2003 D 11 December 20032003 OMNI 2003 E 9 January 20042003 OMNI 2003 F 500 January 20042003 OMNI 2003 G 25 January 20042004 OMNI 2004 A 1170 January 20042004 OMNI 2004 B 50 February 20042004 OMNI 2004 C 5 February 20042004 OMNI 2004 D 345 March 20042004 OMNI 2004 E 25 March 20042004 OMNI 2004 F 55 July 2004

2004 OMNI 2004 G 50 September 2004 2004 OMNI 2004 H 330 September 2004 2004 OMNI 2004 I/L 825 September 2004 2004 OMNI 2004 J 243.5 September 2004 2004 OMNI 2004 K 100 September 2004 ‘AA+’ by CRISIL, ‘AA+(ind) by 2004 OMNI 2004 M 100 September 2004 FITCH & ‘LAA+’ by ICRA 2004 OMNI 2004 N 100 October 2004 2004 OMNI 2004 O 615.5 October 2004 2004 OMNI 2004 P 30 October 2004


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2004 OMNI 2004 Q 45 December 2004(Rs. Crore)

Year of Issue Type of Issue Amount Month of Rating at the time ofmobil ised Allotment Issue

2004 OMNI 2004 R 30 December 2004 2004 OMNI 2004 S 122.9 January 2005 2005 OMNI 2005 A 244.8 January 2005 2005 OMNI 2005 B 60 January 2005 2005 OMNI 2005 C 287 January 2005 2005 OMNI 2005 D 3 February 2005 2005 OMNI 2005 E 50 March 2005 2005 OMNI 2005 F 157 March 2005

CRISIL revised the rating of all the outstanding borrowings and bonds from ‘AAA’ assigned at the time of issueto ‘AA+’ in 2001. ICRA revised the rating from ‘LAAA’ to ‘LAA+’ and further to ‘LAA’. FITCH revised the rating from‘IndAAA’ to ‘IndAA+’. CARE has revised the rating from ‘CARE AAA’ to ‘CARE AA+’. The ratings in respect of PublicIssue instruments of IDBI were carried out by CARE (promoted by IDBI) along with CRISIL, an independent CreditRating Agency, prior to commencement of SEBI (Credit Rating Agencies) Regulation, 1999. CARE will monitor therating till the securities rated by it are outstanding.

Issues otherwise than for cashIDBI Ltd. has not issued any Equity shares/bonds for consideration otherwise than for cash.

Commissions and Brokerages paid in last 10 issues (Rs. in million)Name of the Issue Month and Year Commission and BrokerageIDBI Flexibonds 14 July 2002 11.60IDBI Flexibonds 15 November 2002 46.40IDBI Flexibonds 16 December 2002 44.01IDBI Flexibonds 17 January 2003 39.33IDBI Flexibonds 18 March 2003 39.60IDBI Flexibonds 19 December 2003 34.90IDBI Flexibonds 20 Februaryr 2004 53.06IDBI Flexibonds 21 Sept 2005 115.37IDBI Flexibonds 22 January 2005 165.52IDBI Flexibonds 23 March 2005 23.20

Companies Under The Same Management

There are no other companies under the same management.

Promise vs. Performance

IDBI Ltd. has not made any projections in the offer document of any of our previous capital issues during the last fiveyears. The funds raised from these capital issues have been utilised for business as mentioned in the respective OfferDocuments.

Stock Market Data

(i) Equity Shares of IDBI Ltd. were listed on Bombay Stock Exchange Limited (BSE) and National Stock Exchange ofIndia Ltd. (NSE) in September 1995. The following is the movement in the Share Price of IDBI on Bombay StockExchange Limited and the National Stock Exchange of India Ltd.

Period BSE NSEHigh (Rs) Low(Rs) Average(Rs) High (Rs) Low(Rs) Average(Rs)

October 2005 128.55 84.35 107.43 128.07 84.35 107.58September 2005 125.10 107.00 118.84 125.05 107.10 118.19August 2005 114.05 104.35 110.97 114.05 104.20 110.80July 2005 116.45 107.80 112.13 116.25 107.50 111.88

June 2005 111.95 96.65 104.3 112.00 96.75 104.38

May 2005 93.50 77.05 85.28 93.45 77.40 85.43

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April 2005 90.95 80.05 85.50 91.10 80.05 85.58

March 2005 104.25 83.60 93.93 104.6 83.75 94.18

February 2005 116.25 92.50 104.38 116.40 92.50 104.45 January 2005 118.40 100.35 109.38 118.35 100.45 109.40

2004 111.80 30.35 71.08 111.80 29.90 70.85

2003 62.40 16.40 39.40 62.10 16.45 39.282002 26.50 14.00 20.25 26.65 14.00 20.332001 52.25 15.20 33.73 51.05 45.05 48.05

The following table shows number of shares traded on the day high and low prices of IDBI Ltd.’s shares wererecorded on BSE & NSE for the period July 2004 to July 2005 :

Month BSE NSE BSE NSEHigh High Low Low

Date No. of Date No. of Date No. of Date No. ofShares Shares Shares Sharestraded traded traded traded

October 2005 04.10.05 1345323 04.10.05 4458363 28.10.05 684881 28.10.05 2394484September 2005 19.09.05 2710354 19.09.05 7793253 05.09.05 227923 05.09.05 833 501August 2005 02.08.05 940163 02.08.05 3839934 25.08.05 589843 25.08.05 3 491980July 2005 12.07.05 3407515 12.07.05 10834268 05.07.05 1868784 05.07.05 7940125June 2005 23.06.05 3504874 23.06.05 10445063 01.06.05 2970229 01.06.05 7903242May 2005 31.05.05 2801441 31.05.05 9545633 03.05.05 347452 03.05.05 1125834April 2005 04.04.05 341031 08.04.05 1015977 29.04.05 263953 29.04.05 721390March 2005 08.03.05 525758 08.03.05 2299368 23.03.05 431369 23.03.05 1482443February 2005 04.02.05 941215 04.02.05 2367612 25.02.05 877161 25.02.05 1810855January 2005 20.01.05 4080011 20.01.05 9971861 06.01.05 800519 06.01.05 2018004

(iii) The total volume of shares traded in each month during the six months preceding the date of filing with the StockExchange is as follows:

No. of shares tradedPeriod BSE NSEOctober 2005 23 589 994 77575774September 2005 25330905 92338239August 2005 13494767 56842292July 2005 25135658 94840907June 2005 35310560 119792663May 2005 12100365 3627308400

(iv) As on March 31, 2005, there were 2,68,261 shareholders of IDBI Ltd.

Details of listing of IDBI Ltd. and its Subsidiaries

Company Instrument Listed on

IDBI Ltd. Equity BSE, NSE

Flexibonds BSE, NSE

Omnibonds BSE, NSE


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Investor Grievances

The status report for the total number of grievances received and pending for redressal as on July 31, 2005, is givenin the following table:

No. Nature of complaint Pending1 Letters from SEBI 02 Letters from Stock Exchanges 03 Non-receipt of Allotment Advice/ Bond Certificate/

Share Certificate/ Duplicate Certificate 144 Correction in Bond certificate/ other document 605 Change of address/ bank details etc. 06 Non-receipt of Brokerage /incentive 57 Non-receipt of Interest /dividend Warrants 108 Transfer related queries 09 Miscellaneous/ Other queries 0

Total 89As per IGG Cell of SEBI there were 37 complaints pending as on July 31, 2005. Out of these, 16 complaints havebeen pending for more than 30 days.

Investor grievance redressal system

To ensure that the Investor grievances are handled expeditiously and satisfactorily, IDBI Ltd. has set up an IGG cellunder the overall supervision of the Compliance Officers to handle all investor grievances. IDBI Ltd. has appointeda Registrar and Transfer Agent to effectively deal with Investor grievances. The agreement between IDBI and theRegistrars to the Issue provides for the retention of issue records with the Registrars for a period of at least twelvemonths from the last date of dispatch of Letters of Allotment / Bond Certificates / Refund Orders to enable theinvestors to approach the Registrars for redressal of their grievances.

Changes in Auditors

M/s Sorab S. Engineer & Co. and M/s Suri & Co., Chartered Accountants were reappointed as joint Statutory Auditors ofIDBI Ltd. pursuant to Section 224A of the Companies Act, 1956 for the FY 2005-2006 at the first Annual General Meetingheld on August 18, 2005.

Capitalisation Statement

The following table sets out the audited Capitalisation of Industrial Development Bank of India Ltd. as at March 31,2005 and also adjusted to give effect to the present issue of bonds aggregating to Rs [ * ] crore pertaining to thepresent issue. (Rs. in crore)Particulars March 31, 2005 As adjusted for

the present issueShort Term Debt (Rupee) (a) 82Long Term Debt: Rupee 44036 Foreign currency 5888Total Long Term Debt (b) 49924Total Debts (c) = (a) + (b) 50006Share CapitalIssued, Subscribed and Paid Up125 00 00 000 Equity shares ofRs. 10/- each 722Total Equity Capital (d) 722Reserve Funds and SurplusStatutory Reserve 174Capital Reserve 178Share Premium 1749General Reserve 1698Investment Fluctuation Reserve 392Special Reserve under Sec.36(1)(VIII)of Income Tax Act, 1961 191Surplus 787Other Reserves 34

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Total Reserves and Funds (e) 5205Total Shareholders’ Funds (f) = (e) + (d) 5927Total Capitalisation = (c) + (f) 55933

Notes:(1) Debts having a maturity period of one year or more than one year from the date of borrowing have been treatedas Long Term Debts and those having maturity period within a year are treated as Short Term Debts.(2) Borrowings do not include deposits(3) Amounts in FC have been translated into rupees at the FEDAI rates prevailing as on March 31, 2005.

