HDFC BANK LIMITED
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
     
o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2005
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                  to                                 
OR
     
o   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report                                 ;
Commission file number 001-15216
HDFC BANK LIMITED
(Exact name of registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
India
(Jurisdiction of incorporation or organization)
HDFC Bank House,
Senapati Bapat Marg, Lower Parel, Mumbai- 400 013, India

(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
     
Title of each class   Name of each exchange on which registered
American Depositary Shares   The New York Stock Exchange
Each representing three equity shares, par value Rs. 10 per share    
Securities registered pursuant to Section 12(g) of the Act.
Not Applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not Applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
309,875,308 Equity Shares
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes   o No
Indicate by check mark which financial statement item the registrant has elected to follow.
o Item 17   þItem 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes   þ No
September 30, 2005
 
 

 


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    F-1  
       
       
 EX-12.1 CERTIFICATION REQUIRED BY RULE 13a-14(a)
 EX-12.2 CERTIFICATION REQUIRED BY RULE 13a-14(a)
 EX-13 CERTIFICATION REQUIRED BY RULE 13a-14(b)

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CROSS REFERENCE SHEET
1
                 
Form 20-F Item            
Number   Item Caption   Location   Page
Part I
               
 
               
Item 1
  Identity of Directors, Senior Management and Advisors   Not Applicable        
 
               
Item 2
  Offer Statistics and Expected Timetable   Not Applicable        
 
               
Item 3
  Key Information   Exchange Rates     4  
 
      Risk Factors     29  
 
      Selected Financial and Other Data     44  
 
               
Item 4
  Information on the Company   Business     7  
 
      Selected Statistical Information     48  
 
      Management’s Discussion and Analysis     64  
 
      Principal Shareholders     98  
 
      Related Party Transactions     99  
 
      Supervision and Regulation     109  
 
               
Item 5
  Operating and Financial Review and Prospects   Management’s Discussion and Analysis     64  
 
               
Item 6
  Directors, Senior Management and Employees   Business — Employees     27  
 
      Management     83  
 
      Principal Shareholders     98  
 
               
Item 7
  Major Shareholders and Related Party   Principal Shareholders     98  
 
  Transactions   Related Party Transactions     99  
 
               
Item 8
  Financial Information   Financial Statements     F-1  
 
               
Item 9
  The Offer and Listing   Price Range of Our American Depositary Share and Equity Shares     40  
 
               
Item 10
  Additional Information   Management     83  
 
      Description of Equity Shares     42  
 
      Taxation     102  
 
      Supervision and Regulation     109  
 
      Exchange Controls     124  
 
      Restrictions on Foreign Ownership of Indian Securities     125  
 
      Additional Information     126  
 
               
Item 11
  Quantitative and Qualitative Disclosures About Market Risk   Business — Risk Management     21  
 
      Selected Statistical Information     48  
 
      Notes to Financial Statements     F-7  
 
               
Item 12
  Description of Securities Other than Equity Securities   Not Applicable        

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Form 20-F Item            
Number   Item Caption   Location   Page
Part II
               
 
               
Item 13
  Defaults, Dividend Arrearages and Delinquencies   Not Applicable        
 
               
Item 14
  Material Modifications to the Rights of Security Holders and Use of Proceeds   Not Applicable        
 
               
Item 15
  Controls and Procedures   Management     83  
 
               
Item 16A
  Audit Committee Financial Expert   Management     83  
 
               
Item 16B
  Code of Ethics   Management     83  
 
               
Item 16C
  Principal Accountant Fees and Services   Management     83  
 
               
Part III
               
 
               
Item 18
  Financial Statements   Financial Statements     F-1  
 
      Report of Independent Auditors     F-2  
 
               
Item 19
  Exhibits   Exhibits        

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EXCHANGE RATES
     In this document, all references to “we,” “us,” “our,” “HDFC Bank” or “the Bank” shall mean HDFC Bank Limited. References to the “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. References to “$” or “U.S.$” or “dollars” or U.S. dollars” are to the legal currency of the United States and references to “Rs.” or “rupees” or “Indian rupees” are to the legal currency of India.
     Our financial statements are presented in Indian rupees and in some cases translated into U.S. dollars. The financial statements and all other financial data included in this report are prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year.
     Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar will affect the U.S. dollar equivalent of the Indian rupee price of the equity shares on the Indian stock exchanges and, as a result, will affect the market price of our American Depositary Shares (“ADSs”) in the United States. These fluctuations will also affect the conversion into U.S. dollars by the depositary of any cash dividends paid in Indian rupees on the equity shares represented by ADSs.
     From 1980 until fiscal 2002, the rupee consistently depreciated against the dollar. However, in fiscal 2004 and 2005 the Indian rupee appreciated compared to fiscal 2003. The rupee’s appreciation has been due to remittances from exporters and non-resident Indians, foreign direct investment and foreign institutional investor inflows, along with the weakening of the U.S. dollar against major currencies.
     The following table sets forth, for the periods indicated, information concerning the exchange rates between Indian rupees and U.S. dollars based on the noon buying rate in the city of New York for cable transfers of Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York:
                                 
Fiscal Year   Period End(1)     Average(1)(2)     High     Low  
2001
    46.85       45.88       47.47       46.63  
2002
    48.83       47.81       48.91       46.58  
2003
    47.53       48.36       49.07       47.53  
2004
    43.40       45.78       47.46       43.40  
2005
    43.62       44.87       46.45       43.27  
(1)   The noon buying rate at each period end and the average rate for each period differed from the exchange rates used in the preparation of our financial statements.
 
(2)   Represents the average of the noon buying rate on the last day of each month during the period.

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     The following table sets forth the high and low noon buying rate for the Indian rupee for each of the previous six months.
                                 
Month   Period End     Average     High     Low  
March
    43.62       43.59       43.70       43.44  
April
    43.48       43.64       43.72       43.48  
May
    43.62       43.41       43.62       43.21  
June
    43.51       43.52       43.71       43.44  
July
    43.40       43.43       43.59       43.05  
August
    44.00       43.54       44.00       43.36  
     Although we have translated selected Indian rupee amounts in this document into U.S. dollars for convenience, this does not mean that the Indian rupee amounts referred to could have been, or could be, converted to U.S. dollars at any particular rate, the rates stated above, or at all. All translations from Indian rupees to U.S. dollars are based on the noon buying rate in the City of New York for cable transfers in Indian rupees at U.S.$1.00 = Rs. 43.62 on March 31, 2005. The Federal Reserve Bank of New York certifies this rate for customs purposes on each date the rate is given. The noon buying rate on September 23, 2005, was Rs. 43.80 per U.S. $1.00.

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FORWARD-LOOKING STATEMENTS
     We have included statements in this report which contain words or phrases such as “will,” “aim,” “will likely result,” “believe,” “expect,” “will continue,” “anticipate,” “estimate,” “intend,” “plan,” “contemplate,” “seek to,” “future,” “objective,” “goal,” “project,” “should,” “will pursue” and similar expressions or variations of these expressions that are “forward-looking statements.” Actual results may differ materially from those suggested by the forward-looking statements due to certain risks or uncertainties associated with our expectations with respect to, but not limited to, our ability to implement our strategy successfully, the market acceptance of and demand for various banking services, future levels of our non-performing loans, our growth and expansion, the adequacy of our allowance for credit and investment losses, technological changes, volatility in investment income, cash flow projections and our exposure to market and operational risks. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what may actually occur in the future. As a result, actual future gains, losses or impact on net income could materially differ from those that have been estimated.
     In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: general economic and political conditions in India and the other countries which have an impact on our business activities or investments; the monetary and interest rate policies of the government of India; inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices; the performance of the financial markets in India and globally; changes in Indian and foreign laws and regulations, including tax, accounting and banking regulations; changes in competition and the pricing environment in India; and regional or general changes in asset valuations. For further discussion of the factors that could cause actual results to differ, see “Risk Factors.”

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BUSINESS
Overview
     We are a leading private sector bank and financial services company in India. Our goal is to be the preferred provider of financial services to upper and middle-income individuals and leading corporations in India. Our strategy is to provide a comprehensive range of financial products and services for our customers through multiple distribution channels, with high quality service and superior execution. We have three principal business activities: retail banking, wholesale banking and treasury operations.
     We have grown rapidly since commencing operations in January 1995. In the four years ended March 31, 2005, we expanded our operations from 131 branches and 207 ATMs in 53 cities as of March 31, 2001 to 467 branches and 1,147 ATMs in 211 cities. During the same four years, our customer base grew from 0.9 million customers to 6.8 million customers. As our geographical reach and market penetration have expanded, so too have our assets, which grew from Rs. 161.1 billion as of March 31, 2001 to Rs. 529.5 billion as of March 31, 2005. Our net income has increased from Rs. 2.1 billion for fiscal 2001 to Rs. 6.6 billion for fiscal 2005 at a compounded annual growth rate of 32.6%.
     Notwithstanding our pace of growth, we have maintained a strong balance sheet and a low cost of funds. As of March 31, 2005, net non-performing customer assets (which consist of loans and credit substitutes) constituted 0.2% of net customer assets. In addition, our net customer assets represented 74.4% of our deposits and customer deposits represented 68.7% of our total liabilities and shareholders’ equity. The average non-interest bearing current account deposits and low-interest savings account deposits represented 55.3% of total deposits for the fiscal year ended March 31, 2005. These low-cost deposits, which include the cash float associated with our transactional services, led to an average cost of funds excluding equity for the fiscal year ended March 31, 2005, of 3.2%, which we believe is one of the lowest of all banks in India.
     We are part of the HDFC group of companies founded by our parent, Housing Development Finance Corporation Limited (“HDFC Limited”), a public limited company established under the laws of India. HDFC Limited and its subsidiaries owned approximately 22.2% of our outstanding equity shares as of March 31, 2005.
     Our principal corporate and registered office is located at HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. Our telephone number is 91-22-5652-1000. Our agent in the United States is CT Corporation System, 111, 8th Avenue, New York, NY 10011.
Our Competitive Strengths
     We attribute our growth and continuing success to the following competitive strengths:
     We are a leader among Indian banks in our use of technology.
     Since our inception, we have made substantial investments in our technology platform and systems. We have built multiple distribution channels, including an electronically linked branch network, automated telephone banking, internet banking and banking by mobile phone, to offer customers convenient access to our products. Our technology platform has also driven the development of innovative products and reduced our operating costs.

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     We deliver high quality service with superior execution.
     Through intensive staff training and the use of our technology platform, we deliver efficient service with rapid response time. Our focus on knowledgeable and personalized service draws customers to our products and increases the loyalty of our existing customers.
     We offer a wide range of products to our clients in order to service their banking needs.
     Whether in retail or wholesale banking, we consider ourselves a “one-stop shop” for our customers’ banking needs. Our broad array of products creates multiple cross-selling opportunities for us and improves our customer retention rates.
     We have an experienced management team.
     Most of the members of our senior management team have been with us since our inception. They have substantial experience in multinational banking and share our common vision of excellence in execution. We believe this team is well suited to leverage the competitive strengths we have already developed as well as to create new opportunities for our business.
Our Business Strategy
Our business strategy emphasizes the following elements:
     Increase our market share in India’s expanding banking and financial services industry.
     In addition to benefiting from the overall growth in India’s economy and financial services industry, we believe we can increase our market share by continuing to focus on our competitive strengths. We also aim to increase geographical and market penetration by expanding our branch and ATM network and increasing our efforts to cross-sell our products.
     Maintain our current high standards for asset quality through disciplined credit risk management.
     We have maintained high quality loan and investment portfolios through careful targeting of our customer base, a comprehensive risk assessment process and diligent risk monitoring and remediation procedures. Our ratio of gross non-performing assets to customer assets was 1.5% as of March 31, 2005, and our net non-performing assets amounted to 0.2% of net customer assets. We believe we can maintain our asset quality while still achieving growth.
     Maintain a low cost of funds.
     As of March 31, 2005, our average cost of funds excluding equity was 3.2%. We believe we can maintain this low-cost funding base by expanding our base of retail savings and current deposits and increasing the free float generated by transaction services such as cash management and stock exchange clearing.
     Focus on high earnings growth with low volatility.
     Our aggregate earnings have grown at a compound average rate of 32.6% per year during the four-year period ending March 31, 2005, and our basic earnings per share grew from Rs. 16.87 for fiscal 2004 to Rs. 22.78 for fiscal 2005. We intend to maintain our focus on earnings growth with low volatility through conservative risk management techniques and low cost funding. In addition, we intend not to rely heavily on revenue derived from trading to limit volatility.

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Our Principal Business Activities
     Our principal banking activities consist of retail banking, wholesale banking and treasury operations. The following table sets forth our net revenues attributable to each area for the last three years.
                                 
    Years Ended March 31,  
    2003     2004     2005     2005  
    (In millions, except percentage)  
Retail banking
  Rs. 6,150.2     Rs. 8,847.9     Rs.   13,037.0       61.6 %
Wholesale banking
    3,004.0       4,653.2       7,192.4       34.0 %
Treasury operations
    2,147.2       1,461.5       919.6       4.4 %
 
                               
     
Net revenue
  Rs. 11,301.4     Rs. 14,962.6     Rs.   21,149.0       100.0 %
     
Retail Banking
     Overview
     We consider ourselves to be a one-stop shop for the financial needs of upper and middle-income individuals. We provide a comprehensive range of financial products including deposit products, loans, credit cards, debit cards, third-party mutual funds and insurance products, investment advice, bill payment services and other services. We offer high quality service and greater convenience by leveraging our technology platforms and multiple distribution channels. Our goal is to provide banking and financial services to our retail customers on an “anytime, anywhere, anyhow” basis.
     We market our services aggressively through our branches and direct sales associates, as well as through our relationships with automobile dealers and corporate clients. We seek to establish a relationship with a retail customer and then expand it by offering more products and expanding our distribution channels so as to make it easier for the customer to do business with us. We believe this strategy, together with the general growth of the Indian economy and the Indian upper and middle classes, affords us significant opportunities for growth. We consider upper and middle-income individuals to be those with Rs. 100,000 or more per year in income.
     As of March 31, 2005, we had 467 branches, including 25 extension counters, and 1,147 ATMs in 211 cities. We also provide telephone banking in 120 cities as well as internet and mobile banking. We plan to continue to expand our branch and ATM network as well as our other distribution channels.
     Retail Loans and Other Asset Products
     We offer a wide range of retail loans, including loans for the purchase of automobiles, two wheelers and commercial vehicles, personal loans, loans against securities and credit cards. Our retail loans were 43.0% of our gross loans as of March 31, 2005. We promote our loan products at our branches as well as on our ATM screens and web site, and we employ additional sales methods depending on the type of product. Because there is no well-established credit bureau in India, we perform our own credit analyses of the borrowers and the value of the collateral. See “— Risk Management — Credit Risk — Retail Credit Risk.” We also buy mortgage and other asset-backed securities and invest in retail loan portfolios through assignments. In addition to taking collateral in many cases, we generally obtain post-dated checks covering all payments at the time a retail loan is made. It is a criminal offense in India to issue a bad check. We also sometimes obtain irrevocable instructions to debit the customer’s account directly for the making of payments.

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     The following table shows the value and share of our retail credit products:
                                 
    As of March 31, 2005  
    No. of Loans     Value     % of Total  
                Value  
    (In thousands)     (In millions)          
Retail Loans:
                               
Auto loan(1)
    73     Rs. 21,055.1     US$ 482.7       15.7 %
Commercial vehicles and construction equipment finance
    29       21,924.2       502.6       13.5  
Personal loans
    177       20,518.3       470.4       11.8  
Loans against securities
    32       12,347.2       283.1       7.6  
Two wheeler loans
    397       10,418.0       238.8       6.4  
Retail business banking
    36       11,050.7       253.3       7.6  
Credit cards
    1,262 (2)     6,892.9       158.0       4.2  
Other retail loans
    240       8,459.6       194.0       2.5  
           
Total retail loans
    2,246       112,666.0       2,582.9       69.3  
           
 
                               
Mortgage-backed securities (home loans)(3)
            10,668.1       244.6       6.6  
Asset-backed securities (3)
            20,071.8       460.2       12.4  
Loan assignments
            18,992.3       435.4       11.7  
 
                               
             
Total retail assets
          Rs. 162,398.2     US$ 3,723.1       100.0 %
             

(1)   Net of receivables securitized.
 
(2)   Number of cards in force.
 
(3)   Reflected at fair value.
     Auto Loans
     We offer secured loans at fixed interest rates for financing new and used automobile purchases. In addition to our general marketing efforts for retail loans, we market this product through relationships with car dealers, corporate packages and joint promotion programs with automobile manufacturers in more than 1,000 locations across India.
     Commercial Vehicles and Construction Equipment Finance
     We provide secured financing for commercial vehicles and provide working capital, bank guarantees and trade advances to customers who are transportation operators. In addition to the funding of domestic assets, we also finance imported assets for which we open foreign letters of credit and offer treasury services such as forward exchange cover. We coordinate with manufacturers to jointly promote our financing options to their clients. Prior to fiscal 2004, these loans were classified as part of our wholesale banking division.
     Personal Loans
     We offer unsecured personal loans at fixed rates to specific customer segments, including salaried individuals and self-employed professionals.
     Loans Against Securities
     We offer loans against equity shares, mutual fund units, bonds issued by the Reserve Bank of India (“RBI”) and other securities that are on our approved list. We limit our loans against equity shares to Rs. 2.0 million per retail customer in line with regulatory guidelines and limit the amount of our total exposure secured by particular securities. We lend only against shares in book-entry (dematerialized) form,

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which ensures that we obtain perfected and first priority security interests. The minimum margin for lending against shares is prescribed by the RBI.
     Two Wheeler Loans
     We offer loans for financing the purchase of new scooters or motorcycles. We market this product in ways similar to auto loans.
     Retail Business Banking
     We offer business loans, which we consider a retail product, to address the borrowing needs of the community of small businesses near our bank branches by offering facilities such as credit lines, term loans for expansion/addition of facilities, discounting of credit card receivables, letters of credit, guarantees and other basic trade finance products and cash management services for their businesses. The lending is typically secured with current assets as well as immovable property and fixed assets in some cases.
     Credit Cards
     We have offered gold and silver VISA and MasterCard credit cards since December 2001 and have approximately 1.25 million cards in force as of March 31, 2005.
     Other Retail Loans
     Such loans primarily include overdrafts against time deposits.
     Mortgage-Backed Securities (Home Loans)
     In fiscal 2003 we entered the home loan business through an arrangement with HDFC Limited. Under this arrangement, we sell home loans provided by HDFC Limited, which approves and disburses the loans. The loans are booked in the books of HDFC Limited, and we are paid a sourcing fee. Under the arrangement, HDFC Limited offers us up to 70% of the fully disbursed home loans sourced under the arrangement through the issue of mortgage-backed-pass-through certificates (“PTCs”). We purchase the mortgage-backed PTCs at the underlying home loan yields less a fee paid to HDFC Limited for administration and servicing of the loans. A part of the home loans also qualifies for our directed lending requirement. We also invest in mortgage backed securities of other originators. Most of these securities also qualify toward our directed lending obligations.
     Asset-Backed Securities
     We invest in auto, two wheeler, commercial vehicle and other asset-backed securities, represented by PTCs. These securities are normally credit enhanced and sometimes qualify for our directed lending requirements.
     Loan Assignments
     We purchase loan portfolios from other banks, financial institutions and financial companies, which are similar to asset-backed securities, except that such loans are not represented by PTCs. Some of these loans also qualify toward our directed lending obligations.

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     Securitization of Our Receivables to Others
     From time to time, we securitize our receivables through special purpose vehicles. In connection with certain transactions, we provide credit enhancements generally in the form of cash collaterals, guarantees, interest spreads and/or by subordination of cash flows to senior PTCs. During fiscal 2004 and 2005, we securitized loans with carrying values of Rs. 5.7 billion and Rs. 48.0 billion, respectively. In respect of some of the PTCs, we provide options to the investors to sell them to us at predetermined dates and these options are excercisable at par. Options that are not put at the predetermined date may be puttable at later dates for the remaining principal value of the PTC. Principal outstanding on the puttable PTCs as of March 31, 2005 was Rs. 17.3 billion. As of such date, the principal value of puttable options that have an exercise period of up to one year, between one to two years or between two to three years was Rs. 15.8 billion, Rs. 9.1 billion and Rs. 0.8 billion respectively.
     Retail Deposit Products
     Retail deposits provide us with a low cost, stable funding base and have been a key focus area for us since commencing operations. Retail deposits represented 69.2% of our total deposits as of March 31, 2005. The following chart shows the number of accounts and value of our retail deposits by our various deposit products:
                                         
    As of March 31, 2005
    Value (In millions)   % of total   No. of accounts   % of total
            (In thousands)    
Saving
  Rs.  106,822.4     US$  2,448.9       42.4 %     3,541.3       77.5 %
Current
    45,512.4       1,043.4       18.1       346.2       7.6  
Time
    99,316.4       2,276.9       39.5       683.7       14.9  
     
 
                                       
Total
  Rs.  251,651.2     US$  5,769.2       100.0 %     4,571.2       100.0 %
     
     Our individual retail account holders benefit from a wide range of direct banking services, including debit and ATM cards, access to our growing branch and ATM network, access to our other distribution channels and eligibility for utility bill payments and other services. Our retail deposit products include the following:
    Savings accounts, which are demand deposits in checking accounts designed primarily for individuals and trusts. These accrue interest at a fixed rate set by the RBI (currently 3.5% per annum).
    Current accounts, which are non-interest-bearing checking accounts designed primarily for small businesses. Customers have a choice of regular and premium product offerings with different minimum average quarterly account balance requirements.
    Time deposits, which pay a fixed return over a predetermined time period.
     We also offer special value-added accounts, which offer our customers added value and convenience. These include a time deposit account that allows for automatic transfers from a time deposit account to a savings account, as well as a time deposit account with an automatic overdraft facility of up to 90% of the balance in the account. E-Broking accounts are offered as current accounts to customers of stock brokers where all transactions are routed electronically between the broker and beneficiaries.

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     Other Retail Services and Products
     Debit Cards
     Our international debit cards allow our customers to purchase goods and make ATM transactions in India as well as abroad. Our debit cards may be used with more than 150,000 merchants and over 15,000 ATMs in India and more than 13 million merchants and 1 million ATMs worldwide. We were the first in India to issue international Visa Electron debit cards on a nationwide basis and currently issue both Visa Electron and MasterCard Maestro cards.
     Individual Depositary Accounts
     We provide depositary accounts to individual retail customers for holding debt and equity instruments. Securities traded on the Indian exchanges are generally not held through a broker’s account or in street name. Instead, an individual will have his own account with a depositary participant for the particular exchange. Depositary participants, including us, provide services through the major depositaries established by two major stock exchanges. Depositary participants record ownership details and effectuate transfers in book-entry form on behalf of the buyers and sellers of securities. We provide a complete package of services, including account opening, registration of transfers and other transactions and information reporting.
     Mutual Fund Sales
     We offer our retail customers units in most of the large and reputable mutual funds in India. We earn front-end commissions for new sales and in some cases additional fees in subsequent years. We distribute mutual fund products primarily through our branches and our private banking advisors.
     Insurance
     We have arranged with HDFC Standard Life Insurance Company and HDFC Chubb Limited to distribute their life insurance products and general insurance products to our customers. We earn upfront commissions on new premiums collected as well as some trailing income in subsequent years while the policy is still in force.
     Investment Advice
     We offer our customers a broad range of investment advice including advice regarding the purchase of Indian debt, equity shares and mutual funds. We provide our high net worth private banking customers with a personal investment advisor to consult them on their individual investment needs.
     Bill Payment Services
     We offer our customers utility bill payment services for more than 65 leading utility companies including electricity, telephone, mobile phone and leading internet service providers. Customers can also review and access their bill details through our direct banking channels. This service is valuable to customers because utility bills must otherwise be paid in person in India. Although other banks offer this service, we believe we are one of the few banks to offer it through multiple distribution channels — ATMs, telephone banking, internet banking and mobile telephone banking.
     Corporate Salary Accounts
     We offer Corporate Salary Accounts, which allow employers to make salary payments to a group of employees with a single transfer. We then transfer the funds into the employees’ individual accounts, and offer them preferred services, such as preferential loan rates, and in some cases lower minimum balance requirements. As of March 31, 2005, these accounts constituted approximately 43% of our total savings accounts by number and approximately 27% of our retail savings deposits by value.

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     Non-Resident Indian Services
     Non-resident Indians are an important target market segment for us given their relative affluence and strong ties with family members in India. Our non-resident deposits amounted to Rs. 27.0 billion as of March 31, 2005.
     Customers and Marketing
     Our target market for our retail services comprises upper and middle-income persons and high net worth customers. We also target small businesses, trusts and non-profit corporations. As of March 31, 2005, 2% of our retail customers contributed approximately 35% of our retail deposits. We market our products through our branches, telemarketing and a dedicated sales staff for niche market segments. We also use third-party agents and direct sales associates to market certain products and to identify prospective new customers.
     Additionally, we obtain new customers through joint marketing efforts with our wholesale banking department, such as our Corporate Salary Account package, and by cross selling our retail products to customers we obtain through our capital markets transactional services. We also market our auto loan and two wheeler loan products through joint efforts with relevant manufacturers and distributors.
     We have programs that target other particular segments of the retail market. For example, our private and preferred banking programs provide customized financial planning to high net worth individuals in order to preserve and enhance their wealth. Private banking customers receive a personal investment advisor who serves as their single-point HDFC Bank contact, and who compiles personalized portfolio tracking products, including mutual fund and equity tracking statements. Our private banking program also offers equity investment advisory products. While not as service intensive as our private banking program, preferred banking offers similar services to a slightly broader target segment. Top revenue-generating customers of our preferred banking program are channeled into our private banking program.
Wholesale Banking
     Overview
     We provide our corporate and institutional clients a wide array of commercial banking products and transactional services with an emphasis on high quality customer service and relationship management.
     Our principal commercial banking products include a range of financing products, documentary credits (primarily letters of credit) and bank guarantees, foreign exchange and derivative products and corporate deposit products. Our financing products include loans, bill discounting and credit substitutes, such as commercial paper, debentures and other funded products. Our foreign exchange and derivatives products assist corporations in managing their currency and interest rate exposures.
     For our commercial banking products, we generally target the top end of the Indian corporate sector, including companies that are part of the large private sector business houses, large public sector enterprises and multinational corporations, as well as leading small and mid-sized businesses. We also target suppliers and distributors of top end corporations as part of a supply chain initiative for both our commercial banking products and transactional services whereby we provide credit facilities to these suppliers and distributors and thereby establish relationships with them. We aim to provide our corporate customers with high quality customized service. We have relationship managers who focus on particular clients and who work with teams that specialize in providing specific products and services, such as cash management and treasury advisory services.

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     Our principal transactional services include cash management services, capital markets transactional services and correspondent banking services. We provide physical and electronic payment and collection mechanisms to a range of corporations, financial institutions and government entities. Our capital markets transactional services include custodial services for mutual funds and clearing bank services for the major Indian stock exchanges and the newly created commodity exchanges. In addition, we provide correspondent banking services, including cash management services and funds transfers, to foreign banks and cooperative banks.
     Commercial Banking Products
     Commercial Loan Products and Credit Substitutes
     Our principal financing products are working capital facilities and term loans. Working capital facilities consist of cash credit facilities and bill discounting. Cash credit facilities are revolving credits provided to our customers that are secured by working capital such as inventory and accounts receivable. Bill discounting consists of short-term loans which are secured by bills of exchange that have been accepted by our customers or drawn on another bank. In many cases, we provide a package of working capital financing that may consist of loans and a cash credit facility as well as documentary credits or bank guarantees. Term loans consist of short and medium-term loans. More than 90% of our loans are denominated in rupees with the balance being denominated in various foreign currencies, principally the U.S. dollar. All of our commercial loans have been made to customers in India.
     We also purchase credit substitutes, which are typically comprised of commercial paper, short-term debentures and preference shares issued by the same customers with whom we have a lending relationship in our wholesale banking business. Investment decisions for credit substitute securities are subject to the same credit approval processes as loans, and we bear the same customer risk as we do for loans extended to these customers. Additionally, the yield and maturity terms are generally directly negotiated by us with the issuer. Our credit substitutes have declined over the last two years primarily as a result of new RBI and Securities and Exchange Board of India (“SEBI”) regulations that require the listing and rating of our corporate customers’ securities and limit our investments in unlisted credit substitutes, making loans a more attractive alternative for our corporate customers.
     The following table sets forth the asset allocation of our commercial loans and financing products by asset type. For accounting purposes, we classify cash credit facilities and bill discounting as working capital loans, and commercial paper, debentures and preference shares as credit substitutes (which in turn are classified as investments).
                                 
    As of March 31,  
    2003     2004     2005     2005  
    (In millions)  
Gross commercial loans:
                               
Working capital
  Rs. 42,739.1     Rs. 54,104.5     Rs. 72,397.6     US$  1,659.7  
Term loans
    43,013.3       53,819.3       76,861.8       1,762.1  
 
                               
     
Total commercial loans
  Rs. 85,752.4     Rs.  107,923.8     Rs.  149,259.4     US$  3,421.8  
     
 
                               
Credit substitutes:
                               
Commercial paper
  Rs.  6,009.7     Rs.  906.7     Rs.  1,297.3     US$  29.7  
Non-convertible debentures
    22,898.7       14,852.0       12,018.7       275.5  
Preference shares
    844.4       799.2       564.9       13.0  
 
                               
     
Total credit substitutes
  Rs. 29,752.8     Rs. 16,557.9     Rs. 13,880.9     US$ 318.2  
     
 
                               
     
Customer assets
  Rs.  115,505.2     Rs.  124,481.7     Rs.  163,140.3     US$  3,740.0  
     
     While we generally lend on a cash-flow basis, we also require collateral from the majority of our borrowers. All borrowers must meet our internal credit assessment procedures, regardless of whether the loan is secured. See “— Risk Management — Credit Risk — Wholesale Credit Risk.”

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     We price our loans based on a combination of our own cost of funds, market rates and our rating of the customer. An individual loan is priced on a fixed or floating rate based on a margin that depends on the credit assessment of the borrower.
     The RBI requires banks to lend to specific sectors of the economy. For a detailed discussion of these requirements, see “Supervision and Regulation — Regulations Relating to Making Loans — Directed Lending.”
     Bill Collection, Documentary Credits and Guarantees
     We provide bill collection, documentary credit facilities and bank guarantees for our corporate customers. Documentary credits and bank guarantees are typically provided on a revolving basis. The following table sets forth, for the periods indicated, the value of transactions processed of our bill collection, documentary credits and bank guarantees:
                                 
    As of March 31,  
    2003     2004     2005     2005  
    (In millions)  
Bill collection
  Rs.  117,809.0     Rs.  172,623.6     Rs.  359,609.0     US$  8,244.1  
Documentary credits
    25,721.0       44,030.0       56,702.9       1,299.9  
Bank guarantees
    9,696.0       15,197.0       14,518.2       332.7  
     
Total
  Rs.  153,226.0     Rs.  231,850.6     Rs.  430,830.1     US$  9,876.9  
     
     Bill collection - We provide bill collection services for our corporate clients in which we collect bills on behalf of a corporate client from the bank of our client’s customer. We do not advance funds to our client until receipt of payment.
     Documentary credits - We issue documentary credit facilities on behalf of our customers for trade financing, sourcing of raw materials and capital equipment purchases.
     Bank guarantees - We provide bank guarantees on behalf of our customers to guarantee their payment or performance obligations. A large part of our guarantee portfolio consists of margin guarantees to brokers issued in favor of stock exchanges.
     Foreign Exchange and Derivatives
     We offer our corporate customers foreign exchange and derivative products including spot and forward foreign exchange contracts, interest rate swaps, currency swaps, currency options and other derivatives. We are a leading participant in many of these markets in India and believe we are one of the few Indian banks with significant expertise in derivatives, a market currently dominated by the foreign banks.
     Precious Metals
     We import gold and silver bullion to leverage our distribution and servicing strengths and cater to the domestic bullion trader segment. We generally import bullion on a consignment basis so as to minimize price risk.
     Wholesale Deposit Products
     As of March 31, 2005, we had wholesale deposits totaling Rs. 111.9 billion, which represented 30.8% of our total deposits and 21.1% of our total liabilities, including shareholders’ equity. We offer both non-interest-bearing current accounts and time deposits. As per RBI regulations, we cannot pay interest for periods of less than seven days. We are allowed to vary the interest rates on our wholesale deposits based

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on the size of the deposit (for deposits greater than Rs. 1.5 million) so long as the rates booked on a day are the same for all customers of that deposit size for that maturity. See “Selected Statistical Information” for further information about our total deposits.

