OFFER DOCUMENT

VIJAYA BANK(A Government of India Undertaking)

Constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1980

Head Office: 41/2, M.G. Road, Bangalore 560 001, KarnatakaTel no.: (080) 558 4066 • Fax no.: (080) 558 8853 • E-mail: vijbank@vsnl.com

Public Issue of 10 crore-equity shares of Rs. 10 each for cash at a premium ofRs. 14 (i.e. at a price of Rs. 24) aggregating Rs. 240 crore

GENERAL RISK

Investment in equity and equity related securities involves a degree of risk and investors should not investany funds in this offer unless they can afford to take the risk of losing their investment. Investors are advisedto read the risk factors carefully before taking an investment decision in this offering. For taking an investmentdecision, investors must rely on their own examination of the issuer and the offer including the risk involved.The securities have not been recommended or approved by Securities and Exchange Board of India nordoes Securities and Exchange Board of India guarantee the accuracy or adequacy of this document. Theattention of investors is drawn to the statement of Risk Factors on Page (i) of the Offer Document.

ISSUER’S ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this OfferDocument contains all information with regard to the Issuer and the Issue, which is material in the context ofthe Issue, that the information contained in this Offer Document is true and correct in all material respectsand is not misleading in any material respect, that the opinions and intentions expressed herein are honestlyheld and that there are no other facts, the omission of which makes this document as a whole or any of suchinformation or the expression of any such opinions or intentions misleading in any material respect.

LISTING

The equity shares of the Bank are listed on the Bangalore Stock Exchange, The Stock Exchange, Mumbai(being the designated stock exchange), and the National Stock Exchange of India Ltd. and the “in-principle”approvals for listing for new shares have been received from the Bangalore Stock Exchange, The StockExchange, Mumbai, and the National Stock Exchange of India Ltd on August 12, 2003, August 13, 2003 andAugust 18, 2003 respectively.

Lead Managers to the Issue Registrars to the Issue

SBI CAPITAL MARKETS LIMITED MCS Limited202, Maker Tower ‘E’ Sri Padmavathi Bhavan, Plot No.93,Cuffe Parade, Road No.16, M.I.D.C. Area,Mumbai - 400 005 Andheri (East) MUMBAI - 400 093Tel.: (022) 2218 9166 Tel: (022) 28201785Fax: (022) 2218 8332 Fax: (022) 28201783E-mail: vijaya.cmg@sbicaps.com E-mail: mcsmum@bom2.vsnl.net.in

ISSUE OPENS ON : 09th OCTOBER, 2003ISSUE CLOSES ON : 17th OCTOBER, 2003

TABLE OF CONTENTS

RISK FACTORS AND MANAGEMENT PERCEPTIONS THEREON iv

HIGHLIGHTS xiv

PART I

I. GENERAL INFORMATION 1

II. CAPITAL STRUCTURE 10

III. TERMS OF THE PRESENT ISSUE 13

IV. TAX BENEFITS 18

V. PARTICULARS OF THE ISSUE 21

VI. MANAGEMENT OF THE BANK 24

VII. STOCK MARKET DATA 51

VIII. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE 51

IX. BASIS OF ISSUE PRICE 56

X. DETAILS OF OUTSTANDING LITIGATION, DEFAULT AND MATERIAL DEVELOPMENTS 57

PART II

XI. GENERAL INFORMATION 69

XII. FINANCIAL INFORMATION 72

XIII. STATUTORY AND OTHER INFORMATION 113

XIV. MAIN PROVISIONS OF THE BANK NATIONALISATION ACT 115

XV. MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION 118

PART III

DECLARATION 120

ABBREVIATIONS

ACB Audit Committee of the Board

AFS Available for Sale

ALCO Asset- Liability Management Committee

ALM Asset Liability Management

ARC Asset Reconstruction Company

BgSE Bangalore Stock Exchange

BIS Bank of International Settlements

BoD Board of Directors

BSE The Stock Exchange, Mumbai (Designated Stock Exchange)

Bps Basis Points

BRA Banking Regulation Act

CAGR Compounded Annual Growth Rate

CAR Capital Adequacy Ratio

CBDT Central Board of Direct Taxes

CDSL Central Depository Services (India) Ltd.

CF Capital fund

CFS Consolidated Financial Statement

CMD Chairman & Managing Director

CRISIL The Credit Rating Information Services of India Limited

CRR Cash Reserve Ratio

DA Doubtful Assets

D/E Debt Equity Ratio

Designated Stock Exchange The Stock Exchange, Mumbai

DICGC Deposit Insurance and Credit Guarantee Corporation of India Limited

DP Depository Participant

DRT Debt Recovery tribunal

ECGC Export Credit Guarantee Corporation Of India Limited

ED Executive Director

Employees’ category Reserved category for the employees of the Bank as on March 31 2003 to theextent of 10% of the issue (1 crore shares or Rs. 24 crores in amount)

FCNR Foreign Currency Non-Resident

FEDAI Foreign Exchange Dealers Association of India

FI Financial Institution

FII Foreign Institutional Investor

Forex Foreign exchange

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FY Financial Year

GoI Government of India/ Central Government

GM General Manager

G-Sec Government Securities

HFT Held for Trading

HTM Held to Maturity

IT Income Tax or Information Technology as per the context

Issue Public Issue of 10 crores equity shares of Rs.10/- each at a premium of Rs.14/-aggregating Rs.240 crores

INFINET Indian Financial Network

MCB Management Committee of the Board

MoF Ministry of Finance

MP Member of Parliament

NAV Net Asset Value

NBFC Non Banking Finance Company

NIM Net Interest Margin

NP Net Profit

NPAs Non- Performing Assets

NRE Non Resident External

NRIs Non Resident Indians

NRNR Non Resident Non Repatriable

NR Category Reserved category for the NRIs/FIIs applying on a repatriation basis to the extentof 10% of the issue (1 crore shares or Rs. 24 crores in amount)

NSDL National Securities Depository Limited

NSE The National Stock Exchange of India Ltd.

OCBs Overseas Corporate Bodies

p.a. Per annum

PAN Permanent Account Number

PE Prudential Exposure

PE Ratio Price Earning Ratio

PLR Prime Lending Rate

PMS Portfolio Management Scheme

PSB Public Sector bank

PSU Public Sector Unit

QIB Qualified Institutional Buyer

RBI Reserve Bank of India

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RFC Repatriable Foreign Currency

RoA Return on Assets

RoNW Return on Net worth/Return on Equity

RRB Regional Rural Bank

RTGS Real Time Gross Settlement

RWA Risk Weighted Assets

SA Standard Assets

SCB Scheduled Commercial Bank

SEBI The Securities and Exchange Board of India

SIDBI Small Industries Development Bank of India

SLR Statutory Liquidity Ratio

SRTOs Small Road Transport Operators

SSA Sub Standard Assets

RISKS ENVISAGED BY THE MANAGEMENT AND PROPOSALS TO ADDRESS THE RISKS

The following are certain considerations, which the investors should specifically peruse through beforetaking an investment decision in the offer. In some of the risk factors and their management proposals,reference page numbers have been provided, which can be used to obtain more details about the saidrisk. Wherever the risks are not quantified, it should be assumed that the effect of the said risk is notquantifiable or that the quantum is not ascertainable at present.

INTERNAL

1. Action taken by the regulators in the past

SEBI and RBI have taken action against the Bank in the past for alleged violation of Bankers to the Issuenorms. RBI has taken action against the Bank in respect of Bank’s alleged violation of PMS norms. Thedetails of these instances can be referred to under para ‘Action by Regulators ‘on page 49 of the offerdocument.

Management proposal

SEBI had issued a warning letter in the year 1999 to the Bank asking it to be cautious in respect of irregularityobserved in the treatment of stockinvest applications by Navrangpura Branch, Ahmedabad. RBI had imposeda penalty of Rs. 4.47 crore on the Bank and also withdrawn the exemption from maintenance of an incrementalCRR of 10% on increase in demand and time liability over the position as on 05.08.1994. Subsequently, RBIreinstated the said exemption for the Bank w.e.f. 15.01.2000.

2. Accumulated Losses of the Bank in the past

The Bank had accumulated losses aggregating Rs. Rs.297.07 crores, which were adjusted from its paid-upcapital during the financial year 1999-00.

Management proposal

The accumulated losses pertained to previous periods and were duly written off under the approval of theGovt. of India on March 31 2000.

3. Asset Liability Position

A large portion of the funding of the Bank is in the form of short and medium term deposits. As a result, thereis a cumulative mismatch of Rs. 2475.44 crores up to 1-year category and a mismatch of Rs. 3474.2 croresin 1-3 year category. The asset liability position of the Bank could be affected if the depositors do not rollover the deposits. For further details, kindly refer to page no. 43 of the offer Document

Management Proposal

The Bank has an active Asset Liability Management system in place to monitor and manage the durationand liquidity mismatches. Using the interest rate expectations as the basis, the Bank manages the mismatchso that the interest rate risk is minimised, the profitability is optimised and the liquidity position is not affected.Moreover, as per the normal behavioural pattern and past experience, a large portion of the deposits getsrolled over. The Bank feels that in the event of these deposits not being rolled over, the fresh accretion ofdeposits would take care of the Asset Liability mismatches. In addition, the Bank has the cushion ofinvestments of Rs. 5855.25 crore in the long-term (over 5 years) category, a part of which can be utilized tocorrect any medium term mismatches. For more details on the Asset Liability position, refer to the para on‘Asset Liability Management’ on page 43 of the offer document.

4. Regional concentration of the Bank

The Bank has a regional concentration in southern parts of the country with southern states accounting forapproximately 70% of all branches in terms of numbers. The southern and western region together accountfor nearly 60% of the Deposits and 77% of the credit exposure. For further details please refer to page no.22 and 34 of the Offer Document. The regional presence of the Bank may compromise its competitiveposition vis-a-vis its national level competitors.

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Management Proposal

The Bank has a wide network of 843 branches and has a presence in most of the top 100 deposit centres aswell as in all the states of the country. The deposits of the Bank have grown at a CAGR of 15.68% to Rs.17019.8 crores and the advances have grown at a CAGR of 21.34% to Rs. 7891.3 crores during the past 5years. Also, the Bank proposes to effectively utilise technology to increase its reach and presence. TheManagement, therefore, believes that the present branch network of the Bank is adequately widespread anddoes not compromise its competitive position in the industry. For details of geographical distribution ofbranches, investors are advised to refer to para ‘Geographical distribution of branches’ on page 31 of theoffer document.

5. Declining yield and increasing cost ratios

The yield on advances of the Bank decreased from 11.93% as on March 31 2002 to 11.34% as on March 312003. The average rate of return on interest earning assets fell from 11.49% as at March 31, 2001 to 10.33%as at March 31, 2003.The yield on investments declined from 11.35% to 10.49% during the same period.Further, the operating expenses as a percentage of average working funds increased from 2.73% to 3.21%during FY03.

Management Proposal

The decline in yield ratios has to be viewed in backdrop of substantial softening in the interest rates duringthe period and as such, the decline has been a sector-wide phenomenon. For instance, the G-sec yield onthe 10-year benchmark paper declined by 115 bps from 7.36% to 6.21% between March 31, 2002 and March31, 2003. On the liability side, the Bank benefited from repricing of its deposits, which brought down theaverage cost of deposits from 7.51% to 6.58% during last one year i.e. a reduction of 93 bps. Similarly, thecost of borrowings came down from 11.14% to 10.96%. As a result, the net interest margin (NIM) of theBank displayed an increase of 30 bps from 3.24% to 3.54% during the same period. As regards operatingexpenses, the increase has been mainly due to one-time excess write-offs of VRS expenses amounting toRs. 107.58 crores. Besides, actuarial valuation accounting of leave encashment liability resulted in an excesscharge aggregating Rs. 20.66 crores in the current year. The business per employee of the Bank has goneup by 14.31% from Rs. 169.38 lacs to Rs. 193.62 lacs. The management, therefore, believes that the benefitsof right sizing shall accrue to the Bank in future years and the pressure on operating expenses may notcontinue going forward.

6. Treasury profits

The Bank made a profit of Rs. 225.08 crores from sale of investments (treasury income) during FY03. Suchprofits from treasury may not be maintained in future years and this may impede the growth in net profits ofthe Bank going forward.

Management proposal

The Bank has exercised prudence in booking profits from sale of investments while maintaining a reasonableyield on treasury portfolio and the management believes the Bank shall follow similar strategy going forward.That said, the management acknowledges that similar windfall treasury income may not be sustained infuture years since it does not foresee similar drop in interest rates in the immediate future years.

The treasury income did not contribute much towards the growth in net profits from Rs. 130.90 crores(FY02) to Rs. 196.56 crores (FY03). During the year, the Bank made provisions aggregating Rs. 235.80crores as against the treasury profits of Rs. 225.08 crores, thereby using 104.7% of treasury income forprovisioning on a pre-tax basis. During the same period, the net interest income (NII) earned by the Bankgrew from Rs. 485.31 crores (FY02) to Rs. 643.39 crores (FY03), registering a growth of 32.5% and the netinterest margin (NIM) also grew by 30 bps from 3.24% to 3.54%. The management, therefore, believes thatthe growth in profits of the Bank would not be hampered even if the treasury income were not substantial infuture years.

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7. Non Performing Assets (NPAs)

As on March 31 2003, the net NPAs of the Bank stood at 2.61% of its net advances amounting to Rs. 205.81crores in absolute terms. In the event of non-recovery of these assets, the Bank may have to provide forthese NPAs in future, which might affect the profitability of the Bank going forward. For details, investors areadvised to refer to para on Income Recognition, Asset Classification and Provisioning on page 41 of theoffer document.

Management proposal

The Net NPAs of the Bank have consistently been declining in percentage terms, from 6.72% as on March31 1999 to 2.61% as on March 31 2003. During the year, the Bank made accelerated provisions amountingto Rs. 192.60 crores for NPAs and as a result the coverage ratio of the Bank stands at 57.45% as on March31 2003. The Bank is taking further steps to reduce the proportion of non-performing assets through aggressiverecovery drives combined with improved risk management practices. Moreover, there have been substantialchanges in the legislative and operating environment enabling FIs and Banks to pursue recovery of overdues.Besides setting up Debt Recovery Tribunal (DRT) for faster settlement of recovery litigation, GOI enacted‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’enabling FIs and Banks to securitise and reconstruct financial assets and enforce security more effectively.The Bank has also initiated steps under the Act by bringing attachment of the securities. The Bank hasissued notices to 1988 borrowers’ till date for recovery of an amount of Rs. 239.99 crores and has recoveredamount aggregating Rs. 26.45 crores. The Bank is thus taking recourse to the available remedies to controlits NPAs.

8. Credit Risk

The Bank’s main business of lending carries an inherent credit risk, which involves inability or unwillingnessof a customer or counter party to meet commitments in relation to lending, trading, hedging, settlement andother financial transactions.

Management proposal

The Bank has put in place an internal credit rating system under which the borrowal accounts of Rs 6 croresand above are rated on several parameters and the risk is priced with a suitable mark over PLR based onthe credit rating. The Bank also has implemented an active Risk Management Policy aimed at mitigatingvarious credit related risks. For other details on the credit risk management process in the Bank, the investorsmay refer to the para on ‘Risk Management’ on page 48 of the offer document, the para ‘Loan Policy’ onpage 36 of the offer document and the para on ‘Credit Approval Authority’ on page 39 of the offer document.

9. Asset Concentration

The top 5 industries (non-food) account for 8.41 % of the gross credit exposure of the Bank as on March 312003. Also, the top ten borrowers of the Bank account for about 8.93% of the total advances of the Bank ason March 31 2003. The borrower specific and industry specific behaviour may potentially affect the overallasset quality of the Bank.

Management Proposal

The Bank has put in place a credit monitoring mechanism to monitor the performance of its borrowers,regularly perform appraisal and do the requisite follow up. The top ten borrowers of the Bank as mentionedabove are Standard Assets as on March 31 2003. As regards the industry concentration, it’s been the policyof the Bank to diversify the assistance over different industry/promoter groups. In terms of the Bank’s loanpolicy, the Bank has laid down overall exposure norms for medium and large-scale industrial sector andspecific exposure norms for lending to a particular single industry. As such, the management believes thatthe industry concentration and the account concentration as mentioned above is not high and reflects thediversification policy of the Bank. Investors are advised to refer to para ‘Industry wise classification’ on page34 of the offer document and para ‘Loan Policy’ on page 36 of the offer document.

10. Reducing proportion of Tier I Capital

Tier I capital as a percentage of total risk weighted asset has come down from 8.86% in 2002 to 7.42% in 2003.

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Management Proposal

Percentage of Tier-I capital has come down because a substantial portion of the retained profit is allocatedto Investment Fluctuation Reserve, which is being treated as Tier-II capital as per RBI guidelines. Thepresent issue of capital will help the bank to augment the Tier I Capital Adequacy ratio.

11. Outstanding Litigations against the Bank

As on June 30 2003, there were 110 cases against the Bank with aggregate claim of Rs. 19 crore for whichno liability has been provided. Out of these, the claim amount was above Rs. 50 lakhs in 4 cases. Further,there is 1 instance, wherein a criminal case has been outstanding against the Bank. Also, there are 362cases pertaining to labour laws, winding up petitions or closure. For more details, investors are advised torefer to para on ‘Outstanding Litigations’ on page 57 of the Offer Document.

12. Tax Disputes

As on March 31 2003, certain proceedings related to Income Tax matters are pending before the IncomeTax authorities. The net amount of disputed tax in respect of these proceedings is Rs. 27.91 crore. Theseclaims pertain to the past periods and appeals have been pending before Commissioner of Income Tax(Appeals) and Income Tax Appellate Tribunal. Further the assessment officer (IT) had raised an aggregatedemand on the Bank for Rs. 2.13 crore for the assessment years 1995-96 to 1999-00 in respect of VISA andMasterCard international, which the Bank has settled and simultaneously Filed an appeal against the saiddemand. For more details, investors are advised to refer to para on ‘Outstanding Litigations’ on page 57 ofthe Offer Document.

13. Contingent Liabilities of the Bank

As on March 31 2003, the Bank had contingent liabilities aggregating Rs. 5077.47 crores, comprising Rs.37.18 crores as claims not acknowledged as debt by the Bank, Rs. 3858.45 crores as liability on account ofoutstanding Forward Exchange Contracts, Rs. 731.59 crores as Guarantees given on behalf of constituents,Rs. 441.20 crores as Acceptance, Endorsements and other obligations and Rs. 9.03 crores as other items.For more details investors are advised to refer to para Contingent Liabilities in Annexure D 7 of the Auditors’report.

Management proposal

The Contingent Liabilities are inherent in the normal course of banking business and are subject to theprudential norms as prescribed by RBI.

14. Export Credit Target

The Bank has not met export credit target (12% of net credit) for the last five years. For more details, referto para on ‘Export Credit’ on page 35 of the offer document.

Management proposal

The non-achievement of this target has no negative impact on the working results of the Bank. RBI has nottaken any punitive action against the Bank for non-achievement of the targets. The Bank is taking steps toincrease its export credit exposure in terms of its loan policy for the year 2003-04. For more details, Investorsare advised to refer to para ‘Loan Policy’ on page 36 of the offer document.

15. Verma Committee Recommendations

The Verma Committee, which carried out a study of the banking sector in 1998 and 1999, had suggestedseven parameters for assessing a bank’s strength/weakness covering three major areas namely, solvency,earning capacity and profitability. Based on the above, Vijaya Bank was classified in the third category ofbanks, which complied with the Capital Adequacy requirement but did not meet five or six of the remainingparameters for the years 1998 and 1999. For an understanding of what the categorisation signifies, investorsmay refer to para titled ‘Verma Committee Recommendations’ on page 50 of the offer document.

Management proposal

The Bank has taken focused actions to improve its profitability and performance by a multi-pronged strategyinvolving reduction in NPAs, increased emphasis on reduction of costs, introduction of better systems andprocedures and improvement in its operational efficiency and reduction in staff cost.

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16. Future equity offering of the Bank

Any future offering by the Bank or its existing shareholders may dilute the holdings of the allottees of thepresent public issue or may affect the market price of the shares of the Bank adversely.

17. Auditors Qualifications for which adjustments could not be carried out

The statutory auditors of the Bank have made certain qualifications in their report for which adjustmentscould not be carried out. For more details, the investors may refer to Part VII -Annexure A of the Auditorsreport on page 86 in the offer document.

Management proposal

The said qualifications are not considered material. The detailed response of the Management of the Bankin respect of each qualification is as given on page 53 of the offer document.

18. Trading of the scrip on the bourses

The trading of the scrip on Bangalore Stock Exchange is thin.

Management proposal

The shares of the Bank are also listed on the Stock Exchange, Mumbai and the National Stock Exchangewhere the average daily trading volumes are 2,70,415 shares and 7,10,107 shares for the last 3 months and5,67,330 shares and 14,60,283 shares for the last one-year respectively. (Source: Bloomberg)

19. Utilisation of Funds

The utilisation of the funds proposed to be raised through the public issue is entirely at the discretion of theBank and no monitoring agency has been appointed to monitor the deployment of funds.

Management proposal

The funds raised through the public issue are not meant for any specific project and hence a monitoringagency may not be required. The Bank is managed by professionals under the supervision of its Board ofDirectors. Further, the Bank is subject to a number of regulatory checks and balances as stipulated in itsregulatory environment. Therefore, the management believes that the funds raised via the public issuewould be utilised only towards satisfactory fulfilment of the objects of the issue as stated on page 21 of theoffer document.

20. Contingent liabilities of the RRB sponsored by the Bank

As on March 31 2003, contingent liabilities of the RRB sponsored by the Bank aggregated Rs. 32.60 lakh.For more details investors are advised to refer to para Sponsored Gramin Bank on page 55 of the OfferDocument.

Management proposal

The above contingent liabilities have arisen in the normal course of business of the RRBs.

EXTERNAL RISK FACTORS

1. Regulatory restrictions on the Bank and limitations of the powers of shareholders of the Bank

There are a number of restrictions as per the Bank Nationalisation Act and Banking Regulations Act, whichimpede flexibility of the Bank’s operations and affect/restrict investors’ right. These are as under:

1. The Banks can carry on business/activities as specified in the Act. There is no flexibility to pursueprofitable avenues if they arise, in contrast with companies under the Companies Act, where shareholderscan amend the Objects Clause by a special resolution.

2. In terms of Rule 8 of The Banking Regulation Act, 1949, the Bank is prohibited from doing tradingactivity, which may act as an operational constraint.

3. In terms of Rule 17(1) of The Banking Regulation Act, 1949, every banking company shall create aReserve Fund and shall, out of the balance of profit of each year as disclosed in the Profit & Loss a/c

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prepared under Section 29 and before any dividend is declared transfer to the Reserve Fund a sumequivalent to not less than twenty five percent of such profit.

4. In terms of Rule 19 of The Banking Regulation Act, 1949 there are some restrictions on the bankingcompanies regarding opening of subsidiaries which may deny the Bank from exploiting emerging businessopportunities.

5. In terms of Rule 23 of The Banking Regulation Act, 1949 there are certain restrictions on the bankingcompanies regarding opening of new place of business and transfer of existing place of business, whichmay hamper the operational flexibility of the Bank.

6. In terms of Rule 25 of The Banking Regulation Act, 1949 each banking company has to maintain assetsin India which is not less than 75% of its demand and time liabilities in India which in turn may prohibitthe Bank from creating overseas assets and exploiting overseas business opportunities.

7. There are restrictions in the Banking Regulation Act regarding,

i) Management of a bank including appointment of directors

ii) Borrowings and creation of floating charge thereby hampering leverage.

iii) Expansion of business as the branches need to be licensed

iv) Disclosures in the profit & loss account and balance sheet

v) Production of documents and availability of records for inspection by shareholders

vi) Reconstruction of banks through amalgamation

vii) Further issues of capital including issue of bonus shares/rights shares for which prior MoF approvalis required

8. The financial disclosures in the offer document may not be available to the investors after listing on acontinuous basis

9. Various rights/powers of shareholders available under the Companies Act in this behalf are not availableto the shareholders of the banks. These rights include rights such as calling for general meetings,inspection of minutes and other material records, application for relief in cases of oppression andmismanagement, voluntary winding up etc.

10. As per Section 3 (2E) of the Bank Nationalisation Act, “no shareholder other than Central Governmentshall be entitled to exercise voting rights in respect of any equity shares held by him/her in excess of oneper cent of the total voting rights of all the shareholders of the Bank”.

11. No banking company shall pay dividend on its shares until all its capitalised expenses (includingpreliminary, organisational expenses, share selling commission, brokerage, amounts of losses and anyother item represented by tangible assets) have been completely written off. The Bank has received anexemption from GoI, Ministry of Finance, Department of Economic Affairs (Banking Division) vide gazettenotification ref. F. No. 11/15/2001-BOA dated August 22 2003 from the provisions of the said Section15(1) relating to the payment of dividend, for a period of five years from the date of the notification.

2. Interest rate risk

Interest rate volatility exposes the Bank to an interest rate risk or market risk. Such interest rate risk has apotential impact on net interest income or net interest margin as well as on the market value of the fixedincome securities held by the Bank in its investment portfolio.

Management proposal

These risks are inherent in the banking business. However, the Bank has put in place a system of regularreview of lending and deposit rates in order to minimise the interest rate risk. The Asset Liability ManagementCommittee of the Bank reviews the risk on a regular basis. Continuous Risk Management measures areinitiated depending upon the movement in the market interest rates. The movement in the interest rates isclosely monitored for appropriate action. For more details on the Risk Management procedures, investorsare advised to refer to para on Risk Management on page 48 of the offer document.

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3. Competition from existing and new Commercial Banks

Competition in the financial sector has increased with the entry of new players and is likely to increasefurther as a result of further deregulation in the financial sector. The Bank may face competition both inraising resources and in deploying them.

Management proposal

The Bank has an established broad-based presence and has been taking steps to enhance customersatisfaction by upgrading skills, systems and technology to meet such challenges. The Bank is attempting toadd quality assets on competitive terms. The Bank is also taking steps to broad base its product bouquetwith a special emphasis on enhancement in the non-fund based income. On the resource-raising front, theBank is actively endeavouring to broaden its reach and raise resources through its wide distribution networkof 843 branches and 61 extension counters. For more details on the business environment of the Bank,investors are advised to refer to the para on ‘Management Discussion and Analysis of Financial Results’ onpage 51 of the offer document and the para on ‘Banking Sector Scenario’ on page 22 of the offer document.

4. Changes in regulatory Policies

Major changes in Government/ RBI policies relating to banking sector may have an impact on the operationsof the Bank. Such changes may include but not limited to change in NPA provisioning norms, tightening ofcapital adequacy norms and modifications in foreclosure laws.

Management proposal

The Policy changes may provide both opportunities and challenges for the Bank. The Bank has a longpresence in the banking sector for more than 71 years and does not perceive policy changes to be a majorthreat. For more details, investors are requested to refer to the para ‘Management Discussion and Analysisof Financial Results’ on page 51 of the offer document.

5. Financial Statements in the offer document

The financial statements and derived ratios therefrom contained in the offer document are prepared/computedas per the permissible accounting practices and the adjustment guidelines prescribed by SEBI. The investorsmay want to make their own adjustments to the same before arriving at an investment decision in the offer.

Management proposal

The financial statements and the derived ratios have been prepared in conformity to the extant guidelinesand the same have been certified by the statutory auditors of the Bank. The Bank is also governed by theprudential norms of RBI for income recognition, NPA provisioning etc.

6. Disintermediation in the financial markets

Development of Capital Markets may result in disintermediation by current and potential borrowers wherebymany companies may access the markets directly, thereby reducing their dependence on the Banking system.

Management proposal

The Bank has, in recent years, launched several retail lending schemes so as to broaden its borrower base.Further, disintermediation brings with it the opportunity for the Bank to expand its fee-based activities. TheBank has been endeavouring to develop a presence in several financial services to earn fee based incomeby focussing on businesses such as foreign exchange, treasury, investments, cash management etc., thustaking advantage of the disintermediation phenomenon. For more details about the Products and Sevices ofthe Bank, the investors may refer to para ‘Products and Services’ on page 31 of the offer document.

7. Forex risk

Exchange Rate fluctuations may have an impact on the Bank’s financial performance.

Management Proposal

As per RBI guidelines, banks are not allowed to keep open position on their foreign exchange transactionsbeyond prescribed limits on a daily basis. Foreign exchange transactions beyond such limits, if any, must be

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squared off at the end of each day. Hence, the risk from exchange rate fluctuations is minimised. The Boardof Directors of the Bank has also prescribed limits for gaps or mismatches in maturities of bank’s foreigncurrency assets & liabilities and forward transactions in foreign exchange. The Bank operates within thelimits fixed for gaps or mismatches in maturities of Bank’s foreign currency assets and liabilities and forwardtransactions in foreign exchange, thus minimising the risks of mismatches in maturities and interest rates.For more details on the Risk Management procedures, investors are advised to refer to para on RiskManagement on page 48 of the offer document.

8. Operational Risk

Operational risk is a result of failure of operating system in a bank due to certain reasons like computerbreak-ins, power disruptions, fraudulent activities, natural disaster, human error or omission or sabotage.

Management proposal

To mitigate these operational risks, the Bank constantly updates its procedures and systems, trains staffand also subjects all critical areas of operation to concurrent audit. For more details on the Risk Managementprocedures, investors are advised to refer to para on Risk Management on page 48 of the offer document.

9. Sensitivity to the economy and extraneous factors

The Bank’s performance is highly correlated to the performance of the economy and the financial markets.The health of the economy and the financial markets in turn depends on the domestic economic growth,state of the global economy and business & consumer confidence, among other factors. Any event disturbingthe dynamic balance of these diverse factors would directly or indirectly affect the performance of the Bankincluding the quality and growth of its assets. Prices of equity sharers of the Bank may fluctuate as a resultof several factors, including:

a) Volatility in the Indian and Global Securities market.

b) Results of operation and performance.

c) Market for investment in the Banking sector.

d) Performance in Indian economy.

e) Significant development in India’s economic liberalization and deregulation policies, specifically thoserelated to the Banking sector.

f) Significant development in India’s fiscal and environmental regulations.

Notes

1. Networth of the Bank as on March 31, 2003 was Rs741.08 crores

2. The present Public Issue of the Bank aggregates Rs. 240 crores.

3. The Book Value per share as on March 31, 2003 for Rs. 10/- face value is Rs. 22.22.

4. Cost per share of the Bank to the Government of India is Rs. 10.

5. The Bank has adjusted its accumulated losses of Rs. 297.07 crores by setting off the same against the paid-up capital as on March 31, 2000.

6. As per Section 3 (2E) of the Bank Nationalisation Act, “no shareholder other than Central Government shallbe entitled to exercise voting rights in respect of any equity shares held by him/her in excess of one per centof the total voting rights of all the shareholders of the Bank”.

7. Section 3(2B)(c) of the Bank Nationalisation Act provides that the paid-up capital may, from time to time, beincreased by such amounts as the Board of Directors of the Bank may, after consultation with the RBI andwith the previous sanction of the Central Government, raise by Public Issue of equity shares as may beprescribed, so however, that the Central Government, at all times, hold not less than fifty-one per cent of thepaid-up capital of each of the Corresponding New Bank.

8. The shareholders of the Bank do not have a right to receive dividend within 30 days as is available tocompanies under the Companies Act.

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9. RBI carries out regular inspection of all Banks. The inspection of the Bank by RBI is a regular exercise andis carried out periodically for all the banks and Financial Institutions. The reports of RBI are strictly confidentialand the Bank has informed RBI about the actions already taken and measures that are under implementationin respect of observations made by RBI in its report for the year 2001-02.

10. VHFL, a subsidiary of Vijaya Bank has entered into the following transactions with Vijaya Bank during thelast three years:

(Rs. in lakhs)

Particulars 2000-2001 2001-2002 2002-2003

Term Loan availed during the year Nil 1500.00 2500.00

Term Loan repaid during the year Nil 75.00 406.00

Interest on Term Loan Nil 91.02 153.24

Fixed Deposits made with Vijaya Bank during the year 5.00 Nil 1103.25

Fixed Deposits matured/ withdrawn from Vijaya Bank 5.00 Nil 1100.00

Investments made through Vijaya Bank Nil Nil i) GS 2012 forRs.20.00 lakh.

ii) Karnataka BondKSDL 2012 for

Rs. 100.00 lakh.

Details of Rent Paid to Vijaya Bank for Premises used by Vibank Housing Finance Ltd.

(Rs. in lakhs)

Particulars 2000-2001 2001-2002 2002-2003

Vijaya Bank premises used by Primrose Road, Infantry Infantry Road, Mangalore & MumbaiVibank Housing Finance Ltd. Road, Mangalore & Mangalore & Mumbai

Mumbai

Rent paid to Vijaya Bank 2.74 1.67 Rs. 1.15

11. Vijaya Bank had following transactions with Visveshvarya Grameena Bank during last three years.

(Rs. in lakhs)

Particulars (As on March 31) 2001 2002 2003

Overdraft taken by the RRB 187 229 228

Deposit kept with Vijaya Bank 945 1105 300

Interest earned on overdraft 14 15 17

Interest earned on deposits 93 102 81

Dividend received from Vijaya Bank 0.08 0.32 0.32

Current account maintained with Vijaya Bank 305 273 269

Remuneration to Vijaya Bank employee ondeputation to RRB as chairman 2 2 2

Share capital held in Vijaya Bank 2.7 2.7 2.7

Share capital held by Vijaya Bank 35 35 35

Deposit from Vijaya Bank as share capital deposit 148 148 148

Investment in Bonds of Vijaya Bank 45 45 45

Interest earned on bonds of Vijaya Bank 5.5 5.5 5.5

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12. Vibank Housing Finance Ltd.has decided to merge itself with Vijaya Bank. The proposal of merger wasapproved by the Board of Directors of the Company vide board resolution dated March 24 2003. Vijaya Bank andNational Housing Bank, who are the shareholders of the Company, have also given their consent to the saidmerger, subject to approval of RBI, MoF and Company Law Board.

Important notes:

1. The financial information as contained in PART II including the notes to accounts, significant accountingpolicies as well as auditors’ qualifications has been duly certified by the statutory auditors of the Bank. As faras possible, these audited numbers have been used for computation or derivation of other financial informationcontained in the offer document. However, such other financial information contained in the offer documentexcept as contained in PART II, has been certified by the management of the Bank. Further, all notes toaccounts as well as Auditors’ qualifications have been disclosed in the Auditors’ Report.

2. In terms of recommendations of RBI Working Group on ‘Consolidated Accounting and Other QuantitativeMethods to Facilitate Consolidated Supervision’ (December 2001), all banks, whether listed or unlisted,should prepare and disclose Consolidated Financial Statement (CFS) from the financial year commencingfrom April 1, 2002. Conforming to the said requirement, the Auditors have provided consolidated financialstatements of the Bank in their report contained in Part II of the offer document.

3. Some sections of the Offer Document such as the Corporate Vision, Mission & Strategy, Loan Policy etc.may contain some qualitative forward-looking statements, which may not materialise in future. Investors arerequested to exercise due discretion while perusing such sections.

4. The Bank would like to clarify that the inspection of the Bank by RBI is a regular exercise and is carried outperiodically by RBI for all the banks and financial institutions. The reports of RBI are strictly confidential andthe Bank is in dialogue with RBI in respect of observations made by RBI in their report for previous years.RBI does not allow disclosure of its inspection report and that all the disclosures in the offer document areon the basis of management and audit reports of the Bank.

5. In the event of a difference in the provisions of Banking Companies (Acquisition and Transfer of Undertakings)Act 1980 and Companies Act on a given issue particularly with reference to shareholders rights, the formeroverrides the latter.

6. In addition to the Lead Manager, the Bank is also obliged to update the Offer Document and keep the publicinformed of any material changes till the listing and trading commences.

7. For the purposes of compliance with AS 4 regarding events occurring after Balance sheet date, the Bankcertifies as under:

a. There are no contingencies save and except as disclosed in the Offer Document, the outcome of whichmight have material impact on the finances of the Bank

b. There have been no significant material events that have occurred after the Balance sheet date till thedate of this Offer Document.

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HIGHLIGHTS

1. Management: Professionally managed bank with 71 years of existence.

2. Capital Adequacy Ratio: Capital Adequacy of 12.66% as on March 31, 2003, as against the minimumrequirement of 9% specified by RBI.

3. Low Net NPAs: Net NPA to net advances at 2.61% much lower than the average level of 4.5% for PSUBanks

4. Consistent growth in deposits: The deposits of the Bank have grown at a CAGR of 15.12% to Rs. 17019.8crores

5. Consistent growth in advances: The advances have grown at a CAGR of 20.30% to Rs. 7891.3 croresduring the past 5 years.

6. Scale: Total business crossed Rs. 25,000 crore mark and stood at Rs. 25,204 crore in March 2003.

7. Distribution network: Well spread branch network - 843 branches spread over 28 states and 4 Unionterritories. Strong presence in the Southern states.

8. Product mix: Diversified business activities encompassing Merchant Banking, Credit Cards, ATMs, HousingFinance, Fast Collection Services, etc.

9. Diversification: A well-diversified loan portfolio spread over many industries and Companies (top 10 industriesaccount for 11.49% of gross credit, top 10 companies account for 8.93% of gross credit and top 5 businessgroups account for 5.82% of the gross credit).