Revaluation of Assets

IDBI Ltd. has not revalued any of its assets during the five years preceding the date of this Draft Offer Document.


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TERMS OF THE ISSUEThe Bonds will be subject to the provisions of the Memorandum and Articles of Association of the Industrial DevelopmentBank of India Ltd. (Issue and Management of Bonds) Rules, 2004, the companies Act, 1956, Banking Regulations Act,1949, relevant statutory guidelines and regulations for allotment and listing of securities issued from time to time by thegovernment of India (GOI), SEBI, Reserve Bank of India (RBI) and the Stock Exchanges concerned,the terms of this offerdocument and Application form.

Rights of Bondholders

a) The Bond(s) shall not, except as provided in the Act, confer upon the holder(s) thereof any rights or privileges available to the members of IDBI Ltd. including the right to receive notices or Annual Reports of, or to attend

and/ or vote, at the General Meeting of IDBI Ltd. However, if any resolution affecting the rights attached to theBond(s) is to be placed before the shareholders, the said resolution will be first placed before the concernedregistered Bondholder(s) for their consideration. Holder(s) of the Bond(s) shall be entitled to a copy of theAnnual Report on a specific request made to IDBI Ltd.

b) The registered Bondholder or in the case of joint-holders, the one whose name stands first in the register ofBondholder(s) shall be entitled to vote in respect of such Bond(s), resolution(s), either in person or by proxy, at anymeeting of the concerned Bondholder(s) and every such holder shall be entitled to one vote on a show of hands.On a poll, his/her voting rights shall be in proportion to the outstanding nominal value of Bond(s) held by him/heron every resolution placed before such meeting of the Bondholder(s). The quorum for such meetings shall be atleast five Bondholder(s) present in person.

c) The Bonds will be subject to the provisions of the Memorandum and Articles of Association of the IndustrialDevelopment Bank of India Limited, Industrial Development Bank of India Ltd.(Issue and Management of Bonds)Rules, 2004, the Companies Act, 1956, Banking Regulations Act, 1949, relevant statutory guidelines and regulations for allotment and listing of securities issued from time to time by the Government of India(GoI), SEBI, RBIand the Stock Exchanges concerned, the terms of this Offer Document and Application Form. Over and abovesuch terms and conditions, the Bond(s) shall also be subject to the the other terms and conditions as may beincorporated in the Trustee Agreement/Letters of Allotment/Bond Certificates, guidelines, notifications and regulations relating to the issue of capital.

d) A register of Bondholder(s) will be maintained in accordance with the aforesaid provisions of the Act and allinterest and principal sums becoming due and payable in respect of the Bond(s) will be paid to the registeredholder thereof for the time-being or in the case of joint-holders to the person whose name stands first.

e) The Bondholders will be entitled to their Bonds free from equities and/or cross claims by IDBI Ltd. against theoriginal or any intermediate holders thereof.

f) Bonds can be rolled over only with the positive consent of the Bondholders.

Market Lot and Trading Lot

The market lot will be one Bond.

Nomination Facility to Investor

The sole Bondholder or all the holders jointly or the surviving holder or holders not being person(s) holding the Bond asholder of an office, or acting for a trust, or acting in any other capacity for any other person with a beneficial interest in theBond, may nominate one or more persons not exceeding four, including a minor, who shall in the event of death of the soleholder or all the jointholders, be entitled to the amount payable by IDBI Ltd. in respect of the Bond. The nomination madeat the time of Application may be substituted or cancelled at a later date by a request in writing to IDBI Ltd. or Registrars tothe Issue, signed by all the Bondholders. A nomination shall stand rescinded upon the transfer of the Bond by the personnominating. A transferee will be entitled to make a fresh nomination for which request in writing should be made to IDBILtd. or the Registrars to the Issue. When the Bond is held by two or more persons, the nominee shall become entitled toreceive the amount only on the demise of all the holders. Nominations so made by investors will be subject to theIndustrial Development Bank of India Bonds and Deposits (Nomination) Regulations, 1997.

Minimum Subscription

The provisions as to minimum subscription are not applicable to the Issue as per the Guidelines for Issue of Capital byDesignated Financial Institutions, SEBI Guidelines 2000. IDBI Ltd. would be free to retain whatever amount is received byit subject to a maximum of Rs. () crore.

Loan Facility against Pledge of Bonds

Investors may avail loan against these bonds from any of the scheduled banks. IDBI Ltd. will note the bank’s lienon any of the bonds against which they have extended the loan facility in their normal course of business. Theinvestors may also approach IDBI Ltd. for extension of loans against these Bonds. IDBI Ltd. would, however, retainthe right to extend such loan at its sole discretion on the basis of such procedure/criteria as it may decide.

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Investors may please note that (as per the provisions of the Income Tax Act), tax benefits u/s 88 availed of is to berefunded if the bonds are sold, redeemed, pledged or alienated in any form within a period of 3 years from the dateof allotment.

Market Making

IDBI Ltd. may consider making arrangements for market making in order to provide liquidity.

Issue Procedure

Allotment and Refunds

Deemed Date of Allotment

() shall be the deemed date of allotment of the Bonds under all the schemes. All the benefits under the Bonds will accrueto the investor from this date even though the actual allotment may take place on a date other than the specified deemeddate of allotment.

Basis of Allotment

In the event of over-subscription, the Basis of Allotment will be decided in consultation with the regional stock exchanges,i.e. Bombay Stock Exchange Limited and National Stock Exchange of India Ltd.The drawal of lots (where required) to finalise the basis of allotment, shall be done in the presence of a Public Represen-tative on the Governing Board of the Stock Exchanges. The Executive Director/Managing Director of the Stock Exchangesalong with the post-issue Lead Managers and the Registrars to the Issue shall be responsible to ensure that the basis ofallotment is finalised in a fair and proper manner in accordance with the SEBI Guidelines.The investors should note that Allotment against all valid applications for the IDBI Ltd. Infrastructure (Tax Saving) Bond ()will be made on a full and firm allotment basis, subject to a limit of Issue size plus the amount of over-subscription retainedby IDBI Ltd.

Subscribers to the IDBI Infrastructure (Tax Saving) Bond () will have priority over subscribers to other Bonds for allotment.Therefore, only after all eligible applications for IDBI Infrastructure (Tax Saving) Bonds () have been allotted, will applica-tions for other Bonds be considered on a proportionate basis.

The procedure for proportionate allotment is as under:(a) A minimum of 50% of the net offer of the Bonds to the public shall be initially made available for allotment to individual

applicants who have applied for allotment of 10 or less than 10 Bonds.(b) The balance of the net offer shall be made initially available for allotment to investors, including corporate bodies /

institutions and individual applicants who have applied for allotment of more than 10 Bonds.(c) The unsubscribed portion of the offer to any one of the categories specified in (a) or (b) may be made available for

allotment to applicants in the other category, if so required.(d) Allotment will be made on a proportionate basis in lots of one bond as given below:

i) Applications will be categorised according to the number of Bonds applied for.ii) The total number of Bonds to be allotted to each category as a whole shall be arrived at on a proportion-

ate basis, i.e., the total number of bonds applied for in that category multiplied by the inverse of the over-subscription ratio.

iii) The number of Bonds to be allotted to the successful allottees will be arrived at on a proportionate basis(i.e. total number of Bonds applied for multiplied by the inverse of the oversubscription ratio).

iv) For applications where the proportionate allotment works out to less than one Bond the allotment will bemade as follows:• Each successful applicant will be allotted one Bond; and•The successful applicants out of the total applicants for that category shall be determined by the drawal of lots in such a manner that the total number of Bonds allotted in that category is equal to the number of bonds worked out as per (ii) above.

e) If the proportionate allotment to an applicant works out to a number that is not a multiple of Bonds, the applicantwould be allotted Bonds by rounding off to the nearest multiple of one.

f) If the number of Bonds allocated on a proportionate basis to any category is more than the Bonds allotted to theapplicants in that category the balance available Bonds for allotment shall be first adjusted against any category,where the allocated bonds are not sufficient for proportionate allotment to the successful applicants in thatcategory. The balance Bonds, if any, remaining after such adjustments will be added to that category comprisingapplicants applying for the minimum number of Bonds.

g) Investors may note that in case of investors applying for more than 1 type of bond and applying for more than 1Bond, if the number of Bonds allotted is less than the number of Bonds applied for, the number of Bonds allottedunder each type of Bond will be proportionate to the number of Bonds applied under each type of Bond.


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Despatch of Bond Certificates and Refund Orders

IDBI Ltd. shall ensure despatch of refund orders of value over Rs.1500/- and bond certificates by Registered Post/SpeedPost only and adequate funds for the purpose shall be made available to the Registrars by the issuer company. Refundorders of less than Rs.1,500/- shall be mailed under Certificate of Posting at the applicant’s sole risk.Despatch of Bond Certificates shall be completed within 10 weeks of the closure of the Issue and IDBI Ltd. shall be liableto pay penal interest as per applicable regulations for the delay period beyond 10 weeks.

Despatch of Interest Warrants

IDBI Ltd. shall ensure despatch of Interest Warrants of value over Rs.5000/- by Registered Post/Speed Post. InterestWarrants of less than Rs.5000/- shall be mailed under Certificate of Posting at the applicant’s sole risk.