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     Transactional Services
     Cash Management Services
     We are a leading provider of cash management services in India. Our services make it easier for our corporate customers to expedite inter-city check collections, make payments to their suppliers more efficiently, optimize liquidity and reduce interest costs. In addition to benefiting from the cash float, which reduces our overall cost of funds, we also earn commissions for these services.
     Our primary cash management service is check collection and payment. Through our electronically linked branch network, correspondent bank arrangements and centralized processing, we can effectively provide nationwide collection and disbursement systems for our corporate clients. This is especially important because there is no nationwide payment system in India, and checks must generally be returned to the city from which written in order to be cleared. Because of mail delivery delays and the variations in city-based interbank clearing practices, check collections can be slow and unpredictable, and can lead to uncertainty and inefficiencies in cash management. We believe we have a strong position in this area relative to most other participants in this market. Although the public sector banks have extensive branch networks, most of their branches typically are still not electronically linked. The foreign banks are also restricted in their ability to expand their branch network.
     As of March 31, 2005, over 3,500 wholesale banking clients used our cash management services. These clients include leading Indian private sector companies, public sector undertakings and multinational companies. We also provide these services to most Indian insurance companies, many mutual funds, brokers, financial institutions and various government entities.
     We have also implemented a straight through processing solution to link our wholesale banking and retail banking systems. This has led to reduced manual intervention in transferring funds between the corporate accounts which are in the wholesale banking system and beneficiary accounts residing in retail banking systems. This new initiative will help in reducing transaction costs.
     We have a large number of commercial clients using our corporate internet banking for financial transactions with their vendors, dealers and employees who bank with us.
     The RBI has recently introduced a new interbank settlement system called the Real Time Gross Settlement (“RTGS”) system. The system facilitates real time settlements primarily between banks, initially in select locations. This system is currently not fully operational. See “Risk Factors — Risks Relating to Our Business — We could be adversely affected by the development of a nationwide interbank settlement system.”
     Clearing Bank Services for Stock and Commodity Exchanges
     We serve as a cash-clearing bank for eight major stock exchanges in India, including the National Stock Exchange and The Stock Exchange, Mumbai. In fiscal 2005, we estimate that we handled over 60% of the cash clearing volume on the National Stock Exchange and more than 50% on The Stock Exchange, Mumbai. Recently, we commenced operations as a clearing bank for three newly created Indian commodity exchanges.
     As a clearing bank, we provide the exchanges or their clearing corporations with a means for collecting cash payments due to them from their members or custodians and to make payments to these institutions. We make payments once the funds are deposited by the broker or custodian with us. In addition to benefiting from the cash float, which enables us to reduce our cost of funds, in certain cases we also earn commission on such services.

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     Custodial Services
     We provide custodial services principally to Indian mutual funds, as well as to domestic and international financial institutions. These services include safekeeping of securities and collection of dividend and interest payments on securities. Most of the securities under our custody are in book-entry (dematerialized) form, although we provide custody for securities in physical form as well for our wholesale banking clients. We earn revenue from these services based on the value of assets under safekeeping and the value of transactions handled.
     Correspondent Banking Services
     We act as a correspondent bank for more than 1,400 cooperative banks and more than 20 foreign banks. We provide cash management services, funds transfers and services such as letters of credit, foreign exchange transactions and foreign check collection. We earn revenue on a fee-for-service basis and benefit from the cash float, which enables us to reduce our cost of funds.
     We are well positioned to offer this service to cooperative banks and foreign banks in light of the structure of the Indian banking industry and our position within it. Cooperative banks are generally restricted to a particular state, and foreign banks have limited branch networks. The customers of these banks frequently need services in other areas of the country where their own banks cannot provide. Because of our technology platforms, geographical reach and the electronic connectivity of our branch network, we can provide these banks with the ability to provide such services to their customers. By contrast, although the public sector banks have extensive branch networks and also provide correspondent banking services, most of them have not yet created electronically connected networks and their branches typically operate independently of one another.
     Tax Collections
     In April 2001, we were the first private sector bank to be appointed by the government of India to collect direct taxes. In fiscal 2005 we collected more than Rs. 173 billion of direct taxes for the government of India. We have also been appointed to collect sales, excise and other indirect taxes within certain jurisdictions in India. We earn a fee from each tax collection and benefit from the cash float. We hope to expand our range of transactional services by providing more services to government entities.
Treasury
     Our treasury group manages our balance sheet, including our maintenance of reserve requirements and our management of market and liquidity risk. Our treasury group also provides advice and execution services to our corporate and institutional customers with respect to their foreign exchange and derivatives transactions. In addition, our treasury group seeks to optimize profits from our proprietary trading, which is principally concentrated on Indian government securities.
     Our client-based activities consist primarily of advising corporate and institutional customers and transacting spot and forward foreign exchange contracts and derivatives. We have recently been allowed by the RBI to offer Indian rupee options and interest rate exchange traded futures to our clients. Our primary customers are multinational corporations, large and medium-sized domestic corporations, financial institutions, banks and public sector undertakings. We also advise and enter into foreign exchange contracts with some small companies and non-resident Indians.
     The following describes our activities in the foreign exchange and derivatives markets, domestic money markets and equity markets. See also “— Risk Management” for a discussion of our management of market risk including liquidity risk, interest rate risk and foreign exchange risk.

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     Foreign Exchange
     We trade spot and forward foreign exchange contracts, primarily with maturities of up to three years with our customers. To support our clients’ activities, we are an active participant in the Indian interbank foreign exchange market. We also trade, to a more limited extent, for our own account. We believe we are a market maker in the dollar-rupee segments. Although spreads are very narrow, our total volume of trading is significant with US$ 83.85 billion in foreign exchange traded in fiscal 2005.
     Derivatives
     We believe we are one of the few Indian banks that is a significant participant in the derivatives market, which is dominated by foreign banks. We offer rupee-based interest rate swaps, cross-currency swaps, forward rate agreements, options and other products. We also engage in proprietary trades of rupee-based interest rate swaps and use them as part of our asset liability management.
     Domestic Money Market and Debt Securities Desk
     Our principal activity in the domestic money market and debt securities market is to ensure that we comply with our reserve requirements. These consist of a cash reserve ratio, which we meet by maintaining balances with the RBI, and a statutory liquidity ratio, which we meet by purchasing Indian government securities. See also “Supervision and Regulation — Legal Reserve Requirements.” Our local currency desk primarily trades Indian government securities for our own account. We also participate in the interbank call deposit market and engage in limited trading of other debt instruments.
     Equities Market
     We trade a limited amount of equities of Indian companies for our own account. As of March 31, 2005, we had an internal approved limit of Rs. 200 million for secondary market purchases and Rs. 100 million for primary purchases of equity investments for proprietary trading. Our exposure as of March 31, 2005, was approximately Rs. 140.9 million. We set limits on the amount invested in any individual company as well as stop-loss limits.
Distribution Channels
     We deliver our products and services through a variety of distribution channels, including branches, ATMs, telephone and mobile telephone banking and the internet.
     Branch Network
     As of March 31, 2005, we had an aggregate of 467 branches, including 25 extension counters. Our branch network covers 211 cities in India, with 120 branches concentrated in the four largest cities, Mumbai, Delhi, Chennai and Kolkata (Calcutta). We centralize our processing of transactions and back office operations in Mumbai and Chennai. This structure enables the branch staff to focus on customer service and selling our products. All of our branches are electronically linked so that our customers can access their accounts from any branch regardless of where they have their accounts.
     Almost all of our branches focus exclusively on providing retail services and products, though a few also provide wholesale services. The range of products and services available at each branch depends in part on the size and location of the branch. Our extension counters are small offices, primarily within office buildings, that provide specific commercial and retail banking services.
     As part of its branch licensing conditions, the RBI requires that at least 25% of our branches (not including extension counters) be located in semi-urban or rural areas. A semi-urban area is defined as a

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center with a population greater than 10,000 but less than 100,000 people. A rural area is defined as a center with a population less than 10,000 people. The population figures relate to the census prevailing at the time the branch is opened. A total of 115 of our branches (not including extension counters) are in such semi-urban or rural areas.
     Automated Teller Machines
     As of March 31,2005, we had a total of 1,147 ATMs, of which 547 were located at our branches or extension counters and 600 were located off-site, including at large residential developments, or on major roads in metropolitan areas.
     Customers can use our ATMs for a variety of functions including withdrawing cash, monitoring bank balances and, at most of our ATMs, making deposits, ordering demand drafts and paying utility bills. Customers can access their accounts from any of our ATMs. Our ATM cards cannot be used in non-HDFC Bank ATMs, although our debit cards can be. ATM cards issued by other banks in the Plus, Cirrus and Amex networks can be used in our ATMs and we receive a fee for each transaction.
     Telephone Banking Call Centers
     We provide telephone banking services to our customers in 120 cities. Customers can access their accounts over the phone through our 24-hour automated voice response system and can order check books, inquire as to balances and order stop payments. In select cities, customers can also engage in financial transactions (such as cash transfers, opening deposits and ordering demand drafts). In certain cities, we also have staff available during select hours to assist customers who want to speak directly to one of our telephone bankers.
     Internet Banking
     Through our “Net Banking” channel, customers can access account information, track transactions, transfer funds between accounts and to third parties who maintain accounts with us, make fixed deposits, pay bills, request stop payments and make demand draft requests. We encourage use of our internet banking service by offering some key services for free or at a lower cost.
     Mobile Telephone Banking
     We launched mobile telephone banking services in January 2000, making us the first bank to do so in India. Customers in over a 100 locations are eligible to sign up for mobile telephone banking, which allows them to access their accounts on their mobile telephone screens and to conduct a variety of banking transactions including balance inquiries, stop payment orders and utility bill payments.
Risk Management
     Risk is inherent in our business and sound risk management is critical to our success. The major types of risk we face are credit risk, market risk (which includes liquidity risk and price risk) and operational risk. We have developed and implemented comprehensive policies and procedures to identify, monitor and manage risk throughout the Bank.
     Credit Risk
     Credit risk is the possibility of loss due to the failure of any counterparty to abide by the terms and conditions of any financial contract with us. We identify and manage this risk through (a) our target market definitions, (b) our credit approval process, (c) our post-disbursement monitoring and (d) our remedial management procedures.

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     Wholesale Credit Risk
     For our commercial banking products, we generally target the top end of the Indian corporate sector, including companies that are part of the large private sector business houses, large public sector enterprises, multinational corporations and leading small and mid-sized businesses. As a result, our wholesale lending is generally concentrated among highly rated customers. In addition to market targeting, the principal means of managing credit risk is the credit approval process. We have policies and procedures to evaluate the potential credit risk of a particular counterparty or transaction and to approve the transaction. For our wholesale clients, we have a risk grading system that is applied to each corporate counterparty on an annual, and in some cases quarterly, basis. We also have limits for funded exposure to individual industries. In addition, we have limits for exposure to borrowers and groups of borrowers for funded and non-funded exposures. Our credit risk policies for loans also apply to credit substitutes. We also have a review process that ensures the proper level of review and approval depending on the size of the facility and risk grading of the credit.
     Our risk grading system is based on a combination of quantitative, qualitative and capitalization measures. We assign each customer or counterparty a numerical grade, based on an analysis of key ratios such as interest coverage, debt coverage, profit margin and leverage, as well as capitalization or tangible net worth. We also consider qualitative variables such as industry risk, market position, management competence and other factors. The rating also takes into account macroeconomic conditions and general business conditions affecting the industry or the borrower. This grade may be modified depending on the maturity of the facility being considered.
     We are subject to RBI policies that limit our exposure to particular counter-parties and with respect to particular instruments. The RBI provides that without prior approval not more than 15% of our capital funds (as defined by RBI and calculated under Indian GAAP) may be extended as credit exposure to an individual borrower, and not more than 40% of our capital funds may be extended as credit exposure to a group of companies under the same management. In the case of infrastructure projects, such as power, telecommunications, road and port projects, an additional exposure of up to 5% of capital funds is allowed in respect of individual borrowers and 10% in respect of group borrowers. During fiscal 2005, our credit exposures to single borrowers and group borrowers were within these limits except in three cases where single borrower limits were exceeded, for which we had obtained the prior approval of the RBI. As of March 31, 2005, the single borrower limit was exceeded in the case of one such borrower and amounted to 23.5% of our capital funds.
     The RBI has stated that banks may, in exceptional circumstances and with the approval of their boards of directors, consider enhancement of the exposure to a borrower by a further 5% of the capital funds. See “Supervision and Regulation — Credit Exposure Limits.”
     The RBI prohibits loans to companies with which we have any directors in common. The RBI also requires that a portion of our lending activities be “directed” to specific priority sectors. See “Supervision and Regulation — Regulations Relating to Making Loans — Directed Lending.”
     We follow a policy of portfolio diversification by industry. As of March 31, 2005, our funded exposures in any single industry did not exceed 12% of our total funded exposures.
     While we make our lending decisions largely on a cash-flow basis, we also take collateral for a large number of our loans. Our short and medium-term loans are typically secured by a first charge over inventory and receivables, and in some cases are further supported by a second charge over fixed assets. Longer term loans are usually secured by a charge over fixed assets. For some loans, we also require guarantees or letters of support from corporate parents. We generally do not make project loans or loans to property developers, although we may take a charge over real property as part of the security for a loan to a corporate borrower. Although we take collateral, we may not always be able to realize its value in a default situation. See “Risk Factors — Risks Relating to Our Business — We may be unable to foreclose on our

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collateral when borrowers default on their obligations to us, which may result in failure to recover the expected value of collateral security.”
     Our credit approval process for wholesale loans requires three different officers to approve the credit. Although the particular level of approval varies depending on the size of the loan and the borrower risk grading, no wholesale loan can be made without all three approvals. All working capital loans are subject to review at annual or shorter intervals.
     Once a loan is made, we undertake ongoing credit analysis and monitoring at several levels. Our policies are designed to promote early detection of exposures that require special monitoring. If a borrower wishes to renew or roll over the loan, we apply substantially the same standards as we would to granting a new loan except that we do not usually perform an entirely new credit review. Typically, we perform an annual credit review of each loan customer and update the review during the course of the year as circumstances warrant. We generally rely on such review in connection with a rollover or renewal.
     See “Selected Statistical Information” for a discussion of our policies regarding classification of loans and advances as non-performing (and certain differences between our policies and the practices of U.S. banks), our policies regarding provisioning for loans and information concerning our non-performing assets and allowance for credit losses.
     Retail Credit Risk
     Our retail credit policy and approval process are designed for the fact that we have high volumes of relatively homogeneous, small value transactions in each retail loan category. Because of the nature of retail banking, our credit policies are based primarily on statistical analyses of risks with respect to different products and types of customers. We monitor our own and industry experience to determine and periodically revise product terms and desired customer profiles. We then verify that an individual customer meets our lending criteria. Our retail loans are generally either secured or made against direct debit instructions or delivery of post-dated checks to cover all payments. In India, bouncing checks is a criminal offense. In the case of most automobile and other vehicle loans as well as unsecured personal loans, we require that the borrower provide post-dated checks for a certain number of payments on the loan at the time the loan is made. Automobile and commercial vehicle loans, two wheeler loans and other vehicle loans, as well as loans against securities are all secured loans. We will generally lend up to 60% of the market value of securities in the case of loans against equity shares, 90% of the value of the automobile in the case of automobile loans and 85% of the value of the two wheeler in the case of two wheeler loans.
     Foreign Exchange, Derivatives and Trading Activities
     The credit risk of our foreign exchange and derivative transactions is managed the same way we manage our wholesale lending risk. We apply our risk grading system to our corporate counterparties and set individual counterparty limits. With respect to debt securities, we primarily trade government of India securities for our own account.
     Market Risk
     Market risk refers to potential losses arising from volatility in interest rates, foreign exchange rates, equity prices and commodity prices. Market risk arises with respect to all market risk sensitive financial instruments, including securities, foreign exchange contracts, equity instruments and derivative instruments, as well as from balance sheet gaps. The objective of market risk management is to avoid excessive exposure of our earnings and equity to loss and to reduce our exposure to the volatility inherent in financial instruments.

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     Our board of directors reviews and approves the policies for the management of market risks and dealing authorities and limits. The Risk Management Committee of the board of directors monitors market risk policies and procedures and reviews market risk limits. The board of directors has delegated the responsibility for ongoing general market risk management to the Asset Liability Committee. This committee, which is chaired by the Managing Director and includes the heads of our business groups, meets every other week and more often when conditions require. The Asset Liability Committee reviews our product pricing for deposits and assets as well as the maturity profile and mix of our assets and liabilities. It articulates our interest rate view and decides on future business strategy with respect to interest rates. It reviews and sets funding policy and also reviews developments in the markets and the economy and their impact on our balance sheet and business. Finally, it ensures adherence to market risk limits and decides on our inter-segment transfer pricing policy. The market risk department specifies risk valuation methodology of various treasury products, formulates procedures for portfolio risk valuation, assesses market risk factors and assists in monitoring market risks for various treasury desks. Our treasury back-office is responsible for reporting market risks of the treasury desks.
     The financial control department is responsible for collecting data, preparing regulatory and analytical reports and monitoring whether the interest rate and other policies and limits established by the Asset Liability Committee are being observed. Our treasury group also assists in implementing asset liability strategy and in providing information to the Asset Liability Committee.
     The following briefly describes our policies and procedures with respect to asset liability management, liquidity risk, price risk and other risks such as foreign exchange and equity risks.
     Asset Liability Management
     We generally fund our core customer assets, consisting of loans and credit substitutes, with our core customer liabilities, consisting principally of deposits. We also borrow in the short-term interbank market. We use the majority of our funds to make loans or purchase securities. Most of our liabilities and assets are short and medium term.
     We maintain a substantial portfolio of liquid high-quality Indian government securities. We prepare regular maturity gap analyses to review our liquidity position and are required to submit a monthly analysis to the RBI.
     We measure our exposure to fluctuations in interest rates primarily by way of a gap analysis. We classify all rate sensitive assets and liabilities into various time period categories according to contracted residual maturities or anticipated re-pricing dates, whichever is earlier. The difference in the amount of assets and liabilities maturing or being re-priced in any time period category gives us an indication of the extent to which we are exposed to the risk of potential changes in the margins on new or re-priced assets and liabilities. We place limits on the gap between the assets and liabilities that may be reset in any particular period.
     Our Asset Liability Committee addresses the two principal aspects of our asset liability management program as follows:
     First, the Asset Liability Committee monitors the liquidity gap and, at the corporate level, recommends appropriate financing or asset deployment strategies depending on whether the gap is a net asset position or a net liability position, respectively. Operationally, in the short term, our treasury group implements these recommendations through market borrowings or placements.
     Second, the Asset Liability Committee monitors our interest rate gap and, at the corporate level, recommends re-pricing of our asset or liability portfolios. Operationally, in the short term, our treasury group implements these recommendations by entering into interest rate swaps.

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     In the longer term, our wholesale banking and retail banking groups implement these recommendations through changes in the interest rates offered by us for different time period categories to either attract or discourage deposits and loans in those time period categories.
     See “Selected Statistical Information” for information on our asset-liability gap and the sensitivity of our assets and liabilities to changes in interest rates.
     Liquidity Risk
     The purpose of liquidity management is to ensure sufficient cash flow to meet all financial commitments and to capitalize on opportunities for business expansion. This includes our ability to meet deposit withdrawals either on demand or at contractual maturity, to repay borrowings as they mature and to make new loans and investments as opportunities arise.
     Liquidity is managed on a daily basis by the treasury group under the direction of the Asset Liability Committee. The treasury group is responsible for ensuring that we have adequate liquidity, ensuring that our funding mix is appropriate so as to avoid maturity mismatches and price and reinvestment rate risk in case of a maturity gap, and monitoring local markets for the adequacy of funding liquidity.
     Price Risk
     Price risk is the risk arising from price fluctuations due to market factors, such as changes in interest rates and exchange rates. Our treasury group is responsible for implementing the price risk management process within the limits approved by the board of directors. These limits are independently monitored by the treasury operations group. We measure price risk through a two-stage process, the first part of which is to assess the sensitivity of the value of a position to changes in market factors to which our business is exposed. We then assess the probability of these changes or the volatility of market factors. We manage price risk principally by establishing limits for our money market activities and foreign exchange activities.
     We monitor and manage our exchange rate risk through a variety of limits on our foreign exchange activities. The RBI also limits the extent to which we can deviate from a “near square” position at the end of the day (where sales and purchases of each currency are matched). Our own policies set limits on maximum open positions in any currency during the course of the day as well as on overnight positions. We also have gap limits that address the matching of forward positions in various maturities and for different currencies. In addition, the RBI approves the aggregate gap limit for us. This limit is applied to all currencies. We also have stop-loss limits that require our traders to realize and restrict losses. We evaluate our risk on foreign exchange gap positions on a daily basis using a Value at Risk model applied to all of our outstanding foreign exchange instruments.
     We impose position limits on our trading portfolio of marketable securities. These limits, which vary by tenor, restrict the holding of marketable securities of all kinds depending on our expectations about the yield curve. We also impose trading limits such as stop-loss limits and aggregate contract limits, which require that trading losses be kept below prescribed limits and as a result may require the realization of losses and elimination of positions.
     Our treasury operations department monitors actual positions against the required limits. The treasury operations department is independent of the treasury department and has a separate reporting line to the Managing Director through the head of operations.
     Our derivatives risk is managed by the fact that we do not enter into or maintain unmatched positions with respect to non-rupee-based derivatives. Our proprietary derivatives’ trading is primarily limited to rupee-based interest rate swaps and rupee currency options.

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     Operational Risk
     Operational risks are risks arising from matters such as non-adherence to systems and procedures or from frauds resulting in financial or reputation loss. Our internal audit and compliance department plays an essential role in monitoring and limiting our operational risk. The primary focus of the audit department is:
  to independently evaluate the adequacy of all internal controls;
 
  to ensure adherence to the operating guidelines, including regulatory and legal requirements; and
 
  to recommend operation process improvements.
     The department also performs special investigations and ad hoc reviews. In addition, our internal audit and compliance department liaises with statutory auditors, central bank authorities and other regulatory bodies.
     In order to ensure total independence, the internal audit and compliance department reports directly to the Chairman of the board of directors and the Audit and Compliance Committee of the board of directors as well as indirectly to the Managing Director. The Audit and Compliance Committee meets at least once per quarter to review all procedures, the effectiveness of the controls and compliance with RBI regulations. In addition, the committee conducts a semiannual review of the performance of the department itself.
     Pursuant to RBI guidelines, some activities are required to be audited continuously. More than half of our business, measured by transaction volume, is subject to concurrent auditing, including foreign exchange, derivatives, equities, securities transactions, depositary services, retail liability operations, reversals to the profit and loss account and monitoring of inter-branch routing accounts. All other lines of business, our information technology department, branches, services and products are audited on a set schedule, which is usually quarterly or semi-annually. Our information technology is also subject to audit review and certification of all software, including application software and system controls.
     We are also subject to inspections conducted by the RBI under the Indian Banking Regulation Act. The RBI has adopted the global practice of subjecting banks to examination on the basis of the CAMELS model, a model that assigns confidential ratings to banks based on their capital adequacy, asset quality, management, earnings, liquidity and systems.
Competition
     We face strong competition in all of our principal lines of business. Our primary competitors are large public sector banks, other private sector banks, foreign banks and, in some product areas, non-banking financial institutions.
     Retail Banking
     In retail banking, our principal competitors are the large public sector banks, which have much larger deposit bases and branch networks, other new private sector banks and foreign banks in the case of retail loan products. The retail deposit share of the foreign banks is quite small by comparison to the public sector banks, and has also declined in the last five years, which we attribute principally to competition from new private sector banks. However, some of the foreign banks have a significant presence among non-resident Indians and also compete for non-branch-based products such as auto loans and credit cards.
     We face significant competition primarily from foreign banks in the debit and credit card segment. In mutual fund sales and other investment related products, our principal competitors are brokers, foreign banks and new private sector banks.

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     Wholesale Banking
     Our principal competitors in wholesale banking are public and new private sector banks as well as foreign banks. The large public sector banks have traditionally been the market leaders in commercial lending. Foreign banks have focused primarily on serving the needs of multinational companies and Indian corporations with cross-border financing requirements including trade and transactional services, foreign exchange products and derivatives, while the large public sector banks have extensive branch networks and large local currency funding capabilities.
     Treasury
     In our treasury advisory services for corporate clients, we compete principally with foreign banks in foreign exchange and derivatives, as well as public sector banks in the foreign exchange and money markets business.
Employees
     Our number of employees increased from 5,673 as of March 31, 2004 to 9,030 as of March 31, 2005, primarily as a result of the expansion of our branch network, an increase in the territories we cover and substantial growth in our retail business, particularly in the credit card market. Almost all our employees are located in India. Approximately 9.6% of our employees were managers or senior managers, and 2.4% were assistant vice presidents, vice presidents or group heads. More than 99% of our employees have university degrees.
     We consider our relations with our employees to be good. Our employees do not belong to any union.
     We use incentives in structuring compensation packages and have established a performance-based bonus scheme under which permanent employees have a variable pay component of their salary.
     In addition to basic compensation, employees are eligible to participate in our provident fund and other employee benefit plans. The provident fund, to which both we and our employees contribute, is a savings scheme, required by government regulation, under which the fund is required to pay to employees a minimum annual return, which at present is 8.5%. If the return is not generated internally by the fund, we are liable for the difference. Our provident fund has generated sufficient funds internally to meet the annual return requirement since inception of the fund. We have also set up a superannuation fund to which we contribute defined amounts. In addition, we contribute specified amounts to a gratuity fund set up pursuant to Indian statutory requirements.
     We focus on training our employees on a continuous basis. We have a training center in Mumbai, where we conduct regular training programs for our employees. Management and executive trainees generally undergo an 8-12 week training module covering every aspect of banking. We offer courses conducted by both internal and external faculty. In addition to ongoing on-the-job training, we provide employees courses in specific areas or specialized operations on an as-needed basis.
Properties
     Our registered office and corporate headquarters is located at HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. These premises were established during the third quarter of fiscal 2004.
     Close to the corporate headquarters is the administrative center at Kamala Mills Compound in Lower Parel, Mumbai. We own our 120,000 square foot operations, training and information technology centers in Chandivili, Mumbai. As of March 31, 2005, we had a network consisting of 467 branches, including 25 extension counters, and 1,147 ATMs, including 600 at non-branch locations. These facilities are located throughout India. Nineteen of these branches are located on properties owned by us; the remaining facilities are located on leased properties. The net book value of all our owned properties, including branches,

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administrative offices and residential premises as of March 31, 2005, was Rs. 2.5 billion. We also rent property in Chennai to house our disaster recovery site, which we would use to replicate our core banking and transaction systems in the event of a regional calamity in Mumbai.
Legal Proceedings
     We are involved in a number of legal proceedings in the ordinary course of our business. However, we are currently not a party to any proceedings which, if adversely determined, might have a material adverse effect on our financial condition or results of operations.

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RISK FACTORS
     You should carefully consider the following risk factors as well as the other information contained in this report in evaluating us and our business.
Risks Relating to Our Business
If we are unable to manage our rapid growth, our business could be adversely affected.
     Our asset growth rate has been significantly higher than the Indian GDP growth rate as well as the growth rate in the Indian banking industry over the last five fiscal years. For example, our total assets in the three year period ended March 31, 2005 grew at a compounded annual growth rate of 29.6%. Our rapid growth has placed, and if it continues will place, significant demands on our operational, credit, financial and other internal risk controls.
  recruiting, training and retaining sufficient skilled personnel;
 
  upgrading and expanding our technology platform;
 
  developing and improving our products and delivery channels;
 
  preserving our asset quality as our geographical presence increases and customer profile changes; and
 
  maintaining high levels of customer satisfaction.
     An inability to manage our growth effectively could have a material adverse effect on our business and our future financial performance.
Our business is vulnerable to volatility in interest rates.
     Our results of operations depend to a great extent on our net interest revenue. During the fiscal year ended March 31, 2005, net interest revenue after allowances for credit losses represented 61.2% of our net revenue. Changes in market interest rates could affect the interest rates charged on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities and also affect investment values. This difference could result in an increase in interest expense relative to interest revenue, leading to a reduction in our net interest revenue and net interest margin. In addition, a rise in interest rates could negatively affect demand for our retail loans and other products.
     Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Any volatility in interest rates could adversely affect our business, our future financial performance and the price of our equity shares and ADSs. Yields on the Indian government’s ten-year bonds were 6.2%, 5.2% and 6.7% as of March 31, 2003, March 31, 2004 and March 31, 2005, respectively.
If the level of non-performing loans in our portfolio increases, then our business could suffer.
     Our gross non-performing loans and impaired credit substitutes represented 1.5% of our gross customer assets as of March 31, 2005. Our non-performing loans and impaired credit substitutes net of specific loan loss provisions represented 0.2% of our net customer assets portfolio as of March 31, 2005. As of March 31, 2005, we had provided for 133.2% of our total non-performing loans. We cannot assure you that our provisions will be adequate to cover any further increase in the amount of non-performing loans or any further deterioration in our non-performing loan portfolio. In addition, we are a relatively young bank and we have not experienced a significant and prolonged downturn in the economy.
     A number of factors outside of our control could affect our ability to control and reduce non-performing loans. These factors include developments in the Indian economy, movements in global commodity

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markets, global competition, changes in interest rates and exchange rates and changes in regulations, including with respect to regulations requiring us to lend to certain sectors identified by the RBI or the Indian government. In addition, the expansion of our business may cause our non-performing loans to increase and the overall quality of our loan portfolio to deteriorate. If our non-performing loans increase, we may be required to increase our provisions, which may affect our earnings and may result in us being unable to execute our business plan as expected, which could adversely affect the price of our equity shares and ADSs.
We have high concentrations of customer exposures to certain customers and sectors and if any of these exposures were to become non-performing, the quality of our portfolio could be adversely affected.
     We calculate customer and industry exposure in accordance with the policies established by Indian GAAP and the RBI. In the case of customer exposures, we aggregate the higher of the outstanding balances of, or limits on, funded and non-funded exposures. Funded exposures include loans and investments (excluding investments in government securities, units of mutual funds and equity shares). As of March 31, 2005, our ten largest customer exposures totaled approximately Rs. 49.6 billion, representing approximately 109.4% of our capital funds valuation, and none of these were classified as non-performing. Our largest single customer exposure as of that date was Rs. 10.7 billion, representing approximately 23.5% of our capital funds valuation. However, if any of our ten largest customer exposures were to become non-performing, the quality of our portfolio and our business could be adversely affected.
     We monitor our concentration of exposures to individual industries as a proportion of funded exposures. As of March 31, 2005, our largest industry concentrations were as follows: land transport operators (including commercial vehicle operators which we otherwise classify as retail) (10.8%), automotives (9.5%), the telecommunications industry (3.5%), hire purchase (2.5%), and iron & steel (2.1%). In addition, as of that date, approximately 30% of the concentration of our exposure was retail (excluding commercial vehicle operators). As of that date, our total non-performing loans and investments were concentrated in the following industries: electronics (16.3%), automotives (15.7%), textiles (5.7%) and iron & steel (4.8%).
     In addition, we have funded exposure to several state-sponsored financial institutions primarily to meet directed lending requirements. As of March 31, 2005, this exposure represented 8.1% of our total funded exposure. If these institutions experienced financial difficulties, as a result of difficulties in the sectors to which they lend (such as agriculture and housing) or otherwise, our business could also be adversely affected.
We face greater credit risks than banks in more developed countries.
     One of our principal activities is providing financing to our customers, almost all of whom are based in India. We are subject to the credit risk that our borrowers may not pay us in a timely fashion or at all. The credit risk of all our borrowers is higher than in other developed countries due to the higher uncertainty in our regulatory, political and economic environment. In addition, unlike several developed countries, India does not have a well-established nationwide credit bureau, which may affect the quality of information available to us about the credit history of our borrowers, especially individuals and small businesses. Higher credit risk may expose us to greater potential losses, which would adversely affect our business, our future financial performance and the price of our equity shares and ADSs.
We may be unable to foreclose on collateral when borrowers default on their obligations to us, which may result in failure to recover the expected value of collateral security.
     Although we typically lend on a cash-flow basis, we take collateral for a large proportion of our loans, consisting of liens on inventory, receivables and other current assets, and in some cases, charges on fixed assets, such as real property, movable assets, such as vehicles, and financial assets, such as marketable securities.