10. Technology: As at the end of March 2003, 356 branches were computerised (accounting for 78.26% of thebusiness)

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PART I

I. GENERAL INFORMATION

Vijaya Bank (hereinafter referred to as ‘the Bank’) wasincorporated as a Limited Company under the IndianCompanies Act 1913 on May 1, 1931. Subsequently, it wasconstituted as a Corresponding New Bank under the BankingCompanies (Acquisition and Transfer of Undertakings) Act1980.

The Bank is now offering for subscription 10 crore-equity sharesof Rs. 10 each for cash at a price of Rs. 24 aggregating Rs.240 crores. This includes 1,00,00,000 equity shares of Rs. 10each for cash at a price of Rs. 24 aggregating Rs. 24 croresreserved for permanent/ regular employees and WholetimeWorking Directors of the Bank. The offer also includes1,00,00,000 equity shares of Rs. 10 each for cash at a price ofRs. 24 aggregating Rs. 24 crores reserved for NRIs/FIIsapplying on a repatriable basis.

AUTHORITY FOR THE PRESENT ISSUE

The issue of equity shares is being made pursuant to thesanction of Government of India (GoI) in consultation withthe Reserve Bank of India (RBI), vide their letter no. F.No.11/15/2001-BOA dated 09.06.2003, under Section 3(2B)(c) ofthe Banking Companies (Acquisition and Transfer ofUndertakings) Act 1980, as amended by the BankingCompanies (Acquisition and Transfer of Undertakings) Act1994, Banking Companies (Acquisition and Transfer ofUndertakings) Act 1995, Banking Companies (Acquisitionand Transfer of Undertakings) Act 1996, (herein collectivelyreferred to as the “Bank Nationalisation Act”), to increasethe paid-up capital, the resolution passed at the meeting ofthe Board of Directors of the Bank (the Board), held on March27 2003 and the resolution passed by shareholders of theBank in the Annual General Meeting held on June 19 2003.The Board of Directors of the Bank has finalised the price ofthe equity shares in its meeting held on September 12 2003.The Bank has received permission from Exchange ControlDepartment, RBI vide its letter EC.CO.FID/1872/10.02.40/(9105) 2003-04 dated 29.08.2003 for allowing NRIs and FIIs

to invest in the shares offered in the Issue on repatriationbasis to the extent of 20% of the paid up capital out of thepresent issue of 10 crore equity shares. RBI, vide its circularNo. 14 dated September 16, 2003 has derecognised OCBsas an investor class. Accordingly the equity share are notavailable for investment by OCBs.

It is to be distinctly understood that the sanction/ approvalof the GoI and RBI should not in any way be deemed orconstrued that the Offer Document has been cleared orapproved by them nor do they take any responsibility eitherfor the financial soundness of the Bank or the correctnessof the statements made or opinions expressed in the OfferDocument.

The Bank can undertake the activities proposed by it in viewof the present approvals, and no further approvals from anyGovernment authority/RBI are required by the Bank toundertake the proposed activities. All the legal requirementstill the filing of the Offer Document with the stock exchangeshave been complied with.

DISCLAIMER CLAUSE

IT IS TO BE DISTINCTLY UNDERSTOOD THAT THESUBMISSION OF THE DRAFT OFFER DOCUMENT TOSEBI SHOULD NOT, IN ANY WAY, BE DEEMED ORCONSTRUED THAT THE SAME HAS BEEN CLEARED ORAPPROVED BY SEBI. SEBI DOES NOT TAKE ANYRESPONSIBILITY EITHER FOR THE FINANCIALSOUNDNESS OF ANY SCHEME OR THE PROJECT FORWHICH THE ISSUE IS PROPOSED TO BE MADE OR FORTHE CORRECTNESS OF STATEMENTS MADE OROPINIONS EXPRESSED IN THE OFFER DOCUMENT.LEAD MERCHANT BANKER, SBI CAPITAL MARKETSLTD., HAS CERTIFIED THAT THE DISCLOSURES MADEIN THE DRAFT OFFER DOCUMENT ARE GENERALLYADEQUATE AND ARE IN CONFORMITY WITH SEBI(DISCLOSURE AND INVESTOR PROTECTION)GUIDELINES IN FORCE FOR THE TIME BEING. THISREQUIREMENT IS TO FACILITATE INVESTORS TO TAKEAN INFORMED DECISION FOR MAKING INVESTMENT INTHE PROPOSED ISSUE.

VIJAYA BANK(A Government of India Undertaking)

Constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1980

Head Office: 41/2, M.G. Road, Bangalore 560 001, KarnatakaTel no.: (080) 558 4066 • Fax no.: (080) 558 8853 • E-mail: vijbank@vsnl.com

Public Issue of 10 crore-equity shares of Rs. 10 each for cash at a premium ofRs. 14 (i.e. at a price of Rs. 24) aggregating Rs. 240 crore

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IT SHOULD ALSO BE CLEARLY UNDERSTOOD THATWHILE THE ISSUER IS PRIMARILY RESPONSIBLE FORTHE CORRECTNESS, ADEQUACY AND DISCLOSURE OFALL RELEVANT INFORMATION IN THE DRAFT OFFERDOCUMENT, THE LEAD MERCHANT BANKER ISEXPECTED TO EXERCISE DUE DILIGENCE TO ENSURETHAT THE BANK DISCHARGES ITS RESPONSIBILITYADEQUATELY IN THIS BEHALF AND TOWARDS THISPURPOSE, THE LEAD MERCHANT BANKER, SBICAPITAL MARKETS LTD., HAS FURNISHED TO SEBI ADUE DILIGENCE CERTIFICATE DATED July 31, 2003, INACCORDANCE WITH SEBI (MERCHANT BANKERS)REGULATIONS, 1992,WHICH READS AS FOLLOWS:

1. WE HAVE EXAMINED VARIOUS DOCUMENTSINCLUDING THOSE RELATING TO LITIGATIONS LIKECOMMERCIAL DISPUTES, PATENT DISPUTES,DISPUTES WITH COLLABORATORS ETC., ANDOTHER MATERIALS IN CONNECTION WITH THEFINALISATION OF THE DRAFT OFFER DOCUMENTPERTAINING TO THE SAID ISSUE,

2. ON THE BASIS OF SUCH EXAMINATIONS AND THEDISCUSSIONS WITH THE BANK, ITS DIRECTORSAND OTHER OFFICERS, OTHER AGENCIES,INDEPENDENT VERIFICATION OF THE STATEMENTSCONCERNING THE OBJECTS OF THE ISSUE, PRICEJUSTIFICATION AND THE CONTENTS OF THEDOCUMENTS MENTIONED IN THE ANNEXURE ANDOTHER PAPERS FURNISHED BY THE BANK,

WE CONFIRM THAT:

a) THE DRAFT OFFER DOCUMENT FORWARDEDTO SEBI IS IN CONFORMITY WITH THEDOCUMENTS, MATERIALS AND PAPERSRELEVANT TO THE ISSUE,

b) ALL THE LEGAL REQUIREMENTS CONNECTEDWITH THE SAID ISSUE AS ALSO THEGUIDELINES, INSTRUCTIONS, ETC. ISSUED BYSEBI, THE GOVERNMENT AND ANY OTHERCOMPETENT AUTHORITY IN THIS BEHALF HAVEBEEN DULY COMPLIED WITH; AND

c) THE DISCLOSURES MADE IN THE DRAFT OFFERDOCUMENT ARE TRUE, FAIR AND ADEQUATETO ENABLE THE INVESTORS TO MAKE A WELLINFORMED DECISION AS TO THE INVESTMENTIN THE PROPOSED ISSUE.

3. WE CONFIRM THAT BESIDES OURSELVES, ALL THEINTERMEDIARIES NAMED IN THE DRAFT OFFERDOCUMENT ARE REGISTERED WITH SEBI AND THATTILL DATE SUCH REGISTRATION IS VALID.

The Lead Manager has issued a fresh due diligenceCertificate dated September 17, 2003, which reiterates thestatements made in the above referred certificate and statesthat all observations made by SEBI, vide letters no. CFD/DIL/UR/16270/2003 dated August 28 2003, have beenincorporated in the Offer Document.

Filing of the draft Offer Document with SEBI does not,however, absolve the Bank from any liabilities under Section63 or 68 of the Companies Act, 1956 or from the requirementof obtaining such statutory or other clearances as may berequired for the purpose of the proposed issue. SEBI furtherreserves the right to take up, at any point of time, with theLead Merchant Banker (s), any irregularities or lapses inthe Offer Document.

DISCLAIMER IN RESPECT OF JURISDICTION

This offer is made in India to persons resident in India, NRIson a non-repatriation basis and NRIs/FIIs on a repatriablebasis. This Offer Document does not, however, constitutean offer to sell or an invitation to subscribe to shares offeredhereby in any other jurisdiction to any person to whom it isunlawful to make an offer or invitation in such jurisdiction.Any person into whose possession this Offer Documentcomes is required to inform himself about and to observeany such restrictions. Disputes arising out of this Issue shallbe subject to the jurisdiction of appropriate Court(s).

DISCLAIMER CLAUSE OF THE BANGALORESTOCK EXCHANGE LTD.

The Stock Exchange, Bangalore (‘BgSE’) has given, videits letter dated August 12, 2003, permission to the Bank touse the name of the Exchange in this Offer Document asone of the stock exchanges on which this Bank’s securitiesare proposed to be listed. BgSE has scrutinised this OfferDocument for its limited internal purpose of deciding on thematter of granting the aforesaid permission to the Bank.BgSE does not in any manner -

1. Warrant, cert i fy or endorse the correctness orcompleteness of any of the contents of this OfferDocument;

2. Warrant that this Bank’s securities will be listed or willcontinue to be listed on BgSE; or

3. Take any responsibil ity for the financial or othersoundness of this Bank, promoters, management or anyscheme or project of this Bank;

And it should not be, for any reason be deemed or construedthat this Offer Document has been cleared or approved byBgSE. Every person who desires to apply for or otherwiseacquires any securities of this Bank may do so pursuant toindependent inquiry, investigation and analysis and shall nothave any claim against BgSE, whatsoever, by reason of anyloss which may be suffered by such person consequent toor in connection with such subscription/ acquisition whetherby reason of anything stated in the Offer Document or anyother reason whatsoever.

DISCLAIMER CLAUSE OF THE STOCK EXCHANGE,MUMBAI

“The Stock Exchange, Mumbai (‘BSE’) has given, vide itsletter no. List/smg/aak/2003 dated August 13, 2003permission to the Bank to use the name of the Exchange in

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this Offer Document as one of the stock exchanges on whichthis Bank’s securities are proposed to be listed. TheExchange has scrutinised this Offer Document for its limitedinternal purpose of deciding on the matter of granting theaforesaid permission to the Bank. The Exchange does notin any manner -

1. warrant, cert i fy or endorse the correctness orcompleteness of any of the contents of this OfferDocument;

2. warrant that this Bank’s securities will be listed or willcontinue to be listed on BSE; or

3. take any responsibil i ty for the financial or othersoundness of this Bank, promoters, management or anyscheme or project of this Bank;

And it should not be, for any reason be deemed or construedthat this Offer Document has been cleared or approved bythe Exchange. Every person who desires to apply for orotherwise acquires any securities of this Bank may do sopursuant to independent inquiry, investigation and analysisand shall not have any claim against the Exchange,whatsoever, by reason of any loss which may be sufferedby such person consequent to or in connection with suchsubscription/ acquisition whether by reason of anythingstated in the Of fer Document or any other reasonwhatsoever.”

DISCLAIMER CLAUSE OF THE NATIONAL STOCKEXCHANGE OF INDIA LIMITED

“As required, a copy of this Offer Document has beensubmitted to National Stock Exchange of India Limited(hereinafter referred to as NSE). NSE has given vide its letterno. NSE/LIST/50237 dated August 18, 2003, permission tothe Issuer to use the Exchange’s name in this OfferDocument as one of the stock exchanges on which thisIssuer’s securities are proposed to be listed. The Exchangehas scrutinised this Offer Document for its limited internalpurpose of deciding on the matter of granting the aforesaidpermission to this Issuer. It is to be distinctly understoodthat the aforesaid permission given by NSE should not inany way be deemed or construed that the Offer Documenthas been cleared or approved by NSE; nor does it in anymanner warrant, certify or endorse the correctness orcompleteness of any of the contents of this Offer Document,nor does it warrant that this Issuer’s securities will be listedor will continue to be listed on the Exchange; nor does ittake any responsibility for the financial or other soundnessof this Issuer, its promoters, its management or any schemeor project of this Issuer.

Every person who desires to apply for or otherwise acquireany securit ies of this Issuer may do so pursuant toindependent inquiry, investigation and analysis and shall nothave any claims against the Exchange whatsoever by reasonof any loss which may be suffered by such personconsequent to or in connection with such subscription/acquisition whether by reason of anything stated or omittedto be stated herein or any other reason whatsoever.”

GENERAL DISCLAIMER

The Issuer and the Lead Manager accept no responsibilityfor the statements made otherwise than in the OfferDocument or in the advertisements or any other materialissued by or at the instance of the Issuer and that anyoneplacing reliance on any other source of information wouldbe doing so at his/ her own risk.

All information shall be made available by the LeadManagers and the Bank to the public and investors at largeand no selective and additional information would beavai lable for a sect ion of investors in any mannerwhatsoever.

FILING

The draft Offer Document was filed with SEBI, Nariman Point,Mumbai and SEBI has given its observations on the samevide its letter dated August 28 2003. A copy of the final OfferDocument along with the documents referred under the head“Material Contract and Documents” in the Offer Document,has been delivered for registration to the Stock Exchange,Mumbai (being the designated stock exchange), TheNational Stock Exchange and Bangalore Stock Exchange.The complete copy of the documents has been kept openfor public inspection at the Head Office of the Bank.

LISTING

Applications have been submitted to the Stock Exchangesat Mumbai, Bangalore and the National Stock Exchange tolist the new equity shares now being offered through thisOffer Document and for permission to deal in such shares.

If the permissions to deal in and for an official quotation ofthe equity shares are not granted by any of the StockExchanges, the Bank shall forthwith repay, without interest,all such moneys received from the applicants in pursuanceof this Offer Document. If such money is not repaid withineight days after the Bank becomes liable to repay it (i.e.from the date of refusal or within 70 days from the date ofclosing of the subscription list, whichever is earlier), thenthe Bank will be liable to repay the money, with interest, asprescribed under Section 73 of the Companies Act.

ELIGIBILITY OF THE BANK TO COME OUT WITHTHE PUBLIC ISSUE

The SEBI (Disclosure and Investor Protection) Guidelines,2000 prescribe eligibility norms for a company to list itsshares. Clause 2.3 of the Guidelines specify the eligibilityrequirements for Public Issue by a listed company. Clause2.4.1, however, exempts a banking company from theserequirements. Hence in terms of Clause 2.4.1, the Bank iseligible to come out with Public Issue. The Bank has receivednecessary approvals for making the Issue through the fixedprice route.

PROHIBITION BY SEBI

The Bank, its associates and companies with which thedirectors of the Bank are associated as directors or

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promoters are not prohibited from accessing the capitalmarket under any order or directions passed by SEBI. Thereare no adverse findings in respect of the persons/entitiesconnected with the Bank as regards compliance withsecurities related laws.

ISSUE OF SHARES IN DEMATERIALISED FORMAT

The Bank has entered into a tripartite agreement with NSDLand CDSL dated 28.07.2000 and 22.08.2000 respectivelyfor dematerialisation of shares for the existing/proposedshareholders. The Bank has also given an option to thesubscribers / shareholders / investors to receive the sharecertificates in physical form or in the demat form.

IMPERSONATION

As a matter of abundant caution, the attention of the investoris drawn to the provision of Section 68 (A) of the CompaniesAct, 1956, reproduced below:

“Any person who

(a) makes in a fictitious name an application to the Bankfor acquiring or subscribing for any shares therein; or

(b) otherwise induces the Bank to allot or register anytransfer of shares therein to him or any other person ina fictitious name

shall be punishable with imprisonment for a term whichmay extend to five years”, as applicable under theprovisions of law.

MINIMUM SUBSCRIPTION

If the Bank does not receive the minimum subscription of90% of the issue amount, on the date of closure of the Issue,or if the subscription level falls below 90% after the closureof the Issue on account of cheques having been returnedunpaid or withdrawal of application, the Bank shall forthwithrefund the entire subscription amount received. If there is adelay beyond 8 days after the Company becomes liable topay the amount, the Bank shall pay interest as per Section73 of the Companies Act, 1956.

LETTERS OF ALLOTMENT/ SHARE CERTIFICATES/REFUND ORDERS

Letters of Allotment/ Share Certificates or Refund Orders,as the case may be, will be despatched by Registered Postor as per extant postal rules at the sole risk of the applicantto the sole/ first applicant within ten weeks from the date ofclosing of the subscription list. In accordance with the extantpostal rules the Bank will ensure dispatch of refund ordersof value up to Rs. 1500/- under Certificate of Posting andrefund orders of value above Rs. 1500/- by Registered Postonly.

Further,

a) as far as possible allotment of the equity shares shallbe made within 30 days of the closure of the Issue; and

b) the Bank shall pay interest at the rate of 15% per annum(except to the applicants applying through Stockinvest)

if the allotment has not been made and/or the Letters ofAllotment/ Refund Orders have not been despatched tothe investors within 30 days from the date of the closureof the Issue, for the delayed period beyond 30 days.

The Bank will provide adequate funds to the Registrars tothe Issue, for the purpose of despatch of Letter(s) ofAl lotment/ Share Cert i f icate(s)/ Letter(s) of Regret/Cancelled Stockinvest(s)/ Refund Order(s). Despatch ofshare certificates/refund orders/cancelled stockinvests anddemat credit would be completed and allotment and listingdocuments shall be submitted to the Stock Exchanges within2 working days of finalisation of the basis of allotment. TheBank shall ensure that ‘at par ’ facility is provided forenscashment of refund orders.

DENOMINATION OF SHARES

The Bank undertakes that at any given time, there shall beonly one denomination for the shares of the Bank and thatthe Bank shall comply with such disclosures and accountingnorms specified by SEBI from time to time.

DISPOSAL OF APPLICATIONS AND APPLICATIONMONEY

The Bank reserves, in its own, absolute and uncontrolleddiscretion and without assigning any reason, the right toaccept in whole or in part or reject any application. If anapplication is rejected in full, the entire application moneyreceived will be refunded to the applicant. If the applicationis rejected in part, excess of the application money receivedwill be refunded to the applicant within 30 (thirty) days fromthe date of closure of the Issue. No interest will be payableon the application money so refunded. Refund will be madeby cheques or demand drafts drawn in favour of the sole /first applicant (including the details of his / her savings/current account number and the name of the bank with whomthe account is held) to the Issue and will be despatched byRegistered Post for amounts above Rs. 1,500 and byCertificate of Posting otherwise. Such refund orders will bepayable at par at specified centres.

The subscription received in respect of Public Issue will bekept in a separate bank account and the Bank shall not haveaccess to such funds unless approvals for dealing from allthe Stock Exchanges, where listing has been proposed andapproval of BSE for utilisation has been obtained.

The Bank has undertaken to make adequate funds availableto the Registrars to the Issue for complying with therequirements of despatch of Allotment Letters/Refund Ordersby Registered Post.

OVERSUBSCRIPTION AND BASIS OF ALLOTMENT

In the event of the present Issue of equity shares beingoversubscribed, allotment will be on proportionate basis andthe basis of allotment will be finalised in consultation withDesignated Stock Exchange.

The drawal of lots (where required) to finalise the basis ofallotment, shall be done in the presence of a Public

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Representative on the governing board of the DesignatedStock Exchange. The Executive Director/Managing Directorof the Designated Stock Exchange along with the post-issueLead Managers and the Registrars to the Issue shall beresponsible to ensure that the basis of allotment is finalisedin a fair and proper manner in accordance with the SEBIGuidelines.

The allotment shall be on proportionate basis under thereservation for employees’ category, NR category as wellas under the net public offer category, subject to allotmentof Shares in marketable lots, and the basis of allotment wouldbe arrived at as explained below:

1. Applicants will be categorised according to the numberof shares applied for.

2. The total number of shares to be allotted to eachcategory as a whole shal l be arr ived at on aproportionate basis i.e. the total number of sharesapplied for in that category (number of applicants in thecategory x number of shares applied for) multiplied bythe inverse of the oversubscription ratio.

3. Number of shares to be allotted to the successfulallottees will be arrived at on a proportionate basis i.e.total number of shares applied for by each applicant inthat category mult ip l ied by the inverse of theoversubscription ratio.

4. In all the applications where the proportionate allotmentworks out to less than 100 shares per applicant, theallotment shall be made as follows:

a. Each successful applicant shall be allotted aminimum of 100 shares.

b. The successful applicant out of the total applicantsfor that category shall be determined by draw oflots in such a manner that the total number of sharesallotted in that category is equal to the number ofshares worked out as per 2 above.

5. If the proportionate allotment to an applicant works outto a number that is more than 100 but is not a multipleof 100, it would be rounded off to the higher multiple of100 if that number is 50 or higher. If that number is lowerthan 50, it would be rounded off to the lower multiple of100. All applicants in such categories would be allottedshares arrived at after such rounding off.

6. If the shares allocated on a proportionate basis to anycategory are more than the shares allotted to theapplicants in that category, the balance available sharesfor allotment shall be first adjusted against any othercategory where the allocated shares are not sufficientfor proportionate allotment to the successful applicantsin that category. The balance shares, if any, remainingafter such adjustment will be added to the categorycomprising of applicants applying for minimum numberof shares.

7. A minimum 50% of the net offer of equity shares to thepublic will be made available for allotment in favour ofthose individual applicants who have applied for such

number of shares the value of which aggregates to Rs.50,000 or less (i.e. an application for 2000 shares orless). This percentage may be increased in consultationwith the Designated Stock Exchange depending on theextent of response to the Issue from investors in thiscategory. The balance of the net offer of equity sharesto the public shall be made available for allotment toinvestors, including Corporate Bodies, Institutions andindividual applicants who have applied for such numberof shares the value of which aggregates to more thanRs. 50,000 (i.e. an application for more than 2000shares). The unsubscribed portion of the net offer toany one of the above two categories shall be madeavailable to the applicants in the other category, if sorequired and allotment made on a proportionate basisas per the relevant SEBI guidelines.

In the event of oversubscription, in the process of roundingoff to ensure allotment in marketable lots, the Bank will makeadjustments in the basis of allotment as may be necessaryin consultation with the Designated Stock Exchange. Thesimilar allotment procedure shall be followed for the 2reserved categories viz. the Employees’ category and theNR Category.

INTEREST ON EXCESS APPLICATION MONEY

Payment of interest at the rate of 15% per annum on excessapplication will be made to the applicants for the delayedperiod, if any, where allotment of equity shares and issuanceof Refund Orders takes place beyond 30 days from the dateof closure of the Issue. For refund made within 30 days, nointerest on excess application money shall be paid.

DISPUTES

Any disputes arising out of this Issue will be subject to thejurisdiction of appropriate court(s).

UTILISATION OF ISSUE PROCEEDS

The Board of Directors of the Bank undertakes that:

1. all monies received out of issue of shares to public shallbe transferred to separate bank accounts other than thebank account referred to in sub-section (3) of section73 of the Companies Act, 1956;

2. details of all monies utilised out of the issue referred toin sub-item (a) shall be disclosed under an appropriateseparate head in the Balance Sheet of the Bankindicating the purpose for which such monies had beenutilised

3. details of all unutilised monies out of the issue of shares,if any, referred to in sub-item (a) shall be disclosed underan appropriate separate head in the Balance Sheet ofthe Bank indicating the form in which such unutilisedmonies have been invested.

4. the utilization of monies received under reservationsshall be disclosed under an appropriate head in theBalance Sheet of the Bank indicating the purpose forwhich such monies have been utilised

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5. details of all unutilised monies out of funds receivedunder reservations shal l be disclosed under anappropriate separate head in the Balance Sheet of theBank indicating the form in which such unutilised monieshave been invested.

ISSUE PROGRAMME

THE SUBSCRIPTION LIST WILL OPEN AT THECOMMENCEMENT OF BANKING HOURS AND WILLCLOSE AT THE CLOSE OF BANKING HOURS ON THEDATES MENTIONED BELOW:

ISSUE OPENS ON : 09th OCTOBER 2003

ISSUE CLOSES ON : 17th OCTOBER 2003

ISSUE MANAGEMENT TEAM

LEAD MANAGERS TO THE ISSUE

SBI CAPITAL MARKETS LIMITED (SBICAP)202, Maker Tower ‘E’Cuffe ParadeMumbai - 400 005Tel: (022) 218 9166Fax: (022) 218 8332Email: vijaya.cmg@sbicaps.com

DSP MERRILL LYNCH LTD. (DSPML)Mafatlal Centre, 10th FloorNariman Point,Mumbai - 400 021Tel: 022-56328000Fax: 022-22048518Email: vijayabankipo@in.ml.com

J M MORGAN STANLEY PVT. LTD. (JMMS)141, Maker Chambers III,Nariman PointMumbai - 400 021Tel: 022-56303030 • Fax: 022-56301694Email: vijayabankipo@jmmorganstanley.com

A K CAPITAL SERVICES LTD. (AK)135 & 136, Free Press House, 13th Floor,Free Press Journal Marg,215, Nariman Point, Mumbai - 400 021.Tel: 022-56349300 • Fax: 022-56360977Email: akcap@bom9.vsnl.net.in

ALLIANZ SECURITIES LTD (ALLIANZ)C-2, Green Park Extension,New Delhi- 110 016Tel: 011- 26568613/8618Fax: 011-26969478Email: tsl_allianz@yahoo.com

Inter-se allocation of responsibilities among the LeadManagers

Activity Respon- Co-sibility ordinator

Capital Structuring with the relative SBICAP SBICAPcomponents and formalities such ascomposition of debt and equity,type of instrument.

Draft and design of the Offer Document. SBICAP SBICAPThe designated lead manager shall conductdue diligence and ensure compliance withstipulated requirements and completion ofprescribed formalities with Stock Exchanges,Registrar of Companies and SEBI.

Designing Statutory advertisements SBICAP SBICAPincluding offer document advertisementcover of the offer document andmemorandum containing salient featuresof the Offer Document (Form 2A). Thedesignated Lead Manager shallensure compliance with the applicableregulatory provisions in respect ofsuch statutory advertisements.

Other non-statutory advertisement/publicity JMMS JMMSmaterial including newspaper advertisements,corporate campaigns, product advertisements.The designated Lead Manager shall ensurecompliance with stipulated code ofadvertisements.

Selection of various agencies connected SBICAP ALLIANZwith issue i.e., Printers, Advertising agencies. DSPML

JMMSAK

ALLIANZ

Marketing of the issue covering SBICAP Retailinter-alia formulating marketing strategies, DSPML Investors -preparation of publicity budget, JMMS ALLIANZarrangements for selection of ad media. AK Institutional

ALLIANZ Investors -JMMS

Distribution of publicity and issue material SBICAP JMMSincluding application form, offer document, DSPMLbrochures and deciding on the quantum JMMSof issue material. AK

ALLIANZ

Coordinating the training sessions module SBICAP DSPMLfor the branch managers of the Bank DSPMLregarding marketing of the issue and JMMSallocation of conference centres AKamongst lead managers. ALLIANZ

Selection of centres for holding press/broker SBICAP JMMSconferences and allocation of conference DSPMLcentres amongst lead managers and JMMS

a.k.

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preparation of press/broker conference AKpresentation finalization of brokerage ALLIANZstructure based on inputs from leadmanagers.

Selection of Registrars to the issue and SBICAP DSPMLBankers to the issue and follow-up with DSPMLBankers to the Issue to get quick JMMSestimates of collection and advising the AKissuer about closure of the issue, ALLIANZbased on the correct figures.

The post-issue activities involving essential DSPML DSPMLfollow-up steps with the various agencies(bankers to the issue, refund bankers,registrars) connected with the post-issuework to facilitate the timely finalization ofthe basis of allotment, listing ofinstruments and despatch of certificatesand refunds, even if many of these activitieswould be handled by other intermediaries,the designated lead manager shall be respo-nsible for ensuring that these agenciesfulfil their functions and enable him todischarge this responsibility through suitablearrangements with the Issuer Company.

CO-MANAGERS TO THE ISSUE

Karvy Investor Services Ltd.Karvy House, 21, Avenue No.4,Street No. 1, Banjara Hills,Hyderabad- 500 034.Tel.: 040-23312456Fax: 040-23351968

Centrum Finance Ltd.Khetan Bhavan, 5th Floor,198, J. Tata Road, Churchgate,Mumbai - 400020.Tel: 022-22023838Fax: 022-22046096

REGISTRAR TO THE ISSUE

MCS LimitedSri Padmavathi Bhavan, Plot No.93,Road No.16, M.I.D.C. Area,Andheri (East), MUMBAI - 400 093Tel: (022) 28201785Fax: (022) 28201783E-mail: mcsmum@bom2.vsnl.net.in

LEGAL ADVISOR TO THE ISSUE

K.S. Hanumantha Rao, Advocate579, 31st Cross Road, 10th Main,4th Block, Jayanagar,Bangalore - 560 011Tel: 080-6631 209Fax: 080-6650 019

AUDITORS OF THE BANK

Statutory Central Auditors of the Bank, as appointed underSection 10(1) of the Bank Nationalisation Act, are as under:

M/s. Kishore & Kishore,Chartered Accountants,1530, Pataudi House,Daryaganj,New Delhi - 110 002.Tel: (011)-23277041/23281035

M/s S.P. Marwaha & Co.,Chartered Accountants,8-A/4 Western Extension Area,KarolbaghNew Delhi-110 005Tel: (011)-25746813/25713448

M/s. Prasad Azad & CoChartered Accountants7/7, Desh Bandu Gupta Road,Paharganj,New Delhi 110 055Tel: (011) 23580803/ 23586183

M/s D.V. Ramana Rao & Co.,Chartered Accountants,Gandhinagar,Opp. Park IIHyderabd 500 080Tel: (040) 7613712/7636975

M/s. Rao & SwamiChartered Accountants,2/1, Connaught Road,Bangalore - 560 052.Tel: (080) 2267468/2265290

M/s Raju & PrasadChartered Accountants,401, 4th floor,Diamond House,Amruth Hills,Panjagutta,Hyderabad - 500082Tel: (040) 6668088/23419494

HEAD OFFICE

Vijaya Bank41/2, M.G. RoadBangalore 560 001Tel: (080) 558 4066Fax: (080) 558 8853Email:vijbank@vsnl.com

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REGIONAL OFFICES

As on March 31, 2003, the Bank had a total of 14 regionaloffices. These are as follows:

AHMEDABADKamadhenu ComplexOpp Polytechnic, AmbavadiAhmedabad - 380 015Tel (079) 6307192,6306893Fax:079-6307860Email:vbroahmd@vsnl.net

BANGALOREShrutha ComplexNo.19, Primrose RoadOff M G RoadBangalore - 560 025Tel (080) 5582748,5582749Fax: (080) 5596802Email:ban.ro9124@vijbank.co.in

KOLKATATrimurthy Apartments5th Floor97/1, Park StreetCalcutta - 700 016Tel (033) 2261182,2269145Fax (033) 2262163Email: vbrokol@vsnl.net

KOCHI1st Floor, Jose AnnexeJose JunctionM.G. RoadErnakulamKochi - 682 016Tel (0484) 369603,384332Fax:0484-372919Email: vbrokochi@sancharnet.in

DELHIVijaya Building17, Barakhamba Road,New Delhi - 110 001Tel: 011- 3711093,3711098Fax: 011-3721080Email:vbrodel@vsnl.net

CHENNAIDugar Towers, I Floor123, Rukmani Lakshmipathi RoadEgmoreChennai - 600 008Tel:044-8553005,8553935Fax:044-8555189Email:vbrochennai@vsnl.net

GUWAHATIIspat BhavanMaulana Azad Road,Rahabari,Guwahati - 781 008Tel:541123Fax: 0361-548803Email:vbroguwahati@hotmail.com

HUBLIV A Kalburgi Mansion1st Floor, P B No.17Lamington RoadHubli - 580 020Tel:0836-363003,361171Fax:0836-366303Email: vbrohbl@sancharnet.in

HYDERABADP B No.218306, 307 & 308, III FloorBabukhan EstateBasheerbaghHyderabad - 500 001Tel: 040-3232993,3232994Fax: 040-3243307Email:vbrohyd@hd2.dot.net.in

LUCKNOWP B No.183Nehru BhavanNo.1, B N Road, II FloorKaiserbaghLucknow - 226 001Tel:0522-216566,221495Fax:0522-223854Email: rolucknow@yahoo.co.in

MANGALOREVijaya TowerL H H RoadMangalore - 575 003Tel:0824-442903,442904Fax:0824-442902Email: vbromglore@sancharnet.in

MUMBAIVikas Centre1st Floor, S V RoadSanta Cruz (West)Mumbai - 400 054Tel:6126584,6126099Fax:022-6109004Email:vbromumbai@vsnl.net

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MYSOREP B No.11, Near K R CircleSanthepetMysore - 570 001Tel:0821-423928,431109Fax:0821-430923Email: vbromysore@sancharnet.in

VIJAYAWADAPost Box No.81131-3-4B, I FloorMarutinagar, I StreetVijayawada - 520 004Tel:0866-433341Fax:0866-430213Email: vbrovij@sancharnet.in

COMPLIANCE OFFICER

K. Gopalakrishnan NairCompany SecretaryVijaya BankHead Office41/2, M G RoadBangalore - 560 001Tel: (080) 558 4066 Fax: (080) 558 8853E-mail: vijbank@blg.vsnl.net.in

CREDIT RATING/ TRUSTEES

Since the present issue is of equity shares credit rating andappointment of trustees is not required.

UNDERWRITING

The present issue of equity shares is not underwritten.

UNDERTAKING BY THE BANK

The Bank undertakes

a) that the complaints received in respect of the Issue shallbe attended to by the Bank expedit iously andsatisfactorily;

b) that all steps for completion of the necessary formalitiesfor listing and trading at all stock exchanges where thesecurities are to be listed are taken within 7 workingdays of finalisation of the basis of allotment.

c) that it shall apply in advance for the listing of equityshares

d) that the funds required for despatch of refund orders/allotment letters/ certificates by registered post shall bemade available to the Registrar to the Issue

e) that the certificates of the securities/refund orders tothe Non-Resident Indians shall be despatched withinspecified time.

f) that no further issue of securities shall be made till thesecurities offered through this offer document are listedor till the application moneys are refunded on accountof non-listing, undersubscription, etc.

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II. CAPITAL STRUCTURE

As on March 31 2003 (in Rs.) Face Value Total amountincludingpremium

A. Authorised capital

150,00,00,000 Equity Shares of Rs. 10/- each 15,00,00,00,000 15,00,00,00,000

B. Issued, subscribed and paid up capital*

33,35,17,800 Equity Shares of Rs. 10/- each 333,51,78,000 333,51,78,000

C. Present issue through this Offer Document

10,00,00,000 Equity Shares of Rs. 10/- each for cash at a 100,00,00,000 240,00,00,000premium of Rs. 14

Out of which

1,00,00,000 Equity Shares of Rs.10/- each for cash at a premium of 10,00,00,000 24,00,00,000Rs. 14are reserved for allotment to PermanentEmployees/ Wholetime Working Directors of the Bank

1,00,00,000 Equity Shares of Rs.10/- each for cash at a premium of 10,00,00,000 24,00,00,000Rs. 14are reserved for allotment to NRIs/OCBs/FIIsapplying on a repatriable basis

D. Net offer to Indian public

8,00,00,000 Equity Shares of Rs. 10/- each at a premium of Rs. 14/- 80,00,00,000 192,00,00,000

E. Paid - up capital after the issue

43,35,17,800 Equity Shares of Rs. 10 each 433,51,78,000 433,51,78,000

Share premium account

Before the issue Nil

After the issue 140,00,00,000

* Equity capital of the Bank to the extent of 70.02 %is presently held by the Government of India (GoI). The Government ofIndia, Ministry of Finance, Department of Economic Affairs (Banking Division) vide their letter no. F. No. 11/15/2001-BOAdated June 9 2003 has given its approval for the present Issue. After the issue, the shareholding of GoI will be 53.87%.

Notes to Capital Structure

1. Share Capital history (since nationalisation on April 15, 1980)(Rs. in crores)

Year ended Increase/ (Decrease) Mode Paid-up capitalMarch 31, in capital

1980 NA NA 1.171984 0.10 Contribution to Capital by GoI* 1.271985 7.72 Contribution to Capital by GoI* 8.991986 10.00 Contribution to Capital by GoI* 18.991988 4.00 Contribution to Capital by GoI* 22.991989 4.00 Contribution to Capital by GoI* 26.991991 25.00 Contribution to Capital by GoI* 51.991992 25.00 Contribution to Capital by GoI* 76.991993 50.00 Contribution to Capital by GoI* 126.991994 65.00 Contribution to Capital by GoI* 191.991994 62.31 Contribution to Capital by GoI* 254.301997 302.00 Contribution to Capital by GoI* 556.302000 (297.07) Adjustment of accumulated losses against capital 259.232001 100.00 Public Issue of Equity shares 359.242002 (25.72) Return of Capital 333.52

* Contribution by GoI has been in the form of recapitalisation bonds.

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2. Lock-in of shares of Government of India

The details of the lock-in are given in the following table.