Interest in Case of Delay on Allotment/Despatch

IDBI Ltd. agrees thata) as far as possible allotment of securities offered to the public shall be made within 30 days of the closure of the public

issue;b) interest shall be paid at the rate 15% p.a. if the allotment has not been made and/or the refund orders have not been

despatche

Rejection of Applications

IDBI Ltd. reserves the right to accept or reject any application in whole or in part and in either case without assigning anyreason therefor. In the event the Bonds applied for are not allotted in full, the excess application money, without interest, inrespect of any application will be refunded. Any application for Bonds, which is not complete in all respects, may berejected. The various reasons for rejections could be, but not limited to following: incomplete or illegible applications,number of Bonds applied for less than minimum required number, no information about PAN/GIR in case of applicationsof value over Rs. 50,000, non-adherence to instructions as mentioned under para ‘applications by stockinvests, forstockinvest applications, applications accompanied by cash of more than Rs. 20,000. Applicants are also advised to referpara on ‘General Instructions’ to understand various other reasons for rejection of applications.

Mode of Refunds

In case of rejection of applications or non-allotment of the Bonds, refunds will be made by cheque or by pay order drawnon any Bank payable at centres where the applications were received. In the case of applications accompanied byStockinvests, the cancelled Stockinvests will be returned to the applicants.

Transfer and Redemption/ Transferability of Bonds / Physical Certificates

The Bonds in physical form being negotiable instruments are transferable by endorsement and delivery by the transferor.Bondholders should, therefore, note that Bonds are valuable documents and should be kept safely.The endorsement by the transferor shall be made on the Bond by affixing his signature at the place indicated thereon. Thetransferee shall also affix his signature on the Bond at the appropriate place. All endorsements must be clear. Vernacularendorsement must be translated into English immediately below the endorsement.At present, no stamp duty is payable on transfer of the Bonds by endorsement and delivery.

Certificates in Dematerialised/Electronic Form

In case of Bonds in electronic form, the normal procedure applicable for dematerialized securities shall be followed.In case of transfer from one demat holder to another demat holder, the seller will give delivery instructions containingdetails of the buyer’s DP account to his Depository Participant.In case of transfer from a demat holder to a non-demat holder (physical), the seller rematerialises his Bonds and thentransfers the Bonds to the buyer by endorsement and delivery.In case of transfer from a non-demat holder to a demat holder, the buyer can choose to dematerialise his holding or holdthe Bonds in physical form only.

Transfer of Bonds having Monthly Interest Payment/Principal Repayment Option

Post-dated interest warrants are issued in the name of the sole/first Bondholder for Bonds having monthly paymentobligations. In case of transfer of these Bonds, the transferee (buyer) of the Bond(s) should obtain the post dateduncashed warrants from the transferor (seller) along with the duly discharged Bond certificate(s) and/or transfer deed anddeposit the same with IDBI Ltd. for registration. IDBI Ltd. then, would register the name of the transferee as the bondholderand issue fresh post-dated warrants in his/her name.

Trading on Stock Exchange

IDBI Flexibonds are not in compulsory demat mode and hence trading can take place both in physical and electronicmode, unless otherwise specified by the Exchange.

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Registration of Transfer

Physical Certificates

Though the Bonds are transferable by mere endorsement and delivery, the transferee is advised to send the BondCertificates to IDBI Ltd. / Registrars to the Issue for being registered in his/her name. IDBI Ltd., on being satisfied, willregister the transfer of such Bonds in its books. For the purpose of registration, the transferee shall intimate his/her name,address, occupation, if any, and shall deliver the Bond certificate(s) to IDBI/Registrars to the Issue.In the case of transfer by or to companies, body corporates, societies registered under the applicable laws in India, trusts,provident funds, superannuation funds, gratuity funds, commercial banks, co-operative banks, regional rural banks orNRIs/OCBs/FIIs etc, certified true copy of the power of attorney or other acceptable authority must be lodged with IDBI Ltd.or Registrars to the Issue along with the request to register transfer.Transfer of Bonds to and from NRIs/OCBs/FIIs will be governed by the prevailing guidelines of RBI. (To be updated at thetime of individual issue based on the conditions subject to which permission received from competent authority).IDBI Ltd. may, at any time, review and modify the procedure for transfer / registration of transfer of these Bonds inconsultation with Bombay Stock Exchange Limited and the National Stock Exchange of India Ltd.

Certificates in Dematerialised Form

The necessary transfers will be effected by the depository, NSDL/CDSL. The concerned depositories shall inform theRegistrars about the rightful owners of the bonds for payment of interest and principal amount.

Record Date

In case of Bonds where interest is paid annually, the interest accruing upto () every year is paid on () every year. Therefore,() every year will always be considered as Record Date for the purpose of such payment of interest. In case of (names ofthe bonds which have non-annual interest options to be inserted at the time of tranche). Interest will be paid as mentionedunder the head ‘Interest Payment Dates’ under key terms of each Bond.

Payments to Registered Bondholders

In case of transfer of Bonds, the transferee is required to register his/her name with IDBI Ltd. or Registrars as interestpayments or redemption amount on the Bonds are paid or credited only to Registered Bondholders. Interest payments willbe made by way of post-dated warrants sent in advance. Transferees should register transfers with IDBI Ltd. or Registrarsto the Issue before the record date for payment. Please refer to the terms of the various bonds and section on Record Datefor the due dates for interest payments and record date of the respective Bonds.If the request for registration of transfer is not received by IDBI Ltd. or the Registrars to the Issue before the record date,payments shall be made to the Registered Bondholder (as on the record date) and claims, if any, shall be inter-se amongthe parties and shall not be against IDBI.

Registration in the Event of Redemption of Bond

The Bondholder must get his/her name registered with IDBI Ltd. if he/she decides to exercise early exit or redemptionoption. The Bonds will be redeemed only on the surrender of the duly discharged Bond certificates by Registered Bond-holders. The record date in such instances will be one month prior to the deemed date of encashment/redemption.Investors may note that this is necessary as the Bonds are transferable by endorsement and delivery.

On maturity of the Bonds redemption proceeds would be sent to the Bondholders as appearing on the record date.Surrender of Bond certificate is not necessary for redemption of bonds. Bondholders are requested to intimate any changeof address/bank account details/tax exemption form (15G/15H/15AA etc) to the registrar before the record date. In case oftransfer of Bonds, the transferee is required to register his/her name with IDBI Ltd. or Registrars before record date asredemption amount on the Bonds would be paid only to the Registered Bondholders IDBI Ltd. shall be discharged of itsliability if the redemption proceeds are remitted to the Bondholders appearing in its register of bondholders as on therecord date.In case of exercise of call option by IDBI, Bondholders are required to surrender the duly discharged Bond Certificates toIDBI/registrars for redemption. Payment would be made only to the registered Bondholder on surrender of duly dis-charged Bond Certificates. However, IDBI Ltd. shall be deemed to have a right to dispense with the requirement ofsurrender of Bond certificates for redemption on exercise of call option, at its sole discretion. In case IDBI Ltd. decides todispense with the requirement of surrender of Bond Certificates the same would be intimated to the bondholders in thenotice/letter of exercise call option. In case of such dispensation, IDBI Ltd. shall be discharged of its liability if theredemption proceeds are remitted to the Bondholders appearing in its register of bond holders as on the record date forredemption through exercise of Call Option.

Succession

On the demise of the sole holder of a Bond or the last survivor in case of joint Bondholders, the title of any person(s) to the


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Bond may be recognised by IDBI Ltd. subject to the provisions of Regulation 15 of the, Industrial Development Bank ofIndia (Issue and Management of Bonds) Regulations , 19721. The executors or administrators of a deceased sole holder of a Bond (whether a Hindu, Mohammedan, Parsi or

otherwise) or the holder of a succession certificate issued under Part X of the Indian Succession Act, 1925 (39 of1925) in respect of the Bond shall be the only persons who may be recognized by the Office of the Issue ( subjectto any general or special instructions of the Prescribed Officer) as having any title to the Bond.

2. Notwithstanding anything contained under Section 45 of the Indian Contract Act 1872 ( 9 of 1872), in the case ofthe Bond issued, sold or held payable to two or more holders, the survivor or survivors and on the death of the lastsurvivor, his executors or administrators or any person who is the holder of a succession certificate in respect ofsuch Bond shall be the only person who may be recognised by the Office of Issue ( subject to any general orspecial instructions of the Prescribed Officer) as having any title to the Bond.

3. The Office of the issue shall not be bound to recognize such executors or administrators unless they shall haveobtained letters of probate or letters of administration, as the case may be from a competent court or office inIndia, having effect as the place of situation of the Office of Issue, provided that in any case where the PrescribedOfficer and his absolute discretion thinks fit, it shall be lawful for him to dispense with the production of probateor letters of administration or other legal representation upon such terms as to indemnify or otherwise as be maythink fit.

Where on the demise of the sole or last of the survivors of the joint holders, who is a resident, an NRI becomes entitled tothe Bond, the following steps have to be complied with:

(i) to the effect that the Bond was acquired by the NRI as part of the legacy left by the deceased holder.(ii) Proof that the NRI is an Indian national or is of Indian origin. Such holding by the NRI will be on a

repatriable/non-repatriable basis.

Where on the demise of the sole or last of the survivors of the joint holders who is a non-resident another NRI becomesentitled to the bonds, the steps as stated earlier will have to be complied with. The holding of the inheriting NRI would beon the same basis as held by the NRI from whom the Bonds are inherited.

Register of Bondholders

The Register of Bondholders containing necessary particulars will be maintained by IDBI Ltd. at such place(s) as it maydecide.