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     Although there has been recent legislation which may strengthen the rights of creditors and lead to faster realization of collateral in the event of default, we cannot guarantee that we will be able to realize the full value of our collateral, due to, among other things, delays on our part in taking immediate action, delays in bankruptcy foreclosure proceedings, stock market downturns, defects in the perfection of collateral and fraudulent transfers by borrowers. In the event a specialized regulatory agency gains jurisdiction over the borrower, creditor actions can be further delayed.
     In addition, the RBI has set forth guidelines on corporate debt restructuring. The guidelines envisage that for debt amounts of Rs. 200 million and above, lenders holding greater than 75% of such debt can decide to restructure the debt and such a decision would be binding on the remaining lenders. In situations where we own 25% or less of the debt of a borrower, we could be forced to agree to a long-drawn restructuring of debt, in preference to foreclosure of security or a one-time settlement, which has generally been our practice.
Our success depends in large part upon our management team and skilled personnel and our ability to attract and retain such persons.
     We are highly dependent on our management team, including the continued efforts of our Chairman, our Managing Director, and other executive officers. Our future performance will be affected by the continued service of these persons. We also face a continuing challenge to recruit and retain a sufficient number of skilled personnel, particularly if we continue to grow. Competition for management and other skilled personnel in our industry is intense, and we may not be able to attract and retain the personnel we need in the future. The loss of key personnel may have a material adverse effect on our business, results of operations, financial condition and ability to grow.
In order to sustain our growth, we will need to maintain a minimum capital adequacy ratio. There is no assurance that we will be able to access the capital markets when necessary to do so.
     The RBI requires a minimum capital adequacy ratio of 9% to our total risk weighted assets. We must maintain this minimum capital adequacy level to support our continuous growth. Our capital adequacy ratio was 12.2% on March 31, 2005, which reflected in part the increased risk weights on consumer credit and investments in mortgage-backed securities pursuant to new directives implemented by the RBI on December 23, 2004. (See “Supervision and Regulation.”) The implementation of the Basel II capital adequacy standards could also result in a decline in our capital adequacy ratio. Our ability to support and grow our business could be limited by a declining capital adequacy ratio if we are unable to or have difficulty accessing the capital markets.
Material changes in Indian banking regulations could harm our business.
     We operate in a highly regulated environment in which the RBI extensively supervises and regulates all banks. Our business could be directly affected by any changes in policies for banks in respect of directed lending, reserve requirements and other areas. For example, the RBI could change its methods of enforcing directed lending standards so as to require more lending to certain sectors, which could require us to change certain aspects of our business. In addition, we could be subject to other changes in laws and regulations such as those affecting the extent to which we can engage in specific businesses or those affecting foreign investment in the banking industry, as well as changes in other governmental policies and enforcement decisions, income tax laws, foreign investment laws and accounting principles. We cannot assure you that laws and regulations governing the banking sector will not change in the future or that any changes will not adversely affect our business, our future financial performance and the price of our equity shares and ADSs.

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We compete directly with banks that are much larger than we are.
     We face strong competition in all areas of our business, and many of our competitors are much larger than we are. We compete directly with the large public sector banks, which generally have much larger customer and deposit bases, larger branch networks and more capital than we do. These banks will become more competitive as they improve their customer services and technology. Some of the other private sector banks in India are also larger than we are, based on such measurements. In addition, we compete directly with foreign banks, some of which are part of the largest multinational financial companies in the world. Due to competitive pressures, we may be unable to execute our growth strategy successfully and offer products and services that generate reasonable returns, which may impact our business and our future financial performance.
Consolidation in the banking industry could adversely affect us.
     The Indian banking industry may experience greater consolidation. Recently, the government has indicated its desire to consolidate certain public sector banks. In addition, there may be mergers and consolidations among private banks. We may face more competition from larger banks as a result of any such consolidation.
Our funding is primarily short and medium-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected.
     Most of our funding requirements are met through short-term and medium-term funding sources, primarily in the form of retail deposits. However, a portion of our assets have long-term maturities, creating a potential for funding mismatches. In our experience, a substantial portion of our customer deposits has been rolled over upon maturity and has been, over time, a stable source of funding. However, if a substantial number of our depositors do not roll over deposited funds upon maturity, our liquidity position could be adversely affected and we may be required to seek more expensive sources of funding to finance our operations, which could have a material adverse effect on our business.
We could be subject to volatility in revenue from our treasury operations.
     Treasury revenue is vulnerable to volatility in the market caused by changes in interest rates, exchange rates, equity prices, commodity prices and other factors. Any increase in interest rates would have an adverse effect on the value of our fixed income securities portfolio and may have an adverse effect on our net revenue. Any decrease in our income due to volatility in revenue from these activities could have a material adverse effect on the price of our equity shares and ADSs.
We could be adversely affected by the development of a nationwide interbank settlement system.
     Currently, there is no nationwide payment system in India, and checks must generally be returned to the city from which written in order to be cleared. Because of mail delivery delays and the variation in city-based interbank clearing practices, check collections can be slow and unpredictable. Through our electronically linked branch network, correspondent bank arrangements and centralized processing, we effectively provide a nationwide collection and disbursement system for our corporate clients. We enjoy cash float and earn fees from these services. The RBI has recently introduced a new interbank settlement system called the Real Time Gross Settlement (“RTGS”) system. The system facilitates real time settlements primarily between banks, initially in select locations. This system is currently not fully operational. Once fully operational, this system could have an adverse impact on the cash float and fees we have enjoyed from some of our cash management services and therefore could adversely affect our future financial performance and the price of our equity shares and ADSs.

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Because of our many transactions with stock market participants, our business could suffer if there is a prolonged or significant downturn on the Indian stock exchanges.
     We provide a variety of services and products to participants involved with the Indian stock exchanges. These include working capital funding and margin guarantees to share brokers, personal loans secured by shares and initial public offering finance for retail customers, stock exchange clearing services and depositary accounts. As of March 31, 2005, our capital market exposure was within the ceiling approved by the RBI. Please see “Supervision and Regulation – Regulation Relating to Capital Markets Exposure”. As a result of our exposure to this industry, a significant or prolonged downturn on the Indian stock exchanges could have a material adverse effect on our business and cause the price of equity shares and ADSs to go down.
Significant fraud, system failure or calamities could adversely impact our business.
     We seek to protect our computer systems and network infrastructure from physical break-ins as well as fraud and system failures. Computer break-ins and power and communication disruptions could affect the security of information stored in and transmitted through our computer systems and network infrastructure. We employ security systems, including firewalls and password encryption, designed to minimize the risk of security breaches. Although we intend to continue to implement security technology and establish operational procedures to prevent fraud, break-ins, damage and failures, there can be no assurance that these security measures will be adequate. A significant failure of security measures or operational procedures could have a material adverse effect on our business and our future financial performance.
     In addition, both our centralized data center and our back-up systems are separately located in the greater Mumbai area. In the event of a regional disaster such as an earthquake, it is possible that both systems could be simultaneously damaged or destroyed. Although we have established a remote disaster recovery site at Chennai that replicates our network and certain applications currently based in Mumbai, and believe that we will be able to retrieve critical applications within an optimal time-frame, it would still take some time to make the system fully operational.
HDFC Limited controls a significant percentage of our share capital and exercises substantial influence over board decisions.
     HDFC Limited and its subsidiaries owned 22.22% of our equity as of March 31, 2005. So long as HDFC Limited and its subsidiaries hold at least a 20.0% equity stake in us, HDFC Limited is entitled to nominate the two directors who are not required to retire by rotation to our board, including the Chairman and our Managing Director, subject to RBI approval. Accordingly, HDFC Limited may be able to exercise substantial control over our board and over matters subject to a shareholder vote.
We may face potential conflicts of interest relating to our principal shareholder, HDFC Limited.
     Although we currently have no agreements with HDFC Limited or any other HDFC group companies that restrict us from offering products and services that are offered by them, our relationship with these companies may cause us not to offer products and services that are already offered by other HDFC group companies or may effectively prevent us from taking advantage of business opportunities. As a result, any conflicts of interest between HDFC Limited and us or any other HDFC group companies and us could adversely affect our business and the price of our equity shares and ADSs.

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Recent RBI guidelines relating to ownership in private banks could discourage or prevent a change of control or other business combination involving us and could require HDFC Limited to reduce substantially its equity interest in us.
     The RBI recently issued guidelines concerning ownership in private sector banks. The guidelines state that no entity or group of related entities will be permitted to own or control, directly or indirectly, more than 10% of the paid up capital of a private sector bank without RBI approval. The implementation of such a restriction will discourage or prevent a change in control, merger, consolidation, takeover or other business combination involving us which otherwise might have been beneficial to stockholders. We believe that the new rules will not be applied to the equity interest in us held by HDFC Limited and its subsidiaries.
We may face increased competition as a result of recently revised guidelines that relax restrictions on the presence of foreign banks in India.
     In March 2004, the Ministry of Commerce and Industry of India revised guidelines on foreign investors in the Indian banking sector. The revised guidelines permit up to 74% of the paid-up capital of a bank to be held by foreign investors and allow foreign banks to operate in India through branches, wholly-owned subsidiaries or subsidiaries that hold an aggregate foreign investment of up to 74% in a private bank. Implementation of the revised guidelines will take place in two phases. From March 2005 to March 2009, foreign banks will be permitted to establish a presence in India only through wholly-owned subsidiaries that meet certain criteria, and the acquisition of holdings in private sector Indian banks will be permitted only with respect to banks identified by the RBI for restructuring. The second phase of implementation of the revised guidelines will commence in April 2009 after a review of the first phase. Any growth in the presence of foreign banks or in foreign investments in Indian banks may increase the competition that we face and could have a material adverse effect on our business.
If we fail to comply with new regulations of the Securities and Exchange Board of India or with Section 404 of the Sarbanes-Oxley Act of 2002, our reputation and the value of our securities may be adversely affected.
     On October 29, 2004, SEBI issued a circular requiring all Indian stock exchanges to modify Clause 49 of their standard listing agreements. The revised Clause 49 has many requirements that are similar to certain requirements of the Sarbanes Oxley Act of 2002, including requirements relating to the composition and roles of the board of directors and the audit committee, ethics standards, related party disclosures and fraud.
     Among other matters, the revised Clause 49 requires our chief executive officer and chief financial officer to certify that they have evaluated the effectiveness of our internal control systems, have disclosed to our auditors and our board of directors any deficiencies in the design or operation of internal controls and have described the steps taken or proposed to be taken to remediate any identified deficiencies. The consequences of failing to comply are not clear. The revised Clause 49 is scheduled to take effect from December 31, 2005.
     Section 404 of the Sarbanes Oxley Act of 2002 (“Section 404”) similarly requires us to include in our Annual Report on Form 20-F management’s assessment of the effectiveness of our internal controls over financial reporting, together with an attestation report from our auditors. Section 404 applies to us as of March 31, 2007.

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     We have recently begun a formal process to evaluate our internal controls for the purposes of compliance with Section 404 and the revised Clause 49. Due to the preliminary nature of this work, we cannot say whether we will encounter problems or delays in completing our review or whether we will be able to comply with these requirements by the respective required dates. If we are unable to comply with the requirements of either Section 404 or the revised Clause 49 on a timely basis, our reputation and the value of our securities may be adversely affected.
A change in U.S. GAAP accounting standards for employee stock options is likely to have an adverse impact on our net income.
     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, which eliminates the ability to account for share-based compensation transactions using the intrinsic value approach, which we currently use, and requires instead that such transactions be accounted for using a fair-value based method. Application of SFAS 123(R) is likely to reduce our net income from what we would otherwise report using the intrinsic value approach. We are required to apply SFAS 123(R) to all awards granted, modified or settled in our first reporting period under U.S. GAAP after June 15, 2006. In applying the standard, we can elect to follow either a prospective method or a retrospective method under which we would restate our previously issued financial statements. We have not yet decided what method we will use in implementing SFAS 123(R). If we were to adopt the standard using the retrospective method, our net income would have been Rs. 158.2 million less than reported in the year ended March 31, 2004 and Rs. 900.9 million less than reported in the year ended March 31, 2005. See also “Management’s Discussion and Analysis — New Accounting Pronouncements — Share-Based Payments” and Note 2(q) to our audited financial statements included elsewhere herein.
Risks Relating to Investments in Indian Companies
A slowdown in economic growth in India could cause our business to suffer.
     Our performance and the quality and growth of our assets are necessarily dependent on the health of the overall Indian economy. A slowdown in the Indian economy could adversely affect our business, including our ability to grow our asset portfolio, the quality of our assets, and our ability to implement our strategy. In particular, because India depends significantly on imported oil for its energy needs, the Indian economy could be adversely affected by the continuing high oil prices. India’s economy could also be adversely affected by a general rise in interest rates, weather conditions adversely affecting agriculture or other factors. In addition, the Indian economy is in a state of transition. The share of the services sector of the economy is rising while that of the industrial, manufacturing and agricultural sectors is declining. It is difficult to gauge the impact of these fundamental economic changes on our business.
Political instability or changes in the government in India could delay the liberalization of the Indian economy and adversely affect economic conditions in India generally, which could impact our financial results and prospects.
     Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant. The leadership of India has changed many times since 1996. The current coalition-led central government, which came to power in May 2004, has announced policies and taken initiatives that support the economic liberalization policies that have been pursued by previous central governments. However, we cannot assure you that these liberalization policies will continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. Any significant change in India’s economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally and our business in particular.

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Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries could adversely affect the financial markets and our business.
     Terrorist attacks and other acts of violence or war may negatively affect the Indian markets on which our equity shares trade and also adversely affect the worldwide financial markets. These acts may also result in a loss of business confidence, make travel and other services more difficult and ultimately adversely affect our business. In addition, any deterioration in relations between India and Pakistan might result in investor concern about stability in the region, which could adversely affect the price of our equity shares and ADSs.
     India has also witnessed civil disturbances in recent years and it is possible that future civil unrest as well as other adverse social, economic and political events in India could have an adverse impact on us. Such incidents could also create a greater perception that investment in Indian companies involves a higher degree of risk and could have an adverse impact on our business and the price of our equity shares and ADSs.
Natural calamities could have a negative impact on the Indian economy and cause our business to suffer.
     India has experienced natural calamities such as earthquakes, a tsunami, floods and drought in the past few years. The extent and severity of these natural disasters determines their impact on the Indian economy. For example, as a result of drought conditions in the country during fiscal 2003, the agricultural sector recorded a negative growth of 5.2%. The erratic progress of the monsoon in 2004 also adversely affected sowing operations for certain crops. Further prolonged spells of below normal rainfall or other natural calamities could have a negative impact on the Indian economy, adversely affecting our business and the price of our equity shares and ADSs.
Any downgrading of India’s debt rating by an international rating agency could have a negative impact on our business.
     Any adverse revisions to India’s credit ratings for domestic and international debt by international rating agencies may adversely impact our ability to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. This could have an adverse effect on our business and future financial performance and our ability to obtain financing and fund our growth.
Risks Relating to the ADSs and Equity Shares
Historically, our ADSs have traded at a significant premium to the trading prices of our underlying equity shares, a situation which may not continue.
     Historically, our ADSs have traded on the New York Stock Exchange at a substantial premium to the trading prices of our underlying equity shares on the Indian stock exchanges. Please see “Price Range of Our American Depositary Shares and Equity Shares” for the underlying data. We believe that this price premium has resulted from the relatively small portion of our market capitalization previously represented by ADSs, restrictions imposed by Indian law on the conversion of equity shares into ADSs, and an apparent preference for investors to trade dollar-denominated securities. The completion of the offering pursuant to the registration statement of form F-3 filed on January 11, 2005, significantly increased the number of ADSs we have outstanding. Over time some of the restrictions on issuance of ADSs imposed by Indian law have been relaxed and we expect that other restrictions may be relaxed in the future. No assurances can be made that the historical premium enjoyed by ADSs compared to equity shares will not be reduced or eliminated as a result of this offering or similar transactions in the future, a change in Indian law permitting further conversion of equity shares into ADSs or changes in investor preferences.

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You will not be able to vote your ADSs.
     Investors in ADSs will have no voting rights, unlike holders of the equity shares. Under the deposit agreement, the depositary will abstain from voting the equity shares represented by the ADSs. If you wish, you may withdraw the equity shares underlying the ADSs and seek to vote (subject to Indian restrictions on foreign ownership) the equity shares you obtain upon withdrawal. However, this withdrawal process may be subject to delays and you may not be able to redeposit the equity shares. For a discussion of the legal restrictions triggered by a withdrawal of the equity shares from the depositary facility upon surrender of ADSs, see “Restrictions on Foreign Ownership of Indian Securities.”
Your ability to withdraw equity shares from the depositary facility is uncertain and may be subject to delays.
     India’s restrictions on foreign ownership of Indian companies limit the number of equity shares that may be owned by foreign investors and generally require government approval for foreign investments. Investors who withdraw equity shares from the ADS depositary facility for the purpose of selling such equity shares will be subject to Indian regulatory restrictions on foreign ownership upon withdrawal. It is possible that this withdrawal process may be subject to delays. For a discussion of the legal restrictions triggered by a withdrawal of equity shares from the depositary facility upon surrender of ADSs, see “Restrictions on Foreign Ownership of Indian Securities.”
There is a limited market for the ADSs.
     Although our ADSs are listed and traded on the New York Stock Exchange, we cannot be certain that any trading market for our ADSs will be sustained, or that the present price will correspond to the future price at which our ADSs will trade in the public market. Indian legal restrictions may also limit the supply of ADSs. The only way to add to the supply of ADSs would be through an additional issuance. We cannot guarantee that a market for the ADSs will continue.
Conditions in the Indian securities market may affect the price or liquidity of our equity shares and ADSs.
     The Indian securities markets are smaller and more volatile than securities markets in more developed economies. The Indian stock exchanges have in the past experienced substantial fluctuations in the prices of listed securities. For example, on May 17, 2004, the BSE Sensex fell by 565 points from 5,070 to 4,505 but is currently at an all time high; it closed at 8,445 on September 19, 2005. The governing bodies of the Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Although the price of our stock has not been as volatile as the markets generally, future fluctuations could have a material adverse affect on the price of our equity shares and ADSs.
Settlement of trades of equity shares on Indian stock exchanges may be subject to delays.
     The equity shares represented by our ADSs are listed on the National Stock Exchange and The Stock Exchange, Mumbai. Settlement on these stock exchanges may be subject to delays and an investor in equity shares withdrawn from the depositary facility upon surrender of ADSs may not be able to settle trades on these stock exchanges in a timely manner.
You may be unable to exercise preemptive rights available to other shareholders.
     A company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless these rights have been waived by at least 75% of the company’s shareholders present and voting at a shareholders’ general meeting. U.S. investors in our ADSs may be unable to exercise preemptive rights for our equity shares underlying our ADSs unless a registration

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statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any registration statement as well as the perceived benefits of enabling U.S. investors in our ADSs to exercise their preemptive rights and any other factors we consider appropriate at the time. We do not commit to filing a registration statement under those circumstances. If we issue any securities in the future, these securities may be issued to the depositary, which may sell these securities in the securities markets in India for the benefit of the investors in our ADSs. There can be no assurance as to the value, if any, the depositary would receive upon the sale of these securities. To the extent that investors in our ADSs are unable to exercise preemptive rights, their proportional interests in us would be reduced.
Because the equity shares underlying our ADSs are quoted in rupees in India, you may be subject to potential losses arising out of exchange rate risk on the Indian rupee and risks associated with the conversion of rupee proceeds into foreign currency.
     Fluctuations in the exchange rate between the U.S. dollar and the Indian rupee may affect the value of your investment in our ADSs. Specifically, if the relative value of the Indian rupee to the U.S. dollar declines, as it generally has over the past several years, each of the following values will also decline:
  the U.S. dollar equivalent of the Indian rupee trading price of our equity shares in India and, indirectly, the U.S. dollar trading price of our ADSs in the United States;
 
  the U.S. dollar equivalent of the proceeds that you would receive upon the sale in India of any equity shares that you withdraw from the depositary; and
 
  the U.S. dollar equivalent of cash dividends, if any, paid in Indian rupees on the equity shares represented by our ADSs.
Financial instability in other countries, particularly emerging market countries, could disrupt our business and affect the price of our equity shares and ADSs.
     Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause increased volatility in Indian financial markets and indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy, including the movement of exchange rates and interest rates in India, which could adversely affect the Indian financial sector, including us. Any financial disruption could have an adverse effect on our business, our future financial performance, our shareholders’ equity and the price of our equity shares and ADSs.
You may not be able to enforce a judgment of a foreign court against us.
     We are a limited liability company incorporated under the laws of India. As of March 31, 2005, all but one of our directors and executive officers and some of the experts named in this report are residents of India, and almost all of our assets and the assets of these persons are located in India. It may not be possible for investors in our ADSs to effect service of process outside India upon us or our directors and executive officers and experts named in the report that are residents of India or to enforce judgments obtained against us or these persons in foreign courts predicated upon the liability provisions of foreign countries, including

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the civil liability provisions of the federal securities laws of the United States. Moreover, it is unlikely that a court in India would award damages on the same basis as a foreign court if an action were brought in India or that an Indian court would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with Indian practice.
There may be less company information available on Indian securities markets than securities markets in developed countries.
     There is a difference between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of markets in the United States and other developed economies. SEBI and the stock exchanges are responsible for improving disclosure and other regulatory standards for the Indian securities markets. SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in developed economies.

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PRICE RANGE OF OUR AMERICAN DEPOSITARY SHARES AND EQUITY SHARES
Our ADSs, each representing three equity shares, par value Indian Rs. 10 per share, are listed on the New York Stock Exchange under the symbol “HDB.” Our equity shares, including those underlying the ADSs, are listed on the National Stock Exchange under the symbol HDFCBANK and The Stock Exchange, Mumbai under the code 500180. Our fiscal quarters end on June 30 of each year for the first quarter, September 30 for the second quarter, December 31 for the third quarter and March 31 for the fourth quarter.
Trading Prices of Our ADSs on the New York Stock Exchange
The following table shows:
  the reported high and low prices for our ADSs in U.S. dollars on the New York Stock Exchange; and
 
  the average daily trading volume for our ADSs on the New York Stock Exchange.
                     
    Price per ADS     Average daily ADS
          trading volume
    High     Low     (Number of ADSs)
Fiscal
                   
2002 (beginning July 20, 2001)
  US$ 17.3     US$ 12.4     63,318
2003
    16.3       11.9     42,778
2004
                   
First Quarter
    19.3       15.4     42,013
Second Quarter
    23.8       18.8     63,563
Third Quarter
    34.4       21.9     79,561
Fourth Quarter
    34.9       27.0     87,982
2005
                   
First Quarter
    33.1       19.6     103,313
Second Quarter
    34.0       25.7     37,966
Third Quarter
    45.9       30.5     88,325
Fourth Quarter
    50.0       38.8     194,834
Most Recent Six Months
                   
March 2005
    50.0       38.8     193,195
April 2005
    45.2       40.0     118,748
May 2005
    44.3       40.7     135,414
June 2005
    48.5       41.3     129,059
July 2005
    52.7       45.3     177,835
August 2005
    52.3       45.7     102,587

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Trading Prices of Our Equity Shares on the National Stock Exchange
The following table shows:
  the reported high and low market prices for our equity shares in rupees on the National Stock Exchange;
 
  the imputed high and low closing sales prices for our equity shares translated into U.S. dollars; and
 
  the average daily trading volume for our equity shares on the National Stock Exchange.
                                     
    Price per     Price per     Average daily
    Equity share     equity share     Equity share
    High     Low     High     Low     trading volume
Fiscal
                                   
2001
  Rs. 285.0     Rs. 185.1     US$ 6.5     US$ 4.2     153,089
2002
    255.0       184.1       5.8       4.2     85,109
2003
    256.0       186.0       5.9       4.3     94,016
2004
                                   
First Quarter
    267.2       231.0       6.1       5.3     147,219
Second Quarter
    303.5       235.1       7.0       5.4     258,724
Third Quarter
    385.1       265.5       8.8       6.1     401,645
Fourth Quarter
    406.8       300.6       9.3       6.9     365,279
2005
                                   
First Quarter
    400.0       256.2       9.2       5.9     250,044
Second Quarter
    416.7       341.1       9.6       7.8     338,098
Third Quarter
    530.0       396.2       12.2       9.1     346,242
Fourth Quarter
    628.6       475.1       14.4       10.9     366,794
Most Recent Six Months
                                   
March
    628.6       508.0       14.4       11.6     279,143
April
    632.3       516.1       14.5       11.8     223,333
May
    554.9       448.0       12.7       10.3     198,483
June
    643.0       534.0       14.7       12.2     358,837
July
    730.0       537.9       16.7       12.3     506,975
August
    765.0       628.3       17.5       14.4     350,942
The closing price for our equity shares on the National Stock Exchange was Rs. 670.0 (U.S.$15.4) per share on September 23, 2005.
As of March 31, 2005 there were 193,785 holders of record of our equity shares, excluding ADSs, of which 38 had registered addresses in the United States and held an aggregate of 35,542 of our equity shares.

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DESCRIPTION OF EQUITY SHARES
We incorporate by reference the information disclosed under “Description of Equity Shares” in our registration statement on Form F-3 filed on January 11, 2005 (File No. 333-121096).

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DIVIDEND POLICY
     We have paid dividends every year since fiscal 1997. The following table sets forth, for the periods indicated, the dividend per equity share and the total amount of dividends paid on the equity shares, both exclusive of dividend tax. All dividends were paid in rupees.
                                 
    Dividend per equity share   Total amount of dividends paid(1)
    (In millions)
Relating to Fiscal Year
                               
2001
  Rs. 2.00     US$ 0.046     Rs. 487.2     US$ 11.2  
2002
    2.50       0.057       703.4       16.1  
2003
    3.00       0.069       850.5       19.5  
2004
    3.50       0.080       1,000.5       22.9  
2005
    4.50       0.103       1,400.7       32.1  
 
(1)   Includes dividends paid on shares held by the Employees Welfare Trust.
Our dividends are generally declared and paid in the fiscal year following the year to which they relate. Under Indian law, a company pays dividends upon a recommendation by its board of directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months of the end of each fiscal year. The shareholders have the right to decrease but not to increase the dividend amount recommended by the board of directors.
Currently, we pay a 12.5% direct tax, a 10% surcharge and a 2% add-on tax in respect of dividends paid by us. These are direct taxes paid by us; these taxes are not payable by shareholders and are not withheld or deducted from the dividend payments set forth above. The tax rates imposed on us in respect of dividends paid in prior periods varied, and in fiscal 2003, tax on dividends was payable by shareholders.
Future dividends will depend on our revenues, cash flows, financial condition (including capital position) and other factors. ADS holders will be entitled to receive dividends payable in respect of the equity shares represented by ADSs. Cash dividends in respect of the equity shares represented by ADSs will be paid to the depositary in Indian rupees and, except in certain instances, will be converted by the depositary into U.S. dollars. The depositary will distribute these proceeds to ADS holders. The equity shares represented by ADSs will rank equally with all other equity shares in respect of dividends.
For a description of regulation of dividends, see “Supervision and Regulation — Requirements of the Banking Regulation Act — Restrictions on Payment of Dividends.”

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SELECTED FINANCIAL AND OTHER DATA
The following table sets forth our selected financial and operating data. Our selected income statement data for the fiscal years ended March 31, 2003, 2004 and 2005 and the selected balance sheet data as of March 31, 2004 and 2005 are derived from our audited financial statements included in this report together with the report of Deloitte Haskins & Sells, independent registered public accounting firm. Our selected balance sheet data as of March 31, 2001, March 31, 2002, March 31, 2003 and selected income data for the years ended March 31, 2001 and March 31, 2002 are derived from our audited financial statements not included in this report. For the convenience of the reader, the selected financial data as of and for the year ended March 31, 2005, have been translated into U.S. dollars at the rate on such date of Rs. 43.62 per U.S.$1.00.
You should read the following data with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements. Footnotes to the following data appear below the final table.
                                                 
    Years ended March 31,  
    2001     2002     2003     2004     2005     2005  
    (In millions, except per equity share data)  
Selected income statement data:
                                               
Interest and dividend revenue
  Rs. 12,561.5     Rs. 16,448.0     Rs. 19,424.8     Rs. 24,591.5     Rs. 29,209.4     US$ 669.6  
Interest expense
    7,573.4       10,762.5       11,779.2       11,983.1       13,223.7       303.2  
     
Net interest revenue
    4,988.1       5,685.5       7,645.6       12,608.4       15,985.7       366.4  
Allowance for credit losses, net
    247.0       451.6       741.5       2,343.4       3,048.2       69.9  
     
 
                                               
Net interest revenue after allowance for credit losses
    4,741.1       5,233.9       6,904.1       10,265.0       12,937.5       296.5  
Non-interest revenue, net
    1,627.1       3,215.1       4,397.3       4,697.6       8,211.5       188.3  
     
Net revenue
    6,368.2       8,449.0       11,301.4       14,962.6       21,149.0       484.8  
Non-interest expense
    3,162.5       4,196.0       6,057.9       8,369.3       11,413.9       261.6  
     
Income before income taxes
    3,205.7       4,253.0       5,243.5       6,593.3       9,735.1       223.2  
Income tax expense
    1,065.1       1,294.6       1,729.7       1,838.8       3,125.4       71.7  
     
 
                                               
Net income
  Rs. 2,140.6     Rs. 2,958.4     Rs. 3,513.8     Rs. 4,754.5     Rs. 6,609.7     US$ 151.5  
     
 
                                               
Per equity share data:
                                               
Earnings per share, basic
  Rs. 8.97     Rs. 11.10     Rs. 12.57     Rs. 16.87     Rs. 22.78     US$ 0.52  
Earnings per share, diluted
    8.97       11.04       12.51       16.70       22.60       0.52  
Dividends per share
    2.00       2.50       3.00       3.50       4.50       0.10  
Book value(1)
    44.88       79.06       93.36       110.36       159.22       3.65  
 
                                               
Equity share data:
                                               
Equity shares outstanding at end of period
    239.7       279.0       279.7       282.8       309.9       309.9  
Weighted average equity shares outstanding — basic
    238.6       266.6       279.6       281.9       290.1       290.1  
Weighted average equity shares outstanding — diluted
    241.2       267.9       281.4       284.7       292.5       292.5  

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    Years ended March 31,  
    2001     2002     2003     2004     2005     2005  
    (In millions)  
Selected balance sheet data:
                                               
Total assets
  Rs. 161,128.5     Rs. 243,032.2     Rs311,840.7   Rs. 426,835.6     Rs. 529,454.2     US$ 12,137.9  
Cash and cash equivalents
    26,121.1       34,590.6       23,944.9       33,010.4       37,575.8       861.5  
Term placements (2)
                7,747.4       3,565.2       8,699.6       199.4  
Loans, net of allowance
    51,083.2       71,528.9       118,299.9       177,681.1       256,486.9       5,880.0  
Of which:
                                               
Non-performing loans, net of specific allowances
    485.5       536.4       683.3       269.9       591.4       13.5  
Investments:
                                               
Investments held for trading
          3,837.6       3,976.1       6,233.8       1,278.5       29.3  
Investments available for sale
    69,928.9       80,320.6       98,929.2       133,274.6       204,292.8       4,683.5  
Investments held to maturity(3)
          35,429.9       38,426.7       36,368.4              
Total
    69,928.9       119,588.1       141,332.0       175,876.8       205,571.3       4,712.8  
Of which:
 
Credit substitutes(4)
    22,344.2       35,126.0       29,752.8       16,557.9       13,880.9       318.2  
Total liabilities
    150,368.7       220,971.3       285,727.6       395,619.8       480,116.2       11,006.8  
Long-term debt
    2,220.6       2,157.9       2,116.0       6,086.0       5,028.1       115.3  
Short-term borrowings
    16,671.2       21,600.3       21,579.6       24,064.2       62,079.1       1,423.2  
Total deposits
    116,581.1       176,538.1       223,760.0       304,062.0       363,542.5       8,334.3  
Shareholders’ equity
    10,759.8       22,060.9       26,113.1       31,215.8       49,338.0       1,131.1  
                                                 
    Years ended March 31,  
    2001     2002     2003     2004     2005     2005  
    (In millions)  
Period average(5)
                                               
Total assets
  Rs. 130,056.0     Rs. 202,013.2     Rs. 257,020.8     Rs. 357,123.8     Rs. 448,029.6     US$ 10,271.2  
Interest-earning assets
    119,714.5       183,488.8       230,451.9       327,523.4       424,620.1       9,734.5  
Loans, net of allowance
    39,004.4       59,374.9       82,461.2       136,527.4       204,919.0       4,697.8  
Total liabilities
    120,216.2       185,512.4       232,933.8       328,458.9       407,265.5       9,336.7  
Interest-bearing liabilities
    86,738.9       137,681.1       175,598.6       236,551.0       298,276.8       6,838.1  
Long-term debt
    1,718.2       2,159.7       2,280.3       2,605.9       5,371.3       123.1  
Short-term borrowings
    10,472.9       18,105.9       15,362.9       33,040.7       42,594.6       976.5  
Total deposits
    97,110.9       142,854.5       186,847.7       262,707.7       342,693.5       7,856.3  
Of which:
                                               
Interest-bearing deposits
    74,547.8       117,415.5       157,955.4       200,904.4       250,310.9       5,738.5  
Shareholders’ equity
    9,839.8       16,500.8       24,087.0       28,664.9       40,764.1       934.5  

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    As of or for the years ended March 31,  
    2001     2002     2003     2004     2005  
    (In percentage)  
Profitability:
                                       
Net income as a percentage of:
                                       
Average total assets
    1.6       1.5       1.4       1.3       1.5  
Average shareholders’ equity
    21.8       17.9       14.6       16.6       16.2  
Dividend payout ratio(6)
    22.8       23.8       24.2       21.0       21.2  
Spread(7)
    3.6       2.4       2.7       3.5       3.5  
Net interest margin(8)
    4.2       3.1       3.3       3.8       3.8  
Cost-to-net revenue ratio(9)
    49.7       49.7       53.6       55.9       54.0  
Cost-to-average assets ratio(10)
    2.4       2.1       2.4       2.3       2.5  
Capital:
                                       
Total capital adequacy ratio(11)
    11.1       13.9       11.1       11.7       12.2  
Tier 1 capital adequacy ratio(11)
    8.7       10.8       9.5       8.0       9.6  
Tier 2 capital adequacy ratio(11)
    2.4       3.1       1.6       3.7       2.6  
Average shareholders’ equity as a percentage of average total assets
    7.6       8.2       9.4       8.0       9.1  
Asset quality:
                                       
Gross non-performing loans as a percentage of gross loans
    2.9       2.7       2.0       1.7       1.6  
Gross non-performing customer assets as a percentage of gross customer assets(12)
    2.1       1.9       1.6       1.6       1.5  
Net non-performing loans as a percentage of net loans
    1.0       0.7       0.6       0.2       0.2  
Net non-performing customer assets as a percentage of net customer assets(12)
    0.7       0.5       0.5       0.2       0.2  
Net non-performing loans as a percentage of total assets
    0.3       0.2       0.2       0.1       0.1  
Specific allowance for credit losses as a percentage of gross non-performing loans
    67.6       72.6       71.1       91.0       85.5  
Total allowance for credit losses as a percentage of gross non-performing loans
    77.1       81.9       78.8       116.8       133.2  
Allowance for credit losses as a percentage of gross total loans
    2.2       2.2       1.6       1.9       2.1  
 
(1)   Represents the difference between total assets and total liabilities, divided by the number of shares outstanding at the end of each reporting period.
 