Date of Allotment/ Date when Consideration No. of Issue % of Post Lock in for aacquisition made fully Shares Price (Rs.) Issue Paid period

paid-up up Capital

March 27 1997 March 27 Recapitalisation 8,67,04,000 At par 20% 3 years from the1997 Bonds date of allotment

in the Public Issue.

The Government of India vide its letter no. F. No. 11/15/2001-BOA dated August 21 2003 has given its approval tolock-in of 20% of the post issue capital for 3 years from the date of allotment in the public issue.

3. The Government of India, Ministry of Finance,Department of Economic Affairs (Banking Division), videits letter No. F. No. 11/15/2001-BOA, in exercise of thepowers conferred by Section 3(2BB) inserted in theBanking Companies (Acquisition and Transfer ofUndertakings) Act, 1970 by the Banking Companies(Acquisition and Transfer of Undertakings) AmendmentAct, 1995, and in consultation with the Reserve Bank ofIndia has permitted the Bank for reducing its paid-upcapital by adjusting accumulated losses of Rs.297.07crores from its paid-up capital as on March 31, 2000.The present paid-up capital of the bank is Rs. 333.52crores.

3. The Authorised share capital of the Bank is Rs. 1,500crores as per section 3 sub-section 2A of The BankingCompanies (Acquisition and Transfer of Undertakings)Act, 1980, as amended from time to time.

4. Under section 3A of the Bank Nationalisation Act, nonotice of any Trust, express, implied or conservative,shall be entered on the register or be receivable by theBank. In terms of this Section, while Trusts could makeinvestments in equity shares of the Bank, this could beonly in the name of the Trustee and no details of theTrust would be taken cognisance of by the Bank on itsRegister of Shareholders.

5. As per Section 3 (2E) of the Bank Nationalisation Act,“no shareholder other than Central Government shallbe entitled to exercise voting rights in respect of anyequity shares held by him/her in excess of one per centof the total voting rights of all the shareholders of theBank”.

6. Section 3(2B)(c) of the Bank Nationalisation Actprovides that the paid-up capital may, from time to time,be increased by such amounts as the Board of Directorsof the Bank may, after consultation with the RBI andwith the previous sanction of the Central Government,raise by Public Issue of equity shares as may beprescribed, so however, that the Central Government,at all times, hold not less than fifty-one per cent of thepaid-up capital of each of the Corresponding New Bank.

7. In the event of oversubscription, in the process ofrounding off to ensure allotment in marketable lots, theBank will make adjustments in the basis of allotment asmay be necessary in consultation with the DesignatedStock Exchange, such that the Issue size does notexceed 10,80,00,000 equity shares. (i.e. retention ofmaximum of 10% over subscription is permissible)

8. In the event of oversubscription, the allotment shall bemade on a proportionate basis as is outlined under thepara ‘Basis of Allotment’ in this Offer Document.

9. No applicant in the net offer to the public category canmake an application for a number of equity shares, whichexceeds the net offer to the public.

10. No applicant in the reserved category for permanent/regular employees can make an application, whichexceeds the size of the reservation i.e. 10% of the issue.

11. No NRI/FII applying on a repatriation basis in thereserved category can make an application, whichexceeds the size of the reservation i.e. 10% of the issue.

12. Only permanent/regular employees and WholetimeWorking Directors of the Bank as on the notified cut-offdate, i.e., 31.03.2003, would be eligible to apply in thisIssue under reservation for employees on competitivebasis. The number of permanent/ regular employees ofthe Bank as on 31.03.2003 was 11723.

13. The unsubscribed portion, if any, out of the equity sharesreserved for Employees of the Bank on competitivebasis, will be added back to the Net Offer to the Publicunder point D in the capital structure above. In caseof under-subscription in the Net Offer to the Publicunder D above the spi l l over, i f any, under thereserved category for the Employees would be addedto the Net Offer to the Public to the extent of undersubscription.

14. The Bank has received an approval from RBI to issueshares to NRIs/FIIs on a repatriable basis up to 20% ofits paid up capital out of the present public issue of 10crore-equity shares. The said approval is subject tovarious conditions as outlined in para instruction forapplication by NRIS and FIIS on repatriation basis onpage 17 of the Offer Document. The Bank has,

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accordingly, reserved 10% of the present issue for NRIs/FIIs applying on a repatriable basis. NRIs/FIIs mayplease note that they cannot make an application in the‘net public offer’ category.

15. The unsubscribed portion in any reserved category maybe added to any other reserved category. Theunsubscribed portion, i f any, after such inter-seadjustments between the reserved categories may beadded back to the net offer to public. In case ofundersubscription in the net offer to public portion, spillover to the extent of undersubscription shall be permittedfrom the reserved category to the net offer to publicportion.

16. A minimum 50% of the net offer of equity shares to thepublic will be made available for allotment in favour ofthose individual applicants who have applied for anaggregate application amount of Rs. 50,000 or less (i.e.an application for 2000 shares or less). This percentagemay be increased in consultation with the DesignatedStock Exchange depending on the extent of responseto the Issue from investors in this category. The balanceof the net offer of equity shares to the public shall bemade available for allotment to investors, includingCorporate Bodies, Institutions and individual applicantswho apply for an aggregate application amount of morethan Rs. 50,000 (i.e. an application for more than 2000shares).. The unsubscribed portion of the net offer toany one of the above two categories shall be madeavailable to the applicants in the other category, if sorequired and allotment made on a proportionate basisas per the relevant SEBI guidelines.

17. The GoI/ Directors of the Bank/ Lead Managers havenot entered into any buy-back and/or standbyarrangements for purchase of the equity shares of theBank with any person.

18. The Bank has not availed any Bridge Loan against theproceeds of this Issue.

19. GoI has not undertaken any transaction in the equityshares of the Bank in the last six months, save asotherwise stated elsewhere in the Offer Document.

20. The Bank undertakes that it shall not make any furtherissue of capital whether by way of issue of bonus shares,preferential allotment, rights issue or public issue or inany other manner, during the period commencing fromsubmission of Offer Document to SEBI for the PublicIssue till the securities referred in the Offer Documenthave been listed or application monies refunded onaccount of failure of the issue. As on date, the Bankdoes not propose to alter the capital structure by way ofsplit/ consolidation of the denomination of shares orissue of shares on preferential basis, or issue of bonusor rights or further public issue of shares or any othersecurities within a period of six months from the date ofopening of present issue.

21. The list of top ten shareholders of the Bank as onSeptember 15, 2003 and the shares held by them is asfollows:

Name of Shareholder Shares held % Of HoldingGovernment of India 233517800 70.02Birla Sun Life trustee Company Pvt.Ltd a/t Birla Dividend Yield Plus 2000000 0.60Andhra Bank 1870775 0.56Punjab & Sind Bank 1456390 0.44Oriental Bank of Commerce 1120798 0.34Central Bank of India 997304 0.30Gujarat Mineral Development Corpn. 777900 0.23Indian Overseas Bank 724000 0.22Bank of Baroda 704733 0.21Srendra Mercendise Pvt. Ltd. 450000 0.13Total 243619700 73.05

The list of top ten shareholders of the Bank ten daysprior to the date of Stock Exchange filing (i.e. September5 2003) and the shares held by them are as follows:

Name of Shareholder Shares held % Of Holding

Government of India 233517800 70.02Andhra Bank 1870775 0.56Punjab & Sind Bank 1446390 0.43Oriental Bank of Commerce 886500 0.26Central Bank of India 865859 0.25Gujarat Mineral Development Corpn. 777900 0.23CANFA Bank Trustee CANBANK 500000 0.14Mutual FundIndian Overseas Bank 471000 0.14Srendra Mercendise Pvt. Ltd. 450000 0.13Bank of Baroda 404733 0.12

Total 241190957 72.28

The list of top ten shareholders of the Company two years prior tothe date of Stock Exchange filing (i.e. September 15 2001) and theshares held by them is as follows:

Name of Shareholder Shares % Ofheld Holding

Government of India 233517800 70.02Birla Sun Life trustee CompanyPvt. Ltd a/t Birla Dividend Yield Plus 2000000 0.60Andhra Bank 1870775 0.56Punjab & Sind Bank 1456390 0.44Oriental bank of Commerce 1120798 0.34Central Bank of India 997304 0.30Gujrat Mineral Development Corporation 777900 0.23Indian Overseas Bank 724000 0.22Bank of Baroda 704733 0.21Srendra Mercendise Pvt Ltd. 450000 0.13

Total 243619700 73.05

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III. TERMS OF THE PRESENT ISSUE

The Bank is offering for public subscription through this offerdocument, 10,00,00,000 equity shares of Rs. 10/- each at apremium of Rs. 14/- per share aggregating Rs. 240 crores.The equity shares are being offered, subject inter alia, tothe terms of this Offer Document, the application forms, theprovisions for listing as specified in the guidelines issuedby Stock Exchanges and the GoI from time to time, theprovisions of the Bank Nationalisation Act, the BankingRegulation Act 1949, to the extent applicable, CompaniesAct 1956, to the extent applicable, the Government of India,Ministry of Finance, Department of Economic Affairs(Banking Division), vide their letter no. F.No.11/15/2001-BOAdated 09.06.2003 approving the issue, terms and conditionsin the allotment letter & share certificate, the guidelines forDisclosure and Investor Protection issued by SEBI and theprovisions of the Depositories Act 1996, to the extentapplicable.

RIGHTS OF THE EQUITY SHAREHOLDERS

a) Right to receive dividend, if declared

b) Right to attend general meetings and exercise votingpowers, unless prohibited by law

c) Right to vote either personally or by proxy, subject toSection 3(2E) of the Bank Nationalisation Act.

TERMS OF THE ISSUE OF EQUITY SHARES

The Face Value of each Equity Share is Rs.10 and is beingoffered at a premium of Rs. 14/- (i.e. at a price of Rs. 24/-per share)

RANKING OF EQUITY SHARES

The equity shares now being offered shall rank pari passuwith the existing shares of the Bank in all respects includingdividend save and except the following:

l as provided in Section 3(2E) of the Bank NationalisationAct, “no shareholder other than Central Governmentshall be entitled to exercise voting rights in respect ofany equity shares held by him/her in excess of one percent of the total voting rights of all the shareholders ofthe Bank”.

l the investors are requested to refer the section 15(1) ofthe Banking Regulation Act, 1949. As per the abovesection “No Banking company shall pay any dividendon its shares until all its capitalised expenses (includingpreliminary expenses, organisational expenses, shareselling commission, brokerage, amounts of lossesincurred and any other i tem of expenditure notrepresented by tangible assets) have been completelywritten off”. The Government of India, Ministry ofFinance, Dept. of Economic Affairs (Banking Division)vide letter no. F. No.11/15/2001-BOA dated 09.06.2003exempted the Bank from provisions of the said Section15(1) relating to payment of dividend, for a period offive years. The Government has also notified the samevide its official gazette no. F. No. 11/15/2001 - BOA datedAugust 22 2003.

INTEREST IN CASE OF DELAY IN ALLOTMENT/REFUNDS

The Bank agrees that, as far as possible, it will allot theequity shares within 30 days from the date of closure of theIssue.

The Bank agrees that it shall pay interest @ 15% p.a., exceptto applicants applying through Stockinvests, if the allotmentletters/refund orders are not dispatched to the investorswithin 30 days from the date of closure of the Issue.

TERMS OF PAYMENT OF THE EQUITY SHARES

Applications should be for a minimum of 100 equity sharesand in multiples of 100 thereafter. The entire offer price ofRs. 24 per share is payable on application.

Where an applicant is allotted lesser number of equity sharesthan he/ she has applied for, the balance if any, will berefunded to the applicant. No interest would be payable onapplication money pending allotment up to 30 days from thedate of closure of the Issue.

TRANSFER OF SHARES

As per Section 3 (2D) of the Bank Nationalisation Act, theshares of every corresponding new Bank not held by theCentral Government shall be freely transferable.

PROVIDED that no individual or company resident outsideIndia or any company incorporated under any law not in forcein India or any branch of such company whether residentoutside India or not, shall at any time hold or acquire bytransfer or otherwise shares of the corresponding new bankso that such investment in aggregate exceeds thepercentage, not being more than twenty per cent of the paid-up capital, as may be specified by the Central Governmentby notification in the Official Gazette.

Explanation: For the purposes of this clause, “company”means any body corporate and includes a firm or otherassociation of individuals.

Amendment to the Act 2000.

(c) In sub-section (2D), the words “not held by the CentralGovernment” shall be omitted.

PROCEDURE FOR APPLICATION AND MODE OFPAYMENT

AVAILABILITY OF OFFER DOCUMENT ANDAPPLICATION FORMS

The Memorandum Form 2 A containing the salient featuresof the Offer Document together with Application Forms andcopies of the Offer Document may be obtained from the HeadOffice of the Bank, all branches of the Bank, Lead Managersto the Issue, Co-Managers to the Issue, Advisor to the Issueand at the collection centres of the Bankers to the Issue.Investors are advised to retain a copy of the offer Document/Memorandum on Form no. 2 A (abridged prospectus) fortheir future reference.

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Application may be made by

(a) Indian Nationals resident of India who are AdultIndividuals in single name or joint names (not more thanthree)

(b) Hindu Undivided Families (HUFs) (HUF applicationwould be treated as applications made by individuals)through the Karta of the Hindu Undivided Family

(c) Companies, Body Corporate and Societies registeredunder the applicable laws in India and authorised toinvest in the Shares

(d) Scientific and/or Industrial Research Organisations,which are authorised to invest in the equity shares

(f) Indian Mutual Funds registered with SEBI

(g) Indian Financial Institutions & Banks

(h) Trusts who are registered under the Societies RegulationAct, 1860 or any other trust law and are authorised undertheir constitution to hold and invest in shares subject toprovisions of Section 3A of the Bank Nationalisation Act

(i) Commercial Banks and Regional Rural Banks. Co-operative Banks subject to permission from ReserveBank of India

(j) Permanent and Regular employees of the Bank

(k) Non - Resident Indians (NRIs) on non-repatriation basisin the public category

(l) Non - Resident Indians (NRIs)/ Foreign InstitutionalInvestors (FIIs) on repatriation basis only in the NRcategory*

* The Bank has received permission from Exchange ControlDepartment, RBI vide its letter EC.CO.FID/1872/10.02.40/(9105) 2003-04 dated 29.08.2003 for allowing NRIs and FIIsto invest in the shares offered in the Issue on repatriationbasis to the extent of 20% of the paid up capital out of thepresent issue of 10 crore equity shares. The Bank has madea reservation of 10% of the issue for NRIs/FIIs applying ona repatriation basis.

Applications not to be made by

1. Minors

2. Foreign Nationals

3. Partnership firms or their nominees

4. Trusts (except as stated above)

5. HUFs (except as stated above)

A. GENERAL INSTRUCTIONS

1. Applications must be made in the prescribed applicationform and completed in Full in Block Letters in Englishas per the instructions contained herein and in theapplication form and are liable to be rejected if not somade. The prescribed application forms are of thefollowing colours:

Category Colour

Public/ NRIs on non repatriation basis Printed on a white background form

NRIs, FIIs on repatriation basis Printed on a Blue background form

Employees Printed on a pink background form

2. The application for equity shares should be for aminimum of 100 equity shares and in multiples of 100shares thereafter. An applicant in the public categorycan make an application only for a maximum of equityshares that are offered to the public. An applicant in thereserved category can make an application only for amaximum of equity shares that are offered in thatcategory.

3. Thumb impressions and signatures other than inEnglish/ Hindi/ Kannada or any other language specifiedin the 8th Schedule to the Constitution of India, must beattested by a Magistrate or a Notary Public or a SpecialExecutive Magistrate under his/ her official seal.

BANK ACCOUNT DETAILS OF APPLICANT

The name of the applicant’s Bank, Branch, type of accountand account number must be filled in the Application Form.This is required for the applicants’ own safety and thesedetai ls wil l be printed on the refund orders, i f any.Applications without these details would be treated asincomplete and are liable to be rejected.

APPLICATIONS UNDER POWER OF ATTORNEY

In case of applications under Powers of Attorney, or byCompanies, Bodies Corporate, Societies registered underthe applicable laws, trustees of trusts, Provident Funds,Superannuation Funds, Gratuity Funds and Scientific and/or Industrial Research Organisations, a certified copy of thePower of Attorney or the relevant authority, as the case maybe, must be lodged separately at the office of the Registrarsto the Issue simultaneously with the submission of theapplication form, indicating the serial number of theapplication form and the name of the Bank and the branchoffice where the application is submitted. The Bank in itsabsolute discretion reserves the right to relax the abovecondition of simultaneous lodging of the power of attorneyalong with application form subject to such terms andconditions as it may deem fit.

PAN/ GIR NUMBER

Where an application is for a total value of Rs. 50,000 ormore, the applicant, or, in case of applications in joint names,each of the applicants should mention his/ her/ theirPermanent Account number (PAN) allotted under IncomeTax Act, 1961 or where the same has not been allotted, theGIR Number and the IT Circle/ Ward/ District. In case whereneither the PAN nor the GIR Number has been allotted, orthe applicant is not assessed to Income Tax, the appropriatebox provided for the purpose in the application form mustbe ticked. Applications without this will be consideredincomplete and are liable to be rejected.

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NOMINATION FACILITYAs per Section 109A of the Companies Act, 1956, and theNotification No. G.S.R. 836 (E) dated 24.10.2000 amendingForm 2B of nomination form of the Companies (CentralGovernment’s) General Rules and Forms, 1956, onlyindividuals applying as Sole Applicant can nominate in theprecsibed manner, a person to whom his share in the Bankshall vest in the event of her/his death. Non-individualsincluding society, trust, body corporate, Karta of HUF, holderof power of attorney cannot nominate.

JOINT APPLICATIONS IN THE CASE OFINDIVIDUALSApplications can be in single or joint names (not more thanthree). In the case of joint application, all payments will bemade out in favour of the first applicant. All communicationswill be addressed to the first named applicant whose nameappears in the Application form at the address mentionedtherein.

MULTIPLE APPLICATIONSAn applicant should submit only one application form (andnot more than one) for the total number of equity sharesapplied for. Two or more applications in single or joint nameswill be deemed to be multiple applications if the sole and/ orfirst applicant is one and the same.In case of applications by Mutual Funds, a separateapplication must be made in respect of each scheme of anIndian Mutual Fund registered with SEBI and suchapplications will not be treated as multiple applications,provided that the application made by the Asset ManagementCompany/ Trustees/ Custodian clearly indicate their intentionas to the scheme for which the application has been made.

Separate applications for electronic and physical equityshares by the same applicant shall be considered as multipleapplications. The Bank reserves the right to accept or reject,in its absolute discretion, any or all-multiple applications.Applications made by permanent/ regular employees of theBank both under the reserved category for employees aswell as in the net public offer shall not be treated as multipleapplications. However, NRIs/FIIs applying on a repatriablebasis shall not make an application in the public categoryand such applications made in both the categories shall betreated as multiple applications.Unless the Bank specifically agrees in writing with or withoutsuch terms and conditions it deems fit, a separate cheque/bank draft/stockinvest must accompany each Application Form.

Note:Applicants are requested to write their names and applicationserial number on the reverse of the instruments by whichthe payments are being made to avoid misuse of instrumentssubmitted along with the applications for equity shares.

Applications by NRIs on non-repatriation basis can be madeusing the Form meant for Public out of the funds held inNon Resident (Ordinary) Account (NRO)/ NRE Account. Therelevant bank certificate must accompany such forms. Suchapplications will be treated on par with the applications madeby the public.

For further instructions, please read the Application Formcarefully.

B. PAYMENT INSTRUCTIONS

1. Payment may be made by way of cash or cheque/demand draft/ Stockinvest drawn on any Bank, includinga co-operative Bank which is situated at and is a memberor sub-member of the Banker’s clearing-house locatedat the place where the application form is submitted,i.e. at designated collection centres. Payment by moneyorders/ postal orders will not be accepted.

2. Outstation cheques/demand drafts drawn on Banks notparticipating in the clearing process will not be accepted.Al l cheques/ demand drafts accompanying theApplication Form should be marked as follows: Cheque/bank draft must be made payable to the bankers to theissue and marked as under:

Category of Application Cheques/Bank drafts favouring

Resident Indian Public and “Vijaya Bank A/C Vijaya BankNRI/FIIs without Public Issue”repatriation

Employees “Vijaya Bank A/C Vijaya BankPublic Issue - Employees”

NRIs/FIIs (on “Vijaya Bank A/C Vijaya Bankrepatriation basis) Public Issue - NR”

3. All Stockinvests should be made payable to the Banki.e. “VIJAYA BANK” and crossed “A/C PAYEE ONLY” .

4. The applications shall be made only by way of cash/cheque/ demand draft/ Stockinvest. However, if theamount payable on application is Rs. 20,000/- or moretogether with any earlier outstanding loan or depositplaced with Vijaya Bank by the applicant, such paymentmust be effected only by way of an account payeecheque/ Stockinvest or Bank draft in terms of section269SS of the Income-Tax Act, 1961. Otherwise theapplications may be rejected and application moneyrefunded without any interest.

PAYMENT BY STOCKINVEST

Applicants, being Individuals and Mutual Funds only, havethe option of using the “Stockinvest” instrument for paymentof application money in lieu of cash/ cheque/ demand draft.Applicants using Stockinvests should submit them along withthe application form to any of the collecting centres/ Bankersto the Issue mentioned in the application form. Stockinvestsshould be payable at par at all the branches of the issuingBank and as such outstation Stockinvests can be attachedto the application forms. Applicants can approach the Banksconcerned for obtaining Stockinvest and detailed instructionsfor the same. The stockinvests would be realised throughVijaya Bank.

The applicant has to fill in the following particulars:

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1. Title of the Account as mentioned in the ApplicationForm.

2. Number of equity shares applied for.

3. The amount payable on the equity shares applied for:

The instrument should thereafter be signed by the applicant.It should also bear the stamp of the Bank issuing theinstrument and should be crossed “A/C Payee Only” andmade payable only to “VIJAYA BANK”. Service charges, ifany, for issuing the Stockinvest must be borne by theapplicant. The applicant should not fill in the portion to befilled up by the Registrars to the Issue (right-hand portion ofthe instrument). The Registrars to the Issue will fill up theright-hand side of the Stockinvest indicating the equityshares allotted to the applicants, calculated as follows:

i. In case of full allotment, the number of equity shares onthe right-hand side will be the same as that on the left-hand side of the instrument;

ii. In case of partial allotment, the number filled up by theRegistrars to the Issue on the right-hand side of theinstrument will be less than the number filled up by theapplicant on the left-hand side;

iii. In case the allotment is nil, the number filled up by theRegistrars to the Issue on the right-hand side of theinstrument will be nil.

The Stockinvest should be used by the Purchaser and thename of the Purchaser/one of the Purchasers should beindicated as the first applicant in the Application Form. Thus,if the signature of the purchaser on the Stockinvest and thesignature of the first applicant in the application form do nottally, the application would be treated as having beenaccompanied by a third party Stockinvest and is liable to berejected.

The Stockinvest instrument should be used by the Purchaserwithin 10 days from the date of the issue of the instrument,failing which such applications are liable to be rejected. Forthe purpose of calculating the 10 days, the last date for useof the Stockinvest for submitting the Application Form to theBank is indicated on the face of the Stockinvest with anotation “to be used before ——————”.

No refund order will be issued to the applicants usingStockinvest for payment of application money. In case ofnon-allotment of equity shares, the cancelled Stockinvestinstruments will be returned to the applicant, within 30 daysof closure of subscription list by Registered Post/Speed Post.The applicant will have to approach the issuing Bank branchfor lifting the lien.

Registrars to the Issue have been authorised by the Bank(through Resolution of the Board of Directors passed bycirculation) to sign the Stockinvests on behalf of the Bank,to realise the proceeds of the Stockinvest from the issuingBank, or to affix non-allotment advice on the instrument, orto cancel the Stockinvest(s) of the non-allottee. Suchcancelled Stockinvest(s)shall be sent back by the Registrarsdirectly to the investors. The currency of the Stockinvest isfour months.

Reserve Bank of India, vide i ts circular DBOD No.FSC.BC.100/ 24.47.001/94 dated September 2, 1994, hasrestricted the use of Stockinvest(s) to individual investorsand Mutual Funds only. Brokers, Corporate Bodies, Banksand Financial Institutions are not allowed to invest throughStockinvest(s). A ceiling of Rs. 50,000/- per individual perStockinvest by Banks has been imposed. The above ceilingis not applicable to Mutual Funds.

In the interest of the investors, to avoid rejection ofapplications on technical grounds, it is suggested that theapplicant should ensure that

l The date of issue of the Stockinvest by the issuing bankis clearly mentioned on the instrument

l The instrument is duly signed by the authorised officerof the bank giving his code number

l The instrument bears the code number and the addressof the issuing bank branch

l Any correction/ alteration in the date of issue, amount,the name of the issuer (i.e. Vijaya Bank), etc. should beattested by an authorised officer of the issuing bank

l The applicant has clearly written the name of the issuer(i.e. Vijaya Bank), the amount and signed the instrument

l Amount written in the application form to be depositedand the amount of the instrument accompanying theapplication form should be the same

Note: The above information is given for the benefit ofinvestors and the Bank is not liable for any modification inthe terms of the Stockinvest or procedure thereof by theissuing bank.

SUBMISSION OF COMPLETED APPLICATIONFORMS

All applications duly completed and accompanied by cash/cheques/ demand drafts/ Stockinvests shall be submittedat the branches of the Bankers to the Issue (listed in theAppl icat ion Form) before the closure of the Issue.Applications should NOT be sent to the Head Office of theBank or to the Lead Managers, Co-Managers or Advisor tothe Issue.

Application Forms along with Bank Drafts payable at Mumbaican also be sent by registered post with acknowledgementdue to the Registrars M/s MCS Limited, Sri PadmavathiBhavan, Plot No.93, Road No.16, M.I.D.C. Andheri (E),Mumbai - 400 093 so that the same can be received beforethe closure of the subscription list.

No separate receipts will be issued for the application money.However, the Bankers to the Issue or their approvedcollecting branches receiving the duly completed applicationform will acknowledge receipt of the application by stampingand returning to the applicant the acknowledgement slip atthe bottom of each application form.

Applications shall be deemed to have been received by theBank only when submitted to the Bankers to the Issue attheir designated branches or on receipt by the Registrarsas detailed above and not otherwise.

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INSTRUCTIONS FOR APPLICATIONS BY NRIS ANDFIIS ON REPATRIATION BASIS

RBI vide its letter no. EC.CO.FID/1872/10.02.40/(9105)2003-04 dated August 29, 2003 has given its approval tothe Bank under FEMA to issue equity shares of Rs. 10/-each at a premium and in conformity with SEBI Regulationsto NRIs/FIIs with repatriation benefits up to the extent of20% of the paid-up capital out of Banks public issue of 10crore equity shares. NRIs/FIIs applying on a repatriablebasis, therefore, need not seek a separate permission fromRBI for subscribing to shares in the NR category. RBI, videi ts c ircular No. 14 dated September 16, 2003 hasderecognised OCBs as an investor class.

1. The Bank has received permission from RBI for (a)Issuing equity shares in the Issue to NRIs and FIIs withrepatriation benefits to the extent of 10% of the Issue(b) Acquisition of shares by NRIs/FIIs*. (c) For exportof shares to NRIs/FIIs to their respective countries ofresidence/place of incorporation, if so desired by them.

2. Applications must be made in the names of individuals,or in the names of FIIs but not in the names of minors,f i rms or partnerships, foreign nationals or theirnominees.

3. The allotment/transfer of the shares to NRIs or FIIs shallbe subject to RBI guidelines/other approvals, as maybe necessary. Sale proceeds of such investments inequity shares will be allowed to be repatriated alongwith the income thereon subject to the permission ofthe RBI and subject to the Indian tax laws andregulations and any other applicable laws. Refunds,dividends and other distributions, if any, will be payablein Indian rupees only and net of bank charges/ and orcommission.

4. In case of applications by NRIs applying on repatriationbasis, the payments must be made through IndianRupee Drafts purchased abroad or cheques or bankdrafts or Stockinvests, for the amount payable onapplication remitted through normal banking channelsor out of funds held in Non-Resident External (NRE)Accounts or Foreign Currency Non-Resident (FCNR)Accounts, maintained with banks authorised to deal inforeign exchange in India, along with documentaryevidence in support of the remittance. Payment will notbe accepted out of Non-Resident Ordinary (NRO)Account of Non-Resident Subscribers applying on arepatriation basis. Payment by drafts should beaccompanied by Bank Certificate confirming that thedraft has been issued by debiting to NRE or FCNRaccount.

5. In case of applications by FIIs, the payment should bemade out of funds held in Special Non-Resident RupeeAccount along with documentary evidence in supportof the remittance like certificates such as FIRC, BankCertificate etc. from the authorised dealer. Payment bydrafts should be accompanied by Bank Certificate

confirming that the draft has been issued by debiting toSpecial Rupee Loan Account.

RBI in its letter has stipulated certain salient conditionsfor investment by NRIs/FIIs, which are as under:

1) The shares so acquired by NRIs/FIIs shall not be sold,transferred, gifted or disposed of in any manner exceptin terms of extant regulation issued/notified by Reservebank of India under FEMA 1999.

2) Issue of shares to FIIs should not exceed 20% of thetotal issue and investment by each FII should not exceed10% of the total enhanced paid-up capital of the Bank.

3) FIIs to whom the shares are issued are required to beregistered with SEBI/RBI.

4) The approval of RBI is only from FEMA Angle and thesame should not be construed as approval/order anyother Law or Act in force.

5) The shares may not be issued to Pakistani/Bangladeshi/SriLankan nationals.

For further instructions, please read the application formcarefully.

ACCEPTANCE OF APPLICATIONS

The Bank reserves the right to accept or reject, anyapplication, in whole or in part, without assigning any reasonthereof. If the application is rejected in full, the whole of theapplication money received will be refunded by RegisteredPost to the applicant. If the application is accepted in part,the excess application money after adjusting for the amountpayable on allotment will be refunded to the applicant. Suchrefund, if any, will carry interest @ 15% p.a. after 30 daysfrom the closure of the Issue for the period of delay beyond30 days.

DEMATERIALISATION

The equity shares of the Bank have been admitted fordematerialisation by National Securities Depository Limited(NSDL), vide a tripartite agreement dated August 22, 2000signed between the Bank, NSDL and MCS Limited, theRegistrar and Share Transfer Agent to the Issue, to enableall shareholders of the Bank to have their shareholding inelectronic form.

The Bank has also entered into a tripartite agreement datedJuly 28, 2000 with Central Depository Services (India) Ltd.(CDSL) and MCS Ltd. for dematerialisation of its shares,vide a tripartite agreement dated

l An applicant has the option of seeking allotment ofEquity Shares in electronic or in physical mode.

l In case of separate applications are made for electronicand physical shares by the same applicant, applicationfor physical shares would be considered as a multipleapplication and would be rejected accordingly.

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l The applicant seeking allotment of shares in theelectronic form must necessarily fill in the details(including the beneficiary account no. and DepositoryParticipant’s ID no.) appearing under the heading‘request for shares in electronic form’

l An applicant who wishes to apply for shares in theelectronic form must have at least one beneficiaryaccount with any of the Depository Participants (DPs)of NSDL or of CDSL, registered with SEBI, prior tomaking the application

l Shares allotted to an applicant in the electronic accountwill be credited directly to the respective beneficiaryaccounts (with the DP)

l For subscription in electronic form, names in the shareapplication form should be identical to those appearingin the account details in the depository. In case of jointholders, the names should necessarily be in the samesequence as they appear in the account details in thedepository

l Non-transferable allotment letters/ refund orders will bedirectly sent to the applicant by the Registrar to thisIssue.

l Incomplete/ incorrect details given under the heading‘Request for shares in electronic form’ in the applicationform will be assumed as an application for shareholdingin physical form.

l The applicant is responsible for the correctness of theapplicant’s demographic details given in the applicationform vis-a-vis those with his/ her DP.

l It may be noted that the electronic shares can be tradedonly on the Stock Exchanges having electronicconnectivity with NSDL and CDSL.

l One time cost of dematerialisation of shares would beborne by the Bank. The one time cost refers to the dematcharges for the shares opted for in this issue by aninvestor in electronic form. Subsequent charges fordematerialisation of physical shares held by theinvestors would have to be borne by the investor.

l In case of partial allotment, allotment will be done indemat option for the shares sought in demat andbalance, if any, will be allotted in physical form.

l In case of allotment of shares in physical form, the Bankmay issue certificates of appropriate denomination ormay issue consolidated certificates.

THE INVESTORS HAVE AN OPTION TO APPLY IN THISISSUE BOTH IN DEMATERIALISED AND PHYSICAL MODE.INVESTORS MAY, HOWEVER NOTE THAT, AS PEREXTANT SEBI GUIDELINES, TRADING IN THESECURITIES SHALL BE IN DEMATERIALISED FORMONLY.

IV. TAX BENEFITS

M/s Rao & Swami, M/s Prasad Azad & Co., M/s Kishore &Kishore, M/s S.P. Marwaha & Co., M/s D.V. Ramana Rao &

Co. and M/s Raju & Prasad, Chartered Accountants, haveadvised, vide their letter dated 28.06.2003, that under thecurrent tax laws, the following tax benefits will be availableto the Bank and prospective shareholders under direct taxlaws:

I. TO THE BANK

1) As per the provisions of Section 10 (23G) of IncomeTax Act, 1961 (hereinafter called “the I.T. Act”), anyincome from dividend {other than dividends referred toin Section 115(0)} interest or long term capital gain ofthe Bank arising from investment made on or after the1st day of June, 1998 by way of shares or Long TermFinance in any enterprise or fund or a Co-operative Bankwholly engaged in business of (i) developing or (ii)maintaining and operat ing or ( i i i ) developing,maintaining and operating any infrastructure facility ora housing project referred to Sub-section 10 of Section80-IB or a hotel or hospital project and which has beenapproved by the Central Government and which satisfiesthe prescribed conditions as per Rule 2E of the IncomeTax Rules, 1962, is exempt from tax.

2) Under Section 10 (34) of the Income Tax Act, 1961,income earned by way of dividends from anotherdomestic company; under section 10 (35), incomereceived in respect of units from the Administrator ofspecified undertaking and/or specified company (asdef ined under Unit Trust of India (Transfer ofUndertaking & Repeal) Act, 2002) and income receivedin respect of units of a mutual fund as specified undersection 10(23) (D) of the Income Tax Act are exemptfrom tax in the hands of the Bank.

3) Under Section 36 (1) (vii a) of the I T Act in respect ofany provision made for bad and doubtful debts, the Bankis entitled to deduction;

i) Upto 7.5% of the total income (computed beforemaking any deductions under the said clause andchapter VI A), and

ii) Upto 10% of the aggregate average advances madeby the rural branches, if any, of the Bank computedin the prescribed manner. However, the Bank at itsoption, instead of the claim of deductions referredto in item 3(i) and 3(ii) above, can claim in any ofrelevant assessment years, a deduction in respectof any provision made for assets classified asdoubtful assets or loss assets in accordance withthe RBI guidelines but not exceeding 10% of theamount of such assets as appearing in the booksof account of the Bank on the last day of theprevious year. The option is available upto theAssessment Year 2004-2005.

iii) Bank at its option will be allowed a further deductionin excess of the limits specified in the aboveprovisions for an amount not exceeding the incomederived from redemption of securities in accordancewith a scheme framed by the Central Governmentprovided that such income is disclosed in the return

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of income of the Bank under the head “Profits &Gains of Business or Profession”.

4) Apart from the deduction available under Section 36(1)(vii a) of the Income Tax Act, the Bank is entitled to claima deduction under Section 36(1) (vii) of the I T Act forthe amount of bad debts written off in its books ofaccount as irrecoverable and which represent moneylent in the ordinary course of the business of banking.The deduction is limited to the amount of such debts orpart thereof, which exceeds the balance in the provisionfor bad and doubtful debts account made under Section36(1) (vii a) subject to compliance of Section 36(2) (v)which requires that such debt or part of debt should bedebited to the provision for bad and doubtful debtsaccount.

5) As per the provisions of Section 43D of the I.T. Act,interest income on certain categories of bad or doubtfuldebts as specified in Rule 6EA of the Income Tax Rules1962 shall be chargeable to tax only in the year in whichit is credited to the Profit and Loss account or actuallyreceived, whichever is earlier.

6) As per second proviso to Section 48 of the Income TaxAct, the long term capital gains arising out of transfercapital assets other than bonds and debentures (notbeing capital indexed bonds) will be computed afterindexing the cost of acquisition/ improvement and asper Section 112 of the Income Tax Act, the same wouldbe chargeable to tax at a concessional rate of 20%. Inrespect of long term capital gains arising from thetransfer of listed securities or units, tax shall bechargeable at 10% of the amount of capital gains plusapplicable surcharge before giving effect to theprovisions of second proviso to Section 48 i.e. withoutindexing the cost of acquisition at the option of the Bank(plus applicable surcharge).

Further, according to Section 10(36) Capital Gainsarising on transfer of equity shares of bank is notchargeable to income tax if, such shares are allottedthrough a public issue before 1st March 2004 and listedon a recognised stock exchange in India, provided suchshares are held for a period of 12 months or more andthe transaction of sale of such shares is entered throughon a recognised stock exchange in India.

7) As per Section 54EC of the Income Tax Act and subjectto conditions specified therein, the Bank is eligible toclaim exemption from the tax arising on long term capitalgains, on investment of capital gains in certain notifiedbonds, within six months from the date of transfer ofcapital asset. If only a portion of the capital gains isinvested, then the exemption is proport ionatelyavailable.