Issue of Duplicate Bond Certificates

Industrial Development Bank of India Ltd. (Issue and Management of Bonds) Rules, 2004, govern the issue of duplicateBond Certificates. In terms of the said Regulations, IDBI Ltd. will publish on behalf of the applicants, details of loss, theftor destruction (mutilation or defacement) of a Bond in the form of a promissory note in a leading newspaper of the area.Upon satisfying itself about the loss, theft, destruction or defacement of a Bond in the form of a promissory note, IDBI Ltd.may issue a duplicate Bond Certificate in the form of a promissory note on applicant’s furnishing an indemnity bond withone or more sureties. No surety is required if the denomination of the Bond does not exceed Rs. 50,000. IDBI Ltd. shallpublish half yearly in two leading newspapers or in one leading newspaper and a Gazette of India in the months of Januaryand July, a list of duplicate Bond Certificates issued by the Bank. IDBI Ltd. shall not incur any liability for issuing such Bondsin good faith under this Regulation. IDBI Ltd. shall have the right to claim reimbursement of expenses incurred in connec-tion with the issue of duplicate certificate. No fees shall be charged for the issue of Bond certificates in respect of mutilatedor defaced certificates or in case of Bond certificates where the cages for recording the transfer of Bond are fully utilised.Investors are advised to carefully read the relevant provisions of the IDBI Ltd. (Issue and Management of Bonds) Regula-tions, 1972 reproduced in Page 178 of this Draft Offer Document.

Who can Apply

Applications can be made by:a) Resident Indian Individuals in their own names or in the name of their minor children as natural/legal guardians.

Individuals can apply in single or joint names (but not exceeding three).b) Hindu Undivided Families through the Karta of the Hindu Undivided Family. (Applications by HUF would be given the

same treatment as that to applications by individuals)c) Provident Funds, Superannuation Funds and Gratuity Fundsd) Companies, Body Corporates and Societies registered under the applicable laws in India and authorised to invest in

the Bondse) Trusts which are authorised to invest in the Bondsf) Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional Rural

Banks.g) Mutual Funds and Insurance companiesh) NRIs/OCBs/FIIs on repatriable/ non-repatriable basis only for any of the Bonds offered under this Offer Document.

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Declaration of Bonds as ‘Security’ by :

• The Ministry of Shipping, Road Transport and Highways vide its notification dated August 9, 2005 has declared IDBIFlexibonds as ‘security’ under Section 88(2)(b) of the Major Port Trusts Act, 1963.

• Notification F.No.5(53)/2002-ECB&PR, dated January 24, 2005 issued by Government of India, Ministry ofFinance authorising Provident Funds etc to invest in bonds and securities issued by Public Financial Institutions.

• Order dated January 15, 1996 of Madhya Pradesh Government declaring Bonds issued by IDBI Ltd. and otherbanks as Public Securities under Section 13 of M.P. Public Trust Act, 1951.

Applications have been made by IDBI Ltd. for declaration of these Bonds as Public Securities as follows :

• To the Government of India, Ministry of Finance, Department of Revenue, CBDT to accord approval for the InfrastrucutreBonds for FY 2005-06 issued by IDBI under Section 80C of the IT Act.

• To the Government of India, Ministry of Finance approving the Bonds to be issued under Umbrella Offer Document(2005-06) as Public Securities under Section 20(f) of the Indian Trust Act, 1882.

• To the Ministry of Finance, GOI, according approval under section 193(ii)(b) of IT Act for non-deduction of Tax at Sourceon interest to be paid on the bonds to be issued under the Umbrella Offer Document (2005-06).

• To Government of Maharashtra seeking approval for the bonds to be issued under IDBI Flexibonds Umbrella OfferDocument 2005-06 as Public Securities under Section 2(12)(d) of the Bombay Public Trusts Act, 1950.

• To Government of Gujarat, Agriculture and co-operation Department seeking approval for co-operative societies toinvest in the bonds to be issued under IDBI Flexibonds Umbrella Offer Document 2005-06 as Public Securities.

• To Government of Gujarat, Legal Department seeking approval to declare the bonds to be issued under IDBIFlexibonds Umbrella Offer Document 2005-06 as Public Securities under Section 2 (12)(d) of the Bombay PublicTrusts Act, 1950.

• To Government of Rajasthan seeking approval for the bonds to be issued under IDBI Flexibonds Umbrella OfferDocument 2005-06 as Public securities under Section (10)(2) of Rajasthan Public Trust Act No.42 of 1959.

• To Government of Andhra Pradesh, Endowment Dept, Hyderabad seeking approval for the bonds to be issued underIDBI Flexibonds Umbrella Offer Document 2005-06 as approved securities for investment by Executive Officers oftemple to invest surplus funds of Endowment Institutions / Trusts

In terms of Section 9 of the IDBI Repeal Act, the shares, bonds and debentures of IDBI Ltd. shall be deemed to be approvedsecurities for the purpose of the Indian Trusts Act, 1882. Subject to declaration by the State Governments as above, PublicTrusts and Co-operative Societies in the above States will be eligible to invest in IDBI Bonds. In other States, public trustsmay invest in the Bonds of IDBI Ltd. subject to the relevant provisions of the respective trust deeds and applicable statutoryprovisions, if any, governing their investments.

Application by Provident Funds, Superannuation Funds and Gratuity Funds

The Government of India has, vide notification No.F-5(53)-ECB & PR / 2002 dated January 24, 2005 permitted RecognisedProvident Funds, Approved Superannuation Funds and Approved Gratuity Funds to invest upto 25% of their investiblemoneys in the Bonds and securities issued, inter alia, by a Public Financial Institution. In addition, 30% of the investiblemoneys may be invested in any of the three categories specified in the notification. Recognised Provident Funds andApproved Superannuation and Gratuity Funds can, therefore, subject to compliance of the terms and conditions of theirTrust Deeds, invest upto 55% of their investible monies in IDBI Bonds.

How to Apply

Availability of Offer Document and Application Forms

Copies of Offer Document and Application Forms may be obtained from the Head Office, Zonal Offices or the BranchOffices of IDBI Ltd., Lead Managers, Principal Marketing Co-ordinator, Co-Managers and Bankers to the Issue namedherein or from their branches as stated in the Application Form. Copies of Application Forms and Offer Document mayalso be obtained through members of recognised Stock Exchanges. The Offer Document and Application Forms will alsobe available on the website of IDBI Ltd. ( www.idbi.com). IDBI Ltd. may also make arrangements for putting the ApplicationForms on other websites. The websites would contain necessary disclaimer in respect of jurisdiction. Eligible investorscan get access the Application Form from the websites only after reading/accepting the disclaimer.


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General Instructions

1. Investors are advised to comply with the following General Instructions:Applications for the Bonds must be made in the prescribed form as mentioned below :

Resident Indian Printed on ( ) background form NRIs/OCBs/FIIs on repatriable/non-repatriable Printed on ( ) background form basis

2. Instructions for Filling in Application Formsa) Application for the Bonds must be in the prescribed form and completed in BLOCK LETTERS in English as per

the instructions contained therein.b) Thumb impressions and signatures other than in English, Hindi or any of the other languages specified in the

Eighth Schedule of the Constitution of India must be attested by a Magistrate or a Notary Public or a SpecialExecutive Magistrate under his/her official seal.

c) Application Form Number (including the prefix) should be mentioned on the reverse of the cheque/draft/stockinvest.Where applications without number are used, the number may be obtained at the time of deposit with theCollection Centres.

d) A separate cheque/draft/stockinvest must accompany each Application Form.

3. If the applicant opting for IDBI ( ) Bond ( ) does not indicate the desired option clearly on the Application Form or if theoption is not ticked on the application form, then IDBI ( ) Bond (Option ___ ) shall be allotted to such an applicant forthe amount applied for. The decision of IDBI Ltd. will be final in this regard.

4. Applications under Power of Attorney

In the case of applications made under Powers of Attorney or by limited companies, corporate bodies, trusts etc. acertified copy of the Power of Attorney and/or the relevant authority, as the case may be, alongwith a certified copy of theMemorandum and Articles of Association and bye-laws as the case may be must be lodged separately at the office ofthe Registrars to the Issue, (……………), simultaneously with the submission of the Application Form, indicating theserial number of the Application Form and the name of the bank and the branch or the IDBI Ltd. Collection Centrewhere the application is submitted.

5. PAN/GIR Number

Where application is for a total value of Rs.50,000/- or more, the applicant, or in the case of an application in jointnames, each of the applicants, should mention his/her Permanent Account Number (PAN) allotted under the IncomeTax Act, 1961 or where the same has not been allotted, the GIR No. and the Income Tax Circle/Ward/District. In caseneither the PAN nor the GIR No. has been allotted, or the Applicant is not assessed to income tax, the appropriateinformation should be mentioned in the space provided. Application Forms without this information will be consid-ered incomplete and are liable to be rejected.

6. Joint Applications in the Case of Individuals

Applications may be made in single or joint names (not more than three). In the case of joint applications, allpayments will be made out in favour of the first applicant. All communications will be addressed to the applicantwhose name appears first at the address stated in the Application Form.

7. Multiple Applications

An applicant should submit only one application (and not more than one) for the total number of Bonds required.Applications may be made in single or joint names (not more than three). Two or more applications in single or jointnames will be deemed to be multiple applications, if the sole and/or first applicant is one and the same. IDBI Ltd.reserves the right to accept or reject in its absolute discretion all or any multiple applications. Separate applicationsfor Bonds in demat and physical mode shall be treated as multiple applications.

8. Bank Account Details

The applicant must fill in the relevant column in the application form giving particulars of Savings Bank/ CurrentAccount number and name of the bank with whom such account is held, to enable the Registrars to the Issue to printthe said details in the refund order / interest warrant. This is in the interest of the applicant for avoiding misuse of therefund order / interest warrant. Furnishing this information is mandatory and applications not containing such detailsare liable to be rejected.Investors desirous of holding the bonds in demat form may please refer to the paragraph on Depository Arrangementon page 28 of this offer document.

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Payment Instructions

FOR RESIDENT APPLICANTS (to be applied in application form with white background)

(a) Payment may be made by way of cash (not exceeding Rs.20,000/-) or cheques/drafts/stockinvests drawn on anybank, including a Co-operative Bank which is situated at and is a member or sub-member of the Bankers’Clearing House located at the bank collection centre where the Application Form is submitted. Outstationcheques/bank drafts or cheques/bank drafts drawn on a bank not participating in the clearing process will not beaccepted. Money orders/Postal orders will also not be accepted.