(2)   Includes placements with banks and financial institutions with original maturities of greater than three months.
 
(3)   During the year ended March 31, 2005, we transferred certain securities classified as held to maturity to the available for sale category for reasons not permitted under U.S. GAAP. As a result we were required to transfer all remaining securities to the available for sale category and we are prevented from establishing a held to maturity portfolio until after March 31, 2007. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
(4)   Credit substitutes consist of investments in commercial paper, debentures and preference shares issued by our corporate customers. See “Business — Commercial Banking Products — Commercial Loan Products and Credit Substitutes.”
 
(5)   Average balances are the average of daily outstanding amounts. Average figures are unaudited.
 
(6)   Represents the ratio of total dividends payable on equity shares relating to each fiscal year, excluding the dividend distribution tax, as a percentage of net income of that year. Dividends of each year are typically paid in the following fiscal year. See “Dividend Policy.”
 
(7)   Represents the difference between yield on average interest-earning assets and cost of average interest-bearing liabilities. Yield on average interest-earning assets is the ratio of interest revenue to average interest-earning assets. Cost of average interest-bearing liabilities is the ratio of interest expense to

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    average interest-bearing liabilities. For purposes of calculating spread, interest bearing liabilities include non-interest bearing current accounts and cash floats from transactional services.
 
(8)   Represents the ratio of net interest revenue to average interest-earning assets. The difference in net interest margin and spread arises due to the difference in the amount of average interest-earning assets and average interest bearing liabilities. If average interest-earning assets exceed average interest-bearing liabilities, net interest margin is greater than spread. If average interest-bearing liabilities exceed average interest-earning assets, net interest margin is less than spread.
 
(9)   Represents the ratio of non-interest expense to the sum of net interest revenue and non-interest revenue.
 
(10)   Represents the ratio of non-interest expense to average total assets.
 
(11)   Tier 1 and Tier 2 capital adequacy ratios are computed in accordance with the guidelines of the Reserve Bank of India, based on financial statements prepared in accordance with Indian GAAP. See “Supervision and Regulation.”
 
(12)   Customer assets consist of loans and credit substitutes.

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SELECTED STATISTICAL INFORMATION
     The following information should be read together with our financial statements included in this report as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All amounts presented in this section are in accordance with U.S. GAAP, other than capital adequacy ratios, and are audited, except for average amounts. Footnotes appear at the end of each related section of tables.
Average Balance Sheet
     The table below presents the average balances for interest-earning assets and interest-bearing liabilities together with the related interest revenue and expense amounts, resulting in the presentation of the average yields and cost for each period. The average balance is the daily average of balances outstanding. The average yield on average interest-earning assets is the ratio of interest revenue to average interest-earning assets. The average cost on average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. The average balances of loans include non-performing loans and are net of allowance for credit losses. We have not recalculated tax-exempt income on a tax-equivalent basis.
                                                                         
    Years ended March 31,
    2003   2004   2005
            Interest   Average           Interest   Average           Interest   Average
    Average   revenue/   yield/   Average   revenue/   yield/   Average   revenue/   Yield/
    Balance   expense   cost   Balance   expense   cost   balance   expense   cost
    (In millions, except percentages)
Assets:
                                                                       
Interest-earning assets:
                                                                       
Cash equivalents
  Rs. 11,857.7     Rs. 549.0       4.6 %   Rs. 24,370.4     Rs. 856.8       3.5 %   Rs. 30,541.2     Rs. 835.9       2.7 %
Term placements
    9,765.0       684.4       7.0 %     5,104.8       252.8       5.0 %     6,132.4       398.6       6.5 %
Investments available for sale:
                                                                       
Tax free(1)
    7,779.0       494.5       6.4 %     25,286.0       1,475.6       5.8 %     19,486.5       926.9       4.8 %
Taxable
    75,867.8       5,649.5       7.4 %     99,107.3       7,129.2       7.2 %     151,689.8       9,678.8       6.4 %
Investments held to maturity
    36,775.4       3,763.2       10.2 %     31,576.2       2,882.5       9.1 %     10,001.0       793.4       7.9 %
Investments held for trading
    5,945.8       478.9       8.1 %     5,551.3       289.6       5.2 %     1,850.2       144.4       7.8 %
Loans, net:
                                                                       
Retail loans
    20,846.5       2,016.2       9.7 %     52,903.7       4,829.9       9.1 %     94,398.6       8,304.8       8.8 %
Wholesale loans
    61,614.7       5,789.1       9.4 %     83,623.7       6,875.1       8.2 %     110,520.4       8,126.6       7.4 %
     
Total interest-earning assets:
  Rs. 230,451.9     Rs. 19,424.8       8.4 %   Rs. 327,523.4     Rs. 24,591.5       7.5 %   Rs. 424,620.1     Rs. 29,209.4       6.9 %
     
Non-interest-earning assets:
                                                                       
Cash
    848.3                       1,631.4                       2,732.5                  
Property and equipment
    4,924.5                       5,424.2                       6,251.2                  
Other assets
    20,796.1                       22,544.8                       14,425.8                  
 
                                                                       
Total non-interest earning assets
    26,568.9                       29,600.4                       23,409.5                  
                                     
Total assets
  Rs. 257,020.8     Rs. 19,424.8       7.6 %   Rs. 357,123.8     Rs. 24,591.5       6.9 %   Rs. 448,029.6     Rs. 29,209.4       6.5 %
     
Liabilities:
                                                                       
Interest-bearing liabilities:
                                                                       
Savings account deposits
  Rs. 36,419.7     Rs. 1,125.2       3.1 %   Rs. 61,535.8     Rs. 1,633.9       2.7 %   Rs. 97,026.4     Rs. 2,539.2       2.6 %
Time deposits
    121,535.7       9,383.3       7.7 %     139,368.6       8,645.3       6.2 %     153,284.5       8,534.9       5.6 %
Short-term borrowings(2)
    15,362.9       1,032.9       6.7 %     33,040.7       1,435.9       4.3 %     42,594.6       1,759.4       4.1 %
Long-term debt
    2,280.3       237.8       10.4 %     2,605.9       268.0       10.3 %     5,371.3       390.2       7.3 %
     
Total interest-bearing liabilities
  Rs. 175,598.6     Rs. 11,779.2       6.7 %   Rs. 236,551.0       11,983.1       5.1 %   Rs. 298,276.8     Rs. 13,223.7       4.4 %
     
Non-interest-bearing liabilities:
                                                                       
Non-interest-bearing deposits (3)
    28,892.3                       61,803.3                       92,382.6                  
Other liabilities
    28,442.9                       30,104.6                       16,606.1                  
Total non-interest-bearing liabilities
    57,335.2                       91,907.9                       108,988.7                  
     
Total liabilities
  Rs. 232,933.8     Rs. 11,779.2       5.1 %   Rs. 328,458.9     Rs. 11,983.1       3.6 %   Rs. 407,265.5     Rs. 13,223.7       3.2 %
     
Shareholders’ equity
    24,087.0                       28,664.9                       40,764.1                  
     
Total liabilities and shareholders’ equity
  Rs. 257,020.8     Rs. 11,779.2       4.6 %   Rs. 357,123.8     Rs. 11,983.1       3.4 %   Rs. 448,029.6     Rs. 13,223.7       3.0 %
     
 
(1)   Yields on tax free securities are not on a tax equivalent basis.
 
(2)   Includes securities sold under repurchase agreements.
 
(3)   Includes current accounts and cash floats from transactional services.

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Analysis of Changes in Interest Revenue and Interest Expense Volume and Rate
     The following table sets forth, for the periods indicated, the allocation of the changes in our interest revenue and interest expense between average volume and changes in average rates.
                                                 
    Fiscal 2004 vs. Fiscal 2003   Fiscal 2005 vs. Fiscal 2004
    Increase (decrease)(1) due to   Increase (decrease)(1) due to
            Change in                   Change in    
    Net   Average   Change in   Net   Average   Change in
    Change   Volume   Average Rate   Change   Volume   Average Rate
    (In millions)
Interest revenue:
                                               
Cash equivalents
  Rs. 307.8     Rs. 579.3     Rs. (271.5 )   Rs. (20.9 )   Rs. 216.9     Rs. (237.8 )
Term placements
    (431.6 )     (326.6 )     (105.0 )     145.8       50.9       94.9  
Investments available for sale:
                                               
Tax free
    981.1       1,112.9       (131.8 )     (548.7 )     (338.4 )     (210.3 )
Taxable
    1,479.7       1,730.5       (250.8 )     2,549.6       3,782.5       (1,232.9 )
Investments held to maturity
    (880.7 )     (532.0 )     (348.7 )     (2,089.1 )     (1,969.5 )     (119.6 )
Investments held for trading
    (189.3 )     (31.8 )     (157.5 )     (145.2 )     (193.1 )     47.9  
Loans, net:
                                               
Retail loans
    2,813.7       3,100.5       (286.8 )     3,474.9       3,788.3       (313.4 )
Wholesale loans
    1,086.0       2,067.9       (981.9 )     1,251.5       2,211.3       (959.8 )
     
Total interest-earning assets
  Rs. 5,166.7     Rs. 7,700.7     Rs. (2,534.0 )   Rs. 4,617.9     Rs. 7,548.9     Rs. (2,931.0 )
     
Interest expense:
                                               
Savings account deposits
  Rs. 508.7     Rs. 776.0     Rs. (267.3 )   Rs. 905.3     Rs. 942.3     Rs. (37.0 )
Time deposits
    (738.0 )     1,376.8       (2,114.8 )     (110.4 )     863.2       (973.6 )
Short-term borrowings
    403.0       1,188.5       (785.5 )     323.5       415.2       (91.7 )
Long-term debt
    30.2       34.0       (3.8 )     122.2       284.4       (162.2 )
     
Total interest-bearing liabilities
  Rs. 203.9     Rs. 3,375.3     Rs. (3,171.4 )   Rs. 1,240.6     Rs. 2,505.1     Rs. (1,264.5 )
     
Net interest revenue
  Rs. 4,962.8     Rs. 4,325.4     Rs. 637.4     Rs. 3,377.3     Rs. 5,043.8     Rs. (1,666.5 )
     
 
(1)   The changes in net interest revenue between periods have been reflected as attributed either to volume or rate changes. For purposes of this table, changes which are due to both volume and rate have been allocated solely to changes in rate.
Yields, Spreads and Margins
     The following table sets forth, for the periods indicated, the yields, spreads and interest margins on our interest-earning assets.
                         
    Years ended March 31,
    2003   2004   2005
    (In millions, except percentages)
Interest revenue
  Rs. 19,424.8     Rs. 24,591.5     Rs. 29,209.4  
Average interest-earning assets
    230,451.9       327,523.4       424,620.1  
Interest expense
    11,779.2       11,983.1       13,223.7  
Average interest-bearing liabilities
    175,598.6       236,551.0       298,276.8  
Average total assets
    257,020.8       357,123.8       448,029.6  
Average interest-earning assets as a percentage of average total assets
    89.7 %     91.7 %     94.8 %
Average interest-bearing liabilities as a percentage of average total assets
    68.3 %     66.2 %     66.6 %
Average interest-earning assets as a percentage of average interest-bearing liabilities
    131.2 %     138.5 %     142.4 %
Yield
    8.4 %     7.5 %     6.9 %
Cost of funds (1)
    5.1 %     3.6 %     3.2 %
Spread (2)
    2.7 %     3.5 %     3.5 %
Net interest margin (3)
    3.3 %     3.8 %     3.8 %
 
(1)   Excludes shareholders’ equity.
 
(2)   Represents the difference between yield on average interest-earning assets and cost of average interest-bearing liabilities. Yield on average interest-earning assets is the ratio of interest revenue to average interest-earning assets. Cost of average

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    interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. For purposes of calculating spread, interest bearing liabilities include non-interest bearing current accounts and cash floats from transactional services.
 
(3)   Net interest margin is the ratio of net interest revenue to average interest-earning assets. The difference in net interest margin and spread arises due to the difference in amount of average interest-earning assets and average interest-bearing liabilities. If average interest-earning assets exceed average interest-bearing liabilities, net interest margin is greater than spread. If average interest-bearing liabilities exceed average interest-earning assets, net interest margin is less than spread.
Returns on Equity and Assets
     The following table presents selected financial ratios for the periods indicated.
                         
    Years ended March 31,
    2003   2004   2005
    (In millions, except percentages)
Net income
  Rs. 3,513.8     Rs. 4,754.5     Rs. 6,609.7  
Average total assets
    257,020.8       357,123.8       448,029.6  
Average shareholders’ equity
    24,087.0       28,664.9       40,764.1  
Net income as a percentage of average total assets
    1.4 %     1.3 %     1.5 %
Net income as a percentage of average shareholders’ equity
    14.6 %     16.6 %     16.2 %
Dividend payout ratio
    24.2 %     21.0 %     21.2 %
Average shareholders’ equity as a percentage of average total assets
    9.4 %     8.0 %     9.1 %
Investment Portfolio
     Available for Sale Investments
     The following tables set forth, as of the dates indicated, information related to our investments available for sale
                                                                                                 
    At March 31,
    2003   2004   2005
            Gross   Gross                   Gross   Gross                   Gross   Gross    
    Amortized   Unrealized   Unrealized   Fair   Amortized   Unrealized   Unrealized   Fair   Amortized   Unrealized   Unrealized   Fair
    Cost   Gain   Loss   Value   Cost   Gain   Loss   Value   Cost   Gain   Loss   Value
    (In millions)
Government securities
  Rs. 45,149.6     Rs. 784.8     Rs. 19.1     Rs. 45,915.3     Rs. 63,535.0     Rs. 1,426.9     Rs. 37.4     Rs. 64,924.5     Rs. 111,482.3     Rs. 1,017.4     Rs. 672.2     Rs. 111,827.5  
Other debt securities
    29,357.8       1,802.3       186.7       30,973.4       30,554.7       2,106.7       101.1       32,560.3       39,320.6       1,171.1       181.1       40,310.6  
     
Total debt securities
    74,507.4       2,587.1       205.8       76,888.7       94,089.7       3,533.6       138.5       97,484.8       150,802.9       2,188.5       853.3       152,138.1  
     
Non-debt securities
    21,649.8       493.0       102.3       22,040.5       35,083.4       907.4       201.0       35,789.8       51,930.2       506.3       281.8       52,154.7  
     
Total
  Rs. 96,157.2     Rs. 3,080.1     Rs. 308.1     Rs. 98,929.2     Rs. 129,173.1     Rs. 4,441.0     Rs. 339.5     Rs. 133,274.6     Rs. 202,733.1     Rs. 2,694.8     Rs. 1,135.1     Rs. 204,292.8  
     

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     Held to Maturity Investments
     The following table sets forth, as of the dates indicated, information related to our investments held to maturity:
                                                                 
    At March 31,
    2003   2004
            Gross   Gross                   Gross   Gross    
    Fair   Unrealized   Unrealized   Amortized   Fair   Unrealized   Unrealized   Amortized
    Value   Gain   Loss   Cost   Value   Gain   Loss   Cost
    (In millions)
Government securities
  Rs. 20,392.6     Rs. 1,145.5     Rs. 7.3     Rs. 19,254.4     Rs. 28,424.2     Rs. 1,180.1     Rs. 1.1     Rs. 27,245.2  
Other debt securities
    19,715.7       580.9       37.5       19,172.3       9,633.4       511.1       0.9       9,123.2  
     
Total debt securities
    40,108.3       1,726.4       44.8       38,426.7       38,057.6       1,691.2       2.0       36,368.4  
     
Non-debt securities
                                               
     
Total
  Rs. 40,108.3     Rs. 1,726.4     Rs. 44.8     Rs. 38,426.7     Rs. 38,057.6     Rs. 1,691.2     Rs. 2.0     Rs. 36,368.4  
     
     As of March 31, 2005, we had no investments held to maturity.
     Held for Trading Investments
     The following tables set forth, as of the dates indicated, information related to our investments held for trading:
                                                                                                 
    At March 31,
    2003   2004   2005
            Gross   Gross                   Gross   Gross                   Gross   Gross    
    Amortized   Unrealized   Unrealized   Fair   Amortized   Unrealized   Unrealized   Fair   Amortized   Unrealized   Unrealized   Fair
    Cost   Gain   Loss   Value   Cost   Gain   Loss   Value   Cost   Gain   Loss   Value
    (In millions)
Government securities
  Rs. 3,783.4     Rs.     Rs. 36.6     Rs. 3,746.8     Rs. 4,244.2     Rs. 25.0     Rs.     Rs. 4,269.2     Rs. 1,278.5     Rs.     Rs.     Rs. 1,278.5  
Other debt securities
    244.4             15.1       229.3       1,986.6       1.1       23.1       1,964.6                          
     
Total debt securities
    4,027.8             51.7       3,976.1       6,230.8       26.1       23.1       6,233.8       1,278.5                   1,278.5  
     
Non-debt securities
                                                                       
     
Total
  Rs. 4,027.8     Rs.     Rs. 51.7     Rs. 3,976.1     Rs. 6,230.8     Rs. 26.1     Rs. 23.1     Rs. 6,233.8     Rs. 1,278.5     Rs.     Rs.     Rs. 1,278.5  
     
Residual Maturity Profile
     The following table sets forth, for the periods indicated, an analysis of the residual maturity profile of our investments in government and corporate debt securities classified as available for sale securities and their market yields.
                                                                 
    At March 31, 2005
    Up to One Year   One to Five Years   Five to Ten Years   More than Ten Years
    Amount   Yield   Amount   Yield   Amount   Yield   Amount   Yield
    (In millions, except percentages)
Government securities
  Rs. 21,135.0       6.9 %   Rs. 41,046.1       8.9 %   Rs. 31,457.4       7.5 %   Rs. 18,189.0       4.8 %
Other debt securities
    11,300.8       6.5 %     25,323.1       6.5 %     3,686.7       5.8 %            
 
                                                               
Total debt securities, fair value
    32,435.8       6.6 %     66,369.2       8.0 %     35,144.1       7.3 %     18,189.0       4.8 %
 
                                                               
Total amortized cost
  Rs. 32,319.6             Rs. 66,164.0             Rs. 34,569.4             Rs. 17,749.9          
 
                                                               
Funding
     Our funding operations are designed to ensure stability, low cost of funding and effective liquidity management. The primary source of funding is deposits raised from retail customers, which were 65.9% and 69.2% of total deposits as of March 31, 2004 and March 31, 2005, respectively. Wholesale banking deposits represented 34.1% and 30.8% of total deposits as of March 31, 2004 and March 31, 2005, respectively.

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     Total Deposits
     The following table sets forth, for the periods indicated, our average outstanding deposits and the percentage composition by each category of deposits. The average cost (interest expense divided by the average daily balance for the relevant period) of savings deposits was 3.1% in fiscal 2003, 2.7% in fiscal 2004 and 2.6% in fiscal 2005. The average cost of time deposits was 7.7% in fiscal 2003, 6.2% in fiscal 2004 and 5.6% in fiscal 2005. The average deposits for the periods set forth are as follows:
                                                 
    Years ended March 31,
    2003   2004   2005
    Amount   % of total   Amount   % of total   Amount   % of total
    (In millions, except percentages)
Current deposits(1)
  Rs. 28,892.3       15.5 %   Rs. 61,803.3       23.5 %   Rs. 92,382.6       27.0 %
Savings deposits
    36,419.7       19.5       61,535.8       23.4       97,026.4       28.3  
Time deposits
    121,535.7       65.0       139,368.6       53.1       153,284.5       44.7  
     
Total
  Rs. 186,847.7       100.0 %   Rs. 262,707.7       100.0 %   Rs. 342,693.5       100.0 %
     
 
(1)   Includes current accounts and cash floats from transactional services.
     As of March 31, 2005, individual time deposits in excess of Rs. 0.1 million have a balance to maturity profile as follows:
                                 
    At March 31, 2005
    Up to 3                   More than 1
    months   3 to 6 months   6 to 12 months   year
    (In millions)
Balance to maturity for deposits exceeding Rs. 0.1 million each
  Rs. 14,199.5     Rs. 20,862.9     Rs. 14,781.9     Rs. 90,401.4  
     Short-term Borrowings
     The following table sets forth, for the periods indicated, information related to our short-term borrowings, which are comprised primarily of money-market borrowings. Short-term borrowings exclude deposits and securities sold under repurchase agreements.
                         
    Years ended March 31,
    2003   2004   2005
    (In millions, except percentages)
Period end balance
  Rs. 21,579.6     Rs. 24,064.2     Rs. 62,079.1  
Average balance during the period
  Rs. 15,362.9     Rs. 33,040.7     Rs. 42,594.6  
Maximum outstanding
  Rs. 32,221.7     Rs. 52,274.3     Rs. 62,079.1  
Average interest rate during the period (1)
    6.7 %     4.3 %     4.1 %
Average interest rate at period end(2)
    6.9 %     4.1 %     4.3 %
 
(1)   Represents the ratio of interest expense on short-term borrowings to the average of daily balances of short-term borrowings.
 
(2)   Represents the weighted average rate of short-term borrowings outstanding as of March 31, 2003, 2004 and 2005.
     Subordinated Debt
     We also obtain funds from the issuance of unsecured non-convertible subordinated debt securities, which qualify as Tier 2 risk-based capital under the RBI’s guidelines for assessing capital adequacy. We issued three tranches of subordinated debt securities during calendar years 1998, 1999 and 2001 at coupon rates of 13.0%, 13.75% and 11.00% respectively. The 1998 tranche was repaid at maturity in fiscal 2004. The 1999 and 2001 tranches are repayable in fiscal 2007. On February 4, 2004, we issued subordinated debt securities aggregating Rs. 4.0 billion, of which Rs. 3.95 billion carries a coupon rate of 5.90% and matures in May 2013 and Rs. 50 million carries a coupon rate of 6.0% and matures in May 2016. We currently have

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Rs.5.0 billion aggregate principal amount of subordinated debt outstanding, of which Rs. 4.2 billion qualified as Tier 2 capital
Asset Liability Gap and Interest Sensitivity Data
     The following table sets forth, for the periods indicated, our asset-liability gap position:
                                                                         
    As of March 31, 2005
                            6-12   Total within   Greater than
One Year and
  Greater than
Three Years and
  Greater than    
    0-28 Days   29-90 Days   91-180 Days   Months   One Year   up to Three Years   up to Five Years   Five Years   Total
    (In millions, except percentages)
Cash and cash equivalents(2)(3)
  Rs. 17,675.4     Rs. 1,952.4     Rs. 2,181.8     Rs. 2,145.4     Rs. 3,955.0     Rs. 12,948.3     Rs. 672.5     Rs.     Rs. 37,575.8  
Term placements
          105.1       771.0       6,006.8       6,882.9       302.6       478.0       1,036.1       8,699.6  
Investments held for trading(4)
    1,189.0       89.5                   1,278.5                         1,278.5  
Investments available for sale (5)(6)
    7,077.8       4,104.9       9,814.3       11,438.8       32,435.8       37,541.0       28,828.3       105,487.7       204,292.8  
Loans, net (7) (8)
    45,457.9       52,161.4       18,062.4       54,175.9       169,857.6       69,980.7       14,834.8       1,813.8       256,486.9  
Accrued interest receivable
    4,912.1                         4,912.1                         4,912.1  
Other assets
    6,854.3                         6,854.3       2,271.0                   9,125.3  
 
                                                                       
 
Total financial assets
  Rs. 83,166.5     Rs. 58,413.3     Rs. 30,829.5     Rs. 73,766.9     Rs. 246,176.2     Rs. 123,043.6     Rs. 44,813.6     Rs. 108,337.6     Rs. 522,371.0  
 
 
                                                                       
Deposits (9)
    39,316.2       19,422.6       21,047.7       30,140.8       109,927.3       242,934.7       10,680.5             363,542.5  
Debt (10)
    51,765.2       4,017.5       6,156.8       8.3       61,947.8       1,011.7       147.7       4,000.0       67,107.2  
Other Liabilities
    49,466.5                         49,466.5                         49,466.5  
 
                                                                       
 
Total financial liabilities
  Rs. 140,547.9     Rs. 23,440.1     Rs. 27,204.5     Rs. 30,149.1     Rs. 221,341.6     Rs. 243,946.4     Rs. 10,828.2     Rs. 4,000.0     Rs. 480,116.2  
 
 
                                                                       
 
Asset/Liability Gap
  Rs. (57,381.4 )   Rs. 34,973.2     Rs. 3,625.0     Rs. 43,617.8     Rs. 24,834.6     Rs. (120,902.8 )   Rs. 33,985.4     Rs. 104,337.6     Rs. 42,254.8  
 
Cumulative gap
  Rs. (57,381.4 )   Rs. (22,408.2 )   Rs. (18,783.2 )   Rs. 24,834.6     Rs. 24,834.6     Rs. (96,068.2 )   Rs. (62,082.8 )   Rs. 42,254.8     Rs. 84,509.6  
Cumulative gap as a percentage of total financial assets
    (69.0 )%     (38.4 )%     (60.9 )%     33.7 %     10.1 %     (78.1 )%     (138.5 )%     39.0 %     16.2 %
 
(1)   Assets and liabilities are classified into the applicable maturity categories based on residual maturity unless specifically mentioned.
 
(2)   Cash on hand is classified in the “0-28” days category.
 
(3)   Cash and cash equivalents include balances with the RBI to satisfy its cash reserve ratio requirements. These balances are held in the form of overnight cash deposits but we classify these balances to the applicable maturity categories on a basis proportionate to the classification of related deposits.
 
(4)   Securities in the trading book are classified in the “0-28” days or “29-90” days categories based on the expected time of realization for such investments.
 
(5)   Securities held towards satisfying the statutory liquidity requirement (“SLR”) prescribed by the RBI are classified based on the applicable maturity categories on a basis proportionate to the classification of related deposits.
 
(6)   Shares are classified in the “greater than five years” category and units of open ended mutual funds are classified in the “0-28” days category.
 
(7)   Includes net non-performing loans which are classified in the “greater than five years” category.
 
(8)   Ambiguous maturity overdrafts are classified under various maturity categories based on historical behavioral analyses that we have performed to determine the appropriate maturity categorization of such advances.
 
(9)   Non-maturity deposits are classified under various maturity categories based on the historical behavioral analysis that we have performed to determine the appropriate maturity categorization of such deposits.
 
(10)   Includes short-term borrowings and long-term debt.
     For further information on how we manage our asset liability risk, see “Business — Market Risk.”