8) Under Section 54ED of the Income Tax Act, capital gainsarising from the transfer of investments held as longterm capital asset, being listed securities or unit isexempt fully from tax if the Bank invests within a periodof six months from the date of such transfer, the whole

of the capital gains in acquiring equity shares formingpart of an eligible issue of capital as defined in clause(i) to explanation in the above section. Where only apart of the capital gains is so invested then theexemption is proportionately available. The exemptionis available subject to other conditions specified in thatSection.

II. TO THE SHAREHOLDERS OF THE BANK

RESIDENT SHAREHOLDER

1) Under Section 10(34) of the Income Tax Act, dividendspaid by the Bank are totally exempt from income tax inthe hands of the shareholders.

2) According to Section 10(36) Capital Gains arising ontransfer of equity shares of bank is not chargeable toincome tax if, such shares are allotted through a publicissue before 1st March 2004 and listed on a recognisedstock exchange in India, provided such shares are heldfor a period of 12 months or more and the transactionof sale of such shares is entered into on a recognisedstock exchange in India.

3) As per the provisions of Section 54EC of the IncomeTax Act, full exemption from capital gains tax is availablein respect of long term capital gains arising on transferof the shares of the Bank if the assessee at any timewithin a period of six months from the date of suchtransfer, invests the whole of capital gains in certainnotified bonds like bonds of National Bank for Agricultureand Rural Development (NABARD) and NationalHighways Authority for a lock in period of 5 years. Ifonly a portion of the capital gains is invested, then theexemption is proportionately available.

4) As per the provisions of Section 54ED of the IncomeTax Act, long term capital gains arising from transfer ofshares of the Bank on its shares being listed, is fullyexempt from tax if the assessee invests within a periodof six months from the date of transfer, the whole of thecapital gains in acquiring equity shares forming part ofan eligible issue of capital as defined in clause (i) toexplanation in the above section. Where only a part ofthe capital gains is so invested, then the exemption isproportionately available. The exemption is availablesubject to other conditions specified in that Section.

5) Exemption from capital gains tax is available underSection 54F of the Income Tax Act, to a shareholderwho is an individual or HUF if the net consideration ontransfer of shares of the Bank as long term capital assetsis invested within two years in the purchase of aresidential house or invested within three years in theconstruction of a residential house.

6) As per the provisions of Section 112 of Income Tax Actwhere the total income of any assessee includes anylong term capital gains on transfer of shares of the Bank,the same is subject to concessional rate of tax at 20%plus applicable surcharge after indexing the cost as perthe second proviso to Section 48 of the Income Tax Act.

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Alternatively, at the option of the assessee, where thetax payable in respect of any such long term capitalgains exceeds 10% of the amount of capital gainsarrived at without indexing the cost, the capital gains ischarged at 10% only plus applicable surcharge.

7) Investment in shares of the Bank is exempt from levy ofwealth tax under the Wealth Tax Act 1957.

B) NON RESIDENT INDIAN SHAREHOLDERS

1) Under Section 10(34) of the Income Tax Act, dividendspaid by the Bank are totally exempt from income tax inthe hands of the shareholders.

2) According to Section 10(36) Capital Gains arising ontransfer of Equity shares of bank is not chargeable toincome tax if, such shares are allotted through a publicissue before 1st March 2004 and listed on a recognisedstock exchange in India, provided such shares are heldfor a period of 12 months or more and the transactionof sale of such shares is entered into on a recognisedstock exchange in India.

3) As per the provisions of Section 48 of the Income taxAct, capital gains arising on transfer of shares of theBank is computed by converting the cost of acquisitionetc. and the full value of the consideration of the transferof shares into the same foreign currency as was initiallyutilised in the purchase of the shares and the capitalgains so computed in such foreign currency shall bereconverted into Indian currency.

Further, the aforesaid manner of computation of CapitalGains shall be applicable in respect of Capital Gainaccruing or arising from every reinvestment thereafterin and sale of, shares in, or debentures of, an IndianCompany.

4) As per the provisions of Section115-I of the Income taxAct, non-resident Indians have an option to be governedby the Chapter XII-A of the Income Tax Act, accordingto which:

a) As per the provisions of Section 115E of the IncomeTax Act, the long term capital gains on transfer ofshares of the Bank acquired by him out ofconvertible foreign exchange (without aggregatingany other taxable income earned in India which willbe taxed separately) shall be taxed at the rate of10% plus applicable surcharge.

b) As per the provisions of Section 115F of the IncomeTax Act, the long term capital gain on sale of sharesacquired by the non-resident Indian out of theconvertible foreign exchange shall be exempt fromIncome Tax entirely/proportionately, if the entire orpart of the net consideration is invested for a periodof three years in any savings certificates specifiedunder Section 10(4B) or specified assets as definedin Section 115C within 6 months from the date oftransfer.

c) As per the provisions of Section 115G of the IncomeTax Act, a non-resident Indian is not required to filea return of income under Section 139(1) of theIncome Tax Act, if his total income consisted onlyof investment income and/or long term capital gainsarising from investment in shares and tax deductibleat source has been deducted therefrom.

d) As per provisions of Section 115H of the IncomeTax Act, where the non-resident Indian becomesassessable as a resident in India, along with hisreturn of income for that year, he may furnish adeclaration in writing to the Assessing Officer underSection 139 of the Income Tax Act, to the effect thatthe provisions of the Chapter XII-A shall continueto apply to him in relation to income derived fromshares of the Bank for that year and subsequentyears until such assets are converted into money.

e) As per the provision of Section 115-I of the IncomeTax Act, a non-resident Indian may elect not to begoverned by the provisions of Chapter XIIA for anyassessment year by furnishing his return of incomefor that assessment year under Section 139 of theIncome Tax Act, declaring therein that the provisionsof Chapter XII-A shall not apply to him for thatassessment year and accordingly his total incomefor that assessment year will be computed inaccordance with the other provisions of the IncomeTax Act, .

C) FOREIGN COMPANIES & INSTITUTIONALINVESTORS (FIIS)

1) Under Section 10(34) of the Income Tax Act, dividendspaid by the Bank are totally exempt from income tax inthe hands of the shareholders.

2) According to Section 10(36) Capital Gains arising ontransfer of equity shares of bank is not chargeable toincome tax if, such shares are allotted through a publicissue before 1st March 2004 and listed on a recognisedstock exchange in India, provided such shares are heldfor a period of 12 months or more and the transactionof sale of such shares is entered into on a recognisedstock exchange in India.

3) As per the provisions of Section 48 of the Income TaxAct, capital gains arising on transfer of shares of theBank (held by other than FIIs) will be exempt in such amanner as set out in para 3 of Part II (B) above.

4) As per the provisions of Section 54EC of the IncomeTax Act, long term capital gains arising from transfer ofshares of the Bank is exempt as set out in para 3 ofPart II (A) above, subject to the extent and conditionsmentioned therein.

5) As per the provisions of Section 115AD of the IncomeTax Act, where the total income of FIIs include incomeby way of short term or long term capital gains arisingfrom transfer of such shares, income tax will be payable

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at 30% on short term capital gains and 10% on longterm capital gains plus applicable surcharge.

D. MUTUAL FUNDS

As per the provisions of Section 10 (23D) of the Income TaxAct, dividend income from investments in shares of the Bankor income by way of short term or long term capital gainsarising from transfer of such shares earned by Mutual Fundsregistered under the Securities and Exchange Board of IndiaAct, 1992 or Regulations made thereunder, Mutual Fundsset up by the public sector banks or public financialinstitutions and Mutual Funds authorised by the ReserveBank of India would be exempt from income tax subject tothe conditions as the Central Government may by notificationin the Official Gazette specify in this behalf.

V. PARTICULARS OF THE ISSUE

OBJECTS OF THE ISSUE

The present issue of equity shares is being made:

1. To augment the capital base of the Bank to meet itsfuture capital adequacy requirements

2. To augment the long-term resources of the Bank

3. To meet the expenses of the Issue

CAPITAL ADEQUACY POSITION OF THE BANK

The Capital Adequacy Ratio (“CAR”) of the Bank as on March31, 2003 was 12.66 %, as against the RBI stipulation of 9.0%.Details of capital vis-a-vis risk weighted assets are as givenin the following table:

(Rs. in crores)

Particulars(As on March 31) 2001 2002 2003

Eligible Tier I Capital 484.90 527.39 562.54

Eligible Tier II Capital 208.56 201.79 397.60

Total Capital fund 693.46 729.18 960.14

Total Risk weighted Assets 6029.80 5951.61 7581.68

Capital Adequacy Ratio (%) 11.50 12.25 12.66

REQUIREMENT OF CAPITAL ENHANCEMENT

The Bank expects to post a growth in business in the yearsto come. As a result, risk weighted assets of the Bank arealso expected to increase from the present year’s level ofRs. 7581.68 crores. Increase in Tier I capital through retainedearnings alone may not be sufficient to enable the Bank tomaintain a capital adequacy ratio at a level sufficiently higherthan prescribed. Further, at the current level of Tier I Capital,the maximum permissible Tier II Capital in the form ofsubordinated bonds has already been raised. The presentissue is, therefore, intended to augment the Tier I capital ofthe Bank.

The Bank has also raised Tier II capital by way of privateplacement to augment capital adequacy as under:

Series Year of Size (Rs. Tenor (in Coupon Redemp- OutstandingPlacement in crores) months) (% p.a.) tion Due amount as on

on 31.03.2003(Rs. in crores)

I FY 1999 120 63 14.2 04.4.2004 120

II FY 2000 60 84 12.35 06.12.2006 60

III FY 2002 150 90 7.50 08.05.2010 150

The Subordinate Bonds issue series I and II for Rs. 120crore and Rs. 60 crore respectively have not been rated.Series III Bonds aggregating Rs. 150 crore issued duringNovember 2002 has been rated by CRISIL and has beenassigned AA rating.

BANK AND MANAGEMENT

BRIEF HISTORY AND BACKGROUND

Vijaya Bank was founded by late Shri A.B. Shetty and otherenterprising farmers on October 23, 1931 in Mangalore,Karnataka. The objective of the founding fathers wasessent ial ly to promote banking habit , thr i f t andentrepreneurship among the farming community in DakshinaKannada district in Karnataka state.

The Bank became a Scheduled Bank in 1958 and steadilygrew into a larger All India Bank with nine smaller banksmerging with it between 1963 and 1968. Initially, the bank’soperations were confined to the Dakshina Kannada districtand were later on extended to other centres in Karnataka,followed by expansion into other states. The Bank wasnationalised on April 15, 1980 in the second phase ofnationalisation, alongwith five other banks. At the time ofnationalisation, the Bank had 571 branches with a depositbase of Rs.390.44 crores. By the end of March 2003, thebranch network had grown to 843 with a deposit base ofRs.17019.81 crores. The growth profile of the bank over thelast 71 years is given in the following table:

(Rs. in crores)

Year No. of Branches Total Deposits Total Advances

1932 1 0.0026 0.0026

1940 5 0.03 0.03

1950 13 0.40 0.34

1960 21 1.48 1.00

1970 126 27.52 17.54

1980 578 437.21 244.74

1990 719 2357.13 1492.11

1995 810 5870.01 2356.28

2000 837 11592.88 4958.67

2002 828 14680.51 6196.66

2003 843 17019.81 7891.34

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Deposits from Rural & Semi-Urban populace

(All figures in %)

As on March 31 1999 2000 2001 2002 2003

Rural 9.89 9.32 9.23 8.09 7.79

Semi-Urban 13.96 13.18 13.53 13.49 13.27

Urban 28.32 27.69 26.49 27.29 27.41

Metropolitan 47.83 49.81 50.75 51.13 51.53

Total 100.00 100.00 100.00 100.00 100.00

NON RESIDENT DEPOSITS

(Rs. in crore)

As on March 31 1999 2000 2001 2002 2003

FCNR (B) 168.15 191.23 212.92 220.19 203.62

NRE 221.17 272.33 311.76 354.78 686.77

NRNR 465.20 467.22 492.79 529.03 277.68

Total 854.52 930.78 1017.47 1104.00 1168.07

Region-wise distribution of deposits

(All figures in %)

As at March 31Region 1999 2000 2001 2002 2003

Northern 18.10 21.64 21.16 18.80 19.88

North-Eastern 4.19 3.91 3.91 3.98 4.22

Eastern 6.64 6.07 6.50 5.79 5.74

Central 9.61 9.50 9.79 10.65 10.57

Western 20.30 17.00 18.22 21.50 20.75

Southern 41.07 41.88 40.42 39.28 38.84

Total 100.00 100.00 100.00 100.00 100.00

OVERVIEW OF THE BANKING SECTOR

Scheduled Banks in India

Scheduled Commercial B anks India Scheduled Co-operative Banks

Public Sector Banks (27) Regional Rural B anks (196) Foreign Banks in India (40) Private Sector Banks (30)

SBI & its Assoc.(8) Natio nalised Banks (19)

New Private Banks (8)

Old Private Banks (22)

Scheduled Urban Co-operative Banks (52)

Scheduled Co-operative Banks (16)

The formal banking system in India comprises the ReserveBank of India, commercial banks, regional rural banksand the co-operative banks. In the recent past, privatenon-banking finance companies also have been activein the financial system, and are being regulated by the RBI.

The structure of Indian Banking Industries (excludingPrivate Sector bank, Foreign Banks and Co-operativeBanks) classi f icat ion disclosing the share of each

category in Deposits, Advances and Income is givenbelow as on 31.03.2003:

(Rs. in crores)

Category Total Total Total IncomeDeposits Advances

State bank of 3,91,032.71 1,89,203.87 48,866.64India (including (36.23%) (34.44%) (38.04%)7 associates ofSBI)

Nationalised Banks 6,88,361.10 3,60,147.29 79,597.98(19 Nationalised (63.77) (65.56) (61.96%)Banks)

Public Sector 10,79,393.81 5,49,351.16 1,28,464.50Banks (27 Public (100%) (100%) (100%)Sector Banks)

Vijaya Bank 17019.81 7891.34 2016.83

Market share ofVijaya Bank inPublic sector Banks 1.58% 1.44% 1.57%

Market share ofVijaya Bank inNationalised Banks 2.47% 2.19% 2.53%

Scheduled Commercial Banks (SCBs)

The scheduled commercial banks (SCBs) comprise:

Public Sector Banks (PSBs): The banking sector in Indiahas been characterized by the predominance of PSBs. ThePSBs had 46,232 branches (SBI & Associates: 13,569;nationalised banks: 32,663) as on December 31, 2002. Theaggregate assets of all PSBs stood at Rs 11,55,736.77crores at end FY02 accounting for 75.27% of assets of allSCBs in India. The PSBs’ large network of branches enablesthem to fund themselves out of low-cost deposits. PSBsaccount for 81% of deposits, 74.43% of advances, and77.63% of income, of all scheduled commercial banks atend FY02, thus clearly demonstrating their dominance ofthe Indian banking sector.

Private Sector Banks: In July 1993, as part of the bankingsector reform process and as a measure to inducecompetition in the banking sector, the RBI permitted entryby the private sector into the banking system. This resultedin the introduction of 9 private sector banks. These banksare collectively known as the ‘new’ private sector banks,and operated through 803 branches at end FY01. With themerger of Times Bank Limited into HDFC Bank Limited inFebruary 2000, there are only eight ‘new’ private sectorbanks at present. At end FY02, the total assets of privatesector banks aggregated Rs. 2,67,679 crore and accountedfor 17.43% of the total assets of all SCBs. Although the shareof private sector banks in total assets has increased from12.61% at end FY01, new private sector banks haveaccounted for most of the gain. The new private sector banks’share of assets of all private sector banks increased from27.5% at end-FY97 (2.4% of assets of SCBs) to 65.17% atend-FY02 (11.36% of assets of SCBs). The share of old

Scheduled Banks in India

Scheduled Commercial Banks India Scheduled Co-operative Banks

Public Section Banks (27) Private Sector Banks (30) Foreign Banks in India (40) Regional Rural Banks (196) Scheduled Urban Co-operative Banks (52)

ScheduledCo-operative Banks (16)

Nationalised Banks (19) SBI & its Assoc.(8)

Old Private Banks (22) New Private Banks

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private sector banks (in total assets of SCBs) has decreasedmarginally (from 6.4% at end FY97 to 6.07% at end FY02),as well as their share in total assets of private sector bankshas declined from 72.5% at end FY97 to 34.82% at endFY02.

Foreign Banks: Presently, there are 40 foreign banksoperating in India with 203 branches. While 4 banks have10 or more branches, 18 banks were operating with onlyone branch each. Some foreign banks have also set uprepresentative offices in India. Thus, as on June 30 2002,63 banks had their presence in India, including 23 banksfrom 12 countries, which have only their representativeoffices here.

At end-FY02, the total assets of foreign banks aggregatedRs. 1,12,096 crore and accounted for 7.3% of the total assetsof all SCBs. The primary activity of most foreign banks inIndia has been in the corporate segment. However, in recentyears, some of the larger foreign banks have started makingconsumer financing a larger part of their portfolios, basedon the growth opportunities in this area in India. These banksalso offer products such as automobile finance, home loans,credit cards and household consumer finance.

The salient features in the evolution of Indian bankingare as follows:

The number of banks (including regional rural banks (RRBs)has increased from 89 in 1969 to 293 in 2002. The populationper branch has declined significantly, from 75,000 in 1950to 16,000 in 2002. With the nationalization of banks in 1969,the number of bank branches (including Regional RuralBanks) increased from 8,262 in 1969 to 66,186 in 2002. Mostof the expansion has been in the rural and semi-urban areas.

Since 1950, the credit-deposit ratio of SCBs has declined toreach 62.3% as on March 31,2002, with a correspondingincrease in the investment-deposit ratio. The change hasbeen largely due to the Governments regulations regardingthe statutory liquidity ratio (SLR), and the preference forGovernment securities (as a result of the increase in theGovernment borrowing programme and the low risk-highreturn nature of the instrument).

Priority sector lending increased from Rs 14,834 crore in1984 to Rs.2, 10,308 crore in 2002. (Credit to the agriculturalsector and small-scale sector was one of the key objectivesof the nationalization of banks.)

PERFORMANCE OF BANKING INDUSTRY

The aggregate deposits of Scheduled Commercial Banksrecorded a lower annual growth of 12.2% during 2002-03as compared to 14.6% in the previous year. However, theyear 2002-03 saw a sustained increase in credit flow to thecommercial sector reflecting industrial recovery. During2002-03, no-food credit of scheduled Commercial Banksregistered an annual increase of 17.8% as against 13.6%of the previous year. The incremental non-food credit depositratio during 2002-03 at 79% is the highest recorded overthe last five years. The year 2002-03 saw decline in food

credit of Rs. 4499 crore as against an increase of Rs. 13989crore in the previous year.

The Banking scenario during the year 2002-03 wascharacterized by easy liquidity conditions and substantialfall in interest rates. The term deposit rates of public sectorbanks for maturities up to one year moved down from a rangeof 4.25% to 7.50% in March 2002 to 4% to 6% by March2003. The PLRs of public sector banks declined from a rangeof 10% to 12.5% in March 2002 to 9% to 12.25% by March2003. The yield on government securities with 10 yearresidual maturity declined by 1.15% from 7.36% in March2002 to 6.21% in March 2003. The downward trend in interestrate structure ref lected moderat ion of inf lat ionaryexpectations and comfortable liquidity situation.

RECENT TRENDS IN BANKING INDUSTRY

In recent years, the banking industry has been undergoingrapid changes, ref lect ing number of underly ingdevelopments. The most significant has been enactment ofthe NPA Act to tackle high incidence on Non-PerformingAssets. The Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest (Bill) 2002 waspassed by Lok Sabha in November 2002. It seeks to dealwith Securi t isat ion of assets, Sett ing up of assetreconstruction company (ARCs), and enforcement ofsecurity interest. After the ordinance on Securitisation, Bankshave been issuing notice to their defaulters for recoveringmoney. Banks have issued more than 1100 notices,amounting to more than Rs. 10,000 crores (around 9-10%of the estimated gross NPAs of the scheduled commercialbanks and developmental financial institutions).

The first asset reconstruction company called AssetReconstruction Company of India Limited (ARCIL) has beenincorporated and the major shareholders are ICICI Bank,Industrial Development Bank of India, State Bank of Indiaeach holding 24.5% in ARCIL. HDFC bank owns 10% andother remaining is held by IDBI Bank and UTI Bank

The retail loan market has grown at a CAGR of 34% overthe last four years to reach about Rs. 45,000 crores. Housingand Car Finance segment account for nearly 80% of theretail finance segment.

Absorption of technology and upgradation of technologicalinfrastructure, which have accelerated and broadeneddissemination of financial information while lowering thecosts of many financial activities. This has also led totransparency in information to the public on deposits andadvances and interest rate structures.

The fiscal year 2002-03 for the Commercial Banks was byand large characterised by soft interest rates regime withflexible interest rate structures. There has also been a goodinflow of foreign exchange in the country, with taking theforex reserves of the country to all time high. There has beena comfortable resources growth with higher credit growth.Treasury operation s of Banks have been offering goodopportunities of gains.

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The stance of the Monetary Policy in recent years has beento maintain adequate liquidity in the market with a preferencefor soft interest rates. With a view to having a vibrant andresilient competitive financial sector for sustenance of thereform process in the real sector of the economy, the focushas been on the structural and regulatory measures tostrengthen the financial system. These measures have beenguided by the objectives of increasing operational efficacyof the Monetary policy, redefining the regulatory goal ofReserve Bank of India, strengthening prudential norms.

These developments have manifold consequences for theinstitutional and systemic structure of the financial sector ingeneral and banking in particular. The business profile offinancial institutions is also undergoing change. Mergers andtake-overs of smaller institutions have led to the emergenceof transnational conglomerates, offering services rangingfrom traditional commercial banking to investment bankingand insurance.

(Source: Published Banking Sector Reports, RBI Statisticaldata and other publicly available sources)

MAIN OBJECT AND BUSINESS OF THE BANK

MAIN OBJECTS

The main object of the Bank as laid down in the BankNationalisation Act are as under:

The main object of the Banking Companies (Acquisition andTransfer of Undertakings) Act, 1970 under which theundertaking of the Bank was taken over by the CentralGovernment is as under:

“An act to provide for the acquisition and transfer of theundertakings of certain banking companies, having regardto their size, resources, coverage and organisation, in orderfurther to control the heights of the economy, to meetprogressively, and serve better, the needs of thedevelopment of the economy and to promote the welfare ofthe people, in conformity with the policy of the State towardssecuring the principles laid down in clause (b) and (c) ofArticle 39 of the Constitution of India and for mattersconnected therewith or incidental therein.”

BUSINESS OF THE BANK

The Bank shall carry on and transact the business of Bankingas defined in Clause (b) of Section 5 of the BankingRegulation Act, 1949, and may engage in one or more ofthe other forms of business specified in Sub-Section (1) ofSection 6 of that Act.

Clause (b) of Section 5 of the Banking Regulation Act, 1949defines Banking as “the accepting for the purpose of lendingor investment, of deposits of money from the public,repayable on demand or otherwise, and withdrawable bycheque, draft, order or otherwise.”

Other Business that the Bank may Undertake (Section 3(7)

Sections 3 (7) of Chapter II of the Banking Companies(Acquisition) Act 1970 provides for the Bank to act as Agentof Reserve Bank of India (Section 3 (7))

i) The Bank shall, if so required by the Reserve Bank ofIndia, act as agent of the Reserve Bank at all places inIndia where it has a branch for:

a) Paying, receiving, collecting and remitting money,bullion and securities on behalf of the Governmentof India

b) Undertaking and transacting any other businesswhich the Reserve Bank may from time to timeentrust to it

ii) The terms and conditions on which any such agencybusiness shall be carried on by the corresponding newBank on behalf of the Reserve Bank shall be such asmay be agreed upon

iii) If no agreement can be reached on any matter referredto in Clause (ii) above, or if a dispute arises betweenthe corresponding new Bank and the Reserve Bank asto the interpretation of any agreement between them,the matter shall be referred to the Central Governmentand the decision of the Central Government, thereon,shall be final.

iv) The corresponding new Bank may transact any businessor perform any function entrusted to it under Clause (i)by itself or through any agent approved by the ReserveBank.

The Bank has diversified into activities like Credit Card andmerchant Banking. During FY 2003 the Bank has alsoenrolled as a Depository Participant with NSDL. The Bankhas also entered into an arrangement for referral businesswith National Insurance Company Limited. For distributionand marketing of Non-Life insurance products.

The Bank has entered into joint venture agreement withPrincipal Financial Group, USA and Punjab National Bankfor setting up an Asset Management Company, TrusteeCompany and Distribution Company. The Bank is also inthe processes of setting up Pension & Life InsuranceCompany and Insurance Broking Company along withPunjab National Bank, Principal Financial Group, U.S.A. anda fourth Indian Partner. The Bank has entered into anagreement with National Insurance Company Limited fordistribution of Non-life Insurance products.

VI. MANAGEMENT OF THE BANK

In accordance with the guidelines laid down by the ReserveBank of India and in conformity with Section 9 (3) of theBank Nationalisation Act, the management of Vijaya Bankis vested with the Board of Directors compris ingprofessionals representing various fields of specialisation.

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BOARD OF DIRECTORS

Name, Address & Designation Age (Yrs.) Qualification Experience Other Directorships

Shri M. S. KapurChairman & Managing Director 57 M.A. 34 years in ViBank HousingVijaya Bank Banking Finance Limited41/2 M.G. Road,Bangalore 560 001

Shri P.A. Sethi 58 B. Com, CAIIB, 40 years in ViBank HousingExecutive Director P.G.D. in Costing banking Finance LimitedVijaya Bank & Mgt. acctg.41/2 M.G. Road,Bangalore 560 001

Shri R. Renganath 49 M.A., LL.B 28 yearsDirectorInsurance Division.Ministry of Finance,Dept. of Economic Affairs,New Delhi.Nominee of Government of India

Shri A. P. Hota 46 M.A., CAIIB 20 years ofDirector service asGeneral Manager Officer withReserve Bank of India RBINrupathunga Road,BangaloreNominee of RBI

Shri M. Kiran 45 B. Com, 25 yearsDirector CAIIB (Part I) experienceVijaya Bank with the41/2 M.G. Road, bankBangalore 560 001Director representing the workmen

Shri Babuseth Tyerwala 44 P.D.C. Diploma BusinessDirectorPaver Nivas,Savarkar Marg,Vasant Tekkady,Ahemad NagarMaharashtraPart Time Director

Smt. Sukhada Mishra 61 Graduate Ex. M.P.DirectorB- 62/72 IFS Flats,Mayur Vihar Phase-I,Delhi 110 008.Part Time Director

Shri Pawan Kumar Sharma 45 F.C.A., LL.B Practising as J. S. Management &Director C.A. for past Financial Services (P) Ltd.,P K Sharma & Associates 18 years Life Saving Diagnostic &Chartered Accountants, Hospital (P) Ltd.M. S. Road, Fancy Bazar,Guwahati - 781 001.Part Time Non-official Director

Shri S. Ananthan 41 B. Com., F.C.A. Practising asDirector C.A. for past10/1, III Floor, III Main, 15 yearsHanumanthanagarBangalore-560 019Shareholder Nominee Director

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Shri R. Ashok Kumar 50 B. Com., F.C.A. Practising asDirector C.A. for past73, Millers Road 27 yearsWindsor Court,Benson Town,Bangalore-560 046Shareholder Nominee Director

Shri B. K. Jagdish Chandra 65 B.Sc. (Agri), 34 Years of Alpha AgrotechDirector A.I.F.C. service: worked Consultants Pvt. Ltd.458,11TH Main Road in the forestRMV Extension DepartmentBangaloreShareholder Nominee Director

Shri S. P. Krishnaswamy 66 B.Com., B.L., 30 Years of Radiant Apparels (p) Ltd.Director CAIIB (I) Banking Service303, Natasha Golf View Apartments,Ring Road,Bangalore-560 071Shareholder Nominee Director

Details of expiry of term of the Directors

Name Date of expiry of the term

Shri M. S. Kapur 31.03.2006

Shri P.A. Sethi 31.10.2004

Shri R Renganath -

Shri A. P. Hota -

Shri M. Kiran 02.07.2003

Shri Babuseth Tyerwala 07.05.2004

Smt. Sukhada Mishra 07.05.2004

Shri Pawan Kumar Sharma 19.12.2004

Shri S. Ananthan, Director 02.08.2005

Shri R. Ashok Kumar, Director 02.08.2005

Shri B. K. Jagdish Chandra, 02.08.2005

Shri S. P. Krishnaswamy 02.08.2005

Chairman and Managing Director

Shri M. S. Kapur was appointed as Chairman & ManagingDirector of the Vijaya Bank and he took over the charge witheffect from 16.08.2002.

He has served about 28 years in the field operations invarious capacities. He has worked in London branches ofthe Bank as a Chief Executive Officer. He was promoted asGeneral Manager in 1996. He has worked as Chief VigilanceOfficer in Union Bank of India as well as in Indian OverseasBank, Chennai.

After being elevated as Executive Director of Punjab andSind Bank, he has officiated as Chairman & ManagingDirector of the Bank for over nine months before he wasmoved to Syndicate Bank as Executive Director in May 2000.Further he has served two terms as a Chief Vigilance Officer

and two terms officiated as Chairman & Managing Directorof two different Banks before being posted as a regularChairman & Managing Director of Vijaya Bank.

Executive Director

Shri P. A. Sethi is a Commerce Graduate, associate memberof the Indian Institute of Banker and also has Post GraduateDiploma in Costing and Management Account. He joinedthe Banking Industry in the year 1962 and started his careerwith Bank of Baroda. During his career spanning more than40 years he has held various positions including six yearsstint at the Manchester (U.K.) branch, Deputy GeneralManager of the Northern Zone (Delhi), General Manager ofInternational Banking in Bank of Baroda. He has beenappointed as Executive Director of Vijaya Bank with effectfrom 08.03.2003.

CORPORATE GOVERNANCE

BANK’S PHILOSOPHY

The Bank aims at enhancing the long term Shareholder valuewhile protecting the interest of Shareholders, customers andothers in line with international best practices. The objectivesof Corporate Governance are:

l Maximising long-term shareholder value in a legal andethical manner.

l Ensuring fairness, courtesy and digni ty in al ltransactions within and outside the Bank with customers,investors, employees, competitors, government and thegeneral public.

l Open, transparent and merit-based management.

As per the objectives of Corporate governance, the mattersrelating to Board of Directors and its composition, Boardprocedures, Audit Committee and its role, ManagementRemuneration Committee and other information that are

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needed to be placed before the Board are included in theannual report for the shareholders. The requirements aremandatory, non-mandatory and desirable recommendations.

Auditors’ Certificate on Corporate Governance for theyear 2002-03 is placed here below:

To the Members of Vijaya Bank.

We have examined the compliance of conditions of corporategovernance by VIJAYA BANK for the year ended on 31stMarch, 2003 as stipulated in the relevant Clauses of theListing Agreements of the said Bank with the StockExchanges.

The compliance of conditions of corporate governance isthe responsibility of the Management. Our examination waslimited to procedures and implementation thereof, adoptedby the Bank for ensuring the compliance of conditions ofthe corporate governance. It is neither an audit nor anexpression of opinion on the financial statements of theBank.

On the basis of the records and documents maintained bythe Bank and the information and explanations given to us,in our opinion, the Bank has complied with the conditions ofcorporate governance as stipulated in the above-mentionedlisting agreements with the Stock Exchanges.

As required by the Guidance Note issued by the Institute ofChartered Accountants of India, we have to state that noinvestor grievance is pending for a period exceeding onemonth against the Bank as per the records maintained bythe Shareholders and Investors’ Grievance Committee andas certified by the Registrar & Share Transfer Agents of theBank.

We further state that such compliance is neither anassurance as to the future viability of the Bank nor theefficiency or effectiveness with which the Management hasconducted the affairs of the Bank.

Signed by the Auditors

Place: BangaloreDated: 30th April 2003

(The certificate ends here)

Key Committees

The Bank has constituted several Committees to assist theBoard of Directors in its day-to-day functioning. The keyCommittees so formed are as under:

Corporate Policy Committee to review/ consider policymatters in the Bank including computer isat ion andorganisational matters relating to the Bank.

Audit Committee to ensure quality in the internal inspectionas well as audits.

Credit Policy Committee for the formulation of policies oncredit matters including risk monitoring and evaluation,pricing of loans etc.

Asset Liability Management Committee to review the liquidityposition of the Bank relating to the current position, projectedrequirements, sources of liquidity and also review andforecast interest rates risk, credit risk, exchange rate risk,review of periodic “GAP report” etc.

Composition of the Audit Committee

The Audit Committee of the Board consists of the followingDirectors as members.

(a) Shri P.K. Sharma, Chairman of the Committee(Chartered Accountant)

(b) Shri P.A. Sethi, Executive Director (Member)

(c) Shri R. Renganath, Govt. Nominee Director (Member)

(d) Shri K R Ananda, RBI Nominee Director (Member)

(e) Shri R. Ashok Kumar, Shareholder Nominee Director(Member)

Terms of Reference of the Audit Committee

The Audit Committee of the Board (ACB) has beenconstituted by the Board of Directors as per the instructionsof the Reserve Bank of India, provisions of Companies Act,1956 and Listing Agreements. The ACB provides directionand also oversees the operation of the entire audit,accounting practices, internal control systems etc., in theBank. The terms of reference of the Committee are inaccordance with paragraph C & D of Clause 49 (ii) of thelisting agreement entered into with the Stock Exchanges andinter alia include the following: -

(a) Overseeing the Bank’s financial reporting process andensuring correct, adequate and credible disclosure offinancial information

(b) Reviewing the Management, Financial statements withspecial emphasis on accounting policies and practices,compliance of accounting standards and other legalrequirements concerning f inancial statements,qualifications in the audit report, compliance with stockexchange and legal requirements concerning financialinstitutions, related party transactions, etc.

(c) Review the adequacy of external and internal audit,internal control system, discuss and review significantfindings of inspection and investigation. Discuss withexternal auditors before finalisation of annual accountsand reports. Review Bank’s f inance and r iskmanagement policies.

(d) Looking into the reasons for substantial defaults in thepayments to the depositors, shareholders, debentureholders and creditors.

(e) Reviewing with the management, external and internalauditors, the adequacy of internal control system anddiscussion with internal auditors of any significantfindings and follow up thereon.

In accordance with Listing Agreement the Audit Committeeof the Board has been chaired by Shri Pawan Kumar Sharma,Director- Chartered Accountant (Non Executive/independentdirector).

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KEY MANAGERIAL PERSONNEL

The day-to-day affairs of the Bank are managed by the Chairman and Managing Director, the Executive Director and theGeneral Managers who are assisted by a team of competent and experienced professionals. The senior executives of theBank have in depth exposure to diverse fields of banking.

Name (Age) Date of joining Previous Designation & functionalQualification employment responsibility

Shri Ratnakar Hegde K (57) August 16 1967 — General Manager - Credit (Operations)B.A., B.L., JAIIB

Shri Amarnath Shetty (59) December 1 1972 Syndicate Bank General Manager - Planning & CreditM.A., B.L., CAIIB Card

Shri Kiran Kumar M. (57) November 7 1970 ____ General Manager - Review & RecoveryM.A. (Sociology)

Shri Jayakar Shetty K. (58) September 20 1967 ____ General Manager - Personnel & TreasuryB. Com, B.L., JAIIB Management

Shri Ashok Kumar Mandal (59) September 5 1974 SS College, State General Manager - GeneralM.A. (English) Bank of Bikaner & Administration

Jaipur, WestBengal CivilService

Smt. Prabha S Prasad (44) January 23 2003 RBI General Manager - Vigilance, InspectionM.Sc., CAIIB, Diploma in and Risk ManagementManagement

Shri Laxmikantha Hegde (57) August 1 1968 ____ General Manager - Central Accounts &B. Com., LLB, CAIIB Information Technology

Shri Hariprakash Shetty (55) December 26 1969 ____ General Manager - Delhi RegionM.A.

Shri Ratnakar Hegde (52) December 17 1970 ____ General Manager - Mumbai RegionB. Sc.

Experience/emoluments of the Key Managerial Personnel

Name (Age) Experience in Total experince in Gross EmolumentsQualification the Bank the Industry (Rs. p.a.)

Shri Ratnakar Hegde K 36 years 36 years 3,65,819.63

Shri Amarnath Shetty 30 years 8 months 34 years 3,61,583.84

Shri Kiran Kumar M. 32 years 10 months 32 years 10 months 3,41,190.90

Shri Jayakar Shetty K. 35 years 11 months 35 years 11 months 3,10,761.23

Shri Ashok Kumar Mandal 29 years 35 years 3,04,798.48

Smt. Prabha S Prasad 8 months 21 years 85,894.15

Shri Laxmikantha Hegde 35 years 1 month 35 years 1 month 3,11,554.42

Shri Hariprakash Shetty 33 years 8 months 33 years 8 months 3,02,076.14

Shri Ratnakar Hegde 32 years 8 months 32 years 8 months 2,94,239.13

Shri K. Rathnakar Hegde, is presently General Manager heading Credit (Operations) of the Bank. He is a Graduate inArts and Law and has worked in various capacities as Manager/ Divisional Manager of Metro branches and departmentsin Head Office, such as Credit Card & Marketing, Investment Management, etc. He initiated the launching of Bank’s CreditCard and its marketing. He has served as Assistant General Manager of the Merchant Banking, Investment, as well asCredit Operations. He has also attended trainings in specialised areas of Credit Card and Merchant Banking both atAustralia and Hong Kong. He has also participated in the first Afro Asian Banking School course held in India during theyear 1990. He was promoted as General Manager during the year 1998 and was in charge of Treasury & MerchantBanking Operations, International Banking and Department of Information Technology.