(b) All cheques/drafts must be made payable to “IDBI FLEXIBONDS” and crossed “A/C PAYEE ONLY”.(c) Applications complete in all respects must be submitted at any of the bank branches designated for collection of

such applications mentioned in the application form.The applicants are advised in their own interest to remit the money along with the Application Form by means ofan account payee cheque or a bank draft. Charges for the bank draft are to be borne by the investor and shouldnot be deducted from the amount payable on application.

FOR APPLICANTS WHO ARE NRIs/OCBs/FIIs (to be applied in application form with blue background)For investment on repatriable/non-repatriable basis only by NRIs/OCBs/FIIs

(a) Applications submitted in India should be accompanied by a cheque/stockinvest/draft drawn on any Bank including aco-operative bank, which is situated at and is a member or sub-member of the Bankers’ Clearing House, located atthe locations where the application form is submitted i.e. at designated collecting centres.

(b) Outstation cheques/bank drafts or cheques/bank drafts drawn on a Bank not participating in the Clearing Process will not be accepted.(c) Applications complete in all respects must be submitted at any of the bank branches designated for collection of such applications mentioned in the application form.(d) Cash/Money Orders/Postal Order will not be accepted.(e) All cheques/bank drafts must be crossed “ACCOUNT PAYEE ONLY” and made payable in favour of “IDBI FLEXIBONDS

- NRIs/OCBs/FIIs(f) All stockinvest should be payable to the company i.e. “IDBI FLEXIBONDS - NRIs/OCBs/FIIs” and crossed “ACCOUNT

PAYEE ONLY”.(a) Investment by OCBs must be accompanied by a certificate in a prescribed form OAC/OACI from the overseas Auditors/

Certified Public Accountant. Such certificate should be submitted to IDBI Ltd. on an annual basis.(b) Applicants need not obtain separate approval for subscribing to the Bonds on repatriation/non-repatriation basis.(c) Investment by FIIs must be accompanied by copies of requisite approvals from Reserve Bank of India (RBI) and

Securities and Exchange Board of India (SEBI) and Certificate of Registration from SEBI.(d) The amount of subscription should be received in Foreign Exchange by way of inward remittance from abroad through

normal banking channels or by debit to the Non-Resident’s NRE/FCNR Account, as the case may be, with anauthorised dealer in India. The maximum allotment to the NRIs/OCBs/FIIs will be restricted to ___% of the total paid-up value of each series of the Bond Issue (including over-subscription retained, if any).

Allotment to NRIs/OCBs/FIIs will be made subject to applicable ceiling for the Issue of Bonds as prescribed by RBI.

Further :(a) The application would have to be accompanied by documentary evidence of the payment being made;· Out of funds held in NRE/FCNR account; or· By rupee drafts purchased out of funds held in NRE/FCNR account in India;

or· By direct remittance from abroad through normal banking channels.(b) Refunds, interest and other distribution, if any, would be made in Indian rupees. Where the applicant provides

information on the NRE account of the applicant from which the investment is made, payments would be crediteddirectly to the same NRE account. In other cases, the payment would be made by drafts/pay order/interest warrantsdespatched through registered post at the applicant’s risk.Cash/money orders/postal orders will not be accepted.(The above instructions relating to subscription to Bonds by NRIs/OCBs/FIIs will be updated at the time of individual

Issue based on the prevailing laws/guidelines and conditions subject to which permission received from competentauthority).


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Submission of Completed Application Forms

Bankers to the Issue

Applications, duly completed and accompanied by cash/cheque/demand draft/stockinvest must be lodged before theclosure of the Issue with the Bankers to the Issue or their designated branches as mentioned in the Application Form.Applications should not be sent to the Lead Managers, Co-Managers or Principal Marketing Co-ordinator.

IDBI Ltd. branches

Applications, duly completed and accompanied by cheque/demand draft may also be lodged with the branches of IDBILtd. as mentioned in the Application Form. They will accept Applications accompanied by cash,cheque or demand draft.

Acknowledgements

No separate receipts will be issued for the application money. However, the Bankers to the Issue or their approvedcollecting branches and the Collection Centres receiving the duly completed Application Form will acknowledge receipt ofthe application by stamping and returning to the applicant the Acknowledgement Slip at the bottom of each ApplicationForm.

Undertakings from the Issuer

IDBI Ltd. hereby undertakes that(a) The complaints in respect of the Issue would be attended to expeditiously and satisfactorily.(b) IDBI Ltd. would get the instruments listed on time and would take necessary steps for the purpose.(c) The requisite funds for despatch of refunds/certificates by Registered Post will be made available to the Regis-

trars(d) The certificates of the securities / refund orders to the non-resident indians shall be despatched within specified

time(e) IDBI Ltd. shall co-operate with the rating agencies in providing true and adequate information.

Investor Relations and Grievance RedressalArrangements have been made to redress investor grievances expeditiously. All grievances relating to the Issue quotingthe Application Number (including prefix), number of Bonds applied for, amount paid on application and Bank and Branchwhere the Application was submitted, may be addressed to the Registrars at the following address.(……………)

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MAIN PROVISIONS OF CONSTITUTIONAL DOCUMENTS

EXTRACTS OF RELEVANT PROVISIONS OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF INDUSTRIALDEVELOPMENT BANK OF INDIA LIMITED (IDBI LTD.)

PREAMBLEMain Objects:

To establish and carry on the business of banking in all forms within India and outside India.

DEFINITIONSArticle 2(1)(h)

In this Articles of Association unless the context otherwise requires:

(a) “Board” means the Board of Directors of the Industrial Development Bank of India Limited.

(b) “IDBI Ltd.” means the Industrial Development Bank of India Ltd. incorporated under the Companies Act, 1956.

CORPORATE STATUSSection 3(2)IDBI Ltd. shall be a body corporate with the name aforesaid having perpetual succession and a common seal withpower, subject to the provisions of Companies Act and the Memorandum and Articles of Association, to acquire, holdand dispose of property and to contract and may, by that name, sue or be sued.

SHARE CAPITALArticle 3The authorised share capital of the Company shall be Rs.1250,00,00,000 (Rupees One Thousand Two Hundred FiftyCrore only) divided into 125,00,00,000 equity shares of Rs.10/- each. The minimum paid up capital of the Company wouldbe Rs.5,00,000 (Rs. Five Lakhs only)

Article 4The Central Government, being a shareholder of the Company, shall at all times maintain not less than fifty-one per centof the issued capital of the Company.

Article 6The Company in general meeting may, by ordinary resolution, from time to time, increase the capital by the creation of newequity shares, such increase to be of such aggregate amount and to be divided into shares of such amounts as theresolution shall prescribe. The new shares shall be issued upon such terms and conditions and with such rights andprivileges annexed thereto as the resolution shall prescribed. Whenever the capital of the Company has been increasedunder the provisions of this Article, the Directors shall comply with the provisions of section 97 of the Act and Section12(1)(i) of the Banking Act.

Article 8

Subject to Article 4, the Company may, from time to time, by Special Resolution, subject to confirmation by the CentralGovernment and subject to the provisions of sections 78, 100 to 104 of the Act, reduce its shares or any share premiumaccount in any manner for the time being authorised by law and in particular pay off such capital on the footing that it maybe called up again or otherwise.

Article 9

Subject to the provisions of section 77A of the Act, and any rules and regulations made thereunder, the Company maybuyback its own shares and other specified securities.

Article 10

Subject to the provisions of section 94 of the Act, the Company in general meeting may from time to time by an ordinaryresolution alter the conditions of its Memorandum as follows:Cancel any shares which, on the date of the passing of the resolution, have not been taken or agreed to be taken by anyperson and diminish the amount of its share capital by the amount of the shares so cancelled. A cancellation of shares inpursuance of this sub-article shall not be deemed to be reduction of share capital within the meaning of the Act.Whenever the Company shall do any one or more of the things provided for in the foregoing sub-articles, (a), (b) and (c),the Company shall, within thirty days thereafter give notice thereof to the Registrar as required by section 95 of the Act,specifying, as the case may be, the shares consolidated, divided, sub-divided or cancelled.


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Five directors who shall have special knowledge or practical experience in respect of one or more of the mattersspecified in section 10-A(2) (a) of the Banking Act to be elected by shareholders at the General Meeting of whom atleast two directors shall be elected by shareholders other than the Central Government and other than banks andinstitutions of which majority shareholding is with the Central Government.

Article 117The chairman and the whole-time director shall hold office for such term not exceeding five years as the Central Govern-ment may specify in this behalf and any person so appointed shall be eligible for re-appointment.

Article 118Notwithstanding anything contained in these Articles, the Central Government shall have the right to terminate the term ofoffice of the chairman and the whole time directors, as the case may be, at any time before the expiry of the term by givinghim notice of not less than three months in writing or three months’ salary and allowances in lieu of such notice; and thechairman or the whole-time directors, as the case may be, shall also have the right to relinquish his office at any timebefore the expiry of the terms specified by giving to the Central Government notice of not less than three months in writing.

Article 120The Reserve Bank may, at any time, remove the chairman or the whole time director, as the case may be, from officein accordance with these Articles, the Act and the Banking Act:

Provided that no person shall be removed from his office, under this Article, unless he has been given an opportunityof showing cause against his removal.

Article 121(a) A nominated director shall hold office during the pleasure of the authority nominating him.