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     Loan Portfolio and Credit Substitutes
     As of March 31, 2005, our gross loan portfolio was Rs. 261.9 billion and represented approximately 2.3 million contracts outstanding. As of that date, our gross credit substitutes outstanding were Rs. 13.9 billion and represented approximately 90 credit substitutes outstanding. Almost all of our gross loans and credit substitutes are to borrowers in India and over 90% are denominated in rupees. For a description of our retail and wholesale loan products, see “Business — Retail Banking — Retail Loan Products” and “Business — Wholesale Banking — Commercial Banking Products — Commercial Loan Products and Credit Substitutes.”
     The following table sets forth, for the periods indicated, our gross loan portfolio classified by product group:
                                         
    At March 31,
    2001   2002   2003   2004   2005
    (In millions)
Retail loans
  Rs. 8,447.1     Rs. 14,301.3     Rs. 34,414.2     Rs. 73,251.6     Rs. 112,666.0  
Wholesale loans
    43,790.4       58,833.5       85,752.4       107,923.8       149,259.4  
     
Gross loans
  Rs. 52,237.5     Rs. 73,134.8     Rs. 120,166.6     Rs. 181,175.4     Rs. 261,925.4  
Credit substitutes (at fair value)
    22,344.2       35,329.9       30,255.5       17,041.5       13,880.9  
     
Gross loans plus credit substitutes
  Rs. 74,581.7     Rs. 108,464.7     Rs.150,422.1   Rs. 198,216.9     Rs. 275,806.3
     
     Maturity and Interest Rate Sensitivity of Loans and Credit Substitutes
     The following tables set forth, for the periods indicated, the maturity and interest rate sensitivity of our loans and credit substitutes (at fair value):
                         
    At March 31, 2005
    Due in one   Due in one   Due after
    year or less   to five years   five years
    (In millions)
Retail loans
  Rs. 61,469.3     Rs. 49,352.0     Rs. 1,844.7  
Wholesale loans
    114,001.5       31,032.6       4,225.3  
     
Gross loans
  Rs. 175,470.8     Rs. 80,384.6     Rs. 6,070.0  
Credit substitutes
    3,978.1       7,130.0       2,772.8  
     
Gross loans plus credit substitutes
  Rs. 179,448.9     Rs. 87,514.6     Rs. 8,842.8  
     

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    At March 31, 2005
    Due in one   Due in one   Due after
    year or less   to five years   five years
    (In millions)
Interest rate classification of loans by maturity:
                       
Variable rates
  Rs. 1,940.3     Rs.     Rs.  
Fixed rates
    173,530.5       80,384.6       6,070.0  
     
Gross loans
    175,470.8       80,384.6       6,070.0  
     
 
                       
Interest rate classification of credit substitutes by maturity:
                       
Variable rates
    250.0              
Fixed rates
    3,728.1       7,130.0       2,772.8  
     
Gross credit substitutes
    3,978.1       7,130.0       2,772.8  
     
 
                       
Interest rate classification of loans and credit substitutes by maturity:
                       
Variable rates
    2,190.3              
Fixed rates
    177,258.6       87,514.6       8,842.8  
     
Gross loans and credit substitutes
  Rs. 179,448.9     Rs. 87,514.6     Rs. 8,842.8  
     
     Concentration of Loans and Credit Substitutes
     Pursuant to the guidelines of the RBI, our exposure to individual borrowers generally may not exceed 15% of our capital funds as defined by the RBI and calculated under Indian GAAP without the prior approval of the RBI. As of March 31, 2005, the single borrower limit was exceeded in case of one borrower and amounted to 23.5% of our capital funds. Our exposure to a group of companies under the same management control generally may not exceed 40% of our capital funds without the prior approval of the RBI. An additional exposure of up to 5% of capital funds is allowed by the RBI in the case of exposures relating to infrastructure projects. We are in compliance with all such RBI group exposure limits. For further information, see “Supervision and Regulation.”
     The following table sets forth, for the periods indicated, our gross loans and fair value of credit substitutes outstanding by the borrower’s industry or economic activity and as a percentage of our gross loans and fair value of credit substitutes (where such percentage exceeds 2.0% of the total). We do not consider retail loans a specific industry for this purpose. However, retail business banking loans are classified in the appropriate categories below and loans to commercial vehicle operators are included in land transport below.
                                                                                 
    At March 31,
    2001   2002   2003   2004   2005
    (In millions, except percentages)
Land transport
  Rs. 7.9       0.0 %   Rs. 1,298.5       1.2 %   Rs. 5,202.9       3.5 %   Rs. 15,396.2       7.8 %   Rs. 29,860.5       10.8 %
Automotive manufacturers
    3,138.6       4.2       9,999.2       9.2       13,393.2       8.9       19,370.2       9.8       26,100.0       9.5  
Telecommunications
    1,393.6       1.9       2,490.1       2.3       921.0       0.6       4,054.0       2.0       9,586.9       3.5  
Hire Purchase(1)
    2,394.7       3.2       5,367.0       4.9       5,877.1       3.9       4,498.5       2.3       6,912.5       2.5  
Iron and Steel
    1,191.5       1.6       2,456.0       2.3       2,270.2       1.5       4,258.8       2.1       5,750.7       2.1  
Others (including unclassified retail)
    66,455.4       89.1       86,853.9       80.1       122,757.7       81.6       150,639.2       76.0       197,595.7       71.6  
     
Total
  Rs. 74,581.7       100.0 %   Rs. 108,464.7       100.0 %   Rs. 150,422.1       100.0 %   Rs. 198,216.9       100.0 %   Rs. 275,806.3       100.0 %
     
 
(1)   Hire purchase is similar to leasing. Our customers in the hire purchase business purchase goods on behalf of their clients, and their clients make regularly scheduled payments to them over a specified period of time; ownership of the purchased goods automatically transfers to the clients after full payment under a hire purchase agreement.
     As of March 31, 2005, our ten largest exposures totaled approximately Rs. 49.6 billion and represented approximately 109.4% of our capital funds as per Indian GAAP. The largest group of companies under the same management control accounted for approximately 29.6% of our capital funds as per Indian GAAP.

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     Directed Lending
     The RBI has established guidelines requiring Indian banks to lend 40% of their net bank credit to certain sectors called “priority sectors.” Priority sectors include small-scale industries, agricultural and agriculture based sectors, food, housing, small business enterprises and certain other priority sectors deemed “weaker” by the RBI. See “Supervision and Regulation.”
     We are required to comply with the priority sector lending requirements as of the last reporting Friday of each fiscal year, a date specified by the RBI for reporting. Apart from our loans to the sectors outlined above, we may invest in bonds of specified institutions and mortgage-backed securitized paper to meet our mandated lending requirements. Any shortfall in the amount required to be lent to the priority sectors may be required to be deposited with Indian development banks like the National Bank for Agriculture and Rural Development and the Small Industries Development Bank of India. These deposits have a maturity of up to seven years and carry interest rates lower than market rates.
     The following table sets forth, for the periods indicated, our directed lending broken down by sector:
                                         
    At March 31,
    2001   2002   2003   2004   2005
    (In millions)
Directed lending:
                                       
Agriculture
  Rs. 1,206.8     Rs. 1,493.4     Rs. 8,858.8     Rs. 13,220.2     Rs. 20,641.5  
Small scale industries
    1,772.8       2,730.5       2,949.6       4,370.6       4,013.2  
Other
    3,788.6       3,509.2       2,372.6       7,633.3       32,519.8  
     
Total directed lending
  Rs. 6,768.2     Rs. 7,733.1     Rs. 14,181.0     Rs. 25,224.1     Rs. 57,174.5  
     
     Non-Performing Loans
     The following discussion of non-performing loans is based on U.S. GAAP. For classification of non-performing loans under Indian regulatory requirements, see “Supervision and Regulation.”
     The Indian economy has expanded steadily during the past three years with GDP growth of 4.4% in fiscal 2003, 8.1% in fiscal 2004 and 6.9% in fiscal 2005. Since 1991, the government of India has pursued a policy of gradual liberalization and deregulation. Indian corporations have had to respond to these pressures through a process of restructuring and repositioning. This restructuring process is taking place in several industries, primarily in sectors where many small, unprofitable manufacturing facilities have existed, such as the iron and steel and textiles industries. This led to a decline in the operating performance of some Indian corporations and the impairment of related loan assets in the financial system, including some of our assets. The decline in certain sectors of the Indian economy has been offset by growth in segments such as financial services and information technology.
     As of March 31, 2005, our gross non-performing loans as a percentage of gross loan assets was 1.6% and our gross non-performing loans net of specific valuation allowances as a percentage of net loan assets was 0.2%. We have made total specific valuation allowances for 85.5% of gross non-performing loans. These allowances are based on the expected realization of cash flows from these assets and from the underlying collateral. All of our non-performing loans are rupee-denominated. As of March 31, 2005, we had three non-performing loans in the directed lending sector. Non-performing loans to the directed lending sector were 0.1% of gross loans.

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     The following table sets forth, for the periods indicated, information about our gross non-performing loan portfolio:
                                         
    As of March 31,
    2001   2002   2003   2004   2005
    (In millions, except percentages)
Non-performing loans:
                                       
Retail loans
  Rs. 93.3     Rs. 140.7     Rs. 74.9     Rs. 403.5     Rs. 1,663.3  
Wholesale loans
    1,403.0       1,819.2       2,292.7       2,589.1       2,420.9  
     
Gross non-performing loans
  Rs. 1,496.3     Rs. 1,959.9     Rs. 2,367.6     Rs. 2,992.6     Rs. 4,084.2  
     
 
                                       
Specific valuation allowances
  Rs. 1,010.8     Rs.1,423.5   Rs. 1,684.3     Rs. 2,722.7     Rs. 3,492.8  
Unallocated valuation allowances
    143.5       182.4       182.4       771.6       1,945.7  
Non-performing loans net of specific valuation allowance
    485.5       536.4       683.3       269.9       591.4  
Gross loan assets
    52,237.5       73,134.8       120,166.6       181,175.4       261,925.4  
Net loan assets
  Rs. 51,083.2     Rs. 71,528.9     Rs. 118,299.9     Rs. 177,681.1     Rs. 256,486.9  
Gross non-performing loans as a percentage of gross loans
    2.86 %     2.68 %     1.97 %     1.65 %     1.56 %
Non-performing loans net of specific valuation allowance as a percentage of net loan assets
    0.95 %     0.74 %     0.58 %     0.15 %     0.23 %
Specific valuation allowance as a percentage of gross non-performing loans
    67.55 %     72.63 %     71.14 %     90.98 %     85.52 %
Total valuation allowance as a percentage of gross non-performing loans
    77.14 %     81.94 %     78.84 %     116.76 %     133.16 %
     Recognition of Non-Performing Loans
     We classify our loan portfolio into loans that are performing and loans that are non-performing or impaired.
     We consider a loan to be performing when no principal or interest payment is one quarter or more past due and where we expect to recover all amounts due to us. Prior to April 1, 2003, we considered a loan to be performing when no principal or interest was two or more quarters past due and where we expected to recover all amounts due to us. We have not restated figures from periods prior to April 1, 2003, to reflect the change.
     We have analyzed our gross loans into their performance status as follows:
                                         
    At March 31,
    2001   2002   2003   2004   2005
    (In millions)
Performing
  Rs. 50,741.2     Rs. 71,174.9     Rs. 117,799.0     Rs. 178,182.8     Rs. 257,841.2  
Non-performing or impaired:
                                       
On accrual status
    235.4       61.6       51.9              
On non-accrual status
    1,260.9       1,898.3       2,315.7       2,992.6       4,084.2  
     
Total non-performing or impaired
    1,496.3       1,959.9       2,367.6       2,992.6       4,084.2  
     
Total
  Rs. 52,237.5     Rs. 73,134.8     Rs. 120,166.6     Rs. 181,175.4     Rs. 261,925.4  
     
     Non-performing or impaired loans consist of loans that are on accrual status as well as loans that have been placed on non-accrual status.

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     We place loans on non-accrual status when interest or principal payments are one quarter past due, at which time no further interest is accrued and overdue interest not collected is reversed. We make specific allowances for all loans on non-accrual status based on the loss we expect to incur for each such loan.
     In the case of wholesale loans, we also identify loans as non-performing or impaired even when principal or interest payments are less than one quarter past due but where we believe recovery of all principal and interest amounts is doubtful. We make specific and unallocated allowances for these loans based on our estimate of losses inherent in the loan portfolio.
     Our methodology for determining specific and unallocated allowances is discussed separately below for each category of loans.
     Retail Loans
     For our retail loans, we establish a specific allowance equal to 50% of the outstanding amount when the loan is past due for more than 90 days. If the loan remains 120 days past due, we increase the allowance to 100% of the outstanding amount. We write off outstanding credit card balances which are 150 days past due, and outstanding amounts for all other retail loans which are 180 days past due.
     We also make unallocated allowances for retail loans by product type. Our retail loan portfolio comprises groups of large numbers of small value homogeneous loans. We establish an unallocated allowance for loans in each product group based on our estimate of the expected amount of losses inherent in such product. In making such estimates, among other factors considered, we stratify such loans based on the number of days past due and take into account historical losses for such product. Where the loans are secured, our loss estimates also take into account the estimated net realizable value of the collateral. We do not identify individual retail loans for impairment disclosures if such loans are on accrual status.
     In the case of our retail loans against securities (“LAS”), our procedures differ slightly because we hold marketable securities as collateral. We monitor margin positions of customers based on the market prices of the underlying collateral, and calls for additional margin as necessary to maintain an acceptable loan to value ratio. In the event the customer does not meet the margin call within the required time, we liquidate the collateral and recognize a loss equal to any shortfall between the proceeds realized and the carrying value of the loan. At each reporting date, we stratify the LAS portfolio based on loan to value ratios and establish a specific allowance for the shortfall in collateral for all loans where the loan to value ratio exceeds 100% and it is probable that the borrower will not repay the full amount of the loan. We also establish an unallocated allowance for the LAS portfolio based on historical losses and a stratification analysis based on loan to value ratios that exceed approved levels, as well as other factors.
     Wholesale Loans
     We make specific allowances for credit losses for all wholesale loans on non-accrual status. We also make specific allowances for wholesale loans that are on accrual status when we consider these loans to be impaired despite being less than one quarter past due.
     We identify wholesale loans on accrual status as being impaired based on our assessment of each wholesale banking customer, taking into account quantitative and qualitative factors such as payment status, adverse situations that may affect the borrower’s ability to repay, the value of any collateral held, our view of the industry and general economic conditions.
     Impairment is measured for each non-performing wholesale banking customer for the aggregate of all wholesale loans made to that customer. We establish a specific allowance for the difference between the carrying value of the loan and the present value of expected future cash flows including the net realizable value of any collateral, discounted at the loan’s effective interest rate. We do not establish a specific allowance for loans where the fair value of any collateral we hold exceeds the outstanding loan balance.

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     Wholesale loans that experience insignificant payment delays and payment shortfalls are generally not classified as impaired but are placed on a surveillance watch list and closely monitored for deterioration. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Beginning April 1, 2003, we also established an unallocated allowance for performing loans, based on the overall portfolio quality, asset growth, economic conditions and other risk factors.

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     Analysis of Non-Performing Loans by Industry Sector
     The following table sets forth, for the periods indicated, our non-performing loans by borrowers’ industry or economic activity and as a percentage of our loans in the respective industry or economic activity sector. These figures do not include credit substitutes, which we include for purposes of calculating our industry concentration for RBI reporting. See “Risk Factors — We have high concentrations of customer exposures to certain customers and sectors and if any of these exposures were to become non-performing, the quality of our portfolio could be adversely affected.”
                                                                                                                         
    As of March 31
    2001   2002   2003   2004   2005
            Non
performing
  % of
loans in
          Non
performing
  % of
loans in
          Non
performing
  % of
loans in
          Non
performing
  % of
loans in
          Non
performing
  % of
loans in
    Gross Loans   loans   industry   Gross Loans   loans   industry   Gross Loans   loans   industry   Gross Loans   loans   industry   Gross Loans   loans   industry
    (In millions, except percentages)
Consumer electronics
  Rs. 186.7     Rs. 50.1       5.8     Rs. 960.8       23.5       2.5     Rs. 1,754.6     Rs. 207.8       11.9     Rs. 2,261.1     Rs. 639.1       28.3     Rs. 3,452.7     Rs. 679.4       19.7  
Diamond, gems and jewelry exports
    862.6       129.3       15.0       1,029.4       131.5       12.8       1,343.4       130.9       9.8       1,473.8       129.1       8.8       1,401.7       129.1       9.2  
Textiles
    641.9       331.4       51.6       457.3       396.0       86.6       698.5       372.0       53.3       1,327.6       356.2       26.8       3,483.9       239.5       6.9  
Fertilizers
    2,540.5       28.3       1.1       1,706.2       72.8       4.3       3,760.4       30.2       0.8       1,974.7       22.6       1.2       2,882.3       122.9       4.3  
Iron and steel
    1,072.4       207.4       19.3       937.6       440.1       46.9       1,141.8       437.3       38.3       3,616.6       440.4       12.2       4,840.2       201.5       4.2  
Miscellaneous industries
                                        675.7       5.6       0.8                         4,221.0       123.3       2.9  
Electrical machinery
    1,121.9       49.4       4.4       1,853.4       66.2       3.6       1,430.8       76.1       5.3       1,376.6       76.1       5.5       2,428.9       66.9       2.8  
Construction
    651.3       23.5       3.6       67.6       23.5       34.8       207.5       23.4       11.3       27.5       21.9       79.6       385.3       10.5       2.7  
Automotive manufacturers
    1,831.9       41.7       2.3       8,856.0       41.9       0.5       12,096.3       642.9       5.3       18,541.1       653.7       3.5       25,667.6       654.3       2.5  
Electricity generation
                      486.0       26.8       5.5       1,577.1       26.8       1.7       759.5       26.8       3.5       1,620.3       26.8       1.7  
Retail advances not otherwise classified
    8,447.1       10.1       0.1       14,273.1       134.1       0.9       28,848.6       74.9       0.3       63,207.8       382.1       0.6       103,681.2       1,544.8       1.6  
Heavy engineering
    2,533.4       184.7       7.3       1,640.2       147.9       9.0       2,581.3       56.1       2.2       6,050.0       56.1       0.9       4,862.3       56.1       1.2  
Drugs and pharmaceuticals
    877.1       36.5       4.2       1,442.1       133.8       9.3                         3,039.5       40.0       1.3       3,917.6       42.9       1.1  
Glass and glass products
                                        135.9       11.0       8.1       419.8       9.1       2.2       814.5       9.1       1.1  
Other wholesale trade
    517.0       43.1       8.3       1,174.2       46.2       3.9       1,882.8       43.4       2.3       2,526.6       40.9       1.6       4,465.9       40.9       0.9  
Paper and paper products
                                                          806.6       70.3       8.7       1,701.4       11.7       0.7  
Activities allied to dairying
                                        3,091.0       3.4       0.1       3,144.4       3.4       0.1       3,946.7       3.4       0.1  
Traders
                                        2,484.8       2.1       0.1       200.1       3.4       1.7       1,738.0       2.5       0.1  
Land transport
                                                          15,396.2       21.4       0.1       29,860.5       118.5       0.4  
Manufacture of metal products
    298.2       21.7       7.3                         897.9       3.4       0.4                                      
Share brokers
    1,748.0       105.0       6.0       639.5       7.4       1.2       823.9       6.7       0.8                                      
Investment and finance and leasing
    777.0       40.7       5.2       79.2       40.7       51.4                                                        
Other chemicals
                      455.2       61.6       13.5       469.1       51.9       11.1                                      
Activities allied to agriculture
                      15.2       15.2       100.0       216.5       16.4       7.6                                      
Plastic and plastic products
                      15.9       3.1       19.5       26.9       3.2       11.9                                      
Distilleries
    196.0       154.0       78.6       147.6       147.6       100.0       191.0       142.1       74.4                                      
 
                                                                                                                       
Manufacture of rubber and rubber products
    279.6       39.4       14.1                                                                                            
Total
          Rs. 1,496.3                     Rs. 1,959.9                     Rs. 2,367.6                     Rs. 2,992.6                     Rs. 4,084.2          
 
                                                                                                                       
Specific allowance for credit losses
          Rs. 1,010.8                     Rs. 1,423.5                     Rs. 1,684.3                     Rs. 2,722.7                     Rs. 3,492.8          
Non-performing loans, net
          Rs. 485.5                     Rs. 536.4                     Rs. 683.3                     Rs. 269.9                     Rs. 591.4          
     As of March 31, 2005, our gross non-performing loans as a percentage of gross loans in the respective industries was the highest in the consumer electronics, diamond gems and jewelry exports and textile industries.
     Consumer electronics
     The consumer electronics industry has been exposed to severe competition during the last few years due to an increase in foreign competition. Competition has intensified the pressure on profit margins and inflated selling and distribution costs. This has resulted in marginalization of the weaker players and consolidation of the stronger ones.
     Textiles
     The textile industry had a difficult year in fiscal 2004 due to high cotton prices. Cotton prices softened during fiscal 2005. The Indian government has passed certain ameliorative measures in recent years to assist the industry.

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     Diamond Gems and Jewelry
     Over the last few years, the Indian diamond industry has been experiencing a slowdown in exports and delays in the realization of export receivables. This is primarily due to a drop in demand for diamond jewelry in major international markets. Our non-performing loan in this industry has also been affected by borrower-specific internal organization difficulties.
     Top Ten Non-Performing Loans
     As of March 31, 2005, we had 32 wholesale non-performing loans outstanding, of which the top ten represented 49.5% of our gross non-performing loans, 20.9% of our net non-performing loans and 0.8% of our gross loan portfolio.
     The following table sets forth, for the period indicated, information regarding our ten largest non-performing loans. The table also sets forth the value (as set forth on the borrower’s books) of collateral securing the loan. However, the net realizable value of such collateral may be substantially less, if anything.
                                         
    At March 31, 2005
                    Principal            
                    outstanding net           Currently
        Type of   Gross   of allowance           servicing
        banking   principal   for credit   Collateral-   all interest
    Industry   arrangement   outstanding   losses   our share   payments(1)
                            (In millions)        
Borrower A
  Automotive manufacturers   Sole   Rs. 642.9     Rs.     Rs.     No
Borrower B
  Consumer electronics   Consortium     639.1                 No
Borrower C
  Diamond gems and jewelry export   Consortium     129.1                 No
Borrower D
  Textiles   Consortium     120.8                 No
Borrower E
  Iron and steel   Consortium     109.7                 No
Borrower F
  Fertilizers   Consortium     100.3       64.2       64.2     No
Borrower G
  Iron and steel   Consortium     82.4                 No
Borrower H
  Textiles   Multiple     73.0                 No
Borrower I
  Miscellaneous industry   Consortium     63.8                 No
Borrower J
  Miscellaneous industry   Sole     59.5       59.5       310.8     No
                     
Total
          Rs. 2,020.6     Rs. 123.7     Rs. 375.0          
                     
 
(1)   We classify loans as non-performing once we determine that the payment of interest or principal is doubtful. Since the classification may occur even before the borrower defaults, some of our non-performing loans other than our ten largest non performing loans are currently servicing all interest payments.
     Interest Foregone
     Interest foregone is the interest due on non-performing loans that has not been accrued in our books of accounts. The following table sets forth the outstanding amount of interest foregone on existing non-performing loans as of the respective dates.
         
Interest foregone   (In millions)
March 31, 2003
  Rs. 334.0  
March 31, 2004
    274.2  
March 31, 2005
    216.7  

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     Restructuring of Non-Performing Loans
     Our non-performing loans are restructured on a case-by-case basis after our management has determined that restructuring is the best means of maximizing realization of the loan. These loans continue to be on a non-accrual basis and are reclassified as performing loans only after sustained performance under the loan’s renegotiated terms for a period of at least one year.
     Pursuant to recently enacted regulations creating a system of “Corporate Debt Restructuring,” we may also be involuntarily required to restructure loans if decided by lenders holding 75% of the debt in a consortium in which we participate.
     The following table sets forth, as of the dates indicated, our non-performing loans that have been restructured through rescheduling of principal repayments and deferral or waiver of interest:
                                         
    At March 31,
    2001   2002   2003   2004   2005
    (In millions, except percentages)
Gross restructured loans
  Rs. 502.1     Rs. 172.2     Rs. 2.7     Rs.     Rs. 100.3  
Allowance for credit losses
    320.5       119.3       2.7             36.1  
     
Net restructured loans
  Rs. 181.6     Rs. 52.9     Rs.     Rs.     Rs. 64.2  
     
Gross restructured loans as a percentage of gross non-performing loans
    33.6 %     8.8 %     0.1 %           2.5 %
Net restructured loans as a percentage of net non-performing loans
  37.4 %     2.7 %                 10.9 %
     If there is a failure to meet payment or other terms of a restructured loan, it may be considered a failed restructuring, in which case it is no longer classified as a restructured loan. Our restructured loans declined from March 31, 2002 until March 31, 2004 principally due to failed restructurings.
     Non-Performing Loan Strategy
     Our non-performing loan strategy is focused on early problem recognition and active remedial management efforts. Because we are involved primarily in working capital finance with respect to wholesale loans, we track our borrowers’ performance and liquidity on an ongoing basis. This enables us to define remedial strategies proactively and manage our exposures to industries or customers that we believe are displaying deteriorating credit trends. Relationship managers drive the recovery effort together with strong support from the credit group in the corporate office in Mumbai. Recovery is pursued vigorously through the legal process, enforcement of collateral, negotiated one-time settlements and other similar strategies. The particular strategy pursued depends upon the level of cooperation of the borrower and on our assessment of the borrower’s management integrity and long-term viability.

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     Allowance for Credit Losses on Loans
     The following table sets forth, for the periods indicated, movements in our allowance for credit losses:
                                         
    For the years ended March 31,
    2001   2002   2003   2004   2005
    (In millions)
Specific allowance for credit losses at the beginning of the period
  Rs. 763.8     Rs.1,010.8   Rs. 1,423.5     Rs. 1,684.3     Rs. 2,722.7  
     
Additions to allowance for credit losses for the period :
                                       
Retail
    201.9       366.5       156.3       775.8       2,433.9  
Wholesale
    137.7       253.8       786.8       1,278.7       221.9  
Less allowances no longer required on account of recoveries
    (92.6 )     (207.6 )     (201.6 )     (300.3 )     (781.7 )
     
Net expense for additions to specific allowance for credit
    247.0       412.7       741.5       1,754.2       1,874.1  
     
Allowance no longer required on account of write offs
                (480.7 )     (715.8 )     (1,104.0 )
     
Specific allowance for credit losses at the end of period
  Rs.1,010.8   Rs.1,423.5   Rs. 1,684.3     Rs.2,722.7   Rs. 3,492.8  
     
Unallocated allowance for credit losses at the beginning of the period
  Rs. 143.5     Rs. 143.5     Rs. 182.4     Rs. 182.4     Rs. 771.6  
Additions during the period
          38.9             589.2       1,174.10  
     
Unallocated allowance for credit losses at the end of the period
  Rs. 143.5     Rs. 182.4     Rs. 182.4     Rs. 771.6     Rs. 1,945.7  
     
 
                                       
Total allowance for credit losses at the beginning of the period
  Rs. 907.3     Rs. 1,154.3     Rs. 1,605.9     Rs. 1,866.7     Rs. 3,494.3  
Allowance no longer required on account of write-offs
                (480.7 )     (715.8 )     (1,104.0 )
Net addition to total allowance for the period charged to expense
    247.0       451.6       741.5       2,343.4       3,048.2  
 
                                       
     
Total allowance for credit losses at the end of the period
  Rs.1,154.3   Rs. 1,605.9     Rs. 1,866.7     Rs. 3,494.3     Rs. 5,438.5  
     
     The following table sets forth, for the periods indicated, the allocation of the total allowance for credit losses:
                                         
    As of March 31,
    2001   2002   2003   2004   2005
Wholesale
                                       
Allocated
  Rs. 877.8     Rs. 1,289.7     Rs. 1,609.4     Rs. 2,379.8     Rs. 2,285.7  
Unallocated
                      269.8       400.9  
     
Subtotal
  Rs. 877.8     Rs. 1,289.7     Rs. 1,609.4     Rs. 2,649.6     Rs. 2,686.6  
     
 
                                       
Retail
                                       
Allocated
  Rs. 94.1     Rs. 133.8     Rs. 74.9     Rs. 342.9     Rs. 1,207.1  
Unallocated
    182.4       182.4       182.4       501.8       1,544.8  
     
Subtotal
  Rs. 276.5     Rs. 316.2     Rs. 257.3     Rs. 844.7     Rs. 2,751.9  
     
 
                                       
     
Allowance for credit losses
  Rs.1,154.3   Rs.1,605.9   Rs.1,866.7   Rs. 3,494.3     Rs. 5,438.5  
     

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
     You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements included in this report. The following discussion is based on our audited financial statements, which have been prepared in accordance with U.S. GAAP, and on information publicly available from the RBI and other sources.
Overview
     We are a leading private sector bank and financial services company in India. Our principal business activities are retail banking, wholesale banking and treasury operations. Our retail banking division provides a variety of deposit products as well as loans, credit cards, debit cards, third party mutual funds and insurance, investment advisory services and depositary services. Through our wholesale banking operations we provide loans, deposit products, documentary credits, guarantees, bullion trading and foreign exchange and derivative products. We also provide cash management services, clearing and settlement services for stock exchanges, tax and other collections for the government, custody services for mutual funds and correspondent banking services. Our treasury group manages our balance sheet and our foreign exchange and derivative products.
     Since fiscal 2001, we have experienced significant growth in our customer and geographical base, expanding from 0.9 million customers in 53 cities as of March 31, 2001 to 6.75 million customers in 211 cities as of March 31, 2005. In addition, we have changed our focus and business mix so that retail banking rather than wholesale banking is our more significant area, as net revenue from retail products has grown from 45.3% of total revenue for the fiscal year ended March 31, 2002 to 61.6% of total revenue for the fiscal year ended March 31, 2005. The higher proportion of retail loans in our portfolio has allowed us to maintain our net interest margins even as market yields in the overall economy were falling. However, with this increase in retail loans, we have increased our unallocated and specific loan loss provisions.
     Our revenue consists of interest and dividend revenue as well as non-interest revenue. Our interest and dividend revenue is primarily generated by interest on loans, securities and other activities. We offer a wide range of loans to retail customers and offer primarily working capital loans to corporate customers. The primary components of our securities portfolio are statutory liquidity ratio investments, credit substitutes and other investments. Statutory liquidity ratio investments principally consist of government of India treasury securities. Credit substitutes, principally consisting of our investments in commercial paper, debentures and preference shares issued by corporations, are part of the financing products we provide to our customers. Other investments include investment grade bonds issued by public sector undertakings and public financial institutions principally to meet RBI directed lending requirements, asset-backed securities, mortgage-backed securities as well as equity securities and mutual funds. Interest revenue from other activities consists primarily of interest from interbank loans and interest paid by the RBI on cash deposits to meet our statutory cash reserve ratio requirements.
     Two important measures of our results of operations are net interest revenue, which is equal to our interest and dividend revenue net of interest expense, and net interest revenue after allowance for credit losses. Interest expense includes interest on deposits as well as on borrowings. Our interest revenue and expense are affected by fluctuations in interest rates as well as volume of activity. Our interest expense is also affected by the extent to which we fund our activities with low-interest or non-interest bearing deposits (including the float on transactional services), and the extent to which we rely on borrowings. Our allowance for credit losses includes our loan loss provision. Impairments of credit substitutes are not included in our loan-loss provision, but are included as realized losses on securities.
     We also use net interest margin and spread to measure our results. Net interest margin represents the ratio of net interest revenue to average interest-earning assets. Spread represents the difference between yield on average interest-earning assets and cost of average interest-bearing liabilities including current accounts and float which are non-interest bearing.

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     Our non-interest revenue includes fee and commission income, realized gains and losses on sales of securities and spread from foreign exchange and derivative transactions. Our principal sources of fee and commission revenue are retail banking services, cash management services, documentary credits and bank guarantees, distribution of third party mutual funds and insurance products and capital market services.
     Our non-interest expense includes expenses for salaries and staff benefits, premises and equipment, depreciation and amortization, and administrative and other expenses. The costs of outsourcing back office and other functions are included in administrative and other expenses.
     Our financial condition and results of operations are affected by general economic conditions prevailing in India. The Indian economy has grown steadily over the past three years. GDP growth was 4.4% in fiscal 2003, 8.1% in fiscal 2004 and 6.9% in fiscal 2005. In addition, interest rates have generally declined during the last three years in line with global trends and due to huge inflows of foreign capital, recent appreciation of the Indian rupee to the U.S. dollar, and the RBI’s general policy during that period of assuring adequate liquidity to the banking system and of generally lowering the rate at which it lent to banks in India.
Critical Accounting Policies
     We have set forth below some of our critical accounting policies under U.S. GAAP. Readers should keep in mind that we prepare our general purpose financial statements in accordance with Indian GAAP and also report to the RBI and the Indian stock exchanges in accordance with Indian GAAP. In certain circumstances, as discussed under “Financial Condition — Transfers within Investment Portfolio” below, we may take action that is required or permitted by Indian banking regulations which may have different consequences under Indian and U.S. GAAP.
     Allowance for loan losses
     Our allowance for credit losses is based on our best estimate of losses inherent in our loan portfolio and consists of our allowances for retail loans and wholesale loans.
     Retail Loans
     We establish specific and unallocated allowances for our retail loans. For all retail loans (including credit cards), we establish a 50% specific allowance when the loan is past due for more than 90 days. If the loan remains 120 days past due, we increase our specific allowance to 100% of any uncollected amounts. We write off uncollected credit card balances which are 150 days past due, and write off uncollected balances for all other retail loans when they are 180 days past due. We also establish unallocated allowances for each of our retail loan products. See “Selected Statistical Information — Investment Portfolio — Retail Loans.”
     Wholesale
     We establish specific allowances for our wholesale loans.
     We evaluate our wholesale loan portfolio on a periodic basis and grade our accounts considering both qualitative and quantitative criteria. Although we believe our grading and surveillance process is comprehensive, it is inherently subjective as it is based on information we have available and requires us to exercise judgment in determining a borrower’s grading and therefore may not be correct in all cases. Our grading is subject to revision as more information becomes available.
     We consider wholesale loans to be impaired when it is probable that we will be unable to collect scheduled payments of principal or interest when due. In arriving at our estimate, we consider the borrower’s payment status, financial condition and the value of collateral we hold.