Shri. K. Amarnath Shetty holds a Masters in Economics and Degree in Law and joined the Bank in 1972. He has variedexperience having worked as Manager / Chief Manager of large Metro branches. He has headed the Division in Chennai,Kolkata and Mangalore. He was promoted as General Manager in 2001. As General Manager he is heading the Planning& Development Department and the Credit Card Operations of the Bank.

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Sri. Kiran Kumar M is presently General Manager heading Credit (Review & Recovery). He has Masters in Sociology. Hejoined the Bank in 1970. He has served the Bank in various capacities as Branch Manager in several locations in Karnataka andTamilnadu. He has rich experience in administrative offices having headed various Regional at Chennai, Calicut, Ahmedabad,Lucknow and Bangalore. He was promoted as General Manager in 2002 and as General Manager he was heading the PersonnelDepartment, Department of Information Technology and the General Administration Department.

Sri. Jayakar Shetty K has a degree in Commerce and Law. He is presently General Manager in-charge of Treasury Managementand Personnel Department of the Bank. He has headed the Division at Mumbai and served the Bank in various capacities. Hehas worked in various capacities as Branch Manager/ Chief Manager of large branches in Bangalore, Mumbai and Delhi. Hewas promoted as General Manager in 2002.Sri. Ashok Kumar Mandal has a Masters in Literature. He started his career as a lecturer and also worked with the WestBengal Civil Services as a Gazetted Officer. He joined the Bank in the year 1974. He was promoted as General Manager in theyear 2003 and was in-charge of Inspection and Information Technology. He is presently the General Manager in-charge of theGeneral Administration of the Bank.Smt. Prabha S Prasad is a post Graduate in Science. She has also completed CAIIB and holds a Diploma in Management. SheJoined Reserve Bank of India in 1982 as Officer in Grade B (Manager) and was promoted as General Manager in 2000. She hasvaried experience in Banking, having worked in areas of Currency Management, Personnel, Exchange Control and BankingSupervision. She has also been a faculty member at the Reserve Bank Staff College, Chennai. Before assuming charge inVijaya Bank as the Chief Vigilance Officer, she was heading the Department of Banking Supervision at the Reserve Bank ofIndia.Sri. Laxmikanth Hegde has a degree in Commerce, Law and is an associate of the Indian Institute of Bankers. He joined theBank in the year 1968. He has worked in various capacities as Branch Manager/Senior Manager/ Divisional Manager headingMetro branches of the Bank at Bangalore, Mumbai, Chennai, Kolkata and Hyderabad. He has served as the Assistant GeneralManager of the Credit Card Division and the Customer Relations Division and was also in-charge of Credit Policy, Sick Unitsand the Administration Division. He has worked as Head of Ahmedabad, Hyderabad and Mumbai Region. He was promoted asGeneral Manager in the year 2003. He is presently, the General Manager, Central Accounts and Information TechnologyDepartments of the Bank.

Shri Hariprakash Shetty is presently General Manager in charge of the Delhi Region of the Bank He started his career in Bankin the year 1969. He has rich experience in administrative offices having worked in Head Office in different capacities as ChiefManager Assistant General Manager & Deputy General Manager of Credit, Vigilance and Board Secretariat. He has alsoheaded the Regional Office of Chennai and was promoted as General Manager in the year 2003.Sri. Ratnakar Hegde H is presently the General Manager of Regional Office, Mumbai. He has varied experience having workedas Manager / Chief Manager of large Metro branches. He has headed Region in Hubli, Bangalore and Delhi. He was promotedas General Manager in the year 2003.

CHANGES IN KEY MANAGEMENT PERSONNEL IN THE LAST YEARChange in Key Management Personnel from the level of General Manager and above, including promotions during the lastthree years (from 2000 onwards) are as follows:

Name Designation Reasons for changeShri. K. Amarnath Shetty General Manager Promoted as GM w.e.f. 06.06.01Shri. O. S. Ramamurthy General Manager Retired from the service of the Bank w.e.f. from 30.06.01Dr. K. Shanker Shetty General Manager Retired from the service of the Bank w.e.f. 31.12.01Shri. M. Kiran Kumar General Manager Promoted as GM w.e.f. 1.1.02Shri S. Gopalakrishnan Chairman & Managing Director Retired from the services of the Bank w.e.f. 31.01.02Shri B. Sridhar Shetty General Manager Retired from the Service of the Bank w.e.f. 31.3.02Shri. M. S. Kapur Chairman & Managing Director Assumed charge of the Bank as Chairman & Managing

Director w.e.f. 16.08.02Shri Michael Bastian Executive Director Demitted Office on 23.08.02 to join Syndicate Bank as

C&MDShri K. Bhoja Shetty General Manager Retired from the service of the Bank on 30.9.02Shri. A.K. Mandal General Manager Promoted as GM w.e.f 5.10.02Shri. K. Jayakar Shetty General Manager Promoted as GM w.e.f. 5.10.02Smt. Prabha S Prasad General Manager Assumed charge of the Bank as Chief Vigilance Officer

w.e.f. 23.01.03Shri. P. A. Sethi Executive Director Assumed charge of the Bank as ED w.e.f 8.3.03Shri S. Laxmikanth Hegde General Manager Promoted as GM w.e.f. 3.5.03Shri Hariprakash Shetty General Manager Promoted as GM w.e.f. 3.5.03

Shri. H. Ratnakar Hegde General Manager Promoted as GM w.e.f. 3.5.03

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HUMAN RESOURCES

The total manpower of the bank as on March 31 2003 was11,723 comprising 3,592 officers, 5,547 clerks and 2,584sub staff.

The manpower position of the Bank for the last five years isas under:

As on Officer Award Sub-Staff Total no. ofMarch 31 Staff Employees

1999 4309 7179 2652 14140

2000 4318 7219 2787 14324

2001 3675 6962 2834 13471

2002 3045 6159 2623 11827

2003 3592 5547 2584 11723

The business per employee of the bank has been on theincreasing trend. The position as on 31st March during thelast five years is depicted in the table below:

Year 1999 2000 2001 2002 2003

Business peremployee(Rs. lacs) 98.80 117.27 122.83 169.38 193.62

HUMAN RESOURCES DEVELOPMENT

The total staff strength of the Bank stood at 11723 in March2003 as compared to 11827 in March 2002. Of the total staff,3592 are Officers, 5547 Clerical Staff, 1945 Sub-Staff and639 Part-Time Employees in Subordinate cadre. The numberof women employees as at the end of March 2003 stood at1962 consisting of 337 officers and 1625 Award Staffconstituting 16.74% of total employees in the Bank. As atthe end of March 2003 there were 183 employees belongingto Handicapped Category and 487 employees belonging toEx-servicemen Category.

With the increase in Bank’s business, the staff productivitymeasured in terms of average business per employee,improved from Rs.1.69 crore in 2001-02 to Rs.1.94 crore in2002-03 registering an increase of 14.8%. During the year,the Bank, with a view to consolidate its gains in post VRSera, did not go for any major recruitment of staff.

The Bank is endeavouring to update and upgrade the skillsof its employees to face the challenges of present daybanking. 4254 employees were trained during the year. Outof this, 3229 underwent training in the Bank’s ownestablishments 748 officers were trained at the reputedexternal training institutions.

BUSINESS AND ACTIVITIES OF THE BANK

CORPORATE MISSION

The Corporate Mission of the Bank is -

l to emerge as a prime National Bank backed by moderntechnology

l to meet customers’ aspirations with professional bankingservices

l to achieve sustained growth contributing to nationaldevelopment

CORPORATE STRATEGY

The continuing deregulation of India’s financial sector hasresulted in increased competition for the Bank. In order tomaximise profitability in this competitive environment, thebank has set itself the following goals:

l To give greater thrust on mobilising low cost depositsand disbursing retail credit, with a view to broaden thecustomer base.

l To create niche markets by developing new productsand services and also to improve the delivery system tomatch the changing needs and expectations of variouscustomer groups.

l To improve employee productivity through a combinationof training and technology

l To strengthen the risk management systems andpractices

COMPETITIVE STRENGTHS

The Bank has been recording consistent growth in itsbusiness despite increased competition in the bankingindustry since the introduction of financial sector reforms inthe early nineties, mainly due to the following inherentstrengths:

l The Bank’s branch network is spread over all the 28states and in 4 union territories.

l The Bank has its branches in most of the top 100 depositcentres of the country.

l The Bank has introduced a large number of deposit andcredit schemes meeting the requirements of differentclasses of population.

l The Bank has broad based its inspection and vigilancemachinery.

l The Bank has upgraded technology and communicationfacilities for enhancing its operational efficiencies.

l The Bank has built up experience in diversified areassuch as foreign exchange, credit card, merchantbanking, etc.

PRESENT BANKING ACTIVITIES

In tune with the corporate mission and business goal, theBank aims at achieving quality of assets in addition to agrowth in volume. The tenets of lending laid down by theBank, enable it to achieve this goal. The Bank endeavoursto maintain a healthy credit portfolio by selection ofborrowers, credit / r isk appraisal techniques, creditsupervis ion and monitor ing, credi t audit and usinginformation technology for reporting system. The Bank hasa system of pre-sanction monitoring and a significantimprovement has been seen in the selection of borrowers.The Bank adopts a committee approach, which takes jointdecision on large proposals. For post sanction monitoring,

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the Bank ensures continuous supervision and control at alllevels In addition to this, the Bank has appropriate controlmechanism systems in the area of Credit Administration suchas internal inspection, stock audit, concurrent audit, legalaudit etc. to ensure that deficiencies brought out throughthese reports are attended to and appropriate actions aretaken.

Greater autonomy granted by the Government of India

Government of India have granted greater autonomy in thematter of recruitment, promotion, creation of posts, etc. toPublic Sector Banks (PSBs), which fulfil the followingconditions:

l Positive net profits for the last three years

l Capital adequacy ratio of more than 8 per cent

l Net NPA level below 9 per cent of the net advances and

l Minimum owned funds of Rs.100 crore

The areas in which PSBs have been given autonomy are:

l Delegation of powers to Boards for personnel placementin overseas branches of PSBs.

l Promotion to Senior and Top Executives Grades

l Deputation of Officers/lateral induction of Officers oncontract basis/lateral mobility of Officers within thebanks.

l Requirements of Rural/Semi-urban posting for bankOfficers

Vijaya Bank has fulfilled all the four criteria for autonomy toBanks laid down by the Government of India in the year 1999.

Branch Network

At present, the Bank has 843 branches spread all over thecountry with Karnataka accounting for the highest numberof branches (390). In recent years, the Bank has opened 43specialised branches. The statewise break-up of the spreadof branches is as under:

State/Union Territories No. of Branches

Karnataka 390Andhra Pradesh 76Kerala 68Maharashtra 65Tamil Nadu 46Uttar Pradesh 35All other States 163

Total 843

The population groupwise break-up of branches as under:

Population group No. of Branches

Rural 257Semi- Urban 190Urban 220Metropolitan 176

Total 843

Specialised branches

To give focussed attention, the Bank has in recent years,opened as many as 37 specialised branches.

Nature of specialised branch No. of branches

Capital Market Services 7Commercial and Personal Banking 16Asset Recovery Management 6SSI Finance 6Overseas Business 3Corporate Banking 1Industrial Finance 3Specialised Women’s Branch 1

Total 43

PRODUCTS AND SERVICES

Vijaya Bank has many pioneering achievements to its credit.It was one of the first few Public Sector Banks to offer ‘ATM-cum-Credit Card’ facility. The Bank also opened its first fullycomputerized Capital Market Services branch in 1993-94. Ithas introduced several customer friendly deposit schemesviz., Vijaya Shree Units Scheme, Vijaya Cash CertificateScheme and V-Star Savings Bank Scheme etc. Coming asit does from a Bank, which was founded mainly to promoteagriculture, ‘agriculture credit’ is one of the bank’s priorityareas of lending. The Bank has launched an innovative KisanCard Scheme for the benefit of farmers. The Bank has alsolaunched several retail lending schemes viz., V-TradeScheme, Housing Loan Scheme, V-Cash, V-Equip, V-Rent,Loans against Motor vehicles and Liquidity Finance to SSI,Jewel loan, V-Mangala, V-Kanyadan. In tune with the modernBanking, the Bank also proposes to commence insurancebusiness in participation with other leading players in thefield. The Bank has recently issued Global Card, which isvalid both domestically and internationally.

Some of the deposit schemes offered by the Bank are asunder:

Vijayashree Units: Vijayashree units combines the featuresof a term deposit and the facility for partial withdrawal inunits of Rs.1000/-. The scheme is ideal for both short termand long term investments. The units are issued in multipleof Rs.1000/- for slab periods 15-45 days, 46-179 days, 180days- less than one year, 1 year and above.

Vijaya Cash Certificate Scheme: Under this scheme, thedeposits get the benefit of compound interest. These unitscan be purchased in denominations of Rs.100/- for periodsranging from 6 months to 10 years.

As at March 2003, the Bank has computerized 356 branches.Besides, the Bank has also installed ATMs in 18 branches.The Bank has initiated action for implementing Core BankingSolution, Intergrated Risk Management System andNetworking of ATMs with addition of 100 ATMs.

FOREIGN EXCHANGE & INTERNATIONAL BANKING

The Bank has been improving its forex and foreign traderelated business over the years. The Forex turnover has

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been increasing consistently and the level of turnover hasincreased from Rs. 4057 crores in the year ended March 312002 to Rs. 4909 crores during the year ended March 31,2003.

CONSUMER FINANCE

V-KANYADAN- For the first time in India, Vijaya Bank hasintroduced a unique loan scheme to meet the marriageexpenses of daughter / dependent sister / any dependentfemale relative or to meet the marriage expenses of anyworking women. Applicant is eligible for loan equivalent to12 months’ gross income with a ceiling of Rs.5.00 lakhs andthe entire loan is repayable with interest in not more than 5years.

V-MANGALA- The loan scheme is to meet the needs of theworking women for purchase of consumer durables,jewellery, etc. The beneficiaries are also eligible for the add-ons such as free credit card facilities, free personal accidentdeath insurance cover up to the total amount of the loan.

V- Equip- A convenient finance scheme, the V-Equip loancan be avai led of purchase of consumer durables.Professionals and self employed, employees of Government/Public Sector/ Joint Sector and established educationalinstitutions, with a net minimum take home salary of Rs 3000/- are eligible for the scheme.

V-Cash- It is a very convenient scheme that one can availof to meet short-term credit needs. Any individual agedbetween 21 & 55 years and employed in State / Central /Public Sector Undertaking / Educational Institutions, with aminimum net take home salary of Rs.1, 500/- per month.

V-Rent - Owners of the property who have let out the sameto reputed companies, commercial/industrial firms, software,multinational companies, banks, reputed institutions, etc. areeligible for this scheme. The beneficiary can avail of the loanto the extent of 80% of the Rent expected during theunexpired period of tenancy or upto a maximum of not morethan 60 months rent whichever is less.

The Bank has other schemes like Vijaya Home Loan whereone can avail the loan at the lowest interest in the BankingIndustry, V-Trade which is an instant Bank finance againstbusiness assets, Vijaya Wheels for purchase of two and fourwheelers, Educational Loan, Jewel Loan, Loans to SmallRoad Transport Operators.

DETAILS OF SOURCES OF FUNDS

DEPOSITS

The total deposits grew by 15.9% from Rs.14680.51 croresas on March 31 2002 to Rs.17019.81 crores in as on March31 2003. Despite increased competition on account offinancial sector reforms such as entry of new private sectorbanks, deregulation of interest rates, the Bank has beenable to record consistent deposit growth. The break up oftotal deposits during the last five years is as follows:

As on March 31 1999 2000 2001 2002 2003

Current Deposits 1662.91 1929.77 1743.71 1866.07 1969.09

SB deposits 1988.33 2294.34 2548.01 2894.62 3511.13

Term deposits 6038.99 7368.77 8340.52 9919.82 11539.59

Total deposits 9690.23 11592.88 12632.24 14680.51 17019.81

Annual growth (%) 17.90 19.60 8.90 16.20 15.90

As on March 31(%) 1999 2000 2001 2002 2003

Current Deposits 17.16 16.65 13.80 12.71 11.57

SB deposits 20.52 19.79 20.17 19.72 20.63

Term deposits 62.32 63.56 66.02 67.57 67.80

Total deposits 100.00 100.00 100.00 100.00 100.00

The maturity residual profile of Total Deposits in the last 3years is as under:

(Rs. in crores)

Year ended March 31, 2001 2002 2003

Amount % Amount % Amount %

Up to 1 year 6004.69 47.53 7322.95 49.88 7756.35 45.57

1 year to 3years 5766.32 45.65 6556.38 44.66 8288.09 48.70

3 years to 5 years 594.80 4.71 526.59 3.59 692.16 4.07

Over 5 years 266.44 2.11 274.59 1.87 283.21 1.66

Total 12632.25 100.00 14680.51 100.00 17019.81 100.00

Borrowings

Unsecured Borrowings of the bank as March 31, 2003

Details of Unsecured Loans as on 31.03.2003 #

(Rs in lakh)

Sr. Name of the Lender Repayment ScheduleNo Amount Due Date of Amount

Repayment

1 SIDBI (Short Term Loan) 25000.00 8-Aug-03 25000.00**

2 SIDBI (Refinance) 208.11 1-Jun-03 38.41**

1-Sep-03 28.89**

1-Dec-03 31.06

1-Mar-04 20.24

1-Jun-04 19.03

1-Sep-04 13.57

1-Dec-04 15.95

1-Mar-05 8.17

1-Jun-05 10.20

1-Sep-05 4.66

1-Dec-05 3.41

1-Mar-06 2.63

1-Jun-06 1.53

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1-Sep-06 1.52

1-Dec-06 1.08

1-Mar-07 1.52

1-Jun-07 1.08

1-Sep-07 1.52

1-Dec-07 0.81

1-Mar-08 0.81

1-Jun-08 0.81

1-Sep-08 0.26

1-Dec-08 0.26

1-Mar-09 0.17

1-Jun-09 0.13

1-Sep-09 0.13

1-Dec-09 0.13

1-Mar-10 0.13

3 Borrowings outside India 5700.00

A CITIBank Bahrain@ 1.7400% 30-Sep-03 1187.50

B CITIBank Bahrain @1.6675% 22-Sep-03 1187.50

C Union Bank of California@1.6400% 19-Jun-03 950.00

D Union Bank of California@1.6400% 30-Jun-03 2375.00

4 Tier II Bonds Series I @14.20% 12000.00 4-Apr-04 12000.00

5 Tier II Bonds Series II @12.35% 6000.00 6-Dec-06 6000.00

6 Tier II Bonds Series III @7.50%* 15000.00 8-May-10 15000.00

7 VRS Bonds@11% 1009.00

30-Apr-06 451.50

2-Jun-06 25.10

30-Aug-06 256.10

30-Sep-06 147.30

30-Oct-06 48.10

30-Dec-06 14.40

15-Jan-07 3.40

30-Apr-07 16.10

2-Jun-07 31.70

Pending Issueof Bonds 15.30

TOTAL 64917.11 TOTAL 64917.11

# Excluding Deposits, adverse clearing balances and NostroMirror Balances as on 31.03.2003** Payments made by the Bank*Rated AA by CRISIL.

The above borrowings are all unsecured. No promoters /directors have given any personal guarantee for collaterallysecuring the borrowings. None of the lenders is an affiliate /associate of the Bank. The Bank has not defaulted inrepayment / redemption of any of the borrowings. RBI’snominee director is on the Board of the Bank, the details ofwhich are shown under the section “Board of Directors”.

Important covenants governing the major borrowings

SIDBI Short Term Loan and Refinance facility

1. SIDBI may at any time during the currency of the loan,call upon the Bank to pay interest on the balanceoutstanding and other monies payable in respect of theloan at such higher rates as may be fixed by SIDBI andintimated to the Bank. Provided that in the event of theBank called upon to pay interest at the enhanced rate,the Bank shall have an option on receipt of suchintimation, to prepay forthwith the entire outstanding loantogether with all outstanding interest and other moniesthereof.

2. A s security for the said loan, the Bank shall hold intrust for SIDBI, all the securities including movable andimmovable assets, book debts, receivables, actionableclaims, guarantees, assignments, bills of exchange andproceeds thereof as also all other securities as maybedirectly or indirectly obtained or to be obtained by theBank from its borrowers to secure its financial assistancemade available to its borrowers for which the loan hasbeen sanctioned by SIDBI to the Bank.

Fixed/Floating rate Liabilities

(in Crores)

Fixed rate

Deposits 17019.81

Borrowings 320.82

Tier II 340.09

Floating Rate Nil

DETAILS OF DEPLOYMENT OF FUNDS

Advances

The total advances of the Bank amounted to Rs.7891.34crores in March 2003 compared to Rs.6196.66 crores inMarch 2002, recording an increase of 27.3 %. The Bankhas launched several retail lending schemes viz., i) Tradefinance ii) Housing Finance to individuals iii) LiquidityFinance to SSIs (iv) Liberalised Credit to SRTOs v) JewelLoan vi) Planters’ Cards vii) V-Cash viii) V-Equip ix) Loansagainst Shares including Demat Shares x) Loan againstMotor vehicles xi) V-Rent xii) V-Kanyadan xiii) V-Mangala,to increase its clientele base. The growth of credit duringthe past five years is as follows:

(Rs. in crores)

As on March 31, Total Credit Annual increase (%)

1999 3767.20 25.61

2000 4958.67 31.60

2001 5720.01 15.40

2002 6196.66 8.30

2003 7891.34 27.30

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Population group wise classification of advances

The population groupwise classification of the Bank’sadvances is as under:

(Rs. in crores)

As on last reportingFriday of March 1999 2000 2001 2002 2003

Rural 439 510 518 563 643

Semi-urban 438 536 552 610 787

Urban 770 955 984 1149 1522

Metropolitan 2596 3182 3627 4093 5177

Total 4243 5183 5681 6415 8129

REGION WISE CREDIT EXPOSURE

The region wise credit exposure of the Bank’s credit portfolioas on as on reporting Friday March 2003 is given below.

(Rs. in crore)

Region Amount % of gross credit

East 346.38 4.20

West 2434.61 29.8

North 1097.91 13.40

North-east 126.69 1.50

South 3832.40 46.90

Central 338.66 4.20

Total 8176.65 100.00

SECTOR WISE CREDIT PORTFOLIO

The sector-wise credit portfolio of the Bank as on lastreporting Friday of March 2003 is as under:

(Rs. in crore)

Industry Amount Exposure to gross bank

credit

Gross Bank Credit 8176.65 100.00%

1 Food Credit 744.12 9.10

2 Non Food Credit: 7432.53 90.90

2 a Medium & LargeScale Industry 981.00 12.00

2 b Wholesale Trade 234.00 2.87

2 c Priority Sector 3111.99 38.06

2 d Export Credit* 592.70 7.24

2 d Other Sectors 2512.84 30.73

*Included in different sectors

The details of industry-wise exposure, classified in terms ofthe top 10 industries, where the Bank has an exposure, ason 31.03.2003 is as follows:

Industry wise outstanding as on 31st March 2003

(Rs. in crore)

Industry Outstanding to Outstanding to Total Total O/S of topthe industry the industry Outstanding 10 companies in

as % of total to top 10 the industry asoutstanding Companies % of total

outstandingto the industry

Electricity / Power 281 3.43 259.77 93.00Textiles (Cotton, Jute &Others) 147 1.80 49.37 33.00Iron & steel 124 1.52 99.03 80.00Petrochemicals 69 0.84 43.02 62Drugs & Pharmaceuticals 67 0.82 29.06 43.00Fertilizers 64 0.72 64.00 100.00Engineering 57 0.69 35.02 61.00Metal & Metal Products 48 0.58 23.87 50.00Petroleum 45 0.55 45.00 100Marine food processing 44 0.54 29.01 66.00

946 11.49 NA NA

EXPOSURE TO TOP TEN COMPANIES AND TOPFIVE BUSINESS GROUPS

Companies

Borrower Industry Balance outstanding Quality of % of fundFund Non fund Total Assets based

based based exposure tototal assetsof the Bank

Borrower-A Power Distribution 207.95 - 207.95 Standard 1.09

Borrower-B Govt. Undertaking(Public FinancialInstitution) 63.79 - 63.79 Standard 0.33

Borrower-C Power Distribution 99.00 - 99.00 Standard 0.52

Borrower-D Diversified 75.34 41.81 117.15 Standard 0.40

Borrower-E Power Distribution 62.17 55.31 117.48 Standard 0.33

Borrower-F Housing Finance 35.69 - 35.69 Standard 0.19

Borrower-G Fertiliser (PSU) 56.92 12.20 69.12 Standard 0.30

Borrower-H Electrical 2.92 17.30 20.22 Standard 0.20

Borrower-I Financial Services 71.83 - 71.83 Standard 0.38

Borrower-J Metals Trading 38.03 13.11 51.14 Standard 0.20

Total 713.64 139.73 853.37 3.94

BUSINESS GROUPS

Borrower Amount outstanding % to total advances(Rs. in crores)

Group A 103.85 1.32Group B 120.00 1.52Group C 93.71 1.19Group D 86.20 1.09Group E 54.84 0.70Total 458.60 5.82

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Sanctions & Disbursements

The following table provides a summary of the total sanctionsand disbursements for the last five years:

(Rs. in crores)

Year ended March 31 1999 2000 2001 2002 2003

Sanctioned

Out of which

-Loans 1603 1434 1240 1776 2745

-Bank guarantees 179 290 340 397 598

_Letter of credit 315 271 353 431 695

-Deferred payment guarantee 76 52 - 109 58

-others (if any) - - - - 5

Disbursed

Out of which

-Loans 1462 1319 1178 1683 2570

-Bank guarantees 143 266 313 357 568

-Letter of credit 296 257 335 379 515

-Deferred payment guarantee 76 52 - 109 58

-Others (if any) - - - - -

FIXED /FLOATING RATE ASSETS

(Rs. Crores)

Fixed Floating Total

Investments 8848.61 13.00 8861.61

Advances 7507.45 383.89 7891.34

Total 16356.06 396.89 16752.95

EXPORT CREDIT

As per the current Reserve Bank of India norms, lending toexport should be 12% of total credit, against which theexposure of the Bank is 7.51% constituting Rs 592.70 croresduring the year ended 31st March 2003. The Bank continuesto encourage export credit with particular emphasis on smalland medium sized exporters.

As against the export target of 12% of the total credit, VijayaBank could not meet the targets in the last five years. Thedetails of the past five years is given as under:

(Rs. in crores)

Year ended March 31, 1999 2000 2001 2002 2003

Target 478.59 588.00 780.00 852.00 1030.00

Achieved 442.64 432.59 468.57 420.50 592.70

% of Export Credit to Net Credit 11.10 8.80 8.19 6.79 7.51

For the year 2002-03 the following is the break-up of exportcredit.

(Rs. Crore)

Export Credit to SSI units 173.50

Export Credit to Direct Agriculture 96.11

Export Credit other Sectors 323.09

Total Export Credit 592.70

PRIORITY SECTOR LENDING

Details of Sector-wise distribution of Priority Sector Creditfor the last five years is given below:

(Rs. in crores)

Year ended March 31, 1999 2000 2001 2002 2003

Agriculture 616.78 743.14 750.95 843.54 1181.25

Small Scale Industries 510.74 573.61 571.81 555.82 582.24

Other Priority Sector Advances 502.96 689.28 723.82 950.38 1348.50

Total 1630.48 2006.03 2046.58 2349.74 3111.99

The Bank has met the targets for the priority sector as perthe norms set by RBI.

LEAD DISTRICTS

As required by the GoI/RBI, the Bank has been assignedthe role of lead bank in three districts in Karnataka State,which are Mandya, Dharwar and Haveri. The assigned leadbank responsibilities are discharged by maintaining Inter-inst i tut ional coordinat ion in the preparat ion andimplementation of various development programmes in eachdistrict. Details of branch network, resources mobilised andadvances made in the lead districts are as under:

(Rs. in crores)

State No. of No. of Total Total Advances Percentagelead branches deposits advances to priority to total

districts (A) sector (B) advances(B/A)*

Karnataka 3 59 285.32 202.74 130.15 64.19%

Total 3 59 285.32 202.74 130.15 64.19%

GUARANTEES GIVEN BY THE BANK

The Bank has not given any guarantee to a third party exceptin the normal course of banking business, as performance/financial guarantees on behalf of its constituents likebuilders/construction engineers, exporters etc. afterconducting a thorough appraisal of the party and theirfinancials requirements. The Risk perception is alsoanalysed and accordingly cash margin and other liquid/tangible securities are stipulated. Normally such bankGuarantees are issued against cash margin and the periodof guarantee varies from one to three years. The financialimplications arise if our constituents, on whose behalf theguarantee is issued, fail to perform or fulfil the contractualobligations in which case the Bank has to make paymentsunder the guarantee. The aggregate of such guarantees ason 31.3.2003 was Rs. 731.60 crore and the Devolved Liability

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under Bank Guarantees outstanding for recovery as on31.3.2003 was 13.72 crore. The aggregate amount odguarantees has been classified as contingent liability of theBank for which no provision has been made in the financialstatements.

LENDING POLICY

The Bank has put in place a comprehensive lending policyand the same has been covered in this section in brief. Whilethe budgeted (projected) figures are an integral part of suchloan policy, the same have not been reproduced in the offerdocument to comply with the disclosure norms of SEBI. Toconform to this requirement of non-disclosure, the write-uphas been suitably amended at appropriate places. However,the policy write-up may contain certain qualitative forward-looking statements about events, which may or may notfructify in future. Also, wherever deemed appropriate, thesections have been summarised and/or omitted. The policyhas been approved by the Board of Directors in their meetingheld on July 23 2003 and has become effective from thesaid date.

COVERAGE

The Policy covers all types of domestic Fund Based facilities(both demand and term loans), Non-Fund Based facilities(both guarantees and letters of credit) as well as export credit(pre and post shipment) sanctioned and to be sanctioned tobank’s customers, the exposure being classified as StandardAsset.

OBJECTIVES

As on last reporting Friday of March 2003, the Bank hasattained a Gross Credit level of Rs.8176.65 crores, Net Creditlevel of Rs.7891.34 crores, CD Ratio 48.34% and GrossProfit of Rs.432.36 crores. The Bank has budgeted for eachof these performance parameters for the next fiscal yeari.e. FY 2004.

FOCAL POINTS

The policy lays emphasis on volume increase in creditsimultaneously ensuring consistent and visible improvementin the portfolio quality. Improvement in credit appraisalstandards is to be achieved through continuous trainingprocess/refresher courses to the Credit officers, monitoringteams and the branch managers/executives as well, fullyutilizing in-house and specialized agencies/training colleges.Similarly, adherence to standards of quick and promptdecision making and grant of adequate and need basedfinancial assistance on attractive, but on safe terms, and intime, in compliance with Fair Practice Code on Lenders’Liability are expected to give the necessary boost to thecredit-deposit ratio. The Bank has various unique Retaillending and other schemes like V-Rent, which have all beenaccepted by the regular income earners, trading community,landlords, etc. It is Bank’s endeavour to develop propermarketing strategies and creation of marketing network byoutsourcing services of Direct Selling Agents, Tie-up withdealers, Credit Investigating Agents, Recovery Agents, etc.

OPERATIONAL ASPECTS

1. Thrust areas: While the Bank would put in all efforts toseize opportunities in all sectors, in line with the nationalpolicies, endeavour would be made to expand creditunder agriculture, SSI and export. The Bank has alsoits own schemes that have earned popularity among thetrader communities, and to the retail segment includingHousing. These would continue to be thrust areas. Withthe industry sector coming out of recession, the bankwould attempt to join working capital consortium lendingarrangement of progressive industrial units. The Bankis also not averse to take over term loans at competitiverates (on fulfilment of certain conditions) provided ashare in the working capital financing is also providedeither immediately or where there is firm commitmentthat it would be made available in due course. The Bankwould also attempt to attract high rated customers byextending Foreign currency loans at competitive rates.

2. Sectoral Exposure Ceiling: While expanding credit andidentifying new borrowers, the Bank shall keep in mindthe share of present outstanding advances anddeployment of incremental credit required under prioritysector, export , retai l lending, service sector,infrastructure and other preferred sectors and segments,in conformity with the guidelines stipulated by theGovernment and Reserve Bank of India from time totime.

a) Priority Sector:

In compliance with the directions issued by the RBI, the Bankshall concentrate in achieving and maintaining the followingminimum exposure levels in respect of lending to the PrioritySector:

Category As % to Net Credit

Total Priority sector 40%

Agriculture 18%

Weaker Section 10%

Women beneficiaries 5%

DRI Advances 1%

The Bank’s aim would be to achieve the same bycorrespondingly setting the target, reviewing progress vis-a-vis target set to the Regions/branches on a quarterly basis.Regional Offices and the HO department, both Credit andPlanning, shall follow up in this regard based on theprescribed reporting returns.

b) Small Scale Industries:

At present, RBI has not stipulated any specific level (as %to bank’s total advance) of credit outflow to SSI sector.However, there is a stipulation that out of the total creditextended by a bank to SSI sector, 60% thereof should go totiny units (where the investment cost on plant and machineryis up to Rs.25 lakhs). Therefore, the Bank shall endeavourto achieve credit allocation as below, in compliance with theguidelines issued by the RBI:

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Category Investment in Plant & %-Age to total directMachinery SSI advances.

Total to SSI Sector - -

Cottage Industries Up to Rs.5 lakhs 40%

Khadi & Village Industries,Artisans and Tiny Sector Between Rs.5 lakhs and 20%

Rs.25 lakhs.

Other SSI units. Between Rs.25 lakhs and 40%Rs.100 lakhs

c) Export Credit:

In respect of export credit, the Bank’s endeavour would beto reach a minimum credit deployment level equal to 12% ofits Gross Credit and for this purpose, credit extended tomerchant as well as manufacturing exporters and alsodeemed export transactions shall be reckoned, covering bothpre and post shipment exposures.

d) Retail Lending

As retail lending continues to be one of the major thrust areasof the Bank, credit dispensation through our various retaillending schemes such as: Trade Finance/V-Trade, HousingFinance (Direct and Indirect), Loans to Small Road TransportOperators, Jewel Loans, Educational Loans, Loans againstMotor Vehicles (other than SRTOs), V-Cash, V-Equip, V-Rent, V-Wheels, V-Kanyadan, V-Mangala, etc shall receivefocused attention. The Bank has budgeted for overallquantum of retail lending in FY 2004 with well-specifiedbudgets for housing finance and other retail sectors.

e) Infrastructure

The coverage under infrastructure would be the same asdefined under Section 10 (23 G) of Income Tax Act, 1961.Accordingly, infrastructure would include sectors such aspower, roads, highways, bridges, ports, airports, rail system,water supply, irrigation, sanitation and sewerage system,telecommunication, housing, industrial park or any otherpublic facility of similar nature as may be notified by CBDTfrom time to time. Although the current Monetary Policy hasplaced emphasis on financing infrastructure projects andpermitted 5% relaxation in the Prudential Exposure Ceiling(20% of bank’s Capital Funds instead of 15% as applicableto other individual borrowers), considering the inherentstrengths and weaknesses attached to the activity ofinfrastructure financing, the Bank shall exercise selectivityin taking up infrastructure projects for funding. While thegeneral industry scenario would be the backdrop forevaluation of cases, the Bank’s own experience in havingfinanced such / similar projects in the past would be thedeciding factor. Wherever possible, financing by the Bankwill be under consortium arrangement with others. Withinthis broad framework, the Bank has specified industry wiseexposure levels for financing infrastructure projects.

f) Medium and Large Scale Industries:

The overall exposure of the Bank to medium and large-scaleindustrial sector is expected to be around 25% of its Gross

Credit level and advance to any particular single industryshall be generally restricted to 10% of the Gross Bank Credit.In respect of certain select industries, like Iron & Steel,Metals, Petroleum Products, Chemicals, Paints,Engineering, Drugs & Pharmaceuticals, Textiles, Paper,Sugar, Cement, Food/Meat Processing units, Timber,Fertilizers, this internal exposure ceiling is more relevant,taking in to account the present economic scenario, demand-supply conditions, past experience, etc. However, these capswould not be a deterrent for the Bank to accept viable,bankable proposal from any of these sectors and deviationscan be permitted by the ED/CMD on a case to case basisdepending on the delegated powers under which suchsanction falls.

g) Service Sector:

Loans and advances to Information Technology sector, Non-Banking Finance Companies, Housing Finance and otherfinance intermediaries, Educational Institutions, Hospitals,Tourism & Hotel and such other service-emphatic enterprisesshall come under this category. While no separate exposurelevel ceilings are prescribed with regard to lending to eachof these sectors, the Bank’s endeavour shall be to ensurethat the overall exposure to the service sector is kept around20% of Gross Credit.

• Information Technology Sector:

The advances to IT units up to Rs.1 crore could be classifiedunder Priority Sector. The Bank shall endeavour toencourage and lend to this sector in all viable casesirrespective of any cut-off level as such. Hence no separatesub-target is made.

• Non-Banking Finance Companies:

The restrictive approach already put in place by the Bankwith regard to financing of NBFCs shall continue to remainin force. No fresh sanction or enhancement in the existinglimit shall be considered without prior approval of the CMD.