(b) Every nominated director shall hold office for such term not exceeding three years as the Central Government mayspecify in this behalf and thereafter until his successor assumes office, and shall be eligible for re-nomination;

Provided that no such director shall hold office continuously for a period exceeding six years; and

Article 122(i) Every elected director shall hold office for three years and thereafter until his successor assumes office, and shall

be eligible for re-election;

Provided that no such director shall hold office continuously for a period exceeding six years.

(ii) Subject to the provisions of the Act, the Banking Act and these Articles, the shareholders, may, by a resolution passedby majority of the votes of such shareholders holding in the aggregate not less than one half of the share capital heldby all such shareholders, remove any director elected under Article 116(1)(e) of these Articles and elect in his placeand stead another person to fill the vacancy according to the Article 116(1)(e) provided however, that the directorelected by the shareholder other than the Central Government, and other than banks and institutions of whichmajority shareholding is with the Central Government, may be removed by a majority of votes of shareholdersholding in aggregate not less than one half of the share capital held by the shareholders other than the CentralGovernment and other than the banks and institutions of which majority shareholding is with the Central Govern-ment.

Article 125The Directors shall have power at any time and from time to time to appoint, subject to the provisions of thesepresents, any person as a Director either to fill a casual vacancy and any Director so appointed to fill casual vacancyshall hold office only up to the date up to which the Director in whose place he is appointed would have held officeif it had not been vacated.

Article 126No Director shall be required to hold any share or qualification shares in the Company but he shall satisfy thequalifications or restrictions, if any, stipulated under the Act as well as the Banking Act.

Article 127The fees payable to a Director for attending a meeting of the Board or Committee thereof shall be decided by theBoard of Directors from time to time within the maximum limits of such fees that may be prescribed by the Act, theBanking Act or the Central Government.

Article 131 (a)Subject to the provisions of section 283(2) of the Act, the office of a Director shall become vacant if;i) he is found to be unsound mind by a Court of competent jurisdiction; orii) he applies to be adjudicated an insolvent; or

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iii) he is adjudged an insolvent; oriv) he is convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment

for not less than six months; orv) he fails to pay any calls in respect of shares held by him alone or jointly with others within six months from the last

date fixed for the payment of such calls made unless the Central Government has, by notification in the OfficialGazette, removed the disqualification incurred by such failure; or

vi) he absents himself from three consecutive meetings of the Board of Directors or from all meetings or the Directorsfor continuous period of three months whichever is the longer without leave of absence from the Board of Directors;or

vii) he (whether by himself or by any person for his benefit or on his account), or any firm in which he is a partner or anyprivate company of which he is a Director, accepts a loan or guarantee or security for a loan from the Company incontravention of section 295 of the Act; or

viii) he acts in contravention of section 299 of the Act; orix) he becomes disqualified by an order of the Court under section 203 of the Act; orx) he is removed in pursuance of section 284 of the Act by an Ordinary Resolution of the Company before the expiry of

his period of Office; orxi) he resigns office by notice in writing addressed to the Company or to the Directors; orxii) he, his relative or partner or any firm in which he or his relative is a partner or any private company of which he is a

Director or Member, holds any office of profit under the Company or any subsidiary hereof in contravention of section314 of the Act, or

xiii) having been appointed a Director by virtue of his holding any office or other employment in the Company, he ceasesto hold such office or other employment in the Company.

Article 131 (b)Notwithstanding anything in clause (iii), (iv) and (ix) of sub-article (a), the disqualification referred to in those clausesshall not take effect;

(i) for 30 days from the date of adjudication or sentence or order;

(ii) where any appeal or petition is preferred within the thirty days aforesaid against the adjudication, sentence orconviction resulting in the sentence or order until the expiry of seven days from the date on which such appeal orpetition is disposed off; or

(iii) where within the seven days aforesaid any further appeal or petition is preferred in respect of the adjudication,sentence, conviction or order and the appeal or petition, if allowed, would result in the removal of the disqualification,until such further appeal or petition is disposed off.

Extracts of relevant provisions of Industrial Development Bank of India Limited (Issue and Management of Bonds)Rules, 2004Rule 3. Form of the Bond and the mode of transfer thereof, etc.

(1) A Bond may be issued in the form of -

(a) A promissory note payable to, or to the order of, a certain person; or

(1A) Not withstanding anything contained in sub-rule (1) and subject to the provisions of the epositories Act,1996,every person subscribing to or holding the Bond under these rules shall have the option to hold the same witha depository.

(2) (a) A Bond issued in the form of a promissory note shall be transferable by endorsement and delivery likea promissory note payable to order.

(b) No writing on a Bond issued in the form of a promissory note shall be valid for the purpose of negotiationif such writing purports to transfer only a part of the amount denominated by the Bond.

(5) No endorsement of a Bond in the form of promissory note or no instrument of transfer in the case of a Bond inthe form of a Stock Certificate shall be valid unless made by the signature of the holder or his duly constitutedattorney or representative inscribed in the case of a Bond in the form of a promissory note on the back of theBond itself.

Rule 4 Trust not recognised

(1) The Industrial Development Bank of India Ltd. (IDBI Ltd.) shall not be bound or compelled to recognize in anyway, even when having notice thereof, any trust or any right in respect of a Bond other than an absolute rightthereto in the holder.


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Provided that nothing in this rule shall apply to a depository in respect of Bonds held by it as a registered owneron behalf of the beneficial owner.

Rule 5A Provision for holding of bonds issued in the form of promissory notes by trust/trustee(s)

(1) Without prejudice to the provisions of sub-rule (1) of Rule 4, the IDBI Ltd. may, at the request of the applicantand without liability to the IDBI Ltd., issue a Bond in the form of promissory note in the name of a specified trustor trustee(s) of that trust, or, as the case may be, in the personal name of the applicant, describing him as atrustee, whether as a trustee of the trust specified in his application or as a trustee without such specifications.

Rule 8 Procedure where Bond in the form of a promissory note is Lost, etc.

(1) Every application for the issue of a duplicate Bond in place of a Bond which is alleged to have been Lost,Stolen, Destroyed, Mutilated or Defaced, either wholly or in part shall be addressed to the Office of Issue, andshall contain the following particulars, namely:

a) Bond No. ____ for Rs _____ of the ____ percent Industrial Development Bank of India Ltd. Bonds,--------[year];

b) Last half-year for which interest has been paid;

c) The person to whom such interest was paid;

d) The person in whose name Bond was issued (if known);

e) The circumstances attending the Loss, Theft, Destruction, Mutilation or Defacement; and

f) Whether the Loss or Theft was reported to the police

(2) Such application shall be accompanied by:

a) where the Bond was lost in course of transmission by registered post, the Post Office registrationreceipt for the letter containing the Bond;

b) a copy of the police report, if the loss or theft was reported to the police;

c) if the applicant is not a registered holder, an affidavit sworn before a magistrate testifying that theapplicant was the last legal holder of the Bond, and all documentary evidence necessary to trace backthe title to the registered holder; and

d) any portion or fragments which may remain of the Lost, Stolen, Destroyed, Mutilated or Defaced Bond.

(1) The loss, theft, destruction (mutilation or defacement) of a Bond in the form of a promissory note shall b epublished on behalf of the applicant in a leading newspaper of the area.

Rule 10 Issue of duplicate bond and taking of indemnity

(1) If the Prescribed Officer is satisfied of the loss, theft, destruction or defacement of the Bond in the form of apromissory note, he may order issue of a duplicate Bond in the form of a promissory note on applicant’sfurnishing an indemnity bond with one or more sureties;

Provided that if at any time before the issue of the duplicate Bond in the form of a promissory note, the originalBond is discovered or it appears to the Office of the Issue for other reasons that the order should be rescinded,the matter shall be referred to the Board for further consideration, and in the meantime, all action on the ordershall be suspended. An order passed under this sub-rule shall, on expiry of the three months referred totherein become final unless it is in the meantime rescinded or otherwise modified; and

Provided that where a Bond in the form of a promissory note lost, stolen, destroyed, mutilated or defaced is ofdenomination not exceeding of rupees fifty thousand, a duplicate Bond in the form of Promissory note may beissued on applicant furnishing an indemnity bond without any such surety;

Provided further that where such application is made with respect to a Bond in the form of a Promissory notemutilated or defaced, of whatever face value, a duplicate Bond in the form of a Promissory note may be issuedwithout any such indemnity with or without surety if the Bond in the form of Promissory note is capable of beingidentified as the one originally issued;

(2) IDBI Ltd. shall not incur any liability for issuing such Bond in good faith under this rule.

(3) A duplicate certificate issued under sub-rule (1) shall be treated as equivalent to the original certificate for allthe purposes of these rules except that it shall not be encashable at an office of Issue other than the office ofIssue at which such certificate is registered without previous verification.

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Rule 12 Publication of list of duplicate Bonds

(1) IDBI Ltd. shall publish half yearly in two leading newspapers or in one leading newspaper and in the Gazetteof India in the months of January and July a list of duplicate Bonds issued by IDBI Ltd.

(2) The list shall contain the following particulars regarding the duplicate Bonds issued by IDBI Ltd.(a) the name of the Issue(b) the number of the Bond, its value(c) the name of the person to whom it was issued(d) the date from which it bears interest(e) the name of the applicant for a duplicate(f) the number and date of order passed by the Prescribed Officer for payment of interest or issue of a

duplicate.Rule 15 Person whose title to a Bond of deceased sole holder may be recognised.

(1) The executors or administrators of a deceased sole holder of a Bond (whether a Hindu, Mohammedan, Parsior otherwise), or the holder of a succession certificate issued under Part X of the Indian Succession Act, 1925(39 of 1925) in respect of the Bond shall be the only persons who may be recognised by the Office of Issue(subject to any general or special instructions of the Prescribed Officer) as having any title to the Bond.