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     We establish specific allowances for our wholesale loans for each non-performing wholesale loan customer in the aggregate for all funded exposures. This allowance is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate or the net realizable value of any collateral we hold. Our estimate of future cash flows from a borrower is inherently subjective as it is based on our expectations of the probability and timing of default. Our estimate of the net realizable value of any collateral we hold is also subjective, as the collateral we hold is generally working capital such as book debt or inventory.
     With effect from April 1, 2003, in light of the significant growth in the size and diversity of our wholesale loan portfolio, we established an unallocated allowance for wholesale loans based on an internal credit slippage matrix, which measures our historic losses for our standard loan portfolio.
     For more information on the methodologies we have used to establish our allowance for credit losses, see “Selected Statistical Information — Non-Performing Loans — Recognition of Non-Performing Loans.”
     Interest Accrual and Revenue Recognition
     Interest income from loans is recognized on an accrual basis when earned except with respect to loans placed on non-accrual status, for which interest income is recognized when received. Beginning in fiscal 2004, loans have been placed on non-accrual status when they are past due for more than one quarter. Prior to that time, loans were generally placed on non-accrual status when they were past due for more than two quarters. We generally do not charge up-front loan origination fees. Nominal application fees are charged, which offset the related costs incurred.
     Fees and commissions from guarantees issued are amortized over the contractual period of the commitment, provided the amounts are collectible.
     Dividends from investments are recognized when declared.
     Realized gains and losses on sales of securities are recorded on the trade date and are determined using the weighted average cost method.
     Other fees and income are recognized when earned, which is when the service that results in the income has been provided.
     Valuation of Investments
     Investments consist of securities purchased as part of our treasury operations, such as government securities and other debt and equity securities, investments purchased as part of our wholesale banking operations, such as credit substitute securities issued by our wholesale banking customers, which include commercial paper, short-term debentures and preference shares, and asset and mortgage-backed securities.
     Securities that are held principally for resale in the near term are classified as held for trading (“HFT”), with changes in fair value recorded in earnings.
     Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (“HTM”).
     Securities with fair values that are not classified as held to maturity or held for trading are classified as available for sale (“AFS”). Unrealized gains and losses on such securities, net of applicable taxes, are reported in accumulated other comprehensive income (loss), a separate component of shareholders’ equity.

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     We generally report our investments in debt and equity securities at fair value, except for debt securities classified as HTM securities, which are reported at amortized cost. Fair values are based on market quotations where a market quotation is available and otherwise based on present values at current interest rates for such investments.
     For HTM and AFS securities, other than temporary declines in fair values that are below cost will be reflected in earnings as realized losses. We identify other than temporary declines based on an evaluation of all significant factors, including the length of time and extent to which fair value is less than cost and the financial condition and economic prospects of the issuer. We do not recognize an impairment for debt securities if the cause of the decline is related solely to interest rate increases and where we have the ability and intent to hold the security until the fair value is recovered. Estimates of any other than temporary declines in the fair values of credit substitute securities are measured on a case by case basis together with loans under the overall exposure to those customers and recognized as realized losses. As our exposures in respect of such securities are similar to our exposures on the borrower’s loan portfolio, additional disclosures have been provided on impairment status in Note 8 and on concentrations of credit risk in Note 12 of the Financial Statements.
New Accounting Pronouncements
     Share based payment
     In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which establishes accounting standards for all transactions in which an entity exchanges its equity instruments for goods and services. SFAS No. 123(R) focuses primarily on accounting for transactions with employees, and carries forward without change prior guidance for share-based payments for transactions with non employees.
     SFAS No. 123(R) eliminates the intrinsic value alternative in APB Opinion 25 and generally requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The standard requires grant date fair value to be estimated using either an option-pricing model which is consistent with the terms of the award or a market observed price, if such a price exists. Such cost must be recognized over the period during which an employee is required to provide service in exchange for the award — the requisite service period (which is usually the vesting period). The standard also requires us to estimate the number of instruments that will ultimately be issued, rather than accounting for forfeitures as they occur.
     We are required to apply SFAS No. 123(R) to all awards granted, modified or settled in our first reporting period under U.S. GAAP after June 15, 2006. We are also required to use either the “modified prospective method” or the “modified retrospective method.” Under the modified prospective method, we must recognize compensation cost for all awards after we adopt the standard and for the unvested portion of previously granted awards that are outstanding on that date.
     Under the modified retrospective method, we must restate our previously issued financial statements to recognize the amounts we previously calculated and reported on a pro forma basis, as if the prior standard had been adopted. See Note 2(p) to our audited financial statements included elsewhere in this report.
     Under both methods, we are permitted to use either a straight line or an accelerated method to amortize the cost as an expense. The standard permits and encourages early adoption.
     We have commenced our analysis of the impact of SFAS 123(R), but have not yet decided: (1) whether we will elect to adopt early, (2) if we elect to adopt early, then at what date we would do so, (3) whether we will use the modified prospective method or elect to use the modified retrospective method, and (4) whether we will elect to use straight line amortization or an accelerated method. Additionally, we cannot predict with reasonable certainty the number of options that will be unvested and outstanding on April 1, 2006. Accordingly, we cannot currently quantify with precision the effect that this standard would

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have on our financial position or results of operations in the future, except that we probably will recognize a greater expense for any awards that we may grant in the future than we would using the current guidance.
     If we were to adopt SFAS No. 123(R) using the modified retrospective method, our net income would have been Rs. 158.2 million less than reported in the year ended March 31, 2004 and Rs. 900.9 million less than reported in the fiscal year ended March 31, 2005
     Other-than-temporary impairments of securities
     In November 2003, the Financial Accounting Standards Board (“FASB”) ratified a consensus on the disclosure provisions of Emerging Issues Task Force (“EITF”) Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” In March 2004, the FASB reached a consensus regarding the application of a three-step impairment model to determine whether investments accounted for in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other cost method investments are other-than-temporarily impaired. However, with the issuance of FASB Staff Position EITF 03-1-1, the provisions of the consensus relating to the measurement and recognition of other-than-temporary impairments have been deferred pending reassessment by the FASB. The remaining provisions of this standard, which primarily relate to disclosure, have been applied to all investments accounted for in accordance with SFAS No. 115 and other cost method investments. We cannot determine the impact of EITF 03-1 until after the FASB completes its reassessment.
     Loans or debt securities acquired in a transfer
     In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position (“SOP”) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in a loan or debt security acquired in a transfer, if those differences are attributable, at least in part, to credit quality. It limits the yield that may be accreted to the excess of the investor’s estimate of undiscounted expected cash flows over the initial investment in the loan or debt security. The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004, with earlier adoption encouraged. We are evaluating the above standard to determine whether it will have a material effect on our financial position or results of operations.

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Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004
     Net Interest Revenue after Allowance for Credit Losses
     Our net interest revenue after allowances for credit losses increased by 26.0% from Rs. 10.3 billion in fiscal 2004 to Rs. 12.9 billion in fiscal 2005. Our net interest margin increased from 3.8% in fiscal 2004 to 3.9% in fiscal 2005. The following table sets out the components of net interest revenue after allowance for credit losses:
                                 
    Year ended March 31,  
                    Increase/     % Increase/  
    2004     2005     (decrease)     (decrease)  
    (In millions, except percentages)  
Interest on loans
  Rs. 11,705.0     Rs. 16,431.4     Rs. 4,726.4       40.4 %
Interest on securities, including dividends
    11,776.9       11,543.5       (233.4 )     (2.0 )
Other interest revenue
    1,109.6       1,234.5       124.9       11.3  
     
Total interest and dividend revenue
    24,591.5       29,209.4       4,617.9       18.8  
     
 
                               
Interest on deposits
    10,279.2       11,074.1       794.9       7.7  
Interest on short-term borrowings
    1,435.9       1,759.4       323.5       22.5  
Interest on long-term debt
    268.0       390.2       122.2       45.6  
     
Total interest expense
    11,983.1       13,223.7       1,240.6       10.4  
     
 
                               
     
Net interest revenue
    12,608.4       15,985.7       3,377.3       26.8  
     
Allowance for credit losses
                               
Retail
    918.5       2,925.5       2,007.0       218.5  
Wholesale
    1,424.9       122.7       (1,302.2 )     (91.4 )
     
Total
    2,343.4       3,048.2       704.8       30.1  
     
 
                               
     
Net interest revenue after allowance for credit losses
  Rs. 10,265.0     Rs. 12,937.5     Rs. 2,672.5       26.0 %
     
Interest and Dividend Revenue
     Interest revenue from loans increased as average volume of loans increased 50.1% from Rs.136.5 billion in fiscal 2004 to Rs.204.9 billion in fiscal 2005. Our average volume of retail loans increased by 78.4% from Rs. 52.9 billion in fiscal 2004 to Rs. 94.4 billion in fiscal 2005, primarily due to higher penetration of our retail loan products in existing markets and our expansion into new geographical areas. Our average volume of wholesale loans increased by 32.2% from Rs. 83.6 billion in fiscal 2004 to Rs. 110.5 billion in fiscal 2005 due to increased lending to existing customers as well as new customer acquisitions. However, these volume increases were partially offset by a reduction in yields. Yields on our loans decreased from an average of 8.6% in fiscal 2004 to 8.0% in fiscal 2005. Loan yields declined as a result of reduced interest rates on customer advances due to increased competition.
     Interest and dividend revenue from securities declined principally due to lower receipts of dividends on mutual fund units in the fiscal year ended March 31, 2005 as well as a decline in yields. These decreases were partially offset by an increase in the volume of investments and income from investments in government securities.

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     Other interest revenue increased by 11.3% for fiscal 2005 compared to fiscal 2004 mainly due to an increase in earnings from balances maintained with the RBI. This increase in balances was on account of higher statutory cash reserve maintenance requirements during the fiscal year ended March 31, 2005.
Interest Expense
     Our interest expense on deposits increased by 7.7% to Rs. 11.1 billion due to an increase in average volume of deposits of 30.4% from Rs. 262.7 billion in fiscal 2004 to Rs. 342.7 billion in fiscal 2005 primarily as a result of our expanded retail branch network. Our average cost of deposits decreased from 3.9% in fiscal 2004 to 3.2% in fiscal 2005 primarily as a result of a decline in the average cost of time deposits from 6.2% to 5.6% and an increase in the proportion of relatively lower cost average current accounts (which are non interest-bearing) and savings account balances to average total deposits from 46.9% in fiscal 2004 to 55.3% in fiscal 2005.
     Our interest expense on short-term borrowings increased by 22.5% as a result of an increase in borrowing in the interbank call money market partially offset by a decrease in the average cost of borrowing from 4.3% as of March 31, 2004 to 4.1% as of March 31, 2005. Our interest expense on long-term debt increased, primarily due to Rs. 4.0 billion of subordinated debt issued in the last quarter of fiscal 2004.
Allowance for Credit Losses
     Allowances for credit losses increased by 30.1% for fiscal 2005 compared to fiscal 2004. During the same period, allowances for credit losses for retail loans increased by 218.5% from Rs. 918.5 million to Rs. 2,925.5 million, at a greater rate than our retail loan book, which grew by 53.8% from Rs. 73.3 billion to Rs. 112.7 billion, due to an increase in our unsecured loan book consisting of credit cards and personal loans, and expansion into new territories where there are higher rates of delinquency compensated by higher yields. Allowances for credit losses for the wholesale segment decreased by 91.4%, primarily due to a large number of recoveries during the year ended March 31, 2005 compared to the year ended March 31, 2004.
Non-Interest revenue
     Our non-interest revenue increased by 74.8% from Rs. 4.7 billion in fiscal 2004 to Rs. 8.2 billion in fiscal 2005. The following table sets forth the components of our non-interest revenue:
                                 
    Year ended March 31,  
                    Increase/     % Increase/  
    2004     2005     (decrease)     (decrease)  
    (In millions, except percentages)  
Fees and commissions
  Rs. 3,140.7     Rs. 6,124.4     Rs. 2,983.7       95.0 %
Realized gains (losses) on sales of AFS securities
    (48.3 )     194.3       242.6       (502.3 )
Realized gains (losses) on sales of HFT securities
    396.8       (39.3 )     (436.1 )     (109.9 )
Foreign exchange
    740.0       911.7       171.7       23.2  
Derivative transactions
    443.9       204.0       (239.9 )     (54.0 )
Other
    24.5       816.4       791.9       3,232.0  
             
Total non-interest revenue
  Rs. 4,697.6     Rs. 8,211.5     Rs. 3,513.9       74.8 %
             
     Fees and commissions increased primarily because of growth in service and processing fee income related to retail banking services, which was due largely to an increased volume of ATM, credit card and debit card transactions and other retail loans, and an increase in the standard rates for fees on retail transactions. In addition, our depositary fees increased as a result of increased stock market activity as did fees from the distribution of third party mutual funds and insurance.

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     Revenue from foreign exchange increased primarily due to an increase in the volume of foreign exchange transactions with retail and wholesale customers.
     Revenue from derivatives declined primarily due to lower customer volumes on derivatives as well as a decline in fair values on interest rate swaps due to changes in interest rates.
     The increase in other non-interest revenue resulted from the gain on the sale of our portfolio of automobile, commercial vehicle and personal loans.
     Non-Interest expense
     Our non-interest expense comprised of the following:
                                                 
    Year ended March 31,  
                    Increase/     % Increase/     2004 % of     2005 % of  
    2004     2005     (decrease)     (decrease)     net revenues     net revenues  
    (In millions)                          
Salaries and staff benefits
  Rs. 2,154.0     Rs. 3,249.9     Rs. 1,095.9       50.9 %     14.4 %     15.4 %
Premises and equipment
    1,828.5       2,260.8       432.3       23.6       12.2       10.7  
Depreciation and amortization
    1,254.9       1,440.7       185.8       14.8       8.4       6.8  
Administrative and other
    3,131.9       4,462.5       1,330.6       42.5       20.9       21.1  
                           
Total non-interest expense
  Rs. 8,369.3     Rs. 11,413.9     Rs. 3,044.6       36.4 %     55.9 %     54.0 %
                           
     Total non-interest expense increased by 36.4% from Rs. 8.4 billion in fiscal 2004 to Rs. 11.4 billion in fiscal 2005. This was primarily due to increased infrastructure costs related to the expansion of our branch and ATM networks and geographical coverage and higher volumes for our retail loan products. As a percentage of our net revenues, non-interest expense decreased to 54.0% in fiscal 2005 compared to 55.9% in fiscal 2004.
     Salaries and staff benefits rose in absolute terms and as a percentage of revenue principally due to increased headcount to support our future growth. Our headcount increased from 5,673 employees as of March 31, 2004 to 9,030 employees as of March 31, 2005. Salaries and staff benefits in the year ended March 31, 2005 also included a charge of Rs. 310.2 million for compensation expense arising out of options granted compared to Rs. 135.1 million in the year ended March 31, 2004. Our premises and equipment expense increased because we expanded our distribution network from 312 branches and 910 ATMs as of March 31, 2004 to 467 branches and 1,147 ATMs as of March 31, 2005. Depreciation and amortization and administrative and other expenses increased primarily due to an expansion of our branch and ATM networks and higher spending on technology and infrastructure to support growth in our retail loans and credit card business.
     Income Tax
     Our income tax expense increased by 70.0% from Rs. 1.8 billion in fiscal 2004 to Rs. 3.1 billion in fiscal 2005. Our effective tax rate increased from 27.9% in fiscal 2004 to 32.1% in fiscal 2005, principally due to an increase of 0.72% in the statutory income tax rate and higher permanent differences in the form of stock based compensation and lower tax-exempt income in the year ended March 31, 2005. Tax-exempt income consists principally of dividends and investment income from tax-exempt investments such as preference shares, mutual fund units and infrastructure bonds.
     Net Income
     As a result of the foregoing factors, our net income after taxes increased by 39.0% from Rs. 4.8 billion in fiscal 2004 to Rs. 6.6 billion in fiscal 2005.

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Fiscal Year Ended March 31, 2004 Compared to Fiscal Year Ended March 31, 2003
     Net Interest Revenue After Allowance For Credit Losses
     Our net interest revenue after allowances for credit losses increased by 48.7% from Rs. 6.9 billion in fiscal 2003 to Rs. 10.3 billion in fiscal 2004. Our net interest margin increased from 3.3% in fiscal 2003 to 3.8% in fiscal 2004. The following table sets out the components of net interest revenue after allowance for credit losses:
                                 
    Year ended March 31,  
                    Increase/     % Increase/  
    2003     2004     (decrease)     (decrease)  
    (In millions, except percentages)  
Interest on loans
  Rs. 7,805.3     Rs. 11,705.0     Rs. 3,899.7       50.0 %
Interest on securities, including dividends
    10,386.1       11,776.9       1,390.8       13.4  
Other interest revenue
    1,233.4       1,109.6       (123.8 )     (10.0 )
     
Total interest and dividend revenue
    19,424.8       24,591.5       5,166.7       26.6  
     
 
                               
Interest on deposits
    10,508.5       10,279.2       (229.3 )     (2.2 )
Interest on short-term borrowings
    1,032.9       1,435.9       403.0       39.0  
Interest on long-term debt
    237.8       268.0       30.2       12.7  
     
Total interest expense
    11,779.2       11,983.1       203.9       1.7  
     
 
                               
     
Net interest revenue
    7,645.6       12,608.4       4,962.8       64.9  
     
 
                               
Allowance for credit losses
                               
Retail
    181.8       918.5       736.7       405.2  
Wholesale
    559.7       1,424.9       865.2       154.6  
     
Total
    741.5       2,343.4       1,601.9       216.0  
     
 
                               
     
Net interest revenue after allowance for credit losses
  Rs. 6,904.1     Rs. 10,265.0     Rs. 3,360.9       48.7 %
     
     Interest and Dividend Revenue
     Interest revenue from loans increased as average volume of loans increased by 65.6% from Rs. 82.5 billion in fiscal 2003 to Rs. 136.5 billion in fiscal 2004. Our average volume of retail loans increased by 153.8% from Rs. 20.9 billion in fiscal 2003 to Rs. 52.9 billion in fiscal 2004, primarily because of the expansion of our core retail loan products and our expansion into new geographical areas. Our average volume of wholesale loans increased by 35.7% from Rs. 61.6 billion in fiscal 2003 to Rs. 83.6 billion in fiscal 2004 due to a general increase in business. This growth in volume was partially offset as yields on our loans decreased from an average of 9.5% in fiscal 2003 to 8.6% in fiscal 2004. Loan yields declined in line with the general decline in interest rates and due to increased competition.
     Interest and dividend revenue from securities increased principally due to an increase in the interest revenue from securities held to meet the statutory liquidity ratio. This was due to an increase in the average volume of our statutory liquidity ratio investments, which increased by 55.2% from Rs. 54.8 billion in fiscal 2003 to Rs. 85.1 billion in fiscal 2004, partially offset by a decline in yields. The increase in interest and dividend income was also due to higher dividend income from mutual fund units and additional investments made to comply with our directed lending obligations.

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     Other interest revenue decreased due to a smaller number of interbank placements in U.S. dollars as the interest differential between the U.S. market and India narrowed.
     Interest Expense
     Our interest expense on deposits decreased as a result of a decrease in interest rates despite the average volume of deposits increasing by 40.6% from Rs. 186.8 billion in fiscal 2003 to Rs. 262.7 billion in fiscal 2004.
     Our average cost of deposits decreased from 5.6% in fiscal 2003 to 3.9% in fiscal 2004 as a result of a decline in the cost of time deposits from 7.7% to 6.2% and an increase in the proportion of relatively lower cost average current and savings account balances to average total deposits from 35.0% in fiscal 2003 to 46.9% in fiscal 2004.
     Our interest expense on short-term borrowings increased as a result of an increase in borrowings in the interbank call-money market from Rs. 15.4 billion to Rs. 33.0 billion, offset partly by a drop in the average cost of such borrowings from 6.7% to 4.3%. Our interest expense on long-term debt increased marginally due to the partial impact of the Rs. 4.0 billion of subordinated debt issued in the last quarter of fiscal 2004.
     Allowance for Credit Losses
     The increase in our allowance for credit losses in fiscal 2004 reflected higher gross additions to non-performing loans in both retail and wholesale banking. Also, we made an unallocated allowance of Rs. 589.2 million in fiscal 2004 for performing commercial and retail loans. No such unallocated allowance was created in fiscal 2003.
     Non-Interest Revenue
     Our non-interest revenue increased by 6.8% from Rs. 4.4 billion in fiscal 2003 to Rs. 4.7 billion in fiscal 2004. The following table sets out the components of our non-interest revenue:
                                 
    Year ended March 31,  
                    Increase/     % Increase/  
    2003     2004     (decrease)     (decrease)  
    (In millions, except percentages)  
Fees and commissions
  Rs.   2,306.4     Rs.   3,140.7     Rs. 834.3       36.2 %
Realized gains (losses) on sales of AFS securities
    721.7       (48.3 )     (770.0 )     (106.7 )
Realized gains (losses) on sales of HFT securities
    507.8       396.8       (111.0 )     (21.9 )
Foreign exchange
    445.3       740.0       294.7       66.2  
Derivative transactions
    379.1       443.9       64.8       17.1  
Other
    37.0       24.5       (12.5 )     (33.8 )
     
Total non-interest revenue
  Rs.   4,397.3     Rs.   4,697.6     Rs. 300.3       6.8 %
     
     Fees and commissions grew primarily because of an increase in the volume of ATM transactions for other banks’ customers, debit card transactions, processing fees relating to retail loans, service charges for non-maintenance of minimum balances, depositary fees (as there was an increase in activity due to recovery in the stock markets) and fees from the distribution of third party mutual funds.
     The realized losses in the AFS book in 2004 are due to losses on redemption of mutual fund units post receipt of dividends. We made a higher profit in fiscal 2003 compared to fiscal 2004 in the HFT category as we took advantage of a larger decline in interest rates in fiscal 2003 than in fiscal 2004.

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     Revenues from foreign exchange increased primarily as a result of the introduction of the sale of foreign exchange products to retail customers and increased volume of transactions with wholesale customers.
     Revenues from derivatives increased principally due to higher customer volumes on interest rate swaps.
     Non-Interest Expense
     Our non-interest expense was comprised of the following:
                                                 
    Year ended March 31,  
                    Increase/     % Increase/     2003 % of net     2004 % of net  
    2003     2004     (decrease)     (decrease)     revenues     revenues  
    (In millions, except percentages)  
Salaries and staff benefits
  Rs.   1,661.2     Rs.   2,154.0     Rs. 492.8       29.7 %     14.7 %     14.4 %
Premises and equipment
    1,343.6       1,828.5       484.9       36.1       11.9       12.2  
Depreciation and amortization
    1,052.4       1,254.9       202.5       19.2       9.3       8.4  
Administrative and other
    2,000.7       3,131.9       1,131.2       56.5       17.7       20.9  
     
Total non-interest expense
  Rs.   6,057.9     Rs.   8,369.3     Rs.   2,311.4       38.2 %     53.6 %     55.9 %
     
     Salaries and staff benefits rose principally due to increased headcount to support our growth. Our headcount increased from 4,791 employees as of March 31, 2003 to 5,673 employees as of March 31, 2004. Our premises and equipment expense, depreciation and amortization expense and administrative and other expenses increased principally because we expanded our distribution network from 231 branches and 732 ATMs as of March 31, 2003 to 312 branches and 910 ATMs as of March 31, 2004 and also as a result of the infrastructure that we implemented to support growth in the retail loan book and credit card business.
     Income Tax
     Our income tax expense increased by 6.3% from Rs. 1.7 billion in fiscal 2003 to Rs. 1.8 billion in fiscal 2004. Our effective rate of tax decreased from 33.0% in fiscal 2003 to 27.9% in fiscal 2004, principally due to a decrease of 0.88% in the statutory income tax rate and higher tax-exempt income. Tax-exempt income consists principally of dividends and investment income from tax-exempt investments such as preference shares, mutual fund units and infrastructure bonds.
     Net Income
     As a result of the foregoing factors, our net income after taxes increased by 35.3% from Rs. 3.5 billion in fiscal 2003 to Rs. 4.8 billion in fiscal 2004.
Liquidity and Capital Resources
     Our growth over the last three years has been financed by a combination of cash generated from operations, increases in our customer deposits, borrowings and new issuances of equity capital.
     The following table sets forth our cash flows from operating activities, investing activities and financing activities in a condensed format. We have aggregated certain line items set forth in the cash flow statement that is part of our financial statements included elsewhere in this report in order to facilitate understanding of significant trends in our business.

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    Years ended March 31,  
    2003     2004     2005  
    (In millions)  
Cash flows from operating activities:
                       
Net income
  Rs. 3,513.8     Rs. 4,754.5     Rs. 6,609.7  
Non cash adjustment to net income
    1,394.6       4,515.6       5,021.2  
     
Subtotal
    4,908.4       9,270.1       11,630.9  
Net change in other assets and liabilities
    9,579.1       30,985.8       (9,886.2 )
     
Net cash provided/(used) by operating activities
    14,487.5       40,255.9       1,744.7  
     
Cash flows from investing activities:
                       
Net change in term placements
    (7,747.4 )     4,182.2       (5,134.3 )
Net change in Investment
    (14,051.0 )     (57,535.2 )     (17,516.4 )
Proceeds from loans securitized
          5,917.4       48,234.6  
Increase in loans originated, net of principal collections
    (47,512.5 )     (67,765.8 )     (129,466.1 )
Additions to property and equipment
    (2,517.3 )     (2,119.0 )     (2,433.3 )
 
                       
     
Net cash used in investing activities
    (71,828.2 )     (117,320.4 )     (106,315.5 )
     
Cash flows from financing activities:
                       
Net increase in deposits
    47,221.9       80,302.0       59,480.5  
Net increase/(decrease) in short-term borrowings
    (20.7 )     2,484.6       38,014.9  
Net increase/(decrease) in long-term debt
    (41.9 )     3,970.0       (1,057.9 )
Proceeds from issuance of equity shares for options exercised
    86.7       203.6       659.1  
Proceeds from issuance of ADSs
                12,747.6  
Proceeds from applications received for shares pending allotment
    146.5       125.5       423.3  
Payment of dividends and dividend tax
    (697.5 )     (955.7 )     (1,131.3 )
     
Net cash provided by financing activities
    46,695.0       86,130.0       109,136.2  
     
Net change in cash
    (10,645.7 )     9,065.5       4,565.4  
Cash and cash equivalents, beginning of year
    34,590.6       23,944.9       33,010.4  
     
Cash and cash equivalents, end of year
  Rs. 23,944.9     Rs. 33,010.4     Rs. 37,575.8  
     
     Cash flows from operations
     Our net cash from operations reflects our net income, adjustments for tax and non-cash charges such as depreciation and amortization, as well as changes in other assets and liabilities. Our net income after adjusting for tax and non-cash adjustments increased in the periods shown. Our cash flow from operations increased in fiscal 2005 compared to fiscal 2004 due to an increase in our allowances for credit losses and a reduction in our investing activities. This was compensated by gain on sales of securitization and AFS securities. Movements in other assets and liabilities had a significant impact on our overall position and caused a large part of the overall increase in net cash from operations in fiscal 2004. These changes arose primarily from our role as a payment bank to corporations that make initial public offerings. In such capacity, we issue demand drafts to persons whose subscriptions for shares are rejected (due to oversubscription or other reasons). The issuer advances funds to us for the payment of such drafts. The delay between the receipt of funds from the issuer and issuance of such demand drafts on the one hand, and the cashing of those drafts by the recipients on the other, can result in significant movements in our accrued expenses and other liabilities from period to period. In particular, during fiscal 2004 we received large amounts of cash against which we issued demand drafts which remained unpaid at March 31, 2004. Primarily as a result of this activity, our accrued expenses and other liabilities increased by Rs. 31.2 billion in fiscal 2004 compared to fiscal 2003. As these drafts were paid during fiscal 2005 the accrued expenses and other liabilities decreased in fiscal 2005 over fiscal 2004. However, this decrease in other liabilities was compensated by an increase in remittances in transit and accounts payable.

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     Cash flows from financing activities
     Our primary sources of cash flows from financing activities are deposits and, to a lesser extent, borrowings. Deposits have increased over time as our business has expanded. The market yield continued to decline in fiscal 2004 and fiscal 2005 compared to fiscal 2003. This reflected a slowdown in the rate of growth in time deposits, as customer preferences shifted to other investments. Our time deposits grew by 19.3% from Rs. 215.7 billion in fiscal 2004 to Rs. 257.2 billion in fiscal 2005. Our current and savings accounts grew by 20.3% from Rs. 88.3 billion to Rs. 106.3 billion during the same period. In addition, the fiscal 2004 increase in deposits reflected the collection of over Rs. 20.0 billion received from applicants for shares in various initial public offerings in the Indian markets. These amounts were outstanding on our books as of March 31, 2004 and were paid out during the year ended March 31, 2005. Because of the trends in deposits discussed above coupled with an increase in loan book, we increased our short-term borrowings during the years ended March 31, 2004 and March 31, 2005 in order to fund our growth. Our short-term borrowings increased by 158.0% from Rs. 24.1 billion as of March 31, 2004 to Rs. 62.1 billion as of March 31, 2005. The increase was due primarily to an increase in short-term call borrowings.
     As our retail loan book increased, we were required to increase our capital ratios. We privately placed long-term subordinated debt of Rs. 4.0 billion in February 2004. Subordinated debt of Rs. 1.0 billion was repaid at maturity during the fiscal year ended March 31, 2005.
     We raised equity capital of Rs. 12.7 billion in January 2005, through an add-on offering of ADSs in the United States. This strengthened our capital position in order to support balance sheet growth.
     Cash flows from investing activities
     We used our cash from operations and financing activities primarily to invest in our retail loan book. Our growth in investments reflected primarily an increase in statutory liquidity ratio investments that was required as our business expanded. As the pace of growth of our retail loans was much faster than growth in deposits, our liquidity and capital position were strained. As a result, we sold our automotive, commercial vehicle, two wheelers and personal loan book of Rs. 48.0 billion in fiscal 2005. During the year ended March 31, 2005, as yields reversed their downward trend, we substantially closed out our trading positions in investments to insulate any immediate valuation losses due to the downward movement in bond prices.

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Financial Condition
     Assets
     The following table sets forth the principal components of our assets as of March 31, 2004 and March 31, 2005:
                                 
                    Increase/     % Increase/  
    As of March 31,     (decrease)     (decrease)  
    2004     2005                  
    (In millions except percentages)  
Cash and cash equivalents
  Rs. 33,010.4     Rs. 37,575.8     Rs. 4,565.4       13.8 %
Term placements
    3,565.2       8,699.6       5,134.4       144.0  
Investments held for trading
    6,233.8       1,278.5       (4,955.3 )     (79.5 )
Investments available for sale
    133,274.6       204,292.8       71,018.2       53.3  
Investments held to maturity
    36,368.4             (36,368.4 )     (100.0 )
Securities purchased under agreements to resell
    19,950.0             (19,950.0 )     (100.0 )
Loans, net
    177,681.1       256,486.9       78,805.8       44.4  
Accrued interest receivable
    4,178.7       4,912.1       733.4       17.6  
Property and equipment
    6,169.1       7,083.2       914.1       14.8  
Other assets
    6,404.3       9,125.3       2,721.0       42.5  
               
Total assets
  Rs.  426,835.6     Rs.  529,454.2     Rs.  102,618.6       24.0 %
               
     Our total assets increased by 24.0% to Rs. 529.4 billion as of March 31, 2005.
     Investments held for trading declined due to lower trading opportunities in view of the rising interest rate environment.
     Investments available for sale increased primarily due to a reclassification of our HTM portfolio to AFS as described below under “— Transfers Within Investment Portfolios.”
     Net loans increased due to increases in both our retail and wholesale products. Our retail loan volume increased by 53.8% to
Rs. 112.7 billion in fiscal 2005, which reflected our increased focus on retail loans. This increase was net of sales of automobile, commercial vehicle and personal loans aggregating Rs. 48.0 billion in securitization transactions during the year ended March 31, 2005.
     Our property and equipment increased as we expanded our distribution network from 312 branches and 910 ATMs as of March 31, 2004 to 467 branches and 1,147 ATMs as of March 31, 2005 and invested in other infrastructure to support our growth.
     Transfers Within Investment Portfolio
     In fiscal 2005, because interest rates were rising in the Indian market, we elected to transfer investments with a fair value of Rs. 11.2 billion from our HTM portfolio to our AFS portfolio because these investments were yielding higher than prevailing market yields. The transfer thus provided some relief in our Indian GAAP accounts from the effects of losses in the AFS portfolio as a result of further increases in interest rates. This transfer was permitted by RBI regulations. However, because this transfer was not considered acceptable under U.S. GAAP, our HTM portfolio was deemed “tainted” and we were required to reclassify the remaining HTM portfolio as AFS. We are not permitted to establish a new HTM portfolio under U.S. GAAP until after March 31, 2007 and, accordingly, the investment classifications under U.S. GAAP and Indian GAAP could vary materially in the future. This reclassification resulted in an increase to shareholders’ equity of Rs. 1.2 billion and had no effect on net income.