• Educational Institutions:

In recent times, there has been a visible proliferation ofeducational institutions imparting knowledge in variousdisciplines, especially in professional courses. These provideample employment opportunities. These are desirableventures especially if developmental needs (normally forconstruct ion/acquisi t ion of infrastructure) are wel lestablished, Institution has proven profitability records; enjoygood reputation as prominent institution in the educationalfield. The criteria for entertaining such proposals shall bethe reputation, developmental needs and ability to servicethe bank loan based on the expected cash flows.

• Hospitals:

Rural dispensaries, Nursing Homes and small hospitals runby the physicians themselves are usually well conductedand the bank shal l entertain their working capitalrequirements, equipment purchase requirements and smallexpansion projects based on proper assessments/ viabilityfulfillments. New units established in centers where no

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hospitals/Nursing Home exists can be potential proposalsfor financing.

As regards Super/multi specialty Hospitals, such exposurecan be taken up based on the viability/feasibility establishedthrough study report of competent/acceptable agencies,independent study by the bank/branch as to its scope in thearea, promoters involved, medical team of expertiseavailable, equipments/other state-of- art technologyproposed/available, etc., and also the performance reportsof such other hospitals in the area/district/state.

• Hotels/Hospitality Industry

Small Hotels without lodging facilities, Restaurants, etc canbe considered for financing both for working capital as wellas through term loans for procuring equipments, furnitureand fixture, etc. While financing fresh hotel projects/extending assistance for enlargement of existing hotels,enquiries needs to be undertaken to evaluate the currenttrend in the industry, past activity levels of such hotels(wherever applicable) in the particular area of tourist interestand the viability and ability of the particular project to servicethe debt even in adverse circumstances, by carrying outdetailed sensitivity analysis on cash flows, Profitabilityprojections/DSCR/IRR.

h) Film Production:

Prior approval of the GM-Credit/ED/CMD (depending on thedelegated power for sanction) should be obtained beforeentertaining proposals from this sector.

i) Sensitive Sectors:

The exposure to the following sectors which are sensitive toasset-price fluctuations such as exposure to capital market,real estate (i.e. lending to land/property developers) etc. shallcontinue to be reviewed periodically as per the extantguidelines in force. In order to have a guarded approach inlending to these sectors, the following exposure ceiling levelsshall be observed:

Category Percentage of Gross

Bank Credit

Advances to capital Market Sector 2%

Real estate Sector 5%

Commodity Sector 5%

PRUDENTIAL EXPOSURE LEVELS

The prudential exposure (PE) norms for Individual and GroupBorrower as prescribed by the RBI are linked to the CapitalFunds (CF) of the Bank. The CF of the Bank as per the lastpublished balance sheet as on 31.3.2003 is Rs.960.14 crore.Credit exposure (both fund based and non-funded) and otheritems to be added to reckon the exposure level are: facilityextended by way of equipment leasing, hire purchasefinance, factoring services, investment in commercialpapers, forward contract in foreign exchange and otherderivative products like currency swaps and options (at theirreplacement cost value), investments of various nature and

under-writing and similar commitments. (However, advanceagainst Bank’s own deposits, financial assistance sanctionedto sick / weak industrial units under rehabilitation schemeand Food credit as allocated by the RBI shall be exemptedfor calculation of PE level exposure).

Based on the Capital Funds of the Bank as indicated above,the Prudential Exposure norms as per RBI guidelines shallbe as below:

(Rs. in crore)

Type of borrower % Of capital Prudential ceiling basedfunds on AFS as on 31.3.03

Individual 15% 144.02

Individual (Infrastructure) 20% 192.03

Group 40% 384.06

Group (infrastructure) 50% 480.07

As a policy, it is not expected of the Bank to undertakeexposure on account of a borrower, in excess of thePrudential Exposure Ceiling level permitted by the RBI. Theremay, however arise cases where for business compulsions,the Bank may find it prudent to accommodate an entitybeyond the PE Ceiling. In such cases, not only due sanctionof the Board (MCB) is to be obtained, but also the writtenpermission of the Reserve Bank of India before release ofsuch credit limits, by submitting the full particulars of thecase, in the format prescribed by the RBI. This has to notedand taken care by the Credit Department at HO.

A. INTERNAL CEILING

While the Prudential Exposure Ceiling as above shall betreated as the outer most limit (except in respect of suchcases where an exemption to exceed the level has beenpermitted by the RBI), to undertake exposures (credit,Investments, underwriting, etc put together) on behalf of theBank’s clients, for all practical purposes Internal Ceilinglevels as given below shall be observed for new exposures,based on the Risk ratings made:

[Rs. in crore]

Risk Rating of the borrower Ceiling as % to Ceiling inCF of the Bank monetary terms

(ROUNDED OFF)

Low (with AA+ rating) 15 144.00

Low (with AA rating) 14 134.00

Moderate (with A rating) 12 115.00

Average (with B rating) 10 95.00

Caution (with C rating) As per note below

Away (with D rating) As per note below

l Note: In respect of Borrowers securing Caution (with Crating) and Away (with D rating), the Bank’s endeavournormally shall be to contain further exposure. However,Vijaya Bank being a medium sized bank, each individualcase shall be decided strictly on its merits such as

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availability of sufficient cash flows, collaterals, guaranteeof promoters (Personal/corporate), besides prescriptionof stringent loan covenants and intensification ofsurveillance mechanism. Also, relaxation may beallowed in respect of Public Sector and Joint SectorUndertakings of repute, Government/semi-governmentbodies who are profit making entities with progressivefinancials and also in cases of corporate entities andautonomous bodies where Escrow mechanism,Government guarantee/comfort letters, etc are availableand where the past dealings especially with regard todebt servicing have been found satisfactory. Theauthority for giving such exemptions to all categories,as above, shall be the CMD/MCB.

l Consultation and exchange of exposures, reports onconduct of account, etc should be made between Creditand Treasury Department before undertaking exposurebeyond a level of Rs. 50 crore.

B. SUBSTANTIAL EXPOSURE

The following levels of exposure shall be treated asSubstantial exposures:

Individual borrowers In excess of 10% of Bank’s CapitalFunds (i.e. above 10% of Rs. 960.14crore)

Group of borrowers In excess of 20% of Bank’s CapitalFunds)

Aggregate substantial exposure to individual and group ofborrowers are to be restricted to 600% of the Capital funds,i.e. Rs.5860.84 crore (six times of the CF of the Bank as on31.3.2003). All substantial exposures are to be closelymonitored by the Credit Department and appraised on a half-yearly basis to the Top Management/MCB.

C. MATURITY NORMS

With a view to avoiding asset-liability mismatches, asregards sanction of Term Loans, the directions issued in thisregard by the Asset Liability Management Committee (ALCO)shall be adhered to. While prior clearance of ALCO is notrequired where the proposals are cleared by the NewBusiness Group / Central Credit Committee, in respect ofother Term Loans above Rs. 5 crore where the repaymentexceeds 5 years (excluding Housing Loans, agriculturaldevelopment loans, educational loans and loan under Govt.Sponsored Schemes), the ALCO shall be kept informed withrepayment details. In general, the following maturity norms,with preference to quicker recycling shall be followed:

Short-term Finance

Inland and export bills discounting Up to 180 days.

Demand Loans Up to 12 months.

Medium-term loans

Medium-term loans Up to 3 years.

Long-term Loans

Long-term loans Up to 10 years, or 15 yearssubject to ALCO clearance.

As a matter of policy, it shall also be ensured that theaggregate long-term loans portfolio of the Bank (excludingHousing Loans, agricultural development loans, educationalloans and loan under Govt. Sponsored Schemes) does notexceed 30% of the Gross Credit of the Bank.

In addition, the loan policy covers in detail the followingrelated areas.

FLOW OF CREDIT, APPROACH TO LENDING,BORROWER STANDARD, SCREENING OF PROPOSALS,CREDIT ASSESSMENT, NON-FUND BASED BUSINESS,DEFAULTERS’ LIST, CREDIT RISK MANAGEMENT, LOANPRICING, SECURITY STANDARDS, GUARANTEESTANDARDS, DOCUMENTATION STANDARDS, REVIEW/ RENEWAL STANDARDS, SUPERVISION ANDMONITORING, DELEGATION OF POWERS AND OTHERRELATED ISSUES.

(Loan policy write-up ends here)

Credit Approval Authority

The Bank has a 3-tier organisational set up i.e. branch,Regional office and Head office. Accordingly, various creditapproving authorities in the field are vested with delegatedpowers on the basis of security and type of facility. Thesepowers are revised from time to time, keeping pace with thefast changing banking scenario. The Management committeeof the Board of Directors is the Apex level credit approvingauthority of the Bank. The Bank has a system where insanction accorded at each level is subject to scrutiny by theimmediate next higher authority.

The following delegatees at various levels are vested withrequisite authority to sanction loans and advances.

Individuals

1. Branch head

2. Regional Head

3. Senior Branch manager/ Chief Manager

4. Assistant General Manager

5. Deputy General Manager

6. General Manager

7. Executive Director

8. Chairman & Managing Director

Management Committee of the Board

The Management Committee of the Board consist of thefollowing members

1. Chairman and Managing Director

2. Executive Director

3. Director representing the Government of India

4. Director representing the Reserve Bank of India

5. One non-official Director under clause (g) of Sub Section3 of Sec 9 of the Banking Companies (Acquisition &

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Transfer of Undertakings) Act, who has been aChartered Accountant for not less than 15 years.

6. One more non-official Director from out of the non-officialdirectors appointed/ elected under clause (e), (f) and(I) of the said Act.

The above Board is constituted in terms of Government ofIndia’s communiqu‚ No. .F NO.4/1/94- B.O.I (ii) dated10.11.1995 and as approved by the Board at the meetingheld on 26.12.1995.

Procedures

The Bank has put in place an In-house developed uni-dimensional Credit Risk Assessment model for largeexposures beyond Rs.6.00 crore. The model capturesassessment of credit risk through a combination of qualitativeand quantitative parameters, compartmentalised in the formof Industry & Business Risk, Financial Risk and ManagementRisk. Each category of risk consists of a cluster of factorsand marks have been assigned individually. The assessmentscore is placed in a numerical scale and depending on thescore level, the credit risk assessed in a proposal or aborrowal account is measured AAA, AA, A, B, etc. denotingthe level of risk as Minimal Risk, Low risk , Moderate Risk,Average Risk, etc. respectively.

The coverage has been recently enlarged by bringing downthe cut off level, apart from revising the Model to make itmultidimensional. Presently, the credit risk assessment iscarried out through revised multi dimensional module, byadopting segmented approach and giving facility wisetreatment. The scope has been gradually enlarged to coverall exposure beyond Rs.2 lacs.

The Bank has well laid down procedures for entry levelscreening and appraisal of credit proposals involving ProjectFinance and Corporate Finance duly factoring Risk Analysis,Method of Assessment, Flow of Credit, Benchmark Ratios,etc. The decision is taken strictly on merits such asavailability of sufficient cash flows, collaterals, guarantee ofpromoters besides prescription of stringent loan covenantsand intensification of surveillance mechanism. However,relaxat ion is al lowed in respect of Publ ic SectorUndertakings, Government/Semi Government bodies withprogressive financials, Corporate Entities & AutonomousBodies with Escrow Mechanism, Govt. Guarantee/ ComfortLetter, etc. are available and where the past dealings havebeen found satisfactory.

Lending policy of the Bank is also being reviewed from timeto time to suit the Bank to achieve the business targets andthe corporate goal. With regard to Retail Lending creditdispensation is taking place through customer friendly retaillending schemes which are tailor made to meet variouspurposes. Taking into account the rapidly changing economicscenario, the ever increasing needs of the customers andcompetition, Bank’s products are sold effectively by inventinginnovative methods of marketing with an accent oncustomisation to ensure customer delight rather thancustomer satisfaction. The Asset Liability ManagementCommittee (ALCO) perceives the Market Risk Management

and takes suitable corrective/mitigating measure. Thestatement of Structured Liquidity and Statement of InterestRate Sensitivity is perused every fortnight by the Committee.Any mismatch in any direction is corrected forthwith.

INVESTMENTS

The gross investments of the Bank stood at Rs. 8913.88crores as on March 31 2003 and the net investments stoodat Rs.8861.61 crores. (Net Investments are arrived at byreducing provisions for depreciation and Non-PerformingInvestments from gross investments) The average yield oninvestments (excluding special securities) stands at 10.56%as on March 31 2003. The Bank continued to remain activein trading of securities and earned a profit of Rs.225.08crores during the year from sale of investments.

The position of the Bank’s investments is furnished below:

(Rs. in crores)

As on March 31, 1999 2000 2001 2002 2003

Gross Investments 4466.75 5110.84 5917.82 7418.63 8913.88

SLR Investments 2515.08 2987.70 3747.39 5193.04 6624.84

Investments-Heldto Maturity (HTM) 2438.60 1396.14 1682.63 1642.24 2375.25

Investments-Availablefor Sale (AFS) NA NA 3712.49 5654.87 6538.64

Investments-Heldfor Trading (HFT) NA NA 522.70 121.52 -

Current Investments 2028.15 3714.70 NA* NA* NA*

Current Investments or(AFS+HFT) to total SLRInvestments (%) 80.64 124.43 113.02 111.23 98.70

* Starting from FY01, the investments are classified as AFS/HFT instead of current.

As on March 31, 2003, the 98.70%of the Bank’s SLRinvestments were classified under the AFS category andhence marked to market.

The aggregate book value of investments in shares as onMarch 31, 2003 is Rs. 47.22 crores, as against the marketvalue of Rs. 32.02 crores. The Bank has fully provided forthe decline in the value of these investments.

Investment portfolio as on March 31 2003(Rs. in crores)

Government Securities 7012.32

Other Approved Securities 141.71

Shares 32.02

Debentures & Bonds 1447.09

Subsidiaries & Joint Ventures 10.63

Others-Initial Capital/Units of UTI - 114.22 217.84-Mutual Funds - 103.62

Total Net Investments 8861.61

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Investment strategy

The Bank would adopt an investment strategy which wouldhelp in achieving the basic objective laid in the InvestmentPolicy of the Bank l ike maintenance of CRR / SLR,maintenance of adequate liquidity, increase of IFR tostipulated level and maximisation of income by encashingopportunities of price movement in the market and at thesame time strive to maintain / protect the yield on InvestmentPortfolio at the reasonable level.

Yield on investments

The yield on investments (%) for the last five years is givenbelow:

As on March 31. 1999 2000 2001 2002 2003

The yield on investments (%) 12.00 12.21 11.87 11.35 10.49

ASSET CLASSIFICATION, INCOME RECOGNITION& PROVISIONING

In compliance with the RBI guidelines from time to time, theBank has adopted the system of income recognition, assetclassif ication and provisioning. In terms of the saidguidelines, the Bank has classified all advances into twocategories viz.,

1. Performing Assets (i.e., Standard Assets) and

2. Non-Performing Assets (i.e., NPAs)

Further, as per the said guidelines, the NPAs have beenclassified into three categories:

1. Sub-Standard Assets,

2. Doubtful Assets and

3. Loss Assets

A loan asset is treated as a non-performing asset when itceases to generate income for the Bank in the normal course.A borrowal account is classified as a NPA when the interestand or principal dues remain unpaid for 2 quarters in afinancial year. Borrowal accounts treated as NPA for a periodnot exceeding 18 months are classified as Sub StandardAssets and borrowal accounts treated as NPA for more than18 months are treated as Doubtful Assets. NPAs, where nosecuri ty is avai lable and which are considered asirrecoverable, are treated as Loss Assets. An NPA if it is asub standard asset can remain a substandard asset for amaximum period of 18 months. Thereafter, it has to beclassified into a worse category. However, the time factor isnot the only consideration. If an advance is a NPA, if thereis no security, if there are no grounds to believe that theadvance can be recovered under a short foreseeable future,it should be treated as a Loss asset straightaway.

Once an account is classified as a Non- Performing Asset,interest already debited to the account but not realised isderecognised and further interest is accounted on cash basisand not on an accrual basis.

The Provisioning on all Non Performing Assets is arrived,as per RBI guidelines, as under:

i) Effective March 31, 2000 a general provision of 0.25%is made on the aggregate outstanding of all StandardAssets

ii) On Sub Standard Assets at 10% of the outstandingamount

iii) On Doubtful assets at 20%, 30% and 50% of the securedportion based on the number of years the account hasremained as Doubtful (i.e., upto one year, one to threeyears and above three years respectively) and at 100%of the unsecured portion of the outstanding amount afternetting retainable or realisable amount, if any of theguarantee claims already received/lodged with theDeposit Insurance Credit Guarantee Corporation of Indiaand the Export Credit Guarantee Corporation of IndiaLtd.

iv) On Loss assets at 100% of the outstanding after nettingretainable amount of the guarantee claims alreadyreceived/lodged with the DICGC/ECGC Ltd.

The asset quality of the bank has improved considerablyduring the last 5 years. Between 1999 and 2003 the grossNPAs to Gross Credit Ratio has dropped from 13.65% to6.18%, while the net NPAs to net credit ratio fell from 6.72%to 2.61%.

The details of Non-Performing Assets of the Bank arefurnished below:

(Rs. in crores)

As on March 31, 1999 2000 2001 2002 2003

No. of cases 129307 100379 107963 124185 103757

Gross Advances 4025.61 4923.71 5942.35 6417.10 8183.99

Gross NPAs 549.37 567.19 594.32 602.69 505.54

% of Gross NPAs toGross Advances 13.65 11.52 10.01 9.39 6.18

Net Advances 3726.66 4666.49 5702.04 6196.66 7891.34

Net NPAs 250.42 310.16 354.61 373.23 205.81

% of Net NPA to Net Advances 6.72 6.65 6.22 6.02 2.61

Movement of NPAs during the last three years

PARTICULARS (As on March 31) 2001 2002 2003

Gross NPA at the beginning of the year 567.19 594.92 602.69

Addition during the year 204.66 190.17 149.12

Reduction during the year 176.93 182.40 246.27

a) Upgradation 11.19 5.88 31.85

b) Cash Recovery 80.87 65.20 90.19

c) Compromise 10.25 3.59 1.64

d) Write-off 74.62 107.73 122.59

Gross NPA at the end of the year 594.92 602.69 505.54

Provision 230.56 220.44 290.45

Interest Suspense 0.01 0.01 2.20

DICGC & ECGC Balance 9.74 9.01 7.08

Net NPA at the end of the year 354.61 373.23 205.81

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Asset classification of performing and non-performing assetsfor the last 5 years is given below:

(Rs. in crores)

As on March 31, 1999 2000 2001 2002 2003

Standard Assets 3476.24 4356.52 5347.43 5814.41 7678.45

Sub standard 162.37 246.52 228.32 228.67 176.22

Doubtful 339.55 263.72 293.74 314.85 257.60

Loss 47.45 56.95 72.86 59.17 71.72

Total 4025.61 4923.71 5942.35 6417.10 8183.99

(as a % of total assets)

As on March 31, 1999 2000 2001 2002 2003

Standard Assets 86.35 88.48 90.02 90.61 93.82

Sub standard 4.03 5.10 3.83 3.56 2.16

Doubtful 8.44 5.41 4.93 4.90 3.14

Loss 1.18 1.01 1.22 0.93 0.88

Total 100.00 100.00 100.00 100.00 100.00

The slab-wise details of the current NPA accounts as onMarch 31 2003 are indicated below:

Particular No. of Gross NPA Interest de-accounts amount recognised

(Rs. in crores) (Rs. in crores)

Rs.25000/- & above 27479 433.05 1220.22

Below Rs.25000/- 76278 72.49 204.26

Total 103757 505.54 1424.48

Industry wise classification of non-performing assets

Sector wise analysis of Gross Non- Performing Assets

(Rs. in crores)

Industry March 31, March 31, March 31, March 31, March 31,1999 2000 2001 2002 2003

Amt % Amt % Amt % Amt % Amt %

Large andMedium Industries 137.9 25.1 109.7 19.3 118.9 19.9 163.5 27.1 47.6 9.4

Small Scale Industries 81.6 14.9 84.2 14.8 135.8 22.8 95.1 15.8 77.6 15.3

Priority Sector(Agriculture) 74.8 13.6 75.7 13.4 105.4 17.7 102.2 16.9 83.9 16.6

Other Priority 143.5 26.1 180.1 31.8 101.5 17.1 115.3 19.1 179.7 35.6

Non Priority sector 255.0 46.4 297.6 52.5 133.4 22.4 126.6 21.0 116.7 23.1

Total 549.4 100 567.2 100 595.0 100 602.7 100 505.6 100

The industry classification of the top ten NPAs (borrower-wise classification) of the Bank as at March 31 2003 is givenhereunder.

Borrower Industry Amount % to Asset(Rs. in the gross quality as

crores) advances on March 31, 2003

(sub-standard/doubtful/

loss)

1. Borrower A Metal products 25.92 0.31 DA

2. Borrower B Cement 15.74 0.19 DA3. Borrower C Petro Chemicals 9.71 0.11 DA4. Borrower D Jute Textiles 8.99 0.10 SSA

5. Borrower E Cotton Textiles 8.29 0.10 DA6. Borrower F Engineering 5.95 0.07 DA7. Borrower G Iron & Steel 5.21 0.06 DA

8. Borrower H Petroleum & Refineries 4.85 0.05 DA9. Borrower I Vegetable Oil 4.46 0.05 DA

10. Borrower J Rubber & Rubber products 3.51 0.04 SSA

The top 10 industries that account for high level of NPA sare as given in the following table.

(Rs. in crores)

Sr. Industry Amount % of GrossNo. Advance

1 Metal Products 25.92 0.312 Cement 15.74 0.193 Petrochemicals 9.71 0.114 Jute Textile 8.99 0.105 Cotton Textile 8.29 0.106 Engineering 5.95 0.077 Iron & Steel 5.21 0.068 Petroleum & Refinery 4.85 0.059 Vegetable Oil 4.46 0.0510 Rubber & Rubber Products 3.51 0.04

The details of top 10 NPAs in different industry sectors ason March 31 2003 are as under.

(Rs. in crores)

Industry Total Top ten NPA Top 10 NPAsAdvance to Amount in the as a % of Ad-

the industry industry (B) vance given to(A) industry(B/A)

Metal & Metal Products 43.52 25.92 59.56Cement 47.27 15.74 33.30Petro-chemicals 12.39 9.71 78.37Jute Textiles 27.52 8.99 32.67Cotton Textiles 31.98 8.29 25.93Engineering 42.19 5.95 14.11Iron & Steel 100.13 5.21 5.21Petroleum & refineries 49.28 4.85 9.85Vegetable Oil 9.69 4.46 46.03Rubber &Rubber Products 33.59 3.51 10.45Other Industries 1056.52 52.39 4.96

TOTAL 1454.08 145.02 9.98

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NPA MANAGEMENT STRATEGY

In order to ensure that there is no let up on the recovery andup-gradation of the non performing assets the Bank has putin place detailed operational guidelines covering all vitalareas of functioning:

a) to assess and evaluate the newly added NPAs into (i)cases where there are temporary liquidity problems inwhich cases the borrowers will be allowed need basedtime to repay the interest and installment through properrephasement (ii) cases where there is a need to inductfurther funds because of genuine requirements and ifsuch cases are found to be technically, financially andcommercially viable, extension of further loans isconsidered (iii) where units are not viable or theborrowers are wilful defaulters, legal action is initiatedimmediately as delay would cause further erosion ofsecurity cover available.

b) The Bank has a comprehensive Compromise SettlementPolicy approved by the Board of Directors. The Policyis revised/updated from time to time to provide an inbuilt flexibility for the easy implementation by the fieldfunctionaries. The guidelines also cover writing off thedebts (outside negotiated settlements and waiver offiling of suits/execution petitions)

c) Effective pursuit of legal action and follow up of suitsfiled and decreed account including cases filed beforethe Debt Recovery Tribunals to ensure the recovery ofBank’s dues.

d) The Bank has also ini t iated steps under theSecuritisation Act 2002, by bringing attachment of thesecurities. The Bank has issued notices to 1988

borrowers till date for recovery of an amount of Rs.239.99 crore and has recovered amount aggregatingRs. 26.45 crores.

e) The Bank has evolved a novel idea for recovery ofNPAs. Recovery brigades are formed in every regionaloffice and branches comprising all section of itsemployees to conduct “Road Shows” at the officepremises/ residence of the defaulters to put pressurefor recovery.

ASSET LIABILITY MANAGEMENT

The Bank’s business is fraught with Credit and market risks.With reforms and liberalization in the Indian financialmarkets and growing integration of domestic markets withglobal markets, the risks associated with Banking operationshave become complex and large requiring strategicmanagement. Intense competit ion for business andincreasing volatility in the interest rate scenario have madeit imperative for the management of banks to maintain agood balance among spreads, profitability and long termviabi l i ty. These pressures cal l for structured andcomprehensive measures and adopt ing morecomprehensive asset liability management practices. ALMamong other funct ions is also concerned with r iskmanagement and provides the comprehensive and dynamicframe work for measuring, monitoring and managingliquidity and interest rate risk, that needs to be closelyintegrated with Banks business strategy. It involvesassessment of various types or risks and altering the assetliability portfolio in a dynamic way in order to manage risks.The asset liability maturity profiles of the Bank are as givenin the following tables.

Maturity profile of the Asset and Liability as on the last reporting Friday of March 2001

(Rs. in crores)

Maturity 1-14 15-28 29 days 3 - 6 6 - 12 1 - 3 3 - 5 Over 5 Totaldays days -3 mths mths mths yrs. yrs. yrs.

1. OutflowsCapital 359.24 359.24Reserve & Surplus 154.74 154.74Deposits 795.92 121.54 482.81 529.37 2270.64 5786.70 1156.27 1020.21 12163.46Borrowings 231.62 1.89 8.07 10.27 18.36 6.29 2.16 278.71Other Liability and Provision 188.02 95.20 24.22 120.00 312.59 740.03A: Total Outflows 1215.61 121.54 484.70 632.64 2280.91 5829.28 1282.56 1848.94 13696.18B: Cumulative Outflows 732.72 854.26 1338.96 1971.60 4252.51 10081.79 11364.35 13213.292. InflowsCash 72.42 72.42Balance with RBI - 7.83 31.39 32.91 152.75 378.58 85.32 88.39 777.17Balance with other Banks 95.56 95.00 70.00 260.56Investments 54.09 14.66 44.74 80.10 67.19 680.40 869.82 4104.06 5915.06Advances performing 145.79 90.08 165.20 125.37 621.39 3124.07 300.13 234.90 4806.93NPAs 148.08 160.94 309.02Fixed Assets 165.39 165.39Other Assets 187.71 1.99 10.25 18.19 36.86 59.96 46.58 613.49 975.03C: Total Inflows 555.57 209.56 321.58 256.57 878.19 4243.01 1449.93 5367.17 13281.58

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3. MismatchesD: Mismatch (C-A) -660.04 88.02 -163.12 -376.07 -1402.72 -1586.27 167.37 3518.23 -414.60E: % Mismatch (D as a % of A) -54.03 72.42 -33.65 -59.44 -61.50 -27.21 13.05 190.28 39.65F: Cum. Mismatch -19.11 68.91 -94.21 -470.28 -1873.00 -3459.27 -3291.90 226.33G: % Cum. Mismatch(F as % of B) -2.61 8.07 -7.04 -23.85 -44.04 -34.31 -28.97 1.71

Maturity profile of the Asset and Liability as on the last reporting Friday of March 2002

MATURITY 1 to 15 to 29 days Over 3 Over 6 Over 1 Over 3 Over Total14 days 28 days and upto Months months year and years 5 years

3 months and upto and upto upto 3 and upto6 months 1 year years 5 years

1. OUTFLOWSCapital 359.24 359.24Reserve & Surplus 154.32 154.32Deposits 457.12 91.96 329.54 1222.38 1905.95 7148 1506.21 1238 13899.16Borrowings 85.45 1.08 6.37 5.62 12.07 4.39 1.43 116.41Other Liability & Prov. 191.38 117.62 149.42 60 484.6 1003.02A..Total Outflows 733.95 91.96 330.62 1228.75 2029.19 7309.49 1570.6 2237.59 15532.15B. Cumulative Outflows 732.72 824.68 1155.3 2384.05 4413.24 11722.73 13293.33 15530.922. INFLOWSCash 80.92 80.92Balance with RBI 4.35 14.97 57.29 83.67 325.05 70.37 57.48 613.18Balance with other banks 141.83 30 171.83Investments 35.42 17.55 92.77 13.28 66.46 561.84 1119.87 5505.26 7412.45Advances performing 323.05 63.24 224.52 134.73 591.89 3527.88 476.65 352.59 5694.55NPAs 190.23 169.62 359.85Fixed Assets 168.17 168.17Other Assets 215.29 0.08 0.5 776.04 991.91C. Total Inflows 796.51 85.14 362.34 205.8 742.02 4414.77 1857.12 7029.16 15492.863. MISMATCHESD. Mismatch (C-A) 62.56 -6.82 31.72 -1022.95 -1287.17 -2894.72 286.52 4791.57 -39.29E. % Mismatch 8.52 -7.42 9.59 -83.25 -63.43 -39.6 18.24 214.14 56.8(D as % of A)F. Cum.Mismatch -19.11 -25.93 5.79 -1017.16 -2304.33 -5199.05 -4912.53 -120.96G. % Cum.Mismatch -2.61 -3.14 0.5 -42.67 -52.21 -44.35 -36.95 -0.78(F as % of B)

Maturity profile of the Asset and Liability as on the last reporting Friday of March 2003

MATURITY 1 to 15 to 29 days Over 3 Over 6 Over 1 Over 3 Over Total14 days 28 days and upto Months months year and years 5 years

3 months and upto and upto upto 3 and upto6 months 1 year years 5 years

1. OUTFLOWSCapital 333.52 333.52Reserve & Surplus 211.8 211.8Deposits 558.44 240.97 411.58 1175.26 2052.08 8284.23 1746.26 1341.55 15810.37Borrowings 0.44 0.38 250.28 0.5 0.73 0.06 0.13 252.52Other Liability & Prov. 173.84 110.52 159.22 60 1196.33 1699.91A.Total Outflows 732.72 240.97 411.96 1425.54 2163.1 8444.18 1806.32 3083.33 18308.12B. Cumulative Outflows 732.72 973.69 1385.65 2811.19 4974.29 13418.47 15224.79 18308.12

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2. INFLOWS

Cash 80.05 80.05

Balance with RBI 230.99 11.09 19.43 55.77 95 387.4 85.61 84.18 969.47

Balance with other banks 67.46 200 50 317.46

Investments 119.35 25.21 40.44 105.04 103.44 461.72 1151.48 6881.78 8888.46

Advances performing 215.76 89.82 156.15 166.59 666.7 4120.86 553.63 639.97 6609.48

NPAs 174.39 162.35 336.74

Fixed Assets 171.58 171.58

Other Assets 0.56 832.82 833.38

C. Total Inflows 713.61 326.12 216.02 377.96 865.14 4969.98 1965.11 8772.68 18206.62

3. MISMATCHES

D. Mismatch (C-A) -19.11 85.15 -195.94 -1047.58 -1297.96 -3474.2 158.79 5689.35 -101.5

E. % Mismatch -2.61 35.34 -47.56 -73.49 -60 -41.14 8.79 184.52 3.84

(D as % of A)

F. Cum.Mismatch -19.11 66.04 -129.9 -1177.48 -2475.44 -5949.64 -5790.85 -101.5

G. % Cum.Mismatch -2.61 6.78 -9.37 -41.89 -49.76 -44.34 -38.04 -0.55

(F as % of B)

STRUCTURAL LIQUIDITY

Measuring and Managing liquidity needs are vital for effective operations of Commercial Banks. By assuring a Bank’sability to meet is liabilities as they become due, liquidity management can reduce the probability of an adverse situationdeveloping. The importance of liquidity transcends individual institutions, as liquidity shortfall in one institution can haverepercussions on the entire system. The Bank’s management therefore measures not only its liquidity positions on anongoing basis but also examines how liquidity requirements are likely to evolve under different assumptions. Experienceshows that assets commonly considered as liquid like Government Securities and other money market Instruments couldalso become illiquid when the market and players are unidirectional. Therefore, liquidity is tracked through maturity orcash flow mismatches. For measuring and managing net funding requirements, the use of maturity ladder and calculationof cumulative surplus or deficit of funds at selected maturity dates is adopted as a standard tool. The Statement of StructuralLiquidity for the last 3 years is given below:

STRUCTURAL LIQUIDITY AS ON MARCH 31ST, 2001

(Rs. in crores)

Maturity Total Inflows Total MismatchOutflows

1-14 days 1033.69 1325.43 (-) 291.74

15-28 days 157.23 240.49 (-) 83.26

29 days and upto 3 months 529.92 1127.91 (-) 597.99

Over 3 months and upto 6 months 849.52 1390.93 (-) 541.41

Over 6 months and upto 1 year 1015.16 3656.72 (-) 2641.56

Over 1 year and upto 3 years 5201.68 5828.44 (-) 626.76

Over 3 years and upto 5 years 1600.43 721.46 (+) 878.97

Over 5 years 4325.04 1031.90 (+) 3293.14

TOTAL 14712.67 15323.28 (-) 610.61

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STRUCTURAL LIQUIDITY AS ON MARCH 31ST, 2002

(Rs. in crores)

Maturity Total Inflows Total MismatchOutflows

1-14 days 1088.23 820.53 (+) 267.70

15-28 days 101.64 121.19 (-) 19.55

29 days and upto 3 months 783.53 780.29 (+) 3.24

Over 3 months and upto 6 months 1008.32 1824.46 (-) 816.14

Over 6 months and upto 1 year 845.30 2323.17 (-) 1477.87

Over 1 year and upto 3 years 5790.78 7681.13 (-) 1890.35

Over 3 years and upto 5 years 2155.45 1561.85 (+) 593.60

Over 5 years 4955.21 1997.97 (+) 2957.24

TOTAL 16728.46 17110.59 (-) 382.13

STRUCTURAL LIQUIDITY AS ON MARCH 31ST, 2003

(Rs. in crores)

Maturity Total Inflows Total MismatchOutflows

1-14 days 1145.21 1159.92 (-) 14.71

15-28 days 571.94 329.11 (+) 242.83

29 days and upto 3 months 690.89 882.39 (-) 191.50

Over 3 months and upto 6 months 1478.73 2150.91 (-) 672.18

Over 6 months and upto 1 year 1920.15 3100.45 (-) 1180.30

Over 1 year and upto 3 years 5467.07 9257.21 (-) 3790.14

Over 3 years and upto 5 years 1828.44 2010.86 (-) 182.42

Over 5 years 7894.05 2402.10 (+) 5491.95

TOTAL 20996.48 21292.95 (-) 296.47

ALM STRATEGY OF THE BANK

The ALM strategy of the Bank is to ensure adequate liquidity by properly matching maturing assets and liabilities withoutany undue strain on profitability, keeping interest rate risk at manageable level, ensuring that net interest margin is eitherenhanced or maintained at the same level or also ensuring that Bank is adequately protected from exchange rate risk.

FINANCIAL RATIOS AND OTHER FINANCIAL INFORMATION OF THE BANK FOR THE LAST FIVE YEARS

AVERAGE BALANCES AND INTEREST RATES

The following table shows average balances and interest rates of interest earning assets and interest bearing liabilities forthe last three financial years

(Rs. in crores)

Year ended March 31, 2001 March 31, 2002 March 31, 2003

Avg. bal. Interest Avg. Avg. bal. Interest Avg. Avg. bal. Interest Avg.rate (%) rate (%) rate (%)

Average interest earning assets 11803.41 1356.18 11.49 14198.11 1538.50 10.84 16170.71 1670.81 10.33

Average interest earning liabilities 11451.71 895.83 7.82 13539.94 1053.19 7.78 15179.11 1027.42 6.77

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Financial Ratios*(Rs. in crores except %)

Year ended March 31, 1999 2000 2001 2002 2003

Average Interest Earning Assets 8901.08 10600.39 11803.41 14198.44 16170.71

Interest income 999.98 1197.53 1356.18 1538.5 1670.81

Average Interest Bearing Liabilities 8542.41 10221.52 11451.71 13539.94 15179.10

Total Interest expenses 682.71 809.37 895.83 1053.19 1027.42

Ratio of average interest earning assets to average interest bearing liabilities 104.20 103.71 103.07 104.86 106.53

Interest expenses apportioned to interest earning assets 711.38 839.40 923.33 1104.38 1094.51

Net interest income 317.27 388.16 460.35 485.31 643.39

Net interest margin (%) 3.20 3.40 3.58 3.24 3.54

Gross yield (%) 11.20 11.30 11.50 10.80 10.30

Average cost of loan funds (%) 8.00 7.90 7.80 7.80 6.80

Yield spread (%) 3.20 3.40 3.70 3.00 3.50

Return on average assets (%) 0.32 0.46 0.54 0.85 1.13

Average share capital and reserves to average total assets 5.75 6.19 3.30 3.30 3.07

* The above ratios are computed on the basis of Audited annual reports of the Bank.

Notes

1. Interest earning assets consist of loans, investments in approved and unapproved securities, cash with Reserve Bankof India, call money/ term money lent, deposits kept abroad.

2. Interest bearing liabilities consist of deposits, borrowings and call money borrowings, refinances/rediscountedsubordinate bonds.