Rule 21 Discharge of a Bond(a) When a Bond held in the form of a promissory note becomes due for payment of principal, it shall be presented

at the office of IDBI Ltd. at which interest thereon is payable or at the Office of Issue duly signed by the holderon its reverse;

Provided that IDBI Ltd. may having regard to interest of the holder of the Bonds and other relevant factors, makethe payment of the amount due on the Bond without requiring its presentment at the office of IDBI Ltd. invokingcall option as per the terms of its issue or on maturity.

(b) When a Bond in the form of an entry in the account or held with a depository becomes due for payment of principal,a duly signed receipt shall be furnished by the holder or beneficial owner, as the case may be, to the Office ofIssue.

3. Nomination in respect of bonds:-Article 74 of Articles of Association of IDBI Ltd. states: “Subject to the provisions of section 109A of theCompanies Act and the rules made in this behalf, every holder of shares in, or debentures of the Companyor where the shares and debentures of the Company are held by more than one person jointly, the joint holderstogether may at any time nominate a person to whom his / their rights in shares in or debentures of theCompany shall vest in the event of death of sole holder or all the joint holders of shares in or debentures ofthe Company.”


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MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTIONCopies of the contracts and documents, referred to below, all of which have been attached to a copy of this OfferDocument, which has been delivered to the RoC, Mumbai, The Stock Exchange, Mumbai and National StockExchange of India Ltd., may be inspected at the Head Office of IDBI Ltd. between 10.00 a.m. and 12.00 noon onany working day between the date of the Offer Document and the date of closing of the Issue.

Material Contracts and Documents1. Memorandum and Articles of Association of IDBI Ltd.

2. IDBI Ltd. (Issue and Management of Bonds) Rules, 2004

3. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003.

4. Reserve Bank of India Notification dated September 30, 2004, regarding inclusion of “Industrial Development Bankof India Ltd.” in the Second Schedule of the Reserve Bank of India Act, 1934 (2 of 1934).

5. A copy of lettter from RBI dated September 24, 2004, permitting IDBI Ltd. to raise resources through bonds on varyingmaturity only in respect of undisbursed commitments as on the Appointed Date.

6. A copy of RBI letter dated April 15, 2005 classifying IDBI Ltd. under the new category ‘Other Public Sector Banks’

7. A copy of letter from RBI dated April 12, 2005 intimating the amount crystalized as on the ‘Appointed Date’ for raisingresources through bonds varying maturity amounting to Rs. 9200 crores.

8. Copy of Notification dated September 29, 2004, issued by GoI, Ministry of Finance appointing October 1, 2004 as thedate on which undertaking of IDBI is transferred to and vest in, Industrial Development bank of India Ltd.

9. Letter F. No8 (4)/2005-IF-I dated March 1, 2005 received from GoI, Ministry of Finance confirming the appointment ofShri. V.P.Shetty as Chairman IDBI Ltd.

10. IDBI Ltd.’s letter of appointment dated December 16, 2005 to SBI Capital Markets Ltd., Prime Lead Manager.

11. Copy of MOU entered into by IDBI Ltd. with the Prime Lead Manager - SBI Capital Markets Ltd. dated December 20,2005.

12. Resolution under section 293(i)(d) of the Companies Act regarding borrowing powers passed at the Extra OrdinaryGeneral Meeting (EGM) of the shareholders held on September 30, 2004.

13. Resolutions of the Board of Directors of IDBI Ltd. passed at the Meeting held on August 18 , 2005, approving the IDBIFlexibonds Umbrella Offer Document 2005-06 (shelf prospectus) for raising Rs.1500 crore with an option to retainadditional subscription upto Rs.1500 crore in one or more tranches and, inter alia, authorising the (a) Chairman andManging Director to exercise powers in relation to the Public Issue and (b) Directors individually or through theiragents authorised in writing to sign the Umbrella Offer Document for 2005-06(shelf prospectus) and Offer Docu-ment for individual tranche issues (Information Memorandum).

14. Chairman & Managing Director’s authorisation dated December 15, 2005 to Shri O. V. Bundellu, Executive Directors,IDBI Ltd., Shri M. Chittaranjan Kumar, Chief General Manager, InRD, IDBI Ltd., Shri R. K. Kapoor, Chief General Manager,DRD&FSD severally, to sign the Umbrella Offer Document for the year 2005-06 on his behalf.

15. Copy of letter dated December 9, 2004 from S&P assigning a rating of “BB”(with Stable outlook) for IDBI’s long termforeign currency debt, copy of release dated February 18, 2004 from Moody’s Investors Service assigning a rating of“Baa3”, and copy of release from Fitch dated February 26, 2004 assigning a rating of “BB+” (with stable outlook) forIDBI’s long term foreign currency debt.

16. Letter from CRISIL dated November 11, 2005 assigning a “AA+” (with Stable outlook) rating for the unsecured bondsunder the umbrella series 2005-06 for an amount of Rs.3000 crore.

17. Letter from ICRA dated December 16, 2005 assigning a “LAA+” rating for the unsecured bonds under the umbrellaseries 2005-06 for an amount of Rs.3000 crore.

18. Letter from Fitch Ratings India Pvt. Ltd. dated December 14, 2005 assigning a “AA+(ind)” rating for the unsecuredbonds under the umbrella series 2005-06 for an amount of Rs.3000 crore.

19. Consent of the Auditors Sorab S. Engineer & Co., Chartered Accountants, dated December 15, 2005 for inclusion oftheir report on Accounts in the form and context in which they appear and inclusion of their name as Tax Consultantsand Auditors in this Offer Document.

20 The reports of Auditors, Sorab S. Engineer & Co., Chartered Accountants, dated December 15, 2005 containing theaudited Balance Sheets and Profit and Loss Accounts for five years ended March 31, 2001, 2002, 2003, September30, 2004 (for 18 months) and for the six months period ended March 31, 2005.

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21. Report on Tax Benefits from Sorab S. Engineer & Co., Chartered Accountants dated December 15, 2005.

22. Copies of the Audited Balance Sheets and Profit and Loss Accounts for five years ended March 31, 2001, 2002,2003, September 30, 2004 (for 18 months) and for the six months period ended March 31, 2005.

23. Consent of Lead Manager, SBI Capital markets Ltd. dated December 20, 2005, to act in its capacity and to includetheir name in the Draft Offer Document.

24 Copy of initial Listing Applications made to The Stock Exchange, Mumbai and National Stock Exchange of India Ltd.for listing of the Bonds.

25. Copy of application vide letter No.1010/DRD/Flexi/2005-06 , dated July 21, 2005, requesting Government of India,Ministry of Finance, Department of Revenue, CBDT to accord approval for the Infrastrucutre Bonds for FY 2005-06issued by IDBI under Section 80C of the IT Act.

26. Copy of application vide letter No.2186/DRD/Flexi UMB/2005-06, dated December 16, 2005 requesting Governmentof India, Ministry of Finance approving the Bonds to be issued under Umbrella Offer Document (2005-06) as PublicSecurities under Section 20(f) of the Indian Trust Act, 1882.

27. Copy of notification F.No.5(53)/2002-ECB&PR, dated January 24, 2005 issued by Government of India, Ministry ofFinance authorising Provident Funds etc to invest in bonds and securities issued by Public Financial Institutions.

28. Copy of order dated January 15, 1996 of Madhya Pradesh Government declaring Bonds issued by IDBI Ltd. andother banks as Public Securities under Section 13 of M.P. Public Trust Act, 1951.

29. Copy of application vide letter No.2190/DRD/Flexi UMB/2005-06, dated December 16, 2005 requesting Ministry ofFinance, GOI, according approval under section 193(ii)(b) of IT Act for non-deduction of Tax at Source on interest tobe paid on the bonds to be issued under the Umbrella Offer Document (2005-06).

30. Copy of application vide letter No.2188/DRD/Flexi UMB/2005-06 dated December 16, 2005 to Government ofMaharashtra seeking approval for the bonds to be issued under IDBI Flexibonds Umbrella Offer Document 2005-06as Public Securities under Section 2(12)(d) of the Bombay Public Trusts Act, 1950.

31. Copy of application vide letter No.2192/DRD/Flexi UMB/2005-06 dated December 16, 2005 to Government of Gujarat,Agriculture and co-operation Department seeking approval for co-operative societies to invest in the bonds to beissued under IDBI Flexibonds Umbrella Offer Document 2005-06 as Public Securities.

32. Copy of application vide letter No.2189/DRD/Flexi UMB/2005-06 dated December 16, 2005 to Government of Gujarat,Legal Department seeking approval to declare the bonds to be issued under IDBI Flexibonds Umbrella OfferDocument 2005-06 as Public Securities under Section 2 (12)(d) of the Bombay Public Trusts Act, 1950.

33. Copy of application vide letter No.2187/DRD/Flexi UMB/2005-06, dated December 16, 2005 to Government ofRajasthan seeking approval for the bonds to be issued under IDBI Flexibonds Umbrella Offer Document 2005-06as Public securities under Section (10)(2) of Rajasthan Public Trust Act No.42 of 1959.

34. Copy of application vide letter No.2191/DRD/Flexi UMB/2005-06, dated December 16, 2005 to Government ofAndhra Pradesh, Endowment Dept, Hyderabad seeking approval for the bonds to be issued under IDBIFlexibonds Umbrella Offer Document 2005-06 as approved securities for investment by Executive Officers oftemple to invest surplus funds of Endowment Institutions / Trusts

35. Copies of Power of Attorney Signed by the Directors of IDBI Ltd. authorising Executive Director ( Mr. O.V. Bundellu) /Chief General Manager (Mr. M. Chittaranjan Kumar) to approve / sign documents/ undertakings/letters pertainingto the Issue


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DECLARATION

We, the Directors of the Company, hereby declare that all the relevant provisions of the Companies Act, 1956, Memo-randum and Articles of Association of IDBI Ltd., IDBI (Issue and Management of Bonds) Rules, 2004 and the guide-lines issued by the Government or the guidelines issued by the Securities and Exchange Board of India establishedunder Section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been complied withand no statement made in this Offer Document is contrary to the provisions of the Companies Act, 1956, or Memoran-dum and Articles of Association of IDBI Ltd.,or IDBI (Issue and Management of Bonds) Rules, 2004 or the Securitiesand Exchange Board of India Act, 1992 or rules made thereunder or guidelines issued, as the case may be.