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Liabilities and Shareholders’ Equity
     The following table sets forth the principal components of our liabilities and shareholders’ equity as of March 31, 2004 and March 31, 2005:
                                 
                    Increase/     % Increase/  
    As of March 31,     (decrease)     (decrease)  
    2004     2005                  
    (In millions except percentages)  
Liabilities
                               
Interest bearing deposits
  Rs. 215,710.8     Rs. 257,237.9     Rs. 41,527.1       19.3 %
Non-interest bearing deposits
    88,351.2       106,304.6       17,953.4       20.3  
           
Total deposits
    304,062.0       363,542.5       59,480.5       19.6  
           
Short-term borrowings
    24,064.2       62,079.1       38,014.9       158.0  
Accrued interest payable
    4,165.4       5,843.0       1,677.6       40.3  
Long-term debt
    6,086.0       5,028.1       (1,057.9 )     (17.4 )
Accrued expenses and other liabilities
    57,242.2       43,623.5       (13,618.7 )     (23.8 )
           
Total liabilities
    395,619.8       480,116.2       84,496.4       21.4  
           
Shareholders’ equity
    31,215.8       49,338.0       18,122.2       58.1  
           
Total liabilities and shareholders’ equity
  Rs. 426,835.6     Rs. 529,454.2     Rs. 102,618.6       24.0 %
           
     Our total liabilities increased by 21.4% to Rs. 480.1 billion as of March 31, 2005. The increase in our interest bearing deposits was principally due to new customers acquired as we expanded our branch network and achieved greater penetration of our customer base through cross sales of our products. Of our total deposits as of March 31, 2005, retail deposits accounted for 69.2% and wholesale deposits accounted for the balance.
     Accrued expenses and other liabilities decreased principally because of a decrease in bills payable as of March 31, 2005 compared to March 31, 2004. Bills payable decreased due to payment of refund orders of unallotted collection monies of those who applied for initial public offerings of companies, which we owed as of March 31, 2004.
     Long-term debt decreased due to the repayment at maturity of subordinated debt of Rs. 1.0 billion.
     Most of our funding requirements are met through short-term and medium-term funding sources. Of our total non-equity sources of funding as of March 31, 2005, deposits accounted for approximately 75.7% (of which retail deposits were 69.2%) with short-term borrowings accounting for approximately 12.9% and long-term debt accounting for approximately 1.0%. In our experience, a substantial portion of our deposits are rolled over upon maturity and are, over time, a stable source of funding. However, the continuation of our deposit base could be adversely affected if the economy deteriorates or if the interest rates offered by us differ significantly from those offered by our competitors.
     Shareholders’ equity increased primarily due to the issuance of new ADSs in January 2005 of Rs.12.7 billion and an increase in our retained earnings. As of March 31, 2005, our shareholders’ equity included Rs. 1.0 billion of unrealized gains on AFS securities, net of tax, which includes the effect of the reclassification of the HTM portfolio discussed above.
Capital
     We are subject to the capital adequacy requirements of the RBI, which are primarily based on the capital adequacy accord reached by the Basel Committee of the Bank of International Settlements in 1988. For a

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description of the RBI’s capital adequacy guidelines, see “Supervision and Regulation — Capital Adequacy Requirements.” We are required to maintain a minimum ratio of total capital to risk adjusted assets as determined by a specified formula of 9.0%, at least half of which must be Tier 1 capital, which is generally shareholders’ equity.
     Our regulatory capital and capital adequacy ratios as measured in accordance with Indian GAAP are as follows:
                 
    As of March 31,  
    2004     2005  
    (In millions, except percentages)  
Tier 1 capital
  Rs. 22,297.0     Rs. 39,621.6  
Tier 2 capital
    10,081.2       10,547.3  
 
               
     
Total capital
    32,378.2       50,168.9  
     
 
               
     
Total risk weighted assets and contingents
  Rs. 277,738.2     Rs. 412,710.3  
     
Capital ratios:
               
Tier 1
    8.03 %     9.60 %
Total capital
    11.66 %     12.16 %
Minimum capital ratios required by the RBI:
               
Tier 1
    4.50 %     4.50 %
Total capital
    9.00 %     9.00 %
     As shown above, our Tier 1 capital ratio increased to 9.60% and our total capital ratio increased to 12.16% as of March 31, 2005. The increase in our Tier 1 capital ratio was primarily due to our ADS issue of Rs. 12.7 billion in the last quarter of fiscal 2005, offset partly by the growth in our customer assets. The increase in Tier 2 capital was lower than the increase in Tier 1 due to redemption of Rs. 1 billion subordinated debt on maturity in the year ended March 31, 2005 and a reduction in the portion of subordinated debt eligible to be considered Tier 2 capital.
     Our Indian GAAP financial statements include general provisions (unallocated allowances) of Rs. 1.6 billion and Rs. 1.5 billion as of March 31, 2004 and March 31, 2005, respectively, which qualify for Tier 2 capital subject to a ceiling of 1.25% of risk weighted assets.
     In an effort to create a prudent policy for utilizing gains realized on the sale of investments, the RBI issued guidelines in fiscal 2002 requiring the appropriation of a minimum of 5% of the investment portfolio to an investment fluctuation reserve over the five-year period ending March 31, 2006. We currently carry an investment fluctuation reserve of Rs. 4.8 billion in Indian GAAP, which is 4.5% of the investment portfolio, excluding investments held to maturity as per Indian GAAP. This amount is included in retained earnings in U.S. GAAP.
     The RBI Tier 1 capital and total capital ratios are expected to change with the implementation of the Basel II standards in late fiscal 2006 or early fiscal 2007. Under Basel II, there will be three methods for determining the risk weighting of assets for purposes of calculating capital requirements for credit risk, consisting of one “standardized” method in which external ratings are used and two methods in which a bank’s internal ratings are used. The RBI has said that Indian banks should use the standardized method but it may later permit banks to migrate to the internal ratings based approaches. We have been closely following the development of Basel II and have participated in studies conducted by the RBI to analyze the effects of Basel II. Since the publication of the final framework in June 2004, we have been reviewing our systems and procedures, particularly in the areas of credit rating, risk architecture, technology support and

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process documentation, to ensure that we are in a position to implement the new framework and, in particular, to follow an internal ratings based approach once that is permitted by the RBI. This will supplement the risk management systems that we already have in place.
     Capital Expenditure
     Our capital expenditures consist principally of branch network expansion, as well as investments in our technology and communications infrastructure. We have current plans for aggregate capital expenditures of approximately Rs. 5.7 billion in fiscal 2006, of which we intend to invest approximately Rs. 1.3 billion in technology and Rs. 3.0 billion to expand our branch, ATM and Electronic Data Capture terminal networks. As of March 31, 2005, we had entered into capital commitments of Rs. 214 million, which we plan to fund through internal accruals. However, we have no commitments to make the balance of the planned capital expenditures and the foregoing amounts and purposes may change depending on business conditions.
Financial Instruments and Off-Balance Sheet Arrangements
     Foreign Exchange and Derivatives
     We enter into foreign exchange and derivative transactions for our customers and for our own account. Our foreign exchange contracts include forward exchange contracts, currency swaps and currency options. Our derivative contracts include rupee-based interest rate swaps, forward rate agreements and cross-currency derivatives primarily for corporate customers. We enter into transactions with our customers and typically lay off exposures in the interbank market. We also trade rupee-based interest rate swaps for our own account and enter into foreign exchange contracts to cover our own exposures. We earn profit on customer transactions by way of a margin as a mark-up over the interbank exchange or interest rate. We earn profit on interbank transactions by way of a spread between the purchase rate and the sale rate. These profits are recorded as income from foreign exchange and derivative transactions. The RBI imposes limits on our ability to hold overnight positions in foreign exchange and derivatives. See “Business — Treasury — Derivatives.”
     The following table presents the aggregate notional principal amounts of our outstanding foreign exchange and derivative contracts as of March 31, 2004 and March 31, 2005, together with the related fair value, which is the mark-to-market impact of the derivative and foreign exchange products on the reporting date. We do not net exposures to the same counter party in calculating these amounts.
                                 
    As of March 31,  
    2004     2005  
    Notional     Fair Value     Notional     Fair Value  
    (In millions)  
Interest rate swaps and forward rate agreements
  Rs. 343,913.7     Rs. (15.4 )   Rs. 780,211.6     Rs. (79.7 )
Forward exchange contracts, currency swaps and currency options
    439,917.00       503.3       571,445.0       731.2  
     Our trading activities for the above derivative instruments are carried out in the interbank market, which is a non-exchange informal market. However, these markets generally either provide price discovery or sufficient data to reliably estimate fair values of financial instruments.
     Guarantees and Documentary Credits
     As a part of our commercial banking activities, we issue documentary credits and guarantees. Documentary credits, such as letters of credit, enhance the credit standing of our customers. Guarantees generally represent irrevocable assurances that we will make payments in the event that a customer fails to

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fulfill its financial or performance obligations. Financial guarantees are obligations to pay a third party beneficiary where a customer fails to make payment toward a specified financial obligation. Performance guarantees are obligations to pay a third party beneficiary where a customer fails to perform a non-financial contractual obligation. The nominal values of guarantees and documentary credits for the dates set forth below were as follows:
                 
    As of March 31,  
    2004     2005  
    (In millions)  
Bank guarantees:
               
Financial guarantees
  Rs. 7,497.0     Rs. 14,365.4  
Performance guarantees
    8,916.8       9,954.4  
Documentary credits
    18,921.0       27,930.2  
     
Total
  Rs. 35,334.8     Rs. 52,250.0  
     
     Guarantees and documentary credits outstanding increased by 47.9% to Rs. 52.3 billion as of March 31, 2005, principally due to general growth in our wholesale banking business.
     Loan Sanction Letters
     In some cases we issue sanction letters to customers, indicating our intent to provide new loans. The amount of loans referred to in these letters that have not yet been made increased from Rs. 44.5 billion as of March 31, 2004 to Rs. 65.2 billion as of March 31, 2005. If requested, we make these loans subject to the customer’s credit worthiness at that time and at interest rates in effect on the date the loans are made. We are not obligated to make these loans, and the sanctions are subject to periodic review. See also Note 23 to our Financial Statements.
Contractual Obligations and Commercial Commitments
     Contractual Obligations
                                         
    Payments due by period  
            Less than                     After  
    Total     1 year     1-3 years     4-5 years     5 years  
    (In millions)  
Subordinated debt
  Rs. 5,000.0     Rs.     Rs. 1,000.0     Rs.     Rs. 4,000.0  
Other long-term debt(1)
    28.2       19.5       6.6       2.2        
Operating leases(2)
    7,417.0       1,019.7       2,962.5       2,501.1       933.6  
Unconditional purchase obligations(3)
    497.5       497.5                    
     
Total contractual cash obligations
  Rs. 12,942.7     Rs. 1,536.7     Rs. 3,969.1     Rs. 2,503.3     Rs. 4,933.6  
     
(1)   Other long-term debt consists of capital lease obligations of Rs. 17.2 million pertaining to assets taken on leases, such as ATMs, VSATs and other equipment, which we assumed at the time of our merger with Times Bank in 2000, and Rs. 11.0 million being a concessional loan from an agency for the purchase of solar power panels.
 
(2)   Operating leases are principally for the lease of office, branch and ATM premises, and residential premises for executives.

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(3)   Unconditional purchase obligations principally constitute the capital expenditure commitments made as of March 31, 2005. See “— Capital Expenditures.”
     Commercial Commitments
     Our commercial commitments consist principally of letters of credit, guarantees, foreign exchange contracts and derivative contracts.
     Based on historical trends, we have recognized a liability of Rs. 50.1 million as required by FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,” issued in November 2002.
     As part of our risk management activities, we continuously monitor the credit worthiness of customers as well as guarantee exposures. However, if a customer fails to perform a specified obligation to a beneficiary, the beneficiary may draw upon the guarantee by presenting documents that are in compliance with the guarantee. In that event, we make payment to the beneficiary on account of the indebtedness of the customer or make payment on account of the default by the customer in the performance of an obligation, up to the full notional amount of the guarantee. The customer is obligated to reimburse us for any such payment. If the customer fails to pay, we would, as applicable, liquidate collateral and/or set off accounts. The residual maturities of the above obligations as of March 31, 2005 are set forth in the following table:
                                         
    Commitment expiration per period  
    Total amounts     Less than                     More than 5  
    committed     1 year     1-3 years     4-5 years     years  
    (In millions)  
Documentary Credits
  Rs. 27,930.2     Rs. 27,930.2     Rs.     Rs.     Rs.  
Guarantees
    24,319.3       19,612.6       3,429.8       359.3       917.7  
Forward exchange contracts
    533,981.8       528,410.5       5,098.3       473.0        
Derivative contracts*
    815,342.5       124,567.3       395,948.7       292,842.1       1,984.4  
     
Total contractual cash obligations
  Rs. 1,401,573.8   Rs.  700,520.5     Rs.  404,476.7     Rs.  293,674.5     Rs.  2,902.1  
     
*   Denotes notional principal amounts.

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MANAGEMENT
Directors and Executive Officers
     Our Memorandum and Articles of Association (the “Articles”) provide that until otherwise determined by a general meeting of shareholders, the number of our directors shall not be less than three or more than fifteen directors, excluding directors appointed pursuant to the terms of issued debt. Our board of directors consisted of eleven members as of March 31, 2005. At the eleventh Annual General Meeting of the Bank held on June 17, 2005, Mr. Anil Ahuja retired by rotation and expressed his desire not to seek reappointment. Accordingly, the shareholders approved his retirement by rotation and resolved not to fill the vacancy caused by Mr. Ahuja’s retirement.
     As per the Indian Companies Act, 1956 (the “Companies Act”), at least two-thirds of our directors are required to retire by rotation, with one-third of these retiring at each annual general meeting. As of March 31, 2005, nine out of our eleven directors retire by rotation. However, any retiring director may be reappointed by resolution of the shareholders.
     Under the terms of our organizational documents, HDFC Limited has a right to nominate two directors who are not required to retire by rotation, so long as HDFC Limited, its subsidiaries or any other company promoted by HDFC Limited either singly or in the aggregate holds not less than 20% of our paid up equity share capital. The two directors so nominated by HDFC Limited are the Chairman and the Managing Director. The Bennett Coleman Group has the right to appoint one director so long as its equity holdings do not fall below 5%. Mr. Vineet Jain has been nominated by the Bennett Coleman Group.
     The Banking Regulation Act requires that not less than 51% of the board members shall have special knowledge or practical experience in one or more of the following areas: accounting, finance, agriculture and rural economy, banking, co-operation, economics, law, small scale industry and any other matter the RBI may specify. Out of these, not less than two directors shall have specialized knowledge or practical experience in agriculture and rural economy, co-operation or small scale industry. Dr. Gadwal has specialized knowledge and experience in the agricultural sector. Mr. Ashim Samanta, who has been appointed as the director of the Bank effective from November 18, 2004 possesses specialized knowledge and experience in small scale industry.
     Interested directors may not vote at board proceedings, except where the interest is based solely on a contract of indemnity for which the director is a surety, the interest is based on the director’s involvement as director of another company and holder of shares of that company, or where a proper notification has been given under the Companies Act, 1956.
     None of our directors or executive officers holds 1% or more of our shares.

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     Our board of directors as of March 31, 2005 was comprised of:
             
Name   Position   Age
Mr. Jagdish Capoor
  Chairman     65  
Mr. Aditya Puri
  Managing Director     55  
Mr. Anil Ahuja *
  Non-Executive Director     43  
Dr. V. R. Gadwal **
  Non-Executive Director     67  
Mr. Vineet Jain
  Non-Executive Director     39  
Mr. K. M. Mistry **
  Non-Executive Director     51  
Mrs. Renu Karnad**
  Non-Executive Director     53  
Mr. Arvind Pande
  Non-Executive Director     63  
Mr. Bobby Parikh
  Non-Executive Director     41  
Mr. Ranjan Kapur
  Non-Executive Director     63  
Mr. Ashim Samanta
  Non-Executive Director     51  
*   Resigned as of June 17, 2005.
     
**   Are liable to retire by rotation in the forthcoming annual general meeting.
     Our executive officers as of March 31, 2005 were as follows:
             
Name   Position   Age
Mr. Aditya Puri
  Managing Director     54  
Mr. Vinod G. Yennemadi
  Head, Finance, Administration, Legal and Secretarial     63  
Mr. Samir Bhatia
  Head, Corporate Banking     42  
Mr. Harish Engineer
  Head, Wholesale Banking     57  
Mr. Sudhir Joshi
  Head, Treasury     58  
Mr. C. N. Ram
  Head, Information Technology     48  
Mr. Bharat Shah
  Head, Depositary Services and Merchant Services     58  
Mr. G. Subramanian
  Head, Audit, Compliance, Vigilance and Service Quality     57  
Mr. Paresh Sukthankar
  Head, Credit and Market Risk and Human Resources     42  
Mr. Neeraj Swaroop*
  Head, Retail Banking     46  
Mr. A. Rajan
  Head, Operations     53  
Mr. Abhay Aima
  Head, Equities and Private Banking     43  
*   Resigned as of August 10, 2005.
     The business address for our directors and officers is HDFC Bank House, Senapati Bapat Marg, Lower Parel (West), Mumbai — 400 013, India.
     The following are brief biographies of our existing directors:
     Mr. Jagdish Capoor holds a Master of Commerce degree and is a Certified Associate of the Indian Institute of Bankers. Mr. Capoor was appointed as part-time Chairman for a period of 3 years with effect from July 6, 2001. At the Annual General Meeting held on May 26, 2004, the shareholders approved the reappointment of Mr. Capoor as Chairman on a part-time basis for three years beginning July 6, 2004 upon revised terms and conditions. Prior to joining us, Mr. Capoor was a Deputy Governor of the RBI. Mr. Capoor was Chairman of Deposit Insurance & Credit Guarantee Corporation of India and Bharatiya Reserve Bank Note Mudran Ltd. and served as a director on the boards of the Bank of Baroda, State Bank of India, the National Bank for Agriculture and Rural Development and the National Housing Bank. Presently, Mr. Capoor is Chairman of Agricultural Finance Corporation Limited and Bombay Stock Exchange Limited and is a director of The Indian Hotels Co. Ltd. and Assets Care Enterprise Ltd. He is also a member of the Board of Governors of the Indian Institute of Management, Indore and The Stock Exchange, Mumbai.

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     Mr. Aditya Puri holds a Bachelor’s degree in Commerce from Punjab University and is an associate member of the Institute of Chartered Accountants of India. Mr. Puri has been our Managing Director since September 1994. Mr. Puri has over 28 years of experience in both domestic and international banking. Prior to joining us, Mr. Puri was chief executive officer of Citibank, Malaysia from 1992 to 1994. At the Annual General Meeting held on May 26, 2004, the shareholders approved, subject to RBI approval, the reappointment of Mr. Puri as Managing Director from September 30, 2005 to March 31, 2007 upon revised terms and conditions. The RBI has approved the Managing Director’s remuneration through March 31, 2005. Mr. Puri has been appointed to the Board of Master Card International, SAMEA (South Asia, Middle East and Africa-Region) for 2005.
     Mr. Anil Ahuja holds a Bachelor of Technology degree from the Indian Institute of Technology, New Delhi and a Post-Graduate Diploma in Business Management from the Indian Institute of Management, Ahmedabad. Mr. Ahuja has served as a non-executive director since July 16, 1999. Presently, he is the CEO of J.P. Morgan Partners Advisors, Singapore. He also serves as a director on the boards of the following Indian companies: HDFC Securities Ltd, MTR Foods Ltd and Domino’s Pizza India Private Ltd. In the past, he served as an executive director to Indocean Chase Capital Advisors and as a Vice President of Citibank N.A. Mr. Ahuja retired as a director of the bank as of June 17, 2005.
     Dr. V. R. Gadwal holds a Bachelor and a Master of Science degree from Osmania University, Hyderabad and a doctorate in agriculture from the Indian Agricultural Research Institute, New Delhi. He is also a Fellow Member of the Botanical Society of India and the Indian Society of Genetics and Plant Breeding. Dr. Gadwal has been one of our non-executive directors since March 15, 1999. Dr. Gadwal also serves as consultant and advisor to agricultural research and development institutions such as Maharashtra Hybrid Seeds Co. Ltd (“MAHYCO”) and MAHYCO Research Foundation. Presently, Dr. Gadwal is the President of the Indian Society for Cotton Improvement.
     Mr. Vineet Jain holds a Bachelor of Science degree and a degree in International Business Administration — Marketing. Mr. Jain has been one of our non-executive directors since April 14, 2001. He also serves as the Managing Director of Bennett, Coleman & Co. Ltd, and as Chairman of, inter alia, Times Internet Ltd, Times Online Money Ltd, Bharat Nidhi Ltd and Worldwide Media Limited (formerly known a Magz International Limited). He is also on the boards of Times Infotainment Media Ltd, The Press Trust of India Ltd, Times Journal India Private Limited and Times Centre for Media Studies. Mr. Jain is a nominee of the Bennett Coleman Group.
     Mr. K. M. Mistry holds a Bachelor of Commerce degree in Advanced Accountancy and Auditing and is also a Chartered Accountant. He was actively involved in setting up several HDFC group companies, including HDFC Bank. Mr. Mistry had been deputed on consultancy assignments for the Commonwealth Development Corporation to Thailand, Mauritius, the Caribbean Islands and Jamaica. He has also worked as a consultant for the Mauritius Housing Company and for the Asian Development Bank. Mr. Mistry is the Managing Director of HDFC Limited and Chairman of GRUH Finance Ltd and Intelenet Global Services Private Ltd. He serves as director of, inter alia, HDFC Developers Ltd, HDFC Chubb General Insurance Company Ltd, HDFC Trustee Company Ltd, HDFC Standard Life Insurance Co. Ltd, Credit Information Bureau (India) Ltd, Infrastructure Leasing & Financial Services Ltd, Sun Pharmceutical Industries Ltd, Mahindra Holidays & Resorts India Ltd, The Great Eastern Shipping Co. Ltd, NexGen Publishing Ltd, GW Capital Private Ltd and Association of Leasing and Financial Services Companies.
     Mrs. Renu Karnad is a law graduate and also holds a Master’s degree in Economics from Delhi University. Mrs. Karnad is an executive director of HDFC Ltd. She is Chairperson of HDFC Venture Capital Ltd and a director, inter alia, of HDFC Asset Management Co. Ltd, GRUH Finance Ltd, HDFC Realty Ltd, Credit Information Bureau (India) Ltd, Feedback Ventures Ltd, HDFC Chubb General Insurance Company Ltd, Mother Dairy Fruits & Vegetables Ltd, Ascendas Pte Ltd and ICI India Ltd.

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     Mr. Arvind Pande holds a Bachelor of Science degree from Allahabad University and BA (Hons.) and MA (Economics) degrees from Cambridge University, U.K. He started his career in Indian Administrative Services and has held various positions in the government of India. He was a Joint Secretary to the Prime Minister of India for Economics, Science and Technology issues. He was a director of the department of Economic Affairs in the Ministry of Finance, Government of India and has dealt with World Bank aided projects. He was the Chairman and Chief Executive Officer of The Steel Authority of India Ltd. Mr. Pande is a director, inter alia, of Sandhar Locking Devices Ltd, IVRCL Infrastructure & Projects Ltd, Visa Industries Ltd, Bharatiya Co-operative General Insurance Ltd, Assets Care Enterprise Ltd and Era Constructions (India) Ltd.
     Mr. Bobby Parikh is a Chartered Accountant and has specialized in the areas of Tax and Business Advisory Services with extensive experience in advising clients across a range of industries. Mr. Parikh is a member of various trade and business associations and their committees. He is also on the advisory/executive boards of certain non-government and non-profit organizations. Mr. Parikh was the Country Managing Partner of Arthur Anderson & Co. and until recently, the Chief Executive Officer of Ernst & Young Private Ltd in India. He is currently the Managing Partner of M/s BMR & Associates. Mr. Bobby Parikh is an “audit committee financial expert” under U.S. regulations.
     Mr. Ranjan Kapur holds a Master of Arts degree in English from St. Stephens College, New Delhi. He started his career with Citibank, N.A. Mr. Kapur has held various senior positions at Ogilvy & Mather India Private Ltd (“O&M”). He was nominated to the world wide board of directors of O&M in 1998 and was elevated to the position of Executive Chairman, India and Vice-Chairman, Asia Pacific, a year later. He retired from O&M on December 31, 2003. Mr. Kapur is a director of Pidilite Industries Ltd, Mirc Electronics Ltd, Equus Advertising Company Ltd, Meridian Communication Private Ltd, Group M Media India Private Ltd, Bates India Private Ltd, Rediffusion-Dentsu, Young & Rubicam Private Ltd and Everest Integrated Communications Private Ltd.
     Mr. Ashim Samanta holds a degree in Commerce from Bombay University. He has over 25 years of experience in the management of small scale industries. For the last several years, Mr. Samanta has been the director of a small scale pharmaceuticals company.
The following are brief biographies of our executive officers:
     Mr. Vinod G. Yennemadi holds a Bachelor of Commerce degree and is also a Fellow of the Institute of Chartered Accountants of India and an Associate of the Institute of Chartered Accountants in England and Wales. Mr. Yennemadi has been the Head, Finance, Administration, Legal, and Secretarial since April 1994. In addition, Mr. Yennemadi serves as a director of Softcell Technologies Ltd, HDFC Securities Ltd, Solution NET India Private Ltd, Atlas Documentary Facilitators Company Private Ltd and Flexcel International Private Ltd.
     Mr. Samir Bhatia holds a Bachelor of Commerce degree from the University of Bombay, a cost accountancy qualification from the Institute of Cost and Works Accountants of India and a chartered accountancy qualification from the Institute of Chartered Accountants of India. He is currently our Head, Corporate Banking, and previously served as our Regional Head, Corporate Banking in various regions of India since September 1994.
     Mr. Harish Engineer holds a Bachelor of Science degree in Physics and Chemistry and a diploma in Business Management. Mr. Engineer has served as Head, Financial Institution Group since November 1999, and previously served as Head, Corporate Banking since July 1994.
     Mr. Sudhir Joshi holds a Bachelor of Science degree in Chemistry from the University of Pune and is a Certified Associate of the Indian Institute of Bankers. Mr. Joshi has held the position of Head, Treasury since April 2000. He was Head, Financial Investment Group for a brief period between February 2000 and March 2000. From June 1995 until joining us, Mr. Joshi served as executive vice president, treasury, of

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Times Bank Ltd. At present, he is the Chairman of the Fixed Income Money Market and Derivatives Association of India and on the Board of the Clearing Corporation of India Ltd.
     Mr. C. N. Ram holds a Bachelor of Technology degree in Electrical Engineering from the Indian Institute of Technology and a post graduate diploma in Management from the Indian Institute of Management. Mr. Ram has served as Head, Information Technology since July 1994. In addition, he also serves as a director on the boards of a number of companies, including our affiliates, SolutionNET India Private Ltd, Flexcel International Private Ltd, Softcell Technologies Ltd and HDFC Securities Ltd.
     Mr. Bharat Shah holds a Bachelor of Science degree from Bombay University and a Higher National Diploma in Applied Chemistry from London University. He serves as our Head, Depositary Services and Merchant Services. Mr. Shah also serves as a non-executive director of Computer Age Management Services Private Ltd, HDFC Securities Ltd and Atlas Documentary Facilitators Company Private Ltd.
     Mr. G. Subramanian holds a Bachelor of Science degree in Chemistry from Madras Christian College and is a Certified Associate of the Indian Institute of Bankers. Mr. Subramanian has been the Head, Audit, Compliance, Vigilance and Service Quality since January 1995. Prior to that, Mr. Subramanian was deputy general manager of the RBI. Mr. Subramanian also serves as a director on the board of directors of Computer Age Management Services Private Ltd.
     Mr. Paresh Sukthankar holds a Bachelor of Commerce degree and Master in Management Studies from Bombay University. Mr. Sukthankar has held the position of Head, Credit and Market Risk since September 1994 and since December 1999 also supervises the Human Resources function.
     Mr. Neeraj Swaroop holds a Bachelor of Technology degree from the Indian Institute of Technology, a Master of Business Administration degree from the Indian Institute of Management, and a diploma in Retail Bank Management from the Graduate School of Retail Bank Management, University of Virginia. He has held the position of Head, Marketing and Retail Assets since April 1999 and is currently Country Head, Retail Banking. Mr. Swaroop also serves as a director on the board of SolutionNET India Private Ltd. Mr. Swaroop resigned from the services of the Bank as of August 10, 2005.
     Mr. A. Rajan holds a Bachelor of Science degree. He has over 26 years of experience in various aspects of operations in banking. He was part of the core management team that set up the Bank, as its Head of Operations, and was responsible for creating the Operations team and detailed Operating Procedures. Afterwards, he was also the CEO of Flexcel International Private Ltd for three years. He is now once again the Country Head — Operations.
     Mr. Abhay Aima is a graduate of the National Defence Academy. Mr. Aima is currently our Head, Equities, Private Banking and Third Party Products.
Corporate Governance
     Audit and Compliance Committee
     The Audit and Compliance Committee of the Bank is chaired by Mr. Ranjan Kapur. The other members of the Audit Committee are Mr. Ashim Samanta, Mr. Arvind Pande, Mr. Bobby Parikh and Dr. V. R. Gadwal. Mr. Jagdish Capoor resigned as a member of the Audit Committee with effect from October 21, 2004, and Mr. Anil Ahuja ceased to be the member of the Audit Committee as of June 17, 2005. Mr. Ranjan Kapur was inducted as a member of the Audit Committee and appointed its Chairman with effect from October 21, 2004. Dr. V. R. Gadwal was inducted as a member of the Audit Committee with effect from January 6, 2005, and Mr. Ashim Samanta was inducted as a member of the Audit Committee with effect from July 14, 2005.

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     All the members of the Audit Committee are financially literate independent directors and Mr. Bobby Parikh is an Audit Committee financial expert.
     During the year, the Audit Committee held six meetings.
     The terms of reference of the Audit Committee are in accordance with clause 49 of the Listing Agreement entered into with the Stock Exchanges in India and inter alia includes the following:
  Overseeing the Bank’s financial reporting process and ensuring correct, adequate and credible disclosure of financial information;
  Recommending appointment and removal of external auditors and fixing of their fees;
  Reviewing with management the annual financial statements before submission to the Board with special emphasis on accounting policies and practices, compliance with accounting standards and other legal requirements concerning financial statements; and
  Reviewing the adequacy of the Audit and Compliance function, including their policies, procedures, techniques and other regulatory requirements.
     In addition to the above, the board has adopted a Charter for the Audit Committee in connection with certain U.S. regulatory standard.
     Compensation Committee
     The Compensation Committee reviews the overall compensation structure and policies of the Bank with a view to attract, retain and motivate employees by considering the grant of stock options to employees and reviewing compensation levels of the Bank’s employees vis-à-vis other banks and the industry in general.
     The committee consists of Mr. Jagdish Capoor, Mr. Bobby Parikh, Dr. Venkat Rao Gadwal and Mr. Ranjan Kapur. Mr. Ranjan Kapur was inducted as a member of the committee on April 16, 2004, and Mr. Bobby Parikh was inducted as a member of the committee with effect from July 14, 2005. Mr. Anil Ahuja ceased to be the member of the committee as of June 17, 2005. The committee is chaired by Mr. Jagdish Capoor. All the members of the committee other than Mr. Capoor are independent directors.
     During the year the committee held one meeting.
     Investors’ Grievance (Share) Committee
     The Investors’ Grievance (Share) Committee approves and monitors transfers, transmissions, splits and the consolidation of shares and bonds issued by the Bank as well as the allotment of shares to employees pursuant to the Employees Stock Option Scheme. The committee also monitors the redressal of complaints from shareholders relating to the transfer of shares, non-receipt of Annual Reports, dividends etc.
     The committee comprise Mr. Jagdish Capoor and Mr. Aditya Puri.
     The committee is chaired by Mr. Jagdish Capoor and met 12 times during the year. The powers to approve share transfers and dematerialization requests have been delegated to executives of the Bank to avoid delays that may arise due to non-availability of the members of the committee.
     As of March 31, 2005, 136 instruments of transfer of shares were pending and since then the same have been processed. The details of the share transfers are reported to the board of directors from time to time.
     During the year, the Bank received 193 complaints from shareholders, which have been attended to.
     No penalties or strictures were imposed on the Bank by any of the Stock Exchanges, SEBI or any statutory authority, on any matter relating to capital markets, during the last three years.

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     Risk Monitoring Committee
     The Risk Monitoring Committee is formed as per the guidelines of the RBI on the Asset Liability Management/Risk Management Systems. The Risk Monitoring Committee develops the Bank’s credit and market risk polices and procedures, verifies adherence to various risk parameters and prudential limits for treasury operations and reviews its risk monitoring system. The committee also ensures that the Bank’s credit exposure to any one group or industry does not exceed the internally set limits and that the risk is prudentially diversified.
     The Risk Monitoring Committee consists of Mr. Bobby Parikh, Mr. Aditya Puri and Mrs. Renu Karnad and is chaired by Mr. Anil Ahuja. Mr. Anil Ahuja ceased to be a member of the Risk Monitoring Committee as of June 17, 2005. Mr. Bobby Parikh was inducted as a member of the committee with effect from July 14, 2005.
     The committee met four times during the year.
     Credit Approval Committee
     The Credit Approval Committee approves credit exposures, which are beyond the powers delegated to executives of the Bank. This facilitates quick response to the needs of the customers and speedy disbursement of loans.
     The committee comprises Mr. Jagdish Capoor, Mr. Aditya Puri, Mr. Keki Mistry and Mr. Bobby Parikh. Mr. Bobby Parikh was inducted as a member of the committee on April 16, 2004. The committee is chaired by Mr. Jagdish Capoor and met three times during the year.
     Premises Committee
     The Premises Committee approves the purchase and leasing of premises for Bank branches, back offices, ATMs and executive residences in accordance with the guidelines laid down by the board. The Premises Committee comprises Dr. V. R. Gadwal, Mr. Aditya Puri, Mr. Ranjan Kapur and Mr. K. G. Krishnamurthy, in an advisory capacity. Mr. Ranjan Kapur and Dr. V. R. Gadwal were inducted into the committee on April 16, 2004.
     The committee is chaired by Dr. V. R. Gadwal and met four times during the year.
     Nomination Committee
     The Bank has constituted a Nomination Committee for recommending the appointment of independent/non-executive directors to the board of the Bank. The Nomination Committee scrutinizes the nominations of independent/non–executive directors to identify ‘fit and proper’ persons. The Nomination Committee considers the following criteria in assessing the competency of the persons nominated: academic qualifications, previous experience, track record and integrity. In assessing the integrity and suitability of candidates, features like criminal records, financial position, civil actions undertaken to pursue personal debts, refusal of admission to and expulsion from professional bodies, sanctions applied by regulators or similar bodies and previous questionable business practices are considered.
     The members of the Nomination Committee are Mr. Ranjan Kapur, Mr. Ashim Samanta, Dr. V. R. Gadwal and Mr. Arvind Pande. The committee is chaired by Mr. Ranjan Kapur. Mr. Jagdish Capoor resigned from the membership of the committee with effect from October 21, 2004 and on the same day, Mr. Ranjan Kapur was inducted in the committee. Mr. Anil Ahuja ceased to be the member of the committee with effect from June 17, 2005. Mr. Ashim Samanta was inducted as a member of the committee with effect from July 14, 2005. All the members of the committee are independent directors.
     One meeting of the committee was held during the year.

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     Fraud Monitoring Committee
     Pursuant to the directives of the RBI to all commercial banks, the Bank constituted a Fraud Monitoring Committee on April 16, 2004, exclusively dedicated to the monitoring of fraud cases involving amounts of Rs. 10 million and more. The objective of this committee is to effectively detect fraud and immediately report it to regulatory and enforcement agencies so that appropriate action may be taken against the perpetrators of fraud. The terms of reference of the committee are:
  Identify the systems lacunae, if any, that facilitated perpetration of the fraud and put in place measures to prevent the same;
  Identify the reasons for delay in detection, if any, reporting to top management of the Bank and the RBI;
  Monitor the progress of CBI and police investigations and recoveries;
  Ensure that staff accountability is examined at all levels in all cases of fraud and that staff side action, if required, is completed quickly without loss of time;
  Review the efficacy of remedial action taken to prevent recurrence of fraud, such as strengthening internal controls;
  Put in place other measures as may be considered relevant to strengthen preventive measures against fraud.
     The members of the committee are Mr. Jagdish Capoor, Mr. Aditya Puri, Mr. Keki Mistry, Mr. Bobby Parikh and Mr. Arvind Pande. The committee is chaired by Mr. Jagdish Capoor.
     One meeting of the committee was held during the year.
     Customer Service Committee
     The Bank constituted a Customer Service Committee on October 21, 2004 pursuant to guidelines issued by the RBI. The committee monitors the quality of services rendered to customers and also ensures implementation of directives received from the RBI in this regard. The committee will formulate a comprehensive deposit policy, incorporating the issues arising out of death of a depositor for operations of his or her account, the product approval process, the annual survey of depositor satisfaction and the triennial audit of such services.
     The members of the committee are Mr. Ranjan Kapur, Mr. Keki Mistry, Dr. Venkat Rao Gadwal and Mr. Arvind Pande. The Committee is chaired by Mr. Ranjan Kapur.
     One meeting of the committee was held during the year.
     Committees of Executives
     We have also constituted committees of executives that meet frequently to discuss and decide on the management of assets and liabilities, as well as matters involving other operations and personnel.
Borrowing Powers of Directors
     The shareholders of the Bank, at the Annual General Meeting of the Bank held on May 26, 2004 passed an ordinary Resolution pursuant to Section 293(1)(d) of the Indian Companies Act, authorizing the board of directors of the Bank to borrow, for the purpose of business of the Bank, such sum or sums of monies as they may deem necessary, notwithstanding the fact that the monies borrowed and the monies to be borrowed from time to time (apart from acceptances of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise and /or temporary loans obtained in the ordinary course of business from banks, whether in India or outside India) will exceed the aggregate of the paid up capital of the Bank and its free reserves (i.e., reserves not set apart for any specific purpose) subject to the condition that the total outstanding amount of such borrowings shall not exceed Rs. 50 billion, over and above the aggregate of the paid up capital of the Bank and its free reserves at any time.

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     The terms on which the board of directors may borrow funds may include the lender’s right to appoint directors, the allotment of shares to certain public financial institutions and, with prior shareholder and regulatory approval, the allotment of shares to other entities.
Compensation of Directors and Executive Officers
     The compensation packages of our Chairman and Managing Director are approved by the shareholders and the RBI on the recommendation of the board of directors. In fiscal 2005, none of our executive officers, except the Managing Director, earned a salary plus bonus in excess of U.S.$200,000. During fiscal 2005, our Chairman received a salary of Rs. 820,968 per annum. At our Annual General Meeting held on May 26, 2004, the shareholders approved the revised remuneration payable to Mr. Capoor with effect from July 6, 2004 at Rs. 900,000 per annum plus Bank leased accommodation. Effective April 1, 2004, our Managing Director receives a monthly salary of Rs. 600,000 and other emoluments as have been approved by the shareholders and the RBI. At our 10th Annual General Meeting held on May 26, 2004, the shareholders also approved the reappointment of our Managing Director for a further three year period, commencing upon the expiration of the current term on September 30, 2005. For the fiscal year ended March 31, 2005, the aggregate amount of compensation paid to all of our executive officers was approximately Rs. 226.1 million. For the fiscal year ended March 31, 2005, the aggregate amount accrued by us to provide pension, retirement or similar benefits for our Managing Director and executive officers was approximately Rs.14.2 million.
     Under our organizational documents, each director, except the Managing Director, is entitled to remuneration for attending each meeting of the board of directors or of a board committee. The amount of remuneration is set by the board from time to time in accordance with limitations prescribed by the Companies Act or the government of India. Remuneration for attending board meetings and committee meetings is Rs. 10,000 per meeting, except in case of meetings of the Share Committee, for which the remuneration is Rs. 5,000 per meeting. We reimburse directors for travel and related expenses in connection with board and committee meetings and related matters.

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     Other than our Chairman and Managing Director, none of our directors has a service contract with us.
Loans to Executive Officers
                                 
    Largest amount     Amount     Interest        
    outstanding     outstanding as of     rate as of        
Name   in fiscal 2005     31-Mar-05     31-Mar-05     Nature of Loan
    (In millions, except percentages)                  
Abhay Aima
  Rs. 1.6     Rs. 1.6       8.5 %   Housing loan
 
    0.1                 Personal loan
Aditya Puri
    5.0       5.0       8.5     Housing loan
A. Rajan
    5.0       5.0       8.5     Housing loan
 
    0.5       0.4       5.0     Personal Loan
Bharat Shah
    4.1       3.9       8.5     Housing loan
G. Subramanian
    4.2       4.1       8.5     Housing loan
 
    0.5       0.4       5.0     Personal loan
Harish Engineer
    2.3       2.3       8.5     Housing loan
Neeraj Swaroop *
    3.0       3.0       8.5     Housing loan
 
    0.2       0.1       5.0     Personal loan
Paresh Sukthankar
    4.0                 Housing loan
Samir Bhatia
    4.5       4.5       8.5     Housing loan
 
    0.1       0.1       5.0     Personal loan
Vinod Yennemadi
    2.1       2.1       8.5     Housing loan
                     
Total
  Rs. 37.2     Rs. 32.5                  
                     
*   No longer an executive officer of the Bank.

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Employees Stock Option Scheme
     Our shareholders approved plans in January of 2000 and June of 2003 for the issuance of stock options to employees and, under the latter plan, to the directors of the Bank. Under the 2000 plan, the option price is set as the average of the daily closing prices on The Stock Exchange, Mumbai during the 60 days preceding the grant date. Under the 2003 plan, the option price is set as the closing price on the business day preceding the grant date on whichever stock exchange in India has the highest trading volume for our shares during the two weeks preceding the date of grant. Our Compensation Committee has issued options under these plans on six separate occasions since January 2000. The options granted on those occasions vest at the rate of 30%, 30% and 40% on each of the three successive anniversaries following the date of grant, subject to standard vesting conditions. In fiscal 2005, 2.16 million options were exercised, resulting in an increase in our paid-up capital of Rs. 21.6 million and share premium of Rs. 444.2 million. As of March 31, 2005, 10.3 million options were outstanding.
Other Compensation
     All employees, including our Managing Director and officers, receive the benefit of our gratuity and provident fund retirement schemes. Our superannuation fund covers all employees at manager level or above, including our Managing Director. Our gratuity fund, required under Indian law, is a defined benefit plan that, upon retirement, death while employed, or termination of employment, pays a lump sum equivalent to 15 days’ salary for each completed year of service. The superannuation fund is a retirement plan under which we annually contribute 13% (15% for the Managing Director) of the eligible employee’s annual salary to the administrator of the fund. Under the provident fund, required by Indian law, both we and the employee contribute monthly at a determined rate (currently 12% of the employee’s salary) to a fund set up by us, which is administered by a board of trustees. For employees whose basic salary is less than Rs. 6,500 per month, a portion (currently 8.33% of the employee’s salary) of the employer’s contribution is transferred to a fund administered by the government in accordance with the Provident Fund Act. We retain liability for future payments under the gratuity fund, but not under the superannuation or provident funds.
Controls and procedures
     Evaluation of disclosure controls and procedures
     As of the end of the period covered by this report, our principal executive officer and principal financial officer conducted an evaluation pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the date of their evaluation, such disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
     Changes in internal controls
     There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.
Audit committee financial expert
     Mr. Bobby Parikh joined our board of directors on January 9, 2004. On March 26, 2004 Mr. Parikh was inducted as a member of the audit committee. Our board of directors has determined Mr. Bobby Parikh as

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an audit committee financial expert as defined in Item 401(h) of Regulation S-K, and is independent pursuant to applicable SEC rules.
Code of ethics
     On July 14, 2004, our Audit Committee adopted a written code of ethics applicable to the Managing Director (Chief Executive Officer), the Chief Financial Officer and Group Heads of the Bank. We believe the code constitutes a “code of ethics” as defined in Item 16B of Form 20-F. We will provide a copy of such code of ethics to any person without charge, upon request. Requests may be made by writing to investor.helpdesk@hdfcbank.com.
     On July 14, 2004, our Audit Committee also adopted a Whistle Blower Policy wherein it has established procedures for receiving, retaining and treating complaints received, and procedures for the confidential, anonymous submission by employees of complaints regarding questionable accounting or auditing matters, conduct which results in a violation of law by HDFC Bank or in a substantial mismanagement of Bank’s resources. Under this policy our employees are encouraged to report questionable accounting matters, any reporting of fraudulent financial information to our shareholders, the government or the financial markets and any conduct that results in a violation of law by HDFC Bank to our management (on an anonymous basis, if employees so desire). Likewise, under this policy, we have prohibited discrimination, retaliation or harassment of any kind against any employee who, based on the employee’s reasonable belief that such conduct or practices have occurred or are occurring, reports that information or participates in an investigation.
Principal Accountant Fees and Services
     The following table sets forth for the fiscal years indicated the fees paid to our principal accountant and its associated entities for various services they provided us in these periods.
                     
Type of Service   Fiscal year ended March 31,   Description of Services
    2004   2005    
    (In millions)    
Audit services
  Rs. 3.9     Rs. 3.9     Audit of financial statements
Audit related services
    1.7       1.1     Services related to review of financial statements and due diligence
Tax fees
    0.1           Tax audit, tax returns, tax processing, tax filing and advisory services
Other services
    0.6       0.2     Statutory certifications, quality registrar services, work permit related services and other advisory services
         
 
  Rs. 6.3     Rs. 5.2      
         
     Our audit committee charter requires us to take the prior approval of our audit committee on every occasion we engage our principal accountants or their associated entities to provide us any non-audit services. We disclose to our audit committee the nature of services that are provided and the fees to be paid for the services. All of the non-audit services provided by our principal accountants or their associated entities in the previous two fiscal years have been pre-approved by our Audit Committee.
Compliance with NYSE Listing Standards on Corporate Governance
     We are incorporated under the Indian Companies Act, 1956, and our equity shares are listed on the major stock exchanges in India. Our corporate governance framework is in compliance with the Indian Companies Act, 1956, the regulations and guidelines of SEBI and the requirements of the listing agreements entered into with the Indian stock exchanges. We also have ADSs listed on the New York Stock Exchange (the “NYSE”).

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     On November 4, 2003, the Securities and Exchange Commission (the “SEC”) approved new rules proposed by the NYSE intended to strengthen corporate governance standards for listed companies. These new corporate governance listing standards supplement the corporate governance reforms already adopted by the SEC pursuant to the Sarbanes-Oxley Act of 2002.
     Section 303A.11 of the NYSE Corporate Governance Standards requires listed companies that are foreign private issuers to disclose the significant ways in which their corporate governance practices differ from those followed by U.S. companies under the NYSE Corporate Governance Standards. The table below sets forth the differences between the rules applicable to U.S. companies under the NYSE Corporate Governance Standards and HDFC Bank’s practices under Indian law.
     
NYSE rule applicable to    
U.S. listed companies   Indian law and HDFC Bank's practice
 
   
Companies must have a majority of independent directors. (NYSE Corporate Governance Standard 303A.01)
  Under Indian law, if the chairman of the board of directors is not an executive officer of the company, at least one third of the directors should be independent. If the chairman is an executive officer, at least 50% of the company’s directors should be independent. The chairman of our board of directors is not an executive officer and 7 out of 10 members of the board are independent.
 
   
 
 
   
Certain heightened standards apply to “independent directors”. (NYSE Corporate Governance Standard 303A.02)
  Under Indian law, a director is “independent” so long as he or she does not have any material pecuniary relationship or transactions (apart from director’s remuneration) with the company, its promoters, its management or its subsidiaries, which in the judgment of the board may affect the independence or judgment of the director. We apply the Indian definition of “independent”. Under that definition, the board considers Mr. Jagdish Capoor, the chairman of the board, to be independent.
 
   
 
 
   
Non-management directors must meet at regularly scheduled executive sessions without management. (NYSE Corporate Governance Standard 303A.03)
  Under Indian law, there is no requirement for such sessions. HDFC Bank does not regularly hold such meetings.
 
   
 
Companies must have a nominating/corporate governance committee composed entirely of independent directors. (NYSE Corporate Governance Standard 303A.04)
  Under Indian law, a nominating/corporate governance committee is not required. However, HDFC Bank has a Nomination Committee that is responsible for recommending the appointment of independent/non-executive directors to the board of directors. The Nomination Committee is composed of four non-executive directors, all of whom are independent.
 
   

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NYSE rule applicable to    
U.S. listed companies   Indian law and HDFC Bank's practice
 
   
The nominating/corporate governance committee must have a written charter that addresses certain specific committee purposes and responsibilities and provides for an annual performance evaluation of the committee. (NYSE Corporate Governance Standard 303A.04)
  Since Indian law does not require a nominating/corporate governance committee, it also does not require a charter for such a committee. As a result, we have no such charter.
 
   
 
 
   
Companies must have a compensation committee composed entirely of independent directors. (NYSE Corporate Governance Standard 303A.05)
  Under Indian law, a company’s board of directors sets the compensation for non-executive directors. Non-mandatory Indian law recommends that companies establish a remuneration committee composed of non-executive directors and an independent chairman to determine the compensation of executive directors. HDFC Bank has a Compensation Committee of four non-executive directors, all of whom are independent.
 
   
 
 
   
The compensation committee must have a written charter that addresses certain specific purposes and responsibilities of the committee and provides for an annual performance evaluation of the committee. (NYSE Corporate Governance Standard 303A.05)
  Indian law does not require that the compensation committee have a charter. HDFC Bank does not have such a charter.
 
   
 
 
   
Companies must have an audit committee that satisfies the independence requirements of Rule 10A-3 under the Exchange Act and the requirements of NYSE Corporate Governance Standard 303A.02. (NYSE Corporate Governance Standards 303A.06 and 303A.07)
  An audit committee is required under Indian Law. HDFC Bank has an Audit and Compliance Committee composed of four non-executive directors, all of whom are independent. The committee’s chairman is independent.
 
   
 
 
   
The audit committee must have a written charter that addresses certain specific purposes and responsibilities of the committee, provides for an annual performance evaluation of the committee and sets forth certain minimum duties and responsibilities. (NYSE Corporate Governance Standard 303A.07)
  HDFC Bank has a written audit committee charter that provides for specific purposes and responsibilities.
 
   
 
 
   
Companies must adopt and disclose corporate governance guidelines. (NYSE Corporate Governance Standard 303A.09)
  Indian law does not require the adoption and disclosure of corporate governance guidelines. However, information with respect to corporate governance can be found in our annual report for 2004-2005 under the heading “Corporate Governance”.
 
   
 
 
   
Companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. (NYSE Corporate Governance Standard 303A.10)
  As required by SEBI regulations, HDFC Bank has adopted a code governing trading in the company’s securities by insiders. In addition, HDFC Bank has adopted a Code of Ethics for the Managing Director, CFO and Senior Management of the company.

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Memorandum and Articles of Association
     Our main objects are to carry on banking activity and other related activities. Our objects and purposes can be found in clauses A and B of the Articles.
     Under the Articles, a director may not vote, participate in discussions or be counted for purposes of a quorum with respect to any decision relating to whether we will enter into any contract or arrangement if the director is directly or indirectly interested in such contract or arrangement. The board of directors may not hold meetings in the absence of a quorum. Pursuant to the Companies Act, our directors have the power to borrow money for business purposes only with the consent of the shareholders (with certain limited exceptions).
     Sections 172 through 187 of the Articles set forth certain rights and restrictions relating to dividend distributions. One of these restrictions is that dividends may be approved only at a general meeting of shareholders, but in no event in an amount greater than the amount recommended by the board of directors.
     Subject to the Companies Act, profits of a company are divisible among shareholders in proportion to the amount of capital paid-up on the shares held by them respectively. In the event of liquidation, surplus will be distributed in proportion to the capital paid up or which ought to have been paid up on the shares held by shareholders respectively at the time of commencement of the winding up. The board of directors may make calls on shareholders in respect of all moneys unpaid on the shares held by them and not by the conditions of allotment thereof.
     The rights and privileges of any class of shareholders may not be modified without the approval of three-fourths of the issued shares of that class or the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class.
     The annual general meeting shall be called for a time during business hours at our registered office or at some other place within Mumbai as the board of directors may determine. The notice of the meeting shall specify it as the annual general meeting. The board may also call an extraordinary meeting, and if there is not a quorum of directors within India, any director or two shareholders may call such a meeting. The board of directors is required to call an extraordinary meeting upon the requisition of a set number of shareholders, as set forth in the Companies Act.

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PRINCIPAL SHAREHOLDERS
     The following table contains information relating to the beneficial ownership of our equity shares as of March 31, 2005 by:
  each person or group of affiliated persons known by us to beneficially own 5.0% or more of our equity shares; and
  our individual directors and officers.
     Beneficial ownership is determined in accordance with the rules of the U.S. Securities and Exchange Commission and includes voting and investment power with respect to equity shares. Unless otherwise indicated, the persons in the table have sole voting and sole investment control with respect to all equity shares beneficially owned.
     We were founded by HDFC Limited, the leading housing finance company in India. As of March 31, 2005, HDFC Limited, together with its subsidiaries, held an aggregate of 22.2% of our equity shares. Under the Indian Banking Regulation Act, no person holding equity shares in a banking company can vote more than 10.0% of the outstanding equity shares.
                 
            Percentage of  
            Total Equity  
    Number of     Shares  
    Equity Shares     Outstanding  
HDFC group
    68,861,000 (1)     22.2  
Bennett Coleman group
    16,192,408 (2)     5.2  
Directors and executive officers
            *  
 
(1)   Includes: 38,860,000 equity shares held directly by HDFC Limited, 30,000,000 equity shares held by HDFC Investments Limited and 1,000 equity shares held by HDFC Holdings Limited. HDFC Investments Limited and HDFC Holdings Limited are controlled by HDFC Limited.
 
(2)   Includes: 8,849,929 equity shares held by Bennett Coleman & Company Limited, 2,486,956 equity shares held by Dharmayug Investments Limited and 4,855,523 equity shares held by other Bennett Coleman group entities.
 
(*)   None of our directors or executive officers individually holds 1% or more of our total equity shares outstanding.

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RELATED PARTY TRANSACTIONS
     The following is a summary of transactions we have engaged in with our promoter and principal shareholder, HDFC Limited and its subsidiaries and other related parties, including those in which we or our management have a significant equity interest. Figures herein reflecting our equity interests exclude shares held by our Employees Welfare Trust, an independent trust established for the benefit of our employees.
     All transactions with HDFC group companies and the other related parties listed below are on terms that we believe are as favorable to us as those that could be obtained from a non-affiliated third party in an arm’s-length transaction. In addition, our banking license from the RBI stipulates that we can only transact business with HDFC Limited and its affiliates on an arm’s-length basis.
HDFC Securities Ltd (“HSL”)
     We acquired an equity stake in HSL, which provides brokering services through the internet and other channels. We own 29.5% of the equity shares and HDFC group companies (including us) own an aggregate of 68.5%. Recently, we have received RBI consent for the acquisition from HDFC Limited of an additional 29.5% of the equity shares of HSL. Upon consummation of this acquisition, we will consolidate HSL, which had revenue of Rs. 351.1 million and net income of Rs. 81.1 million for fiscal 2005 and had total assets of Rs. 592.6 million as of March 31, 2005. In fiscal 2005, we paid Rs. 0.8 million for sales assistance provided by HSL, Rs. 0.7 million towards fixed assets acquired from it and received Rs. 9.2 million for services provided to HSL. An amount of Rs. 1.6 million was receivable from HSL as of March 31, 2005.
HDFC Limited
     Housing Loans
     We participate in the home loan business by selling loans provided by HDFC Limited. Under this arrangement HDFC Limited approves and disburses the loans, which are booked in the books of HDFC Limited, and we are paid a sourcing fee. Under the arrangement, HDFC Limited offer us up to 70% of the fully disbursed home loans sourced under the arrangement through the issue of mortgage-backed PTCs; the balance is retained by HDFC Limited. We purchase the mortgage-backed PTCs at the underlying home loan yields less a fee paid to HDFC Limited for administration and servicing of the loans. A portion of the home loans also qualifies for our directed lending requirement. We earned Rs. 102.4 million from HDFC Limited in fiscal 2005 as fees for selling these loans. An amount of Rs. 17.1 million was receivable from HDFC Limited as of March 31, 2005.
     Property
     We have facilities located on five properties owned or leased by HDFC Limited. In fiscal 2005, we paid an aggregate of Rs. 4.2 million as rental fees to HDFC Limited for use of these properties. We believe that we pay market rates for these properties. As of March 31, 2005, HDFC Limited held a deposit of Rs. 0.2 million that we have paid to secure these leased properties. In fiscal 2005, we paid Rs. 4.4 million to HDFC Limited as maintenance and service charges.
HDFC Standard Life Insurance Company Ltd (“HDFC Standard Life”)
     In fiscal 2005, we paid Rs. 16.6 million to HDFC Standard Life in premiums for life insurance for our employees covered under superannuation. In the same period, we received fees and commissions from HDFC Standard Life aggregating Rs. 169.9 million for the sale of insurance policies to our customers.

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HDFC Asset Management Company Ltd (“HDFC AMC”)
     In fiscal 2005, we paid Rs. 3.3 million as rent and maintenance charges to HDFC AMC. We have placed a security deposit of Rs. 1.7 million with HDFC AMC to secure leased property. During fiscal 2005, we received Rs. 100.9 million in fees from HDFC AMC for distribution of units of mutual funds. We have retained HDFC AMC to invest our funds primarily in debt instruments up to an amount approved by our board of directors. The amount of investment outstanding as of March 31, 2005 was Rs. 3.3 billion. We paid Rs. 0.7 million to HDFC AMC for professional fees during fiscal 2005.
HDFC Chubb General Insurance Company Ltd (“HDFC Chubb”)
     We paid Rs. 7.9 million to HDFC Chubb towards insurance premiums in fiscal 2005. A deposit of Rs. 0.1 million was kept with HDFC Chubb as of March 31, 2005. We received fees and commissions from HDFC Chubb aggregating Rs. 21.9 million for sale of insurance policies to our customers.
Atlas Documentary Facilitators Company Private Ltd (“ADFC”)
     ADFC specializes in back-office processing. We regularly transact business with ADFC. In fiscal 2005, we paid ADFC Rs. 388.6 million for back-office processing services. We earned Rs. 29.5 million from ADFC as rent for premises leased in fiscal 2005. As of March 31, 2005, we had provided a security deposit amounting to Rs. 6.0 million to ADFC for the various services provided by ADFC and an amount of Rs. 40.1 million was payable for such services. As of that date, we retained an equity investment of Rs. 0.2 million in ADFC, which represents 29.0% of the share capital of ADFC. Members of our management team as well as other employees own over 46% of the equity shares of ADFC.
HBL Global Private Ltd (“HBL Global”)
     HBL Global is a subsidiary of ADFC and provides us with direct sales support for certain of our products. HBL Global was paid a net fee of Rs. 1173.1 million for the year ended March 31, 2005. As of March 31, 2005 we had provided a security deposit of Rs. 40.7 million for the services provided by HBL Global. An amount of Rs. 33.7 million was payable to HBL Global as of that date. We earned Rs. 5.0 million as rent for premises occupied by HBL Global during fiscal 2005. We do not presently have any direct investment in HBL Global.
Flexcel International Private Ltd (“Flexcel”)
     Flexcel, a company in which we have invested Rs. 15.3 million, for a 29.5% equity stake, provides application services to smaller banks. Because our share of total accumulated losses incurred by Flexcel exceeds the investment value, we have written off our investment. A loan amount of Rs. 2.5 million was outstanding in our books as of March 31, 2005.
Salisbury Investments Private Ltd
     We have paid a security deposit of Rs. 21.0 million and in fiscal 2005, we paid rent of Rs. 1.1 million for the residential accommodation of our Managing Director, to Salisbury Investments Private Ltd, in which the relatives of the Managing Director hold a stake. The value of the security deposit and rent is based on an independent assessment by a professional property valuation expert.
Other Strategic Investments
     We frequently partner with other HDFC group companies when making strategic investments. We currently have three strategic investments in which HDFC group companies are co-investors. Without the

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prior approval of the RBI, we cannot hold more than a 30% equity stake in another company. The following is a list of strategic investments made by us and HDFC group companies:
                             
        HDFC Bank   HDFC Bank   Total HDFC
Company   Type of Business   Investment   Ownership   Group ownership
        (In millions)                
Computer Age Management Services Private
Limited (“CAMS”)
  Unit capital accounting and transfer agency services   Rs. 6.1       19.0 %     49.0 %
SolutionNET India Private Limited
  Information technology consulting and services   7.6       19.0       50.0  
Softcell Technologies Limited (“Softcell”)
  Business-to-business software services   26.0       12.0       26.0  
     We routinely conduct business with some of the companies in which we have made strategic investments. In fiscal 2005, we paid CAMS Rs. 1.7 million and Softcell Rs. 6.5 million for providing software-related services to us. During fiscal 2005, we paid Rs. 37.9 million to Softcell toward the purchase of fixed assets.
     We have entered into normal banking transactions with some of the above parties and we believe all such transactions to be at arm’s-length.

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TAXATION
Indian Taxation of the ADSs
     The following is a summary of the principal Indian tax consequences for non-resident investors of the ADSs and the equity shares issuable on conversion of the ADSs. The summary is based on the taxation law and practice in force and is subject to change. Further, it only addresses the tax consequences for persons who are non-resident as defined in the Indian Income Tax Act, who acquire ADSs or equity shares (upon conversion) and who hold such ADSs or equity shares (upon conversion) as capital assets, and does not address the tax consequences which may be relevant to other classes of non-resident investors, including dealers. The summary assumes that the person continues to remain a non-resident when income by way of interest, dividends and capital gains is earned.
EACH INVESTOR IS ADVISED TO CONSULT THEIR TAX ADVISOR ABOUT THE PARTICULAR TAX CONSEQUENCES APPLICABLE ON INVESTMENTS IN THE ADSs.
     The following discussion describes the material Indian income tax and stamp duty consequences of the purchase, ownership and disposal of the ADSs.
     This summary is based on the provisions of Section 115AC and other applicable provisions of the Income Tax Act 1961 (43 of 1961) (the “Indian Income Tax Act”) and The Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism) Scheme, 1993 promulgated by the government of India (the “Depositary Receipt Scheme”) (together the “Section 115AC Regime”). The offer is in accordance with the 115AC Regime, and non-resident investors of the ADSs will therefore have the benefit of tax concessions available under the 115AC Regime subject to the fulfillment of conditions of that section. This summary is not intended to constitute a complete analysis of the tax consequences under Indian law of the acquisition, ownership and sale of the ADSs (or shares upon conversion) by non-resident investors. Investors should therefore consult their tax advisers about the tax consequences of such acquisition, ownership and sale including, specifically, tax consequences under Indian law, the laws of the jurisdiction of their residence, any tax treaty between India and their country of residence or the United States, the country of residence of the overseas depositary bank (the “Depositary”), as applicable and, in particular, the applicable provisions of the Income Tax Act and the Section 115AC Regime. The Indian Income Tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences of the 115AC Regime may be modified or amended by future amendments to the Income Tax Act.
     Taxation of Distributions
     Upon withdrawal of equity shares from the depositary facility, dividends paid to such non-resident holder are not presently taxable. However, we must pay a “dividend distribution tax” at the rate of 12.5% (plus a surcharge of 10% and an add-on tax at the rate of 2% of the total dividend distribution tax and surcharge) on the total amount distributed as dividend. In India, dividends are not taxable in the hands of the recipient. Distribution to non-residents of bonus ADSs or bonus shares or rights to subscribe for equity shares (for the purposes of this section, “Rights”) made with respect to ADSs or shares are not subject to Indian tax.
     Taxation on Acquisition of ADSs or Shares Upon Conversion or in Exchange for ADSs
     The acquisition of shares in exchange for ADSs does not constitute a taxable event for Indian income tax purposes. Such exchange may, however, give rise to stamp duty as described below under “Stamp Duty.”
     Taxation of Capital Gains
     The transfer between non-resident investors outside India of ADSs falling within the purview of Section 115AC is not subject to income tax in India on capital gains therefrom. It is unclear whether capital

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gains derived from the sale of rights by a non-resident investor to another non-resident investor will be subject to tax liability in India. This would depend on the view taken by Indian tax authorities with respect to the status of the rights being offered under the ADSs.
     Capital gains arising to a non-resident investor on the transfer of the equity shares received upon conversion of the ADSs (whether in Indi