3. Interest expenses apportioned to interest earning assets are calculated by multiplying total interest expenses by theratio of average interest earning assets to average interest bearing liabilities.

4. Gross yield equals interest income divided by average interest earning assets.

5. Average cost of loan funds equals interest expenses divided by average interest bearing liabilities.

6. Yield spread represents the difference between gross yield and average cost of loan funds.

7. Return on average assets is the net profit for the year divided by average total assets.

CAPITAL ADEQUACY RATIO

The RBI guidelines on Capital Adequacy Ratios (CAR) generally conform to the guidelines adopted by the Committee onBanking Regulations and Supervisory Practices of the Bank of International Settlements (“BIS”). The RBI requires thatassets, non-funded items and other off-balance sheet exposures be assigned the prescribed risk weights and that eachBank must maintain capital levels equivalent to a prescribed ratio to such risk weighted assets.

Capital

For the purpose of calculating CAR, capital of a Bank is divided into two classes namely Tier I capital and Tier II capital.Tier I capital, also known as core capital, represents amounts readily available to support the Bank against unexpectedlosses while Tier-II capital comprises elements that are less permanent in nature and thus less readily available. Tier-Icapital consists of paid up capital, statutory reserves and other disclosed free reserves. Tier II capital consists of undisclosedreserves cumulative perpetual preference shares, revaluation reserves, general provisions and hybrid capital. For thepurposes of calculation of capital adequacy ratio, Tier-II capital is restricted to 100% of Tier-I capital. Further, RBI in itsCredit Policy announced on December 30, 1998, has prescribed that Banks should achieve a minimum capital adequacyratio of 9% with effect from the year ended March 31, 2000.

Risk weighted assets

Risk adjusted assets means the weighted aggregate of various items of assets and of balance sheet items. Weights havebeen prescribed for each item of assets and of balance sheet exposures. In respect of on balance sheet assets, the value

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of each asset is to be multiplied by the prescribed weightpercentage to arrive at the risk weighted value of assets. Inrespect of off balance sheet items, the risk exposure is firstcalculated by multiplying the face value of each off balancesheet item by the prescribed credit conversion factor andthereafter multiplied by the weights attributable to each item.

Capital adequacy position of the bank

The Bank’s capital adequacy ratio was 12.66% as on March31, 2003 as against the stipulated norm of 9%. Details ofcapital vis-…-vis risk weighted assets for the last threefinancial years are as under:

Particulars (As on March 31) 2001 2002 2003

Eligible Tier I Capital 484.90 527.39 562.54

Eligible Tier II Capital 208.56 201.79 397.60

Total Capital fund 693.46 729.18 960.14

Total Risk weighted Assets 6029.80 5951.61 7581.68

Capital Adequacy Ratio (%) 11.50 12.25 12.66

Requirement of enhancement of capital

In line with the expected growth in business of the Bank inthe years to come, risk weighted assets are expected toincrease from the present year’s level of Rs. 7581.68 crores.Increase in Tier-I capital through retained earnings alonemay not be sufficient to enable the Bank to maintain thecapital adequacy at the level sufficiently higher than thatprescribed. Based on the present level of the Bank’s Tier-Icapital, the maximum permissible amount of Tier-II capitalin the form of subordinated bonds has already been raisedby the Bank. The present issue is, therefore, intended toaugment the Tier-I capital of the Bank.

RISK MANAGEMENT

The Bank recognises that management of risk is fundamentalto the business of banking. The Bank’s approach to riskmanagement is proact ive. The primary goal of r iskmanagement is not to avoid or minimise risks inherent inbusiness but to steer them consciously and actively. Thebasic objective is to strike a balance between risk andrewards. The main risks that the Bank is exposed to are:

l Credit Risk

l Market Risk

l Operations Risk

l Forex Risk

Credit risk

The Bank has a lending policy, which among other thingsseeks to avoid concentration of risk in terms of counterparties, industries and geographical regions. Credit appraisalskills of the functionaries, at various levels, are constantlyupgraded through specialised training programmes. Themanagement of credit risk is based on clearly definedresponsibilities and procedures. The investors are advisedto refer to the earlier sections on ‘Lending Policy’, ‘Credit

Approval Authority and Procedures’ and ‘NPA ManagementStrategy’ elsewhere in the offer document for more detailsin respect of Credit Risk Management.

Market risk

Domestic interest rates have been gradually deregulatedincreasing market risk both in commercial business as wellas trading activities. Bank has formally introduced AssetLiability Management (ALM) System to address the marketrisk. An Asset Liability Management Committee (ALCO) hasbeen constituted so as to formulate, among other things,Balance Sheet management, Interest Rate and Liquidity RiskManagement, pricing of products, both assets and liabilities,and also to evolve a transfer price mechanism. The investorsare advised to refer to the earlier sections on ‘InvestmentManagement & Strategy’, and ‘ALM Strategy’ elsewhere inthe offer document for more details in respect of Market RiskManagement.

Operations Risk

Operational risk is a potential risk of financial losses arisingfrom the performance of operational business process andactivities. To mitigate these operational risks, the Bankconstantly updates its procedures and systems, trains staffand also subjects all critical areas of operation to concurrentaudit. For more details, kindly refer to the subsequent sectionon Internal Control System of the Bank.

Forex Risk

In terms of the guidelines of the Reserve Bank of India, openpositions are permitted to be maintained within the levelsstipulated by the Management. The Bank is maintaining suchopen positions within the limits so prescribed by the Bank’sBoard of Directors. Further, the Board of Directors of theBank has also prescribed limits for gaps or mismatches inmaturities of Bank’s Foreign Currency assets and liabilitiesand Forward Transactions in Foreign Exchange. The Bankis operating within the limits so fixed, thus minimising therisks of mismatches in maturities and interest rates. TheValue at Risk model prescribed by the FEDAI has beenadopted and is being monitored so as to minimise the risks.Counter-party limits have also been fixed for dealings withthe other banks with whom the Bank has day-to-day dealingsso as to limit the risk on individual counter-party banks.

INTERNAL CONTROL SYSTEM OF THE BANK:AUDIT, INSPECTION & VIGILANCE

Inspection of branches is one of the tools for internal controlin the Bank. Based on the finding of the Inspection, everybranch is rated on a prescribed rating scale. The rating ofbranches also enables the Bank to ensure that sufficientattention is paid to the performance of those branches thathave been awarded unsatisfactory ratings. As on March 31,2003, 39 branches out of the total of 843 branches wererated “Unsatisfactory”. In addition to Internal Inspection 157branches / offices covering 61.08% of the total business aresubjected to concurrent audit by external auditing firms. The

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Bank also has a separate Computer Audit of its 356computerised branches.

The Reserve Bank of India conducts Annual FinancialInspection of the Bank based on the Audited Balance Sheet.Simultaneously, Inspection of branches / Regional Officesare conducted on a selective basis.

The Bank has separate Vigilance Department Headed by aChief Vigilance Officer appointed by the Government of India,Ministry of Finance. The focus of the Vigilance Departmenthas been to constantly intervene and upgrade the Systems& Procedures of the Bank and prevent intrusions that spreadthe malaise of permissiveness. The core strength ofVigilance is two fold - creating awareness and deterrence.Policy interventions are frequently resorted by issuance ofcommunications/ circulars, duly implementing the guidelinesissued by the Government of India as well as RegulatoryAgencies such as Central Vigilance Commission. Therecommendations of various committees formed by theGovernment are implemented to strengthen the internalsystems and procedures.

The Department also endeavours to ensure that preventiveVigilance percolates to all levels. In this direction mosttraining programme organised by the Bank include a sessionon preventive vigilance.

One area that has been pursued with total commitment is inensuring expeditious completion of Departmental enquiriesclassified as cases having vigilance angle. To reiterate theobjective has been to infuse confidence in taking bonafidedecision and instil deterrence for malafide actions.

INFORMATION TECHNOLOGY

The Bank has created a ‘Department of InformationTechnology’ at its Head Office. The primary objective of thisdepartment is to promote computer l i teracy amongemployees, to upgrade communication and informationtechnology and to develop electronic banking capabilities.As at the end of March 2003, 356 branches were fullycomputerised (accounting for 78.26% of the business).Besides, the Bank has also installed ATMs in 18 branches.All the 14 Regional Offices and 10 Service branches of theBank have been computerised. The Bank has become amember of the RBI Closed User Group VSAT Network withtwo VSATs installed at Bangalore and Delhi and the Bankplans to cover one more centre at Mumbai in the currentyear. The Bank has set up i ts own Website,www.vijayabank.com where detailed information about theBank’s products and services is made available for thebenefit of their customers and other viewers.

For further improvement in customer services, single windowconcept was introduced at 311 computerised branches, sothat the customer can avail service from any of the countersat these branches. Back Office Software System (BOSS),an in house developed software package, to address theneeds of rural and semi-urban branches, has beenimplemented at 177 branches during the year. Ten moreAutomated Teller Machines (ATMs) have been installed

during the year, taking the total number of ATMs to 18 as atMarch 2003. All the ten service branches of the Bank arefully computerised and steps have been initiated forconnecting the service branches at Reserve Bank of Indiacentres with the Regional Offices of the Reserve Bank ofIndia. To strengthen the messaging network, the Bank hasimplemented the corporate e-mail solution using INFINETinfrastructural of Institute for Development and Research inBanking Technology. Head Office, Regional Offices and 565branches and other offices are connected to this facility asat the end of March 2003. At the Bank’s Forex & TreasuryManagement Division, Mumbai, a Payment Gateway hasbeen set up. The Bank has implemented Public Debt Office- Negotiated Dealing System (PDO-NDS) and CentralisedFunds Management System (CFMS). The structuredFinancial Messaging System (SFMS) will be implementedon pilot basis shortly. The Bank has initiated action forimplementing Core Banking solution, Integrated RiskManagement System and Networking of ATMs with additionof 100 ATMs.

SIGNIFICANT REGULATORY MATTERS RELATEDTO THE BANK

Action by the regulators

a. The Reserve Bank of India had conducted an inspectionof Vijaya Bank,. Navrangpura branch, Ahmedabad.During the course of inspection it was observed that inthe public issue of M/s. Rajesh Exports Ltd. 40stockinvest were issued on 14.11.95. It was observedby the RBI inspection team that 40 Stockinvests wereissued by the branch without writing the names of theinvestors on the instruments and which weresubsequently used in the name of individuals, who werenot the depositors of the branch. Consequently uponthis, an enquiry was initiated against Vijaya Bank -Navrangpura Branch, Ahmedabad and an Enquiry officerwas appointed by SEBI vide order dated 16.04.99 toenquire into the contravention of RBI Guidelines onStock Invests read with code of conduct underRegulation 16 of SEBI (Bankers to an Issue) Regulation1994. SEBI issued a warning to the Bank requiring theBank to be cautious.

b. In respect of certain irregularities observed in theimplementation of PMS guidelines, RBI vide their letterdated 25.07.94 had imposed the following penalties.

i. Payment of Rs.4.47 crore

ii. Withdrawal of exemption from maintenance ofincremental CRR of 10% on increase in demandand time liability over the position as on 05.08.1994.

In compliance with the above directions, the Bank had madepayment of Rs.4.47 crore to RBI on 12.09.1994. Besides10% additional CRR was also maintained. The Reserve Bankof India vide Notification dated November 5, 1998 exemptedthe Bank with effect from January 15, 2000 from maintenanceof 10 percent incremental CRR.

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VERMA COMMITTEE RECOMMENDATIONS

The Verma Committee was set up to identify weak andpotentially weak banks in the country and for makingrecommendations for strengthening these banks andreducing systemic risk

The Verma Committee has suggested seven parameters forassessing a bank’s strength/weakness covering three majorareas namely

1. Solvency

2. Earning Capacity

3. Profitability

These parameters are as follows:

Solvency Capital Adequacy Ratio

Coverage Ratio

Earning Capacity Return on Assets

Net Interest Margin

Profitability Ratio Ratio of operating profit to average workingfunds

Ratio of cost to income

Ratio of staff cost to net interest income (NII)+ all other income.

The above ratios are well known parameters on which banks’performance and sustainability are judged. A study of theseratios in respect of a bank, historically or in comparison withits peers, gives a view of its growing strength or weaknessover a period as also its ability to compete against others inthe market. The working group observed that based on theabove analysis, public sector banks could be classified interms of their strengths or weakness under three broadcategories.

1. Banks where none of the seven parameters are met.

2. Banks where all the parameters are met.

3. Banks where some of the seven parameters are not met.

Vijaya Bank has been placed amongst six banks in the thirdcategory for compliance with Capital Adequacy Ratio (CAR)but non-compliance with five or six of the remaining efficiencyparameters for the financial year 1997-98 and financial year1998-99. The Working Group of the Committee observedthat banks classified in this category functioned below therequired levels of efficiency in both the years, typifying the

persistence of causes that would eventually manifest inweakness. In the opinion of the Group, these banks showedstrong signs of distress and ran a high risk of slipping intothe category of weak banks. These banks were vulnerableto sudden changes that could arise in the externalenvironment.

Actions taken by the Bank in light of Verma Committeerecommendations

Verma committee ratios for the last three years for VijayaBank are as follows:

Sr. Particulars March 31 March 31 March 31No. 2001 2002 2003

1 Solvency Ratios

a. Capital Adequacy Ratio 11.50% 12.25% 12.66%

b. Coverage Ratios 1.20 1.38 2.87

2 Earning Capacity Ratios

c. Return on Assets 0.54 0.85 1.13

d. Net Interest Margin 3.58 3.24 3.54

3 Profitability Ratios

e. Ratio of Operating profit toaverage working funds 1.36 1.64 2.49

f. Ratio of cost to income 71.05 62.54 56.50

g. Ratio of staff cost to netinterest income and other income 53.59 45.38 43.56

In view of the improvements on the profitability front, therehave been improvements under all the parameters referredby the committee. The Bank has effected var iousrestructuring measures including VRS involving retirementof 2500 employees. The Net Interest Margin of the Bankhas gone up from 3.24% to 3.54% during the last year. TheBank has been reducing dependence on high cost depositsand as a result, the cost of deposits has been steadilyreducing.

REGULATORY SUPERVISION BY RBI

RBI conducts an annual inspection of the Bank based onthe audited accounts. Simultaneously, RBI carries outbranch/ regional office inspection on a selective basis. RBIalso conducts offsite surveillance of the Bank on a quarterlybasis. Discussions with the management of the Bank alsoform a part of the inspection and surveillance process.

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VII. STOCK MARKET DATA

Movement of share prices of the Bank at the Stock Exchange, Mumbai (BSE) are given below. The shares were listed onBSE w.e.f. 04.01 2001.

Period High (Rs.) Date of High No. of shares Low (Rs.) Date of No. of shares Average Total No. oftraded on Low traded on Price shares traded

date of High date of Low (Rs.) during theperiod

2001-02 10.05 18.2.2002 94833 6.30 25.9.2001 5500 7.49 1926972

2002-03 17.95 21.1.2003 762198 8.65 2.4.2002 6500 12.39 23184143

March 2003 15.75 3.3.2003 161111 14.25 17.3.2003 31766 14.81 1076718

April 2003 17.70 7.4.2003 340581 15.00 1.4.2003 15250 16.74 3216384

May 2003 26.00 29.5.2003 2702778 17.55 8.5.2003 64493 19.89 11984505

June 2003 23.90 4.6.2003 267885 18.85 24.6.2003 117677 20.33 5080785

July 2003 28.75 16.7.2003 2478986 18.55 2.7.2003 244552 24.94 23553344

August 2003 28.60 13.8.2003 378096 25.80 5.8.2003 302672 27.34 8748503

The market price of the shares one day after the day on which the Board of Directors approved the Public Issue i.e. on28.03.2003 was Rs. 15.15. The closing market price of the shares one day after the Board of Directors finalized the priceof shares for the public issue i.e. on 15.09.2003 was Rs. 25.84.

VIII. MANAGEMENT DISCUSSION AND ANALYSISOF FINANCIAL PERFORMANCE

FINANCIAL HIGHLIGHTS OF THE BANK

(The figures are based on the audited balance sheets of theBank)

(Rs. in crores)

Year ended March 31, 1999 2000 2001 2002 2003

Interest Income 999.98 1197.54 1356.18 1538.50 1670.81

Other Income 109.07 116.81 156.26 188.82 346.02

Interest Expenditure 682.71 809.37 895.83 1053.19 1027.42

Other Expenditure 310.20 379.53 438.13 421.63 557.05

Gross Profit 116.14 125.44 178.48 252.51 432.36

Provisions 85.91 72.60 107.75 121.61 235.80

Net Profit 30.23 52.84 70.73 130.90 196.56

Capital 556.30 259.24 359.24 333.52 333.52

EPS (Rs.) 0.54 2.04 2.48 3.65 5.89

Book Value (Rs.) 5.17 13.74 14.65 17.86 22.46

Dividend (Rs. crores) - 5.00 10.78 40.02 40.02

% of Net NPAs to net advances 6.72 6.65 6.23 6.02 2.61

Deposits 9690.23 11592.88 12632.24 14680.51 17019.81

Advances (Net) 3767.20 4958.67. 5720.01 6196.66 7891.34

Number of Employees 14140 14324 13471 11827 11723

Number of branches 831 837 842 828 843

*the other income of the Bank comprises mainly fee-basedincome and treasury income in the normal course of bankingactivity. The break-up of other income is given elsewhere in

the Offer Document in the Auditors’ report (Annexure A PartI) on page 73.

The above statement is based on the Audited annual reportsof the Bank for last five years. For details of adjustedaccounts, significant accounting policies and notes toaccounts, please refer to page 74 of the Offer Document.

Significant items of income and expenditure for the last fiveyears

Net Profits: The net profits of the Bank rose from Rs.30.23crores in 1998-99 to Rs.196.56 crores in March 2003.

Interest Income: Interest income improved from Rs.999.98crores in 1998-99 to Rs.1670.81 crores in 2002-03. Theadvances rose from Rs.3767.20 crores in March 1999 toRs.7891.34 crores in March 2003. The average yield onadvances worked out to 11.34% in 2002-03 as compared to12.68% in 1998-99. Investments increased from Rs.4441.15crores in March 1999 to Rs. 8861.61 crores in March 2003.The interest on investments increased from Rs. 471.44crores in March 1999 to Rs.863.02 crores in March 2003.The yield on average investments worked to 10.49% inMarch, 2003 as compared to 12.07% in March 1999. TheAsset Liability Management Committee of the Bank keeps aclose watch on interest rate movements and takes correctivemeasures. The net interest income of the Bank has improvedfrom Rs. 317.27 crores in March, 1999 to Rs.643.39 croresin March 2003.

Other Income: The Bank has laid thrust on improvement ofnon-interest income as a means of improving profitability.The non-interest income of the Bank grew from Rs.109.07crores in 1998-99 to Rs.346.02 crores in 2002-03. The otherincome of the Bank comprises mainly of fee-based incomeand treasury income in the normal course of banking activity.

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Interest Expenses: As a result of growth of deposits fromRs.9690.23 crores in 1998-99 to Rs17019.81 crores in 2002-03, interest on deposits also rose from Rs. 667.28 crores toRs.990.11 crores during the same period. However, inspiteof increasing rates the Bank succeeded in keeping the costof deposits down at 6.58%.

Operating Expenses: The non-interest expenses of theBank increased from Rs.310.20 crores in 1998-99 toRs.557.05 crores in 2002-03.

Provision for Non-Performing Assets: The Bank has beentaking prudent measures in terms of RBI guidelines onprovisioning and income recognition. The Bank’s net NPAsas a percentage to net advances has also dropped from6.70% in 1998-99-to 2.61% in 2002-03.

Significant items of Income and Expenditure during theyear 2002-03

(Comparison of Financials for the year ended March 31, 2003with the Financials for the year ended March 31, 2002)

Net Profit - The Bank’s Net Profit has been steadilyincreasing over the years. The Net Profit amounts toRs.196.56 crore in March 2003 as compared to Rs.130.90crore recorded in March 2002.

Interest Income - The Bank was able to improve its advancesby 27.3% from Rs. 6196.66 crores in 2001-02 to Rs. 7891.34crores in 2002-03. This resulted in growth of interest incomefrom advances by 5.82%. The average yield on advancesdeclined 11.93% to 11.34%.

Interest on Investments increased from Rs. 765.14 croresin 2002-02 to Rs 863.02 crores in 2002-03 recording anincrease of 12.8%.

Other Income - The non-interest income recorded a highergrowth rate of 83.25% in 2002-03 as compared to 20.8% in2001-02. The increased income in the year 2002-03 by wayof profit on sale of investment, over the previous year wasthe main contributing factor for the high growth in non-interest income during the year 2002-03.

Interest Expenses -The interest on deposits came down fromRs 1001.34 crores to Rs 990.11 crore during 2002-03. Dueto decline in the interest expenditure on deposits given thesoftening of interest rates, the average cost of deposits hasdecreased from 7.51% to 6.58%.

Operating Expenses -The non-interest expenses of the Bankrose from Rs.421.63 crore in 2001-02 to Rs.557.05 crore in2002-03.

Significant items of Income and Expenditure during theyear 2001-02

(Comparison of Financials for the year ended March 31, 2002with the Financials for the year ended March 31, 2001)

Net Profits - The net profit of the Bank rose from Rs. 70.73crores in the previous year to Rs. 130.90 crores during 2001-02.

Interest Income - The interest/ discount on advances/bills

as on March 31,2002 showed an increase of Rs 62.52 crores.Interest Income on investments has gone up by Rs 119.13crores.

Other Income - Non Interest income of the Bank increasedfrom Rs.156.26 crores in 2000-01 to Rs.188.82 crores in2001-02 representing a rise of 20.83%.

Interest Expenses - Interest on deposits rose from Rs.859.83 crores to Rs. 1001.34 crores in 2001-02. Thoughthe interest expenditure on deposits had increased inabsolute terms, the average cost of deposits declined from7.61% to 7.51%.

Comparison of Financials for the year ended March 31, 2001with the Financials for the year ended March 31, 2000

Net Profits - The net profit of the Bank rose from Rs. 52.84crores in the previous year to Rs. 70.73 crores during2000-01.

Interest Income - The interest/ discount on advances/billsas on March 31,2001 showed an increase of Rs 94.74 croresdue to the increase in advances. Interest Income oninvestments went up by Rs 60.74 crores on account of theincrease in the quantum of investments by the bank duringthe year.

Other Income - Non Interest income of the Bank increasedfrom Rs.116.81 crores in 1999-00 to Rs.156.26 crores in2000-01 representing a rise of 33.77%.

Interest Expenses - Interest on deposits rose from Rs.778.41 crores to Rs. 859.83 crores in 2000-01. Though theinterest expenditure on deposits had increased in absoluteterms, the average cost of deposits declined from 7.8% in1999-00 to 7.6% in 2000-01.

Other matters relating to the operations of the Bank

i) Unusual or infrequent events or transactions

ii) Significant economic changes that materially affectedor are likely to affect Income from operations

iii) Known trends or uncertainties that have had or areexpected to have a material adverse impact on Incomefrom operations

The introduction of Asset classification, Income Recognitionand Provisioning norms by Reserve Bank of India in 1992affected all the Public Sector Banks and Vijaya Bank wasno exception. But the inherent strength of the Bank enabledthe Bank to turn the corner and the bank has been recordingNet Profits from 1996-97 onwards.

Some of the important events for the Banking industry duringthe last few years have been the introduction of Prudential& Income Recognition Norms, liberalisation of the economy,introduction of Basle Committee recommendations onCapital Adequacy and deregulation of interest rates. Theseevents have placed the Banks under greater financial strainand increasing competition. The Bank has been prompt inresponding to the changes in economic and monetarypolicies. In spite of the recession faced by the country andreduced demand for funds, the Bank’s credit expanded by

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over 20% during each of the past 3 years. The bank alsofine tuned its Asset Liability Management and ensured thatthere is improvement in its ‘interest spread’. Thrust was givenfor mobilising low cost deposits as well as expanding retaincredit. This also enabled the Bank to overcome the adverseeffects of interest rate fluctuations.

The deregulation of interest rates on deposits as well asadvances has resulted in increased competition in the areaof deposit mobil isation as well as credit expansion.Consequently, the depositors with bulk resources at theirdisposal as well as prime borrowers seek the best rates.Consequently, the interest spread is now under pressure.The entry of new private sector banks and more number offoreign banks, who mostly concentrate on non-fund basedbusiness has also resulted in fierce competition in the areassuch as foreign exchange business, remittances business,etc., and has resulted in thinner margins. Inspite of the stiffcompetition posed by the other banks, the Bank hassucceeded in maintaining its hold on its customers andregistering improved performance over the past few years.This has become possible due to greater thrust ontechnological upgradation as well as human resourcesdevelopment.

Future changes in relationship between costs andrevenues

The globalisation of economy and liberalisation of thefinancial sector have resulted in thinner margins andincreasing operational expenses. The Banking Industry ischaracterised by periodic industry-wide wage settlement.The Bank has plans to improve profitability by a multipronged strategy - thrust on mobilising low cost deposits,recovery of NPAs, retail lending, non-interest income andcontrol on operating expenses. The Bank has introducednew services towards improving fee-based income. TheBank’s staff expansion is contained despite sizeableincrease in its business.

Non-Dependence on a few customers

As on March 31, 2003, the operations of the Bank were wellspread out. The maximum exposure of credit to any oneindustry is less than 5%. The Bank has a diversified creditportfolio, any possible adverse conditions affecting anyparticular industry segment is unlikely to adversely affectthe performance of the Bank.

Competitive Conditions

Following the liberalisation of the financial sector with theentry of new private sector banks and more number of foreignbanks as well as the deregulation of interest rates ondeposits as well as advances, the competitive conditions inthe banking industry have increased in recent years. Despitethis Vijaya Bank has been able to increase its market sharein deposits. The Bank’s market share in total deposits ofscheduled commercial banks has increased from 1.17% inMarch 1992 to 1.30% in March 2003. The total deposits ofVijaya Bank and scheduled commercial banks in March 1992and March 2003 were as under:

(Rs. in crores)

March 1992 March 2003

Vijaya Bank 2734.76 17019.81

Scheduled Commercial Banks 234640 1304347

Market Share 1.17 1.30

The addition of 121 new branches since 1992, with greaterthrust on computerisation of the bank’s operations hascontributed towards meeting the competitive conditionsprevailing in the banking industry effectively.

In the opinion of the Board of Directors, no circumstanceshave arisen since the date of the last financial statements,as disclosed in the Offer Document, which would materiallyaffect or are likely to affect the profitability of the Bank orthe value of its assets or its ability to pay its liabilities withinthe next twelve months.

Auditors’ qualifications for which adjustments could not becarried out in the audited financial statements and responseof the Bank in respect of the same

AUDITOR’S RESPONSE OF THE BANKQULAIFICATIONS

1(a) Impact of pending The reconciliation of balances inreconciliation of balances respect of Inter branch and Interand clearance of Bank and other accounts are beingoutstanding entries in inter- periodically drawn up and the entriesbranch and inter-bank are also being regularly eliminated.accounts including balances Reconciliation is an on goingwith foreign banks and process and the RBI allows BanksReserve Bank of India, draft to complete the process ofaccounts, Suspense accounts, reconciliation within a stipulatedBranch adjustment accounts, period. In Vijaya Bank’s case; theclearing transactions fund items have been pending fortransfers,telegraphic transfers, reconciliation below the saidbalances pertaining dividends/ Benchmark period. The Bank isand interest/refund or paid/ therefore of opinion that thepayable accounts, advances consequential effect of the pendingpaid for acquisition of assets, items of the relevant years is notetc. The consequential effect material.of the above on Revenue/Assets/Liabilities the Bankis not ascertainable.

1. (b) In respect of certain The matter has been continuouslypremises where registration under the active follow-up of theformalities have not been Bank and the matter is beingcompleted. pursued to complete the

transactions at the earliest. It maybe noted that in respect of thesepremises, the entire saleconsideration has been paid and thepossession of the property has beenobtained. However on account ofcertain procedural formalities theregistration is yet to take place.Since the Bank is in possession ofthe property, the non registration ofthe documents will not jeopardizethe interest of the Bank.

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2. Non-disclosure of prior The Bank has been adopting theperiod items separately in the policy of accounting certain items inProfit & Loss Account as the relevant year on a consistentrequired by the Accounting basis since these items are notStandard (AS)-5 on “Net Profit material. Further, consequent to theor Loss for the Period, Prior Reserve Bank of India directions inperiod Items and changes in this connection, the Bank hasaccounting policies” issued by compiled the effect of these items forthe ICAI, such amounts for to the year 2002-2003 and it was foundtheir natural heads of account that the same were not material asand not separately disclosed in defined by the Reserve Bank ofa manner that their impact on India. Therefore, no separatethe profit for the year can be disclosure of the same was made inperceived. the Notes on Accounts.

3. Non-provision for un-utilised As per the then accounting policy ofleave encashment, which is the bank, the Leave Encashment ofcontrary to the Accounting the employees were accounted onStandard (AS) 15 accounting cash basis. None-the-less, the Bankfor Retirement Benefits issued has subsequently provided for theby the Institute of Chartered accrued liability towards LEC up toAccountants of India, the effect 31.03.03 based on actuarialthereof is not ascertained. valuation as against the “pay as you

go” basis followed hitherto and theentire amount has been charged tothe profits of the year ended 31stMarch 2003.

4. Pending DICGC and/or The claims outstanding underECGCI claims outstanding and DICGC/ECGCI were considered toconsidered realizable by the be realized by the bank and theBank in respective years, the consequential effect of the non-realisability of which is not provision towards the same was notascertainable and provision, considered material, and hence theif any, required in respect same was not provided for by thethereof has not been made. Bank in respective years.

5. The reconstruction of records The provision in respect of theat two branches in the wake of reconstruction of records at thesea fire/theft and basis of branches has been made underprovision in respect of non- Sundry Assets and the amountperforming advances, the outstanding in respect of the sameeffect thereof is not as at 31st March 2003 is Rs.0.24ascertainable. lacs and apparently the effect of the

same is not material.

PARTICULARS REGARDING LISTED COMPANIES

There are no listed companies under the same management.

SUBSIDIARY COMPANY

The Bank has one subsidiary named ViBank HousingFinance Ltd.

VIBANK HOUSING FINANCE LTD.

ViBank Housing Finance Ltd. (VHFL) was incorporated onOctober 20, 1995 under the Companies Act. The mainobjects of the Company are to extend long-term housingfinance to individuals, to offer line of credit to Corporate

Bodies, provide short term loans to developers to increasethe availability of housing stock and make available needbased long-term finance to co-operative societies to enableemployees of Government and Public sector undertakingsto set up housing accommodation at a reasonable cost.

The authorised and paid up capital of VHFL comprises1,00,00,000 equity shares of face value of Rs. 10 each. Theshareholding pattern of the Company is as given in thefollowing table:

Name of the shareholder Number of % shareholdingequity shares held

Vijaya Bank 88,00,000 88

National Housing Bank 12,00,000 12

Total 100,00,000 100

VHFL is managed by a Whole-time Managing Director ondeputation from the Bank, who is an officer in SMG-Scale Vunder the overall supervision and control of the Board ofDirectors. The Chairman and Managing Director besides oneGeneral Manager and one Deputy General Manager of theBank are on the board of VHFL.

The main financial indicators for the last three years uptoMarch 2003 are as given below:

(Rs. in crores)

For the year ended/as on March 31 2001 2002 2003

Total Income 12.76 17.39 20.40

PBIDT 11.17 15.67 18.49

PBT 2.77 3.29 3.26

PAT 2.11 2.57 2.39

Share Capital 10.00 10.00 10.00

Reserves & Surplus 4.17 5.97 7.32

Net Worth 14.09 15.95 17.32

EPS (Rs.) 2.12 2.57 2.39

Book Value per share (Rs.) 14.09 15.95 17.32

Debt Equity Ratio 5.33 7.23 8.26

Dividend (%) 8.00 9.00 9.00

The Company is being faced with strong competition fromBanks and other HFCs with regard to housing loan lendingrates and has been forced to reduce its lending rate, whichis not commensurate with its borrowing rate. This is affectingthe profitability of the Company. The Company has decidedto merge itself with Vijaya Bank. The proposal of mergerwas approved by the Board of Directors of the Companyvide board resolution dated March 24 2003. Vijaya Bank andNational Housing Bank, who are the shareholders of theCompany, have also given their consent to the said merger,subject to approval of RBI, MoF and Company Law Board’sapproval.

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VHFL has entered into the following transactions withVijaya Bank during the last three years:

(Rs. in lakhs)

Particulars 2000-2001 2001-2002 2002-2003

Term Loan availedduring the year Nil 1500.00 2500.00

Term Loan repaidduring the year Nil 75.00 406.00

Interest on Term Loan Nil 91.02 153.24

Fixed Deposits madewith Vijaya Bankduring the year 5 Nil 1103.25

Fixed Depositsmatured/ withdrawnfrom Vijaya Bank 5 Nil 1100.00

Investments made Nil Nil i) GS 2012 forthrough Vijaya Bank Rs.20.00 lakh.

ii) KarnatakaBond KSDL

2012 for Rs. 100.00 lakh.

Details of Rent Paid to Vijaya Bank for Premises used byVibank Housing Finance Ltd.

(in Rupees)

Particulars 2000-2001 2001-2002 2002-2003

Vijaya Bank Primrose Road, Infantry Road, Mangalore &premises used by Infantry Road, Mangalore & MumbaiVibank Housing Mangalore & MumbaiFinance Ltd. Mumbai

Rent paid toVijaya Bank Rs. 2,74,149.50 Rs. 1,67,331.60 Rs. 1,15,364.60

SPONSORED GRAMIN BANKS (RRBS)

The Bank has sponsored one Regional Rural Bank (RRB)viz. Visveshvarya Grameena Bank in the district of Mandya,state of Karnataka in the year 1985 to provide bankingservices in rural areas in pursuance of GoI policies. TheRRB has 25 branches, deposits of Rs. 54.72 crores andadvances of Rs. 43.82 crores as on March 31, 2003. Duringthe financial year 2002-2003, the growth of deposits andadvances was 13.88% and 19.80% respectively. For the yearended March 31, 2003, the RRB posted a profit of Rs. 1.62crores. The accumulated losses have been wiped out in thefinancial year 2001-02.

The audited financial position of Visveshvarya GrameenaBank for the last five years is as under:

(Rs. in crores)

As at March 31/For the year endedMarch 31 1999 2000 2001 2002 2003

Capital 1.00 1.00 1.00 1.00 1.00

Share Capital Deposit 3.59 4.23 4.23 4.23 4.23

Reserves & Surplus None None None 1.03 2.65

Deposits 28.96 36.42 42.84 48.05 54.72

Advances 20.20 26.22 32.38 36.58 43.82

Total Income 4.59 5.76 7.08 8.03 8.81

Total expenses 2.25 1.43 6.07 6.57 7.18

Profit/ (Loss) 2.24 4.33 1.00 1.45 1.62

As per the RRB Act, RRBs are exempted from payment ofIncome Tax. The RRB has made adequate provisionsrequired as per the directions of RBI and has complied withthe CRR and SLR requirements.

Transaction between Visveshvarya Grameena Bank andVijaya Bank in the past three years

(Rs. in crores)

Particulars (As on March 31) 2001 2002 2003

Overdraft taken by the RRB 1.87 2.29 2.28

Deposit kept with Vijaya Bank 9.45 11.05 3.00

Interest earned on overdraft 0.14 0.15 0.17

Interest earned on deposits 0.93 1.02 0.81

Dividend received from Vijaya Bank 0.0008 0.0032 0.0032

Current account maintained withVijaya Bank 3.05 2.73 2.69

Remuneration to Vijaya Bank employeeon deputation to RRB as chairman 0.02 0.02 0.02

Share capital held in Vijaya Bank 0.027 0.027 0.027

Share capital held by Vijaya Bank 0.35 0.35 0.35

Deposit from Vijaya Bank asshare capital deposit 1.48 1.48 1.48

Investment in Bonds of Vijaya Bank 0.45 0.45 0.45

Interest earned on bonds ofVijaya Bank 0.055 0.055 0.055

The contingent liability of the Regional Rural Bank is Rs.32.60 lakh as on March 31 2003.

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IX. BASIS OF ISSUE PRICE

Qualitative factors

1. Management: Professionally managed bank with 71years of existence.

2. Capital Adequacy Ratio: Capital Adequacy of 12.66%as on March 31, 2003, as against the minimumrequirement of 9% specified by RBI.

3. Low Net NPAs: Net NPA to net advances at 2.61% muchlower than the average level of 4.5% for PSU Banks

4. Consistent growth in deposits: The deposits of the Bankhave grown at a CAGR of 15.12% to Rs. 17019.8 crores

5. Consistent growth in advances: The advances havegrown at a CAGR of 20.30% to Rs. 7891.3 crores duringthe past 5 years.

6. Scale: Total business crossed Rs. 25,000 crore markand stood at Rs. 25,204 crore in March 2003.

7. Distribution network: Well spread branch network - 843branches spread over 28 states and 4 Union territories.Strong presence in the Southern states.

8. Product mix: Diversi f ied business act iv i t iesencompassing Merchant Banking, Credit Cards, ATMs,Housing Finance, Fast Collection Services, etc.

9. Diversification: A well-diversified loan portfolio spreadover many industries and Companies (top 10 industriesaccount for 11.49% of gross credit, top 10 companiesaccount for 8.93% of gross credit and top 5 businessgroups account for 5.82% of the gross credit).

10. Technology: As at the end of March 2003, 356 brancheswere computerised (accounting for 78.26% of thebusiness)

Quantitative factors

The ratios used in the quantitative analysis for the purposeof justification of issue price are based on the Auditors’Report as set out in the Part II of the Offer Document. Thestatement of profit and loss account as well as that of Assetsand Liabilities as contained in the Auditors’ report have beenarrived at after adjusting the accounting numbers to conformto SEBI stipulations. Such adjustments result in profit or netassets, which may be different from those disclosed in theannual reports of the Bank. Consequently, the key ratiossuch as earnings per share (EPS), book value (BV/NAV)and return on net worth (RONW) are also affected, beingthe derived ratios out of profits and net assets. On the otherhand, the industry-based ratios used for comparison maynot have been adjusted as they are based on publiclyavailable sources of information. The investors, whilecomparing the key ratios of the Bank with broad industrybased multiples, are therefore requested to keep suchdifferences in mind. The investors are also advised that theadjusted accounts as contained in the auditors’ report shallnot be available to the investors on an ongoing basis sincesuch accounts have been prepared primarily for the purposeof the present public issue.

1. Earning per Share (EPS)

Financial Year EPS (Rs.) Weight used

2000-01 4.75 1

2001-02 4.87 2

2002-03* 11.30 3

Weighted Average 8.035

* EPS figures based on the adjusted profit based on AuditorsReport. Kindly refer to Annexure A part I para ‘Adjustmentsresulting from audit qualifications, material amounts relatingto Adjustments for previous years and changes in accountingpolicies’ on page 74 and Annexure D 1 ‘MandatoryAccounting Ratios’ on page 94 of the Offer Document.

Weighted Average for last three years: Rs. 8.035.

2. Price Earnings Ratio (P/E Ratio) in relation to Offerprice of Rs.24 per share

On Equity as at 31st March 2002 based on FY 2003 earnings 2.99

On fully diluted equity base post issue on FY 2003 earnings 3.89

3. Industry P/E Ratio

Highest 7.5

Lowest 2.8

Average (Industry Composite) 5.3

(Source: Capital Markets Vol. XVIII/11 dated August 17, 2003(Banks Public Sector))

4. Return on Networth

Financial Year RoNW (%) Weight used

2000-01 25.66% 1

2001-02 29.80% 2

2002-03 50.86% 3

Weighted Average 39.64%

Weighted average for the last three years: 39.64%

5. Minimum return on post issue networth required tomaintain pre- issue EPS of Rs. 11.30 is as 49.60%

6. Net Asset Value (NAV) per share

As on March 31st 2003 22.22

After the Issue based on FY 2003 Profits 22.64

P/NAV on capital base as at March 31, 2003 1.08

P/NAV on fully diluted capital base (post Issue)as at March 31, 2003 1.06

The following table shows the comparison of key ratios ofVijaya Bank with those of its peer Banks. The peer groupcontains listed Public Sector Banks chosen on the basis offactors such as geographical concentration and relevantfinancial parameters.

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Litigation involving Criminal Offences

Mr. Mohan Murthy Shandilya has filed a criminal complaint42/1 of 1996 and 43/93 before the Addit ional ChiefMetropolitan Magistrate, New Delhi against the Bank andother officials of the bank for the transfer of Rs. 2 crore fromhis account to the borrower account of Asian wire Ropes.Details of the same are mentioned in (i) above. The Bankhas filed the case before the High Court of Delhi to quashthe complaint filed by the petitioner and the same is pendingfor hearing

Litigations including Labour laws, winding up petitionsor closure

No. of Writ Petitions on Service Matters 172

No. of Writ Petitions on Disciplinary Matters 61

No. of Industrial Disputes before ALC/RLC 37

No. of Industrial Disputes/claims before CGIT 70

No. of Civil suits/Appeal suits/criminal proceedings 22

The Bank has not made any provisions in this regard. Thesecases have been classified as claims against the Bank notacknowledged as debt.

There are no material litigations filed by any of the keypersonnel in the top executive grade.

INCOME TAX MATTERS

There are disputed Income Tax demands pertaining to pastperiods, involving a disputed amount of Rs. 238.31 crores iftaken under regular provisions and Rs. 151.17 crores if takenunder MAT provisions. The net amount of the disputed taxin respect of these proceedings is Rs. 27.91 crores and theadverse ruling may affect the financials of the Bank to thatextent. The details of the case are given as under:

(Rs. in crores)

Assess Major grounds of appeal Total disputed Tax onment amount disputedyear amount

including interest

APPEALS BEFORE CIT (APPEALS)

2002-03 Grounds of appeal under regular computation

a) Disallowance u/s 36(1)(viia) 52.44

b) Disallowance u/s 36(1)(vii) 2.65

c) Disallowance for estimatedexpenditure incurred forearning tax free income 27.00

d) Other Disallowance 0.23 82.32

Grounds of appeal under MAT

a) Provision for 90 days norms 3.15

b) Disallowance for estimatedexpenditure incurred forearning tax free income 27.00

c) Provision for sundry assets 0.50 30.65 30.16

2001-02 Grounds of appeal under regular computation

a) Disallowance u/s 36(1)(viia) 45.46

b) Disallowance of write back

of provisions 2.82

c) Disallowance for estimatedexpenditure incurred for earningtax free income 2.07

d) Other Disallowance 3.19 53.54

Grounds of appeal under MAT

a) Notional Profit onRevaluation of Investments 34.08

b) Write back of earlier provisions 2.81 36.90 7.01

2000-01 Grounds of appeal under regular computation

a) Disallowance u/s 36(1)(viia) 35.09

b) Disallowance of writeback of provisions 11.90

c) Disallowance u/s 36(1)(vii) 7.54

d) Disallowance for estimatedexpenditure incurred forearning tax free income 2.64

d) Other Disallowance 1.25 58.42

Grounds of appeal under MAT

a) Write back of provisions 11.90

b) Bad Debts written off outof the provisions 10.53 22.43 0

1999-2000 Grounds of appeal under regular computation

a) Disallowance u/s 36(1)(viia) 27.04

b) Disallowance of write backof provisions 5.90

c) Disallowance u/s 36(1)(vii) 2.67

d) Disallowance for estimatedexpenditure incurred forearning tax free income 0.26

d) Other Disallowance 0.57 36.44 0

1998-1999 Grounds of appeal under regular computation

a) Disallowance u/s 40(a) 1.10

b) Disallowance u/s 36(1)(vii) 1.30

c) Disallowance for estimatedexpenditure incurred forearning tax free income 0.04

d) Other Disallowance 1.47 3.91

Grounds of appeal under MAT

a) Provision for NPA 42.45 42.45 4.46

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APPEALS BEFORE ITAT

1997-98 Against the order u/s 143(3)

a) Payment to Visa &Master Card 0.60

b) Dep. On assets leased toM/s Rajinder Steels 0.93

c) Guest House expenses 0.02 1.55

Against the order u/s 143(1)(a)

a) Provision for NPA 18.74 18.74 0.21

1996-97 Against the order u/s 143(3)

a) Payment to Visa &Master Card 0.54

b) Dep. On assets leased toM/s Rajinder Steels 1.24

c) Guest House expenses 0.06 1.84

1994-95 Against the order u/s 143(3)

a) Dep. On properties inrespect of which registrationhas not taken place 0.22

b) Guest House expenses 0.07 0.29

1981-82to1991-92 Various miscellaneous Issues 0.10

TOTAL TAX ON DISPUTED AMOUNT 41.94

Less: Provision held for theabove mentioned assessmentyears 14.03

TAX ON DISPUTED AMOUNT (NET) 27.91

Interest Tax Matters

There are disputed Interest Tax demands pertaining topast periods, involving a disputed amount of Rs. 20.84crores. The claims are contested in appeals before variousappellate authorities. Except the provisions as mentionedabove, no other provisions have been made by the Bankand any adverse ruling may affect the financials of theBank. The details of the cases are as given under:

Assess- Major grounds of appeal Disputed amount Taxment amountyear including

interest

APPEALS BEFORE CIT (APPEALS)

2000-01 a) Interest portion inthe lease rentals 1.39

b) Excess interest collectedfor meeting the interesttax liability 9.52 10.91 0.22

1999-2000 a) Interest portion inthe lease rentals 1.28

b) Excess interest collectedfor meeting the interesttax liability 7.90 9.19 0.23

APPEALS BEFORE ITAT

1998- a) Interest portion in1999 the lease rentals 0.74 0.74 0.015

TOTAL TAX ON DISPUTED AMOUNT 0.46

Less: Provision held for theabove mentioned assessmentyears 0.96

TAX ON DISPUTED AMOUNT (NET) 20.84 -0.50

The assessment officer has raised demands on the Bank fordeduction of tax at source, interest and penalty year wise forthe assessment years 1995-96 to 1999-00 amounting to Rs.80,13,606 and Rs. 13352414 of VISA and MasterCardInternational respectively. The Total amount of tax and interestdemanded by assessing officer in respect of fees and chargespaid to VISA and MasterCard international for assessmentyear 1995-96 to 1999-00 works out to Rs. 2,13,66,020. Thesaid payment was made to IT by adjusting it against the refundto be received by the Bank from IT department. The Bankalso filed an appeal against the claim of IT, which wasdismissed by the commissioner of IT (appeals). The Bankhas against filed composite appeal against aforesaid rulingof commissioner of IT. The composite appeal includes tenappeals pertaning to the as segment years 1995-96 to 1999-00. The amount of tax and interest thereon for the year 2000-01 is Rs. 24,90,655/- and Rs. 4,88,159 respectively. The Bankhas also initiated proceedings for claiming reimbursementfrom VISA and MasterCard and the Bank has already receivedan amount of Rs. 30,43,113/- on 01.04.2003 from MasterCardInternational for the Assessment years 1996-97 to 1998-99.

Except as mentioned above:

No proceedings have been launched against the Bank forany of the offences under any enactment, irrespective ofwhether specified in Paragraph 1 of Part I of Schedule XIIIto the Companies Act. No such litigation or disputes arepending as on today and there are no defaults or outstandingstatutory dues.

There are no pending proceedings initiated for economicoffences.

No disciplinary action/ investigation has been taken by theSecurities and Exchange Board of India/ Stock Exchangeagainst the Bank and its Directors

The Bank has not defaulted in meeting statutory dues,Institutional dues and has made all payments/refunds ondebentures/fixed deposits. It has not defaulted on dues toholders of other Debt Instruments and PreferenceShareholders.

No penalty has been imposed by SEBI against the Bank &its branches except as mentioned under the para ‘Action byRegulators’ on page 49 of the offer document.

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There are no Small-scale undertakings/ creditors to whichthe Bank owes a sum exceeding one lakh where payment isoutstanding for a period of more than 30 days.

Servicing Behaviour

There has been no default in meeting statutory dues,institutional dues and dues towards payment of interest orprincipal on due dates to holders of Bonds and FixedDeposits.

AGAINST THE DIRECTORS OF THE BANK

As on March 31 2003, there are no outstanding litigations,disputes or penalties against the Directors of the Bank,including tax liabilities, economic offences, criminal or civilprosecution for any offence, irrespective of whether specifiedunder any enactment in Paragraph 1 of Part I of ScheduleXIII, of the Companies Act, 1956 or any other liability in theirpersonal capacities or as Director/ Partner/ Sole Proprietorin the Company or any other company/firm.

There are no litigations against the Directors involvingviolation of statutory regulations or criminal offences. Nodisciplinary action has ever been taken by the Securitiesand Exchange Board of India or Stock Exchanges and nopenalty has been imposed by any authority. There is no suitpending against the Directors in capacity as director orpartner or sole proprietor in any other company/firm.

Other than the as stated above, there are no disputes/litigations towards tax liabilities or any criminal or civilprosecutions against the Bank for any offence - economicor otherwise. No criminal proceedings have been launchedagainst the Bank under any of the enactment irrespective ofwhether specified in paragraph 1 of part I of Schedule XIIIof the Companies Act.

AGAINST THE SUBSIDIARY

As on 31st March 2003, there are no outstanding litigationsfiled against VHFL. Further, no Income Tax disputes, salesand interest tax disputes are pending in appellate courtsagainst VHFL.

No proceedings have been launched against VHFL for anyof the offences under any enactment, irrespective of whetherspecified in Paragraph 1 of Part I of Schedule XIII to theCompanies’ Act. No such litigation or disputes are pendingas on and there are no defaults or outstanding statutory dues.In the past, no penalties have been imposed by anyregulatory authority.

VHFL has/has not defaulted in meeting statutory dues,Institutional dues and has made all payments/refunds ondebentures/fixed deposits. It has not defaulted on dues toholders of other Debt Instruments and PreferenceShareholders. There are no pending proceedings initiatedfor economic offences.

AGAINST THE DIRECTORS OF THE SUBSIDIARY

As on March 31 2003, there are no outstanding litigations,disputes or penalties against the Directors of the VHFL,including tax liabilities, economic offences, criminal or civil

prosecution for any offence, irrespective of whether specifiedunder any enactment in Paragraph 1 of Part I of ScheduleXIII, of the Companies Act, 1956 or any other liability in theirpersonal capacities or as Director/ Partner/ Sole Proprietorin the Company or any other company/firm.

There are no litigations against the Directors involvingviolation of statutory regulations or criminal offences. Nodisciplinary action has ever been taken by the Securitiesand Exchange Board of India or Stock Exchanges and nopenalty has been imposed by any authority. There is no suitpending against the Directors in capacity as director orpartner or sole proprietor in any other company/firm.

Other than the as stated above, there are no disputes/litigations towards tax liabilities or any criminal or civilprosecutions against the Bank for any offence - economicor otherwise. No criminal proceedings have been launchedagainst the Bank under any of the enactment irrespective ofwhether specified in paragraph 1 of part I of Schedule XIIIof the Companies Act.

RISKS ENVISAGED BY THE MANAGEMENT ANDPROPOSALS TO ADDRESS THE RISKS

The following are certain considerations, which the investorsshould specif ically peruse through before taking aninvestment decision in the offer. In some of the risk factorsand their management proposals, reference page numbershave been provided, which can be used to obtain moredetails about the said risk. Wherever the risks are notquantified, it should be assumed that the effect of the saidr isk is not quant i f iable or that the quantum is notascertainable at present.

INTERNAL

1. Action taken by the regulators in the past

SEBI and RBI have taken action against the Bank inthe past for alleged violation of Bankers to the Issuenorms. RBI has taken action against the Bank in respectof Bank’s alleged violation of PMS norms. The detailsof these instances can be referred to under para ‘Actionby Regulators ‘on page 49 of the offer document.

Management proposal

SEBI had issued a warning letter in the year 1999 tothe Bank asking it to be cautious in respect of irregularityobserved in the treatment of stockinvest applicationsby Navrangpura Branch, Ahmedabad. RBI had imposeda penalty of Rs. 4.47 crore on the Bank and alsowithdrawn the exemption from maintenance of anincremental CRR of 10% on increase in demand andtime liability over the position as on 05.08.1994.Subsequently, RBI reinstated the said exemption for theBank w.e.f. 15.01.2000.

2. Accumulated Losses of the Bank in the past

The Bank had accumulated losses aggregating Rs.Rs.297.07 crores, which were adjusted from its paid-upcapital during the financial year 1999-00.

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Management proposal

The accumulated losses pertained to previous periodsand were duly written off under the approval of the Govt.of India on March 31 2000.

3. Asset Liability Position

A large portion of the funding of the Bank is in the formof short and medium term deposits. As a result, there isa cumulative mismatch of Rs. 2475.44 crores up to 1-year category and a mismatch of Rs. 3474.2 crores in1-3 year category. The asset liability position of the Bankcould be affected if the depositors do not roll over thedeposits. For further details, kindly refer to page no. 43of the offer Document

Management Proposal

The Bank has an active Asset Liability Managementsystem in place to monitor and manage the durationand liquidity mismatches. Using the interest rateexpectations as the basis, the Bank manages themismatch so that the interest rate risk is minimised, theprofitability is optimised and the liquidity position is notaffected. Moreover, as per the normal behaviouralpattern and past experience, a large portion of thedeposits gets rolled over. The Bank feels that in theevent of these deposits not being rolled over, the freshaccretion of deposits would take care of the AssetLiability mismatches. In addition, the Bank has thecushion of investments of Rs. 5855.25 crore in the long-term (over 5 years) category, a part of which can beutilized to correct any medium term mismatches. Formore details on the Asset Liability position, refer to thepara on ‘Asset Liability Management’ on page 43 of theoffer document.

4. Regional concentration of the Bank

The Bank has a regional concentration in southern partsof the country with southern states accounting forapproximately 70% of all branches in terms of numbers.The southern and western region together account fornearly 60% of the Deposits and 77% of the creditexposure. For further details please refer to page no.22 and 34 of the Offer Document. The regional presenceof the Bank may compromise its competitive positionvis-a-vis its national level competitors.

Management Proposal

The Bank has a wide network of 843 branches and hasa presence in most of the top 100 deposit centres aswell as in all the states of the country. The deposits ofthe Bank have grown at a CAGR of 15.68% to Rs.17019.8 crores and the advances have grown at a CAGRof 21.34% to Rs. 7891.3 crores during the past 5 years.Also, the Bank proposes to effectively utilise technologyto increase its reach and presence. The Management,therefore, believes that the present branch network ofthe Bank is adequately widespread and does notcompromise its competitive position in the industry. Fordetails of geographical distribution of branches,

investors are advised to refer to para ‘Geographicaldistribution of branches’ on page 31 of the offerdocument.

5. Declining yield and increasing cost ratios

The yield on advances of the Bank decreased from11.93% as on March 31 2002 to 11.34% as on March 312003. The average rate of return on interest earningassets fell from 11.49% as at March 31, 2001 to 10.33%as at March 31, 2003.The yield on investments declinedfrom 11.35% to 10.49% during the same period. Further,the operating expenses as a percentage of averageworking funds increased from 2.73% to 3.21% duringFY03.

Management Proposal

The decline in yield ratios has to be viewed in backdropof substantial softening in the interest rates during theperiod and as such, the decline has been a sector-widephenomenon. For instance, the G-sec yield on the 10-year benchmark paper declined by 115 bps from 7.36%to 6.21% between March 31, 2002 and March 31, 2003.On the liability side, the Bank benefited from repricingof its deposits, which brought down the average cost ofdeposits from 7.51% to 6.58% during last one year i.e.a reduction of 93 bps. Similarly, the cost of borrowingscame down from 11.14% to 10.96%. As a result, the netinterest margin (NIM) of the Bank displayed an increaseof 30 bps from 3.24% to 3.54% during the same period.As regards operating expenses, the increase has beenmainly due to one-time excess write-offs of VRSexpenses amounting to Rs. 107.58 crores. Besides,actuarial valuation accounting of leave encashmentliability resulted in an excess charge aggregating Rs.20.66 crores in the current year. The business peremployee of the Bank has gone up by 14.31% from Rs.169.38 lacs to Rs. 193.62 lacs. The management,therefore, believes that the benefits of right sizing shallaccrue to the Bank in future years and the pressure onoperating expenses may not continue going forward.

6. Treasury profits

The Bank made a profit of Rs. 225.08 crores from saleof investments (treasury income) during FY03. Suchprofits from treasury may not be maintained in futureyears and this may impede the growth in net profits ofthe Bank going forward.

Management proposal

The Bank has exercised prudence in booking profitsfrom sale of investments while maintaining a reasonableyield on treasury portfolio and the management believesthe Bank shall follow similar strategy going forward. Thatsaid, the management acknowledges that similarwindfall treasury income may not be sustained in futureyears since it does not foresee similar drop in interestrates in the immediate future years.

The treasury income did not contribute much towardsthe growth in net profits from Rs. 130.90 crores (FY02)

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to Rs. 196.56 crores (FY03). During the year, the Bankmade provisions aggregating Rs. 235.80 crores asagainst the treasury profits of Rs. 225.08 crores, therebyusing 104.7% of treasury income for provisioning on apre-tax basis. During the same period, the net interestincome (NII) earned by the Bank grew from Rs. 485.31crores (FY02) to Rs. 643.39 crores (FY03), registeringa growth of 32.5% and the net interest margin (NIM)also grew by 30 bps from 3.24% to 3.54%. Themanagement, therefore, believes that the growth inprofits of the Bank would not be hampered even if thetreasury income were not substantial in future years.

7. Non Performing Assets (NPAs)

As on March 31 2003, the net NPAs of the Bank stoodat 2.61% of its net advances amounting to Rs. 205.81crores in absolute terms. In the event of non-recoveryof these assets, the Bank may have to provide for theseNPAs in future, which might affect the profitability of theBank going forward. For details, investors are advisedto refer to para on Income Recognit ion, AssetClassification and Provisioning on page 41 of the offerdocument.

Management proposal

The Net NPAs of the Bank have consistently beendeclining in percentage terms, from 6.72% as on March31 1999 to 2.61% as on March 31 2003. During the year,the Bank made accelerated provisions amounting to Rs.192.60 crores for NPAs and as a result the coverageratio of the Bank stands at 57.45% as on March 31 2003.The Bank is taking further steps to reduce the proportionof non-performing assets through aggressive recoverydrives combined with improved risk managementpractices. Moreover, there have been substantialchanges in the legislative and operating environmentenabling FIs and Banks to pursue recovery of overdues.Besides setting up Debt Recovery Tribunal (DRT) forfaster settlement of recovery litigation, GOI enacted ‘TheSecuritisation and Reconstruction of Financial Assetsand Enforcement of Security Interest Act, 2002’ enablingFIs and Banks to securitise and reconstruct financialassets and enforce security more effectively. The Bankhas also initiated steps under the Act by bringingattachment of the securities. The Bank has issuednotices to 1988 borrowers’ till date for recovery of anamount of Rs. 239.99 crores and has recovered amountaggregating Rs. 26.45 crores. The Bank is thus takingrecourse to the available remedies to control its NPAs.

8. Credit Risk

The Bank’s main business of lending carries an inherentcredit risk, which involves inability or unwillingness of acustomer or counter party to meet commitments inrelation to lending, trading, hedging, settlement andother financial transactions.

Management proposal

The Bank has put in place an internal credit ratingsystem under which the borrowal accounts of Rs 6

crores and above are rated on several parameters andthe risk is priced with a suitable mark over PLR basedon the credit rating. The Bank also has implemented anactive Risk Management Policy aimed at mitigatingvarious credit related risks. For other details on the creditrisk management process in the Bank, the investors mayrefer to the para on ‘Risk Management’ on page 48 ofthe offer document, the para ‘Loan Policy’ on page 36of the offer document and the para on ‘Credit ApprovalAuthority’ on page 39 of the offer document.

9. Asset Concentration

The top 5 industries (non-food) account for 8.41 % ofthe gross credit exposure of the Bank as on March 312003. Also, the top ten borrowers of the Bank accountfor about 8.93% of the total advances of the Bank as onMarch 31 2003. The borrower specific and industryspecific behaviour may potentially affect the overallasset quality of the Bank.

Management Proposal

The Bank has put in place a credi t monitor ingmechanism to monitor the performance of its borrowers,regularly perform appraisal and do the requisite followup. The top ten borrowers of the Bank as mentionedabove are Standard Assets as on March 31 2003. Asregards the industry concentration, it’s been the policyof the Bank to diversify the assistance over differentindustry/promoter groups. In terms of the Bank’s loanpolicy, the Bank has laid down overall exposure normsfor medium and large-scale industrial sector and specificexposure norms for lending to a particular singleindustry. As such, the management believes that theindustry concentration and the account concentrationas mentioned above is not high and reflects thediversification policy of the Bank. Investors are advisedto refer to para ‘Industry wise classification’ on page 34of the offer document and para ‘Loan Policy’ on page36 of the offer document.

10. Reducing proportion of Tier I Capital

Tier I capital as a percentage of total risk weighted assethas come down from 8.86% in 2002 to 7.42% in 2003.

Management Proposal

Percentage of Tier-I capital has come down because asubstantial portion of the retained profit is allocated toInvestment Fluctuation Reserve, which is being treatedas Tier-II capital as per RBI guidelines. The presentissue of capital will help the bank to augment the Tier ICapital Adequacy ratio.

11. Outstanding Litigations against the Bank

As on June 30 2003, there were 110 cases against theBank with aggregate claim of Rs. 19 crore for which noliability has been provided. Out of these, the claimamount was above Rs. 50 lakhs in 4 cases. Further,there is 1 instance, wherein a criminal case has beenoutstanding against the Bank. Also, there are 362 cases

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pertaining to labour laws, winding up petitions or closure.For more details, investors are advised to refer to paraon ‘Outstanding Litigations’ on page 57 of the OfferDocument.

12. Tax Disputes

As on March 31 2003, certain proceedings related toIncome Tax matters are pending before the Income Taxauthorities. The net amount of disputed tax in respectof these proceedings is Rs. 27.91 crore. These claimspertain to the past periods and appeals have beenpending before Commissioner of Income Tax (Appeals)and Income Tax Appellate Tribunal. Further theassessment officer (IT) had raised an aggregate demandon the Bank for Rs. 2.13 crore for the assessment years1995-96 to 1999-00 in respect of VISA and MasterCardinternat ional, which the Bank has sett led andsimultaneously filed an appeal against the said demand.For more details, investors are advised to refer to paraon ‘Outstanding Litigations’ on page 57 of the OfferDocument.

13. Contingent Liabilities of the Bank

As on March 31 2003, the Bank had contingent liabilitiesaggregating Rs. 5077.47 crores, comprising Rs. 37.18crores as claims not acknowledged as debt by the Bank,Rs. 3858.45 crores as liability on account of outstandingForward Exchange Contracts, Rs. 731.59 crores asGuarantees given on behalf of constituents, Rs. 441.20crores as Acceptance, Endorsements and otherobligations and Rs. 9.03 crores as other items. For moredetails investors are advised to refer to para ContingentLiabilities in Annexure D 7 of the Auditors’ report.

Management proposal

The Contingent Liabilities are inherent in the normalcourse of banking business and are subject to theprudential norms as prescribed by RBI.

14. Export Credit Target

The Bank has not met export credit target (12% of netcredit) for the last five years. For more details, refer topara on ‘Export Credit’ on page 35 of the offer document.

Management proposal

The non-achievement of this target has no negativeimpact on the working results of the Bank. RBI has nottaken any punitive action against the Bank for non-achievement of the targets. The Bank is taking steps toincrease its export credit exposure in terms of its loanpolicy for the year 2003-04. For more details, Investorsare advised to refer to para ‘Loan Policy’ on page 36 ofthe offer document.

15. Verma Committee Recommendations

The Verma Committee, which carried out a study of thebanking sector in 1998 and 1999, had suggested sevenparameters for assessing a bank’s strength/weaknesscovering three major areas namely, solvency, earning

capacity and profitability. Based on the above, VijayaBank was classified in the third category of banks, whichcomplied with the Capital Adequacy requirement but didnot meet five or six of the remaining parameters for theyears 1998 and 1999. For an understanding of what thecategorisation signifies, investors may refer to para titled‘Verma Committee Recommendations’ on page 50 ofthe offer document.

Management proposal

The Bank has taken focused actions to improve itsprofitability and performance by a multi-pronged strategyinvolving reduction in NPAs, increased emphasis onreduction of costs, introduction of better systems andprocedures and improvement in its operational efficiencyand reduction in staff cost.

16. Future equity offering of the Bank

Any future offer ing by the Bank or i ts exist ingshareholders may dilute the holdings of the allottees ofthe present public issue or may affect the market priceof the shares of the Bank adversely.

17. Auditors Qualifications for which adjustments couldnot be carried out

The statutory auditors of the Bank have made certainqualifications in their report for which adjustments couldnot be carried out. For more details, the investors mayrefer to Part VII -Annexure A of the Auditors report onpage 86 in the offer document.

Management proposal

The said qualifications are not considered material. Thedetailed response of the Management of the Bank inrespect of each qualification is as given on page 53 ofthe offer document.

18. Trading of the scrip on the bourses

The trading of the scrip on Bangalore Stock Exchangeis thin.

Management proposal

The shares of the Bank are also listed on the StockExchange, Mumbai and the National Stock Exchangewhere the average daily trading volumes are 2,70,415shares and 7,10,107 shares for the last 3 months and5,67,330 shares and 14,60,283 shares for the last one-year respectively. (Source: Bloomberg)

19. Utilisation of Funds

The utilisation of the funds proposed to be raisedthrough the public issue is entirely at the discretion ofthe Bank and no monitoring agency has been appointedto monitor the deployment of funds.

Management proposal

The funds raised through the public issue are not meantfor any specific project and hence a monitoring agency

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may not be required. The Bank is managed byprofessionals under the supervision of its Board ofDirectors. Further, the Bank is subject to a number ofregulatory checks and balances as stipulated in itsregulatory environment. Therefore, the managementbelieves that the funds raised via the public issue wouldbe utilised only towards satisfactory fulfilment of theobjects of the issue as stated on page 21 of the offerdocument.

20. Contingent liabilities of the RRB sponsored by theBank

As on March 31 2003, contingent liabilities of the RRBsponsored by the Bank aggregated Rs. 32.60 lakh. Formore details investors are advised to refer to paraSponsored Gramin Bank on page 55 of the OfferDocument.

Management proposal

The above contingent liabilities have arisen in the normalcourse of business of the RRBs.

EXTERNAL RISK FACTORS

1. Regulatory restrictions on the Bank and limitationsof the powers of shareholders of the Bank

There are a number of restrictions as per the BankNationalisation Act and Banking Regulations Act, whichimpede flexibility of the Bank’s operations and affect/restrict investors’ right. These are as under:

1. The Banks can carry on business/activities asspecified in the Act. There is no flexibility to pursueprofitable avenues if they arise, in contrast withcompanies under the Companies Act, whereshareholders can amend the Objects Clause by aspecial resolution.

2. In terms of Rule 8 of The Banking Regulation Act,1949, the Bank is prohibited from doing tradingactivity, which may act as an operational constraint.

3. In terms of Rule 17(1) of The Banking RegulationAct, 1949, every banking company shall create aReserve Fund and shall, out of the balance of profitof each year as disclosed in the Profit & Loss a/cprepared under Section 29 and before any dividendis declared transfer to the Reserve Fund a sumequivalent to not less than twenty five percent ofsuch profit.

4. In terms of Rule 19 of The Banking Regulation Act,1949 there are some restrictions on the bankingcompanies regarding opening of subsidiaries whichmay deny the Bank from exploiting emergingbusiness opportunities.

5. In terms of Rule 23 of The Banking Regulation Act,1949 there are certain restrictions on the bankingcompanies regarding opening of new place ofbusiness and transfer of existing place of business,which may hamper the operational flexibility of the

Bank.

6. In terms of Rule 25 of The Banking Regulation Act,1949 each banking company has to maintain assetsin India which is not less than 75% of its demandand time liabilities in India which in turn may prohibitthe Bank from creating overseas assets andexploiting overseas business opportunities.

7. There are restrictions in the Banking Regulation Actregarding,

i) Management of a bank including appointmentof directors

ii) Borrowings and creation of floating chargethereby hampering leverage.

iii) Expansion of business as the branches needto be licensed

iv) Disclosures in the profit & loss account andbalance sheet

v) Production of documents and availability ofrecords for inspection by shareholders

vi) Reconstruction of banks through amalgamation

vii) Further issues of capital including issue ofbonus shares/rights shares for which prior MoFapproval is required

8. The financial disclosures in the offer document maynot be available to the investors after listing on acontinuous basis

9. Various rights/powers of shareholders availableunder the Companies Act in this behalf are notavailable to the shareholders of the banks. Theserights include rights such as calling for generalmeetings, inspection of minutes and other materialrecords, application for relief in cases of oppressionand mismanagement, voluntary winding up etc.

10. As per Section 3 (2E) of the Bank NationalisationAct, “no shareholder other than Central Governmentshall be entitled to exercise voting rights in respectof any equity shares held by him/her in excess ofone per cent of the total voting rights of all theshareholders of the Bank”.

11. No banking company shall pay dividend on itsshares until all its capitalised expenses (includingpreliminary, organisational expenses, share sellingcommission, brokerage, amounts of losses and anyother item represented by tangible assets) havebeen completely written off. The Bank has receivedan exemption from GoI, Ministry of Finance,Department of Economic Affairs (Banking Division)vide gazette notification ref. F. No. 11/15/2001-BOAdated August 22 2003 from the provisions of thesaid Section 15(1) relating to the payment ofdividend, for a period of five years from the date ofthe notification.

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2. Interest rate risk

Interest rate volatility exposes the Bank to an interestrate risk or market risk. Such interest rate risk has apotential impact on net interest income or net interestmargin as well as on the market value of the fixed incomesecurities held by the Bank in its investment portfolio.

Management proposal

These risks are inherent in the banking business.However, the Bank has put in place a system of regularreview of lending and deposit rates in order to minimisethe interest rate risk. The Asset Liability ManagementCommittee of the Bank reviews the risk on a regularbasis. Continuous Risk Management measures areinitiated depending upon the movement in the marketinterest rates. The movement in the interest rates isclosely monitored for appropriate action. For moredetails on the Risk Management procedures, investorsare advised to refer to para on Risk Management onpage 48 of the offer document.

3. Competition from existing and new CommercialBanks

Competition in the financial sector has increased withthe entry of new players and is likely to increase furtheras a result of further deregulation in the financial sector.The Bank may face competition both in raising resourcesand in deploying them.

Management proposal

The Bank has an established broad-based presence andhas been taking steps to enhance customer satisfactionby upgrading skills, systems and technology to meetsuch challenges. The Bank is attempting to add qualityassets on competitive terms. The Bank is also takingsteps to broad base its product bouquet with a specialemphasis on enhancement in the non-fund basedincome. On the resource-raising front, the Bank isactively endeavouring to broaden its reach and raiseresources through its wide distribution network of 843branches and 61 extension counters. For more detailson the business environment of the Bank, investors areadvised to refer to the para on ‘Management Discussionand Analysis of Financial Results’ on page 51 of theoffer document and the para on ‘Banking SectorScenario’ on page 22 of the offer document.

4. Changes in regulatory Policies

Major changes in Government/ RBI policies relating tobanking sector may have an impact on the operationsof the Bank. Such changes may include but not limitedto change in NPA provisioning norms, tightening ofcapital adequacy norms and modifications in foreclosurelaws.

Management proposal

The Policy changes may provide both opportunities andchallenges for the Bank. The Bank has a long presence

in the banking sector for more than 71 years and doesnot perceive policy changes to be a major threat. Formore details, investors are requested to refer to the para‘Management Discussion and Analysis of FinancialResults’ on page 51 of the offer document.

5. Financial Statements in the offer document

The financial statements and derived ratios therefromcontained in the offer document are prepared/computedas per the permissible accounting practices and theadjustment guidelines prescribed by SEBI. The investorsmay want to make their own adjustments to the samebefore arriving at an investment decision in the offer.

Management proposal

The financial statements and the derived ratios havebeen prepared in conformity to the extant guidelines andthe same have been certified by the statutory auditorsof the Bank. The Bank is also governed by the prudentialnorms of RBI for income recognition, NPA provisioningetc.

6. Disintermediation in the financial markets

Development of Capital Markets may result indisintermediation by current and potential borrowerswhereby many companies may access the marketsdirectly, thereby reducing their dependence on theBanking system.

Management proposal

The Bank has, in recent years, launched several retaillending schemes so as to broaden its borrower base.Further, disintermediation brings with it the opportunityfor the Bank to expand its fee-based activities. The Bankhas been endeavouring to develop a presence in severalfinancial services to earn fee based income by focussingon businesses such as foreign exchange, treasury,investments, cash management etc., thus takingadvantage of the disintermediation phenomenon. Formore details about the Products and Sevices of theBank, the investors may refer to para ‘Products andServices’ on page 31 of the offer document.

7. Forex risk

Exchange Rate fluctuations may have an impact on theBank’s financial performance.

Management Proposal

As per RBI guidelines, banks are not allowed to keepopen position on their foreign exchange transactionsbeyond prescribed limits on a daily basis. Foreignexchange transactions beyond such limits, if any, mustbe squared off at the end of each day. Hence, the riskfrom exchange rate fluctuations is minimised. The Boardof Directors of the Bank has also prescribed limits forgaps or mismatches in maturities of bank’s foreigncurrency assets & liabilities and forward transactions inforeign exchange. The Bank operates within the limits

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fixed for gaps or mismatches in maturities of Bank’sforeign currency assets and liabilities and forwardtransactions in foreign exchange, thus minimising therisks of mismatches in maturities and interest rates. Formore details on the Risk Management procedures,investors are advised to refer to para on RiskManagement on page 48 of the offer document.

8. Operational Risk

Operational risk is a result of failure of operating systemin a bank due to certain reasons like computer break-ins, power disruptions, fraudulent activities, naturaldisaster, human error or omission or sabotage.

Management proposal

To mitigate these operational risks, the Bank constantlyupdates its procedures and systems, trains staff andalso subjects all critical areas of operation to concurrentaudit. For more details on the Risk Managementprocedures, investors are advised to refer to para onRisk Management on page 48 of the offer document.

9. Sensitivity to the economy and extraneous factors

The Bank’s performance is highly correlated to theperformance of the economy and the financial markets.The health of the economy and the financial markets inturn depends on the domestic economic growth, stateof the global economy and business & consumerconfidence, among other factors. Any event disturbingthe dynamic balance of these diverse factors woulddirectly or indirectly affect the performance of the Bankincluding the quality and growth of its assets. Prices ofequity sharers of the Bank may fluctuate as a result ofseveral factors, including:

a) Volatility