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

Signed pursuant to the authority granted by the Board of Directors of IDBI Ltd. at its meeting held on the Dayof August 18, 2005

Signed by the Directors

Shri V.P. Shetty, Chairman and Managing Director*

Shri Vinod Rai *

Dr.i Ajay Dua *

Shri K. Narasimha Murthy *

Shri R. V. Gupta *

Shri H. L. Zutshi *

Shri Analjit Singh *

Ms Lila Poonawalla *

Dr. D. Veerendra Heggade

Shri A. Sakthivel

*(Through their Constituted attorney Shri M.Chittaranjan Kumar, Chief General Manager, IDBI Ltd.)

Place : MumbaiDate : December 21, 2005

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GLOSSARY OF COMMON TERMS USED IN BOND STRUCTURES

The debt instruments are being increasingly structured to suit investor preferences with respect to his returnrequirements, periodicity of return, investment period etc. With increasingly complex instruments being offered, thegeneral retail investors are required to understand the implications of various structures in order to choose the rightproduct best suited to him/her and also to make a well informed decision. To make understanding of thesestructures easy, some of the commonly used terms relating to a bond structure are explained below. The discussionbelow is not exhaustive and investors are requested to consult their investment / tax consultants from time to timefor specific features offered under bonds issued.

1. Debt Instruments These are the instruments used for borrowing money. Some of the generally used instrumentsare Bonds and Deposits.

(i) Bonds are debt instruments, which are transferable and tradeable. Bonds can be in the form of PromissoryNotes or Debentures. While the two forms are the same in basic essence, they differ in terms of legal format,treatment for incidence of tax, stamp duty on issue and transfer etc.

(ii) Deposits are debt instruments, which are non-transferable and non-negotiable. Deposits are in the form of areceipt.]

2. Structures used in Debt Instruments.(i) Premium / discount / par :

One often hears that an instrument is issued at par or at a premium or at a discount. This indicates the valueto be paid for acquiring an instrument with a given face value. For example:

(a) If a bond of Rs. 100 can be bought for Rs.100, the value is at par.

(b) If Rs.105 is to be paid for a Rs.100 bond, the bond is said to be sold at a premium of Rs.5.

(c) Purchasing a Rs.100 bond for Rs.98 is equivalent to saying that it is bought at a discount ofRs. 2.

Therefore premium or discount indicates the difference between the par value and the acquisition value.It may be noted that irrespective of the amount at which the bond is acquired, the interest will becalculated on the par value of the instrument. However, deep discount bonds are issued at a discount tothe face value. On maturity the bonds are redeemed at par/ face value.

Similarly, if an issuer undertakes to redeem the Rs.100 bond at a premium of say Rs.3, on redemptiondate the investor will receive Rs.103 towards principal On the same analogy, redemption at discount willmean that the investor will receive less than the par value on redemption.

(ii) Redeemable / Irredeemable :A redeemable instrument implies that the principal amount is returned after a specified time period. Forexample, a 3 year bond is said to be redeemable after 3 years. Irredeemable means that the principal is heldby the borrower perpetually on terms of offer. However no irredeemable bonds can be issued in India as perthe current provisions of law. An example of irredeemable instrument is Equity Shares.

(iii) Secured / Unsecured :A secured instrument is one for which the borrower offers specific security (in the form of assets) to supportmeeting of repayment of principal and payment of interest in the event of default. In case of any such default,the lender may enforce the security through necessary legal procedures. An unsecured instrument indicatesthat the investors have to depend solely on the performance capabilities of the issuer / borrower for principal/ interest payments.

(iv) Senior / Subordinate Debt :These two words indicate the order in which the lenders will be paid in case of liquidation of the issuer /borrower. In case of liquidation, the assets of the company will be sold and the creditors / lenders will be paidas per the order subject to various legal provisions. In such an eventuality, an investor in a sub-ordinate debtwill be paid only after meeting the payments to investors in senior debt.

(v) Fixed / Floating interest :A fixed interest indicates that interest will be paid at an accepted rate expressed as a percentage of theprincipal amount. However, if the interest payable on the bond is linked to some other variable rate (calledbenchmark) then the rate is said to be floating.

For example, if interest on a Rs.100 bond with 3 year maturity is fixed at 10% p.a. payable annually the interestpayable is Rs.10 each at the end of first, second and third year.


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Assume the rate on the above instrument is linked to one year Government Security rate on the first day of eachyear (resetting dates). If the interest rate on the first day of first, second and third year happens to be 10%, 11%and 9%, interest for the three years will be Rs. 10 (Rs.100 x 10%), Rs. 11 (Rs.100 x 11%) and Rs.9 (Rs. 100 x9%) respectively. This is an example of a floating rate instrument wherein the rate of interest payable every yearwill change as per the underlying benchmark. The benchmark for a floating rate instrument can be linked torates offered on G-sec, G-sec traded rates, Treasury bills, stock index, commodity prices, inflation rate etc.

The actual interest amount received every year may not be uniform in the case of a floating rate. Further theactual amount of interest to be received every year in case of floating rate instrument cannot be determined atthe time of investment.

vi) Return :The amount of interest paid on an investment is said to be the return. This compensation is paid in differentforms depending on the bond structure an investor opts for. Some common terms are given below: -

(a) Interest / coupon rate : This is the rate expressed as percentage of the par value. For example (1). 10%per annum (2). 9% per annum payable quarterly etc.

(b) Periodicity of payment: This refers to the intervals at which interest is paid by the borrower. For example9% per annum payable quarterly means an investment in a Rs.100 bond will get Rs.2.25 (100 x 9% x 1/4) at the end of every quarter. Similarly the periodicity of interest payment can also be monthly, half-yearlyetc.

(c) Yield to Maturity: Yield to maturity is the effective annual return an investor will get at the end of each yearconsidering that all intermittent payments (interest payments) received are reinvested at the rate men-tioned. Yield also refers to the effective rate of interest per annum. For example.

1. 9% per annum payable annually will result in YTM of 9%2. 9% per annum payable or compounded quarterly will result in yield of 9.31% and3. 9% per annum payable or compounded monthly will result in yield of 9.38%.

(d) Yield to put/call : This refers to the yield calculated for the period upto the date of put/call considering allintermittent cash flows to be reinvested at the same rate as the original investment

(e) Discount: When an investment giving a specified maturity amount is offered for a lower issue price (forexample Rs.10,000 to be received at the end of 6 years by investingRs. 5,000) the instrument is said to be at a discount. The difference between the issue price and thematurity value (also called as face value) will be the amount of discount. Discount rate and the yield tomaturity will be the same and there will not be any payment of interest between the date of investmentand the maturity date

(vii) Repayment – Bullet and staggered

Bullet repayment :Principal amount will be repaid on the date of maturity

Staggered payment: Principal amount will be repaid in two or more instalments (For example, payment of 25%each of the principal at the end of 6th, 7th, 8th and 9th year in a 9 year bond)

(viii) Options – Put / Call / Early redemption

Increasingly borrowers/issuers of debt are providing facilities like put/call options or early redemption provi-sion in the structures offered by them.

(a) Put option : This is the right given to the investor to return the bond and take back the money on specificdates between the date of investment and maturity date. This feature imparts liquidity to the instrumentand also permits the investor to take advantage of any favorable interest rate movement during optionperiod.

(For example- Consider a 9% 5 year bond with put option at the end of 3 years. An investor invests in thebond taking it as 5 year investment. If the interest after 3 years for a two year bond is 12% p.a., the investorcan exercise put option and reinvest for 2 years at 12% thereby increasing his overall return).

(b) Call option : This is the right retained by the borrower/issuer to call back the bond and return the moneyto the investor on specific dates between the date of investment and the maturity date. Whenever suchoption is available, the investor should rather look at the returns and investment period upto the date offirst call option.

For example- Consider a 10 year bond with call option at the end of 5 years. An investor invests in thebond taking it as a 10 year investment. If the issuer exercises option at the end of 5 years, the investormay or may not be able to get same returns for the balance 5 years by investing in other securities. Thisuncertainty is called reinvestment risk.

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REGISTERED OFFICE:

IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005.Tel: (022) 5655 3555, 2218 9111 Fax: (022) 22188137, 22181155.

Grams: INDBANKIND. Website : www.idbi.com

INDUSTRIAL DEVELOPMENT BANK OF INDIA LIMITED, ZONAL OFFICES

Chennai Guwahati Kolkata115, Anna Salai G.S.Road, 44, Shakespeare Sarani,Saidapet, P. B. No. 1306, Guwahati 781005 P.B.No.16102, Chennai600015 Assam. Kolkata 700017,Tamil Nadu Tel.: (0361) 2529520/1/2, 25299723 West Bengal. Tel.: (044)22355201-16 Fax : 2452136 Tel.: (033) 22476818-20 Fax: 22355226/3346 Fax : 22473593

Mumbai New DelhiIDBI Tower, 5th Floor, Indian Red Cross Society Bldg.1,WTC Complex, Red Cross Road,Cuffe Parade, P.B.No. 231,Mumbai 400005 New Delhi 110001Maharashtra Tel.: (011) 23716181-84Tel.: (022) 56553355, 56553120 23711733, 23725480 - 81Fax : 22161914 Fax : 23711664 / 23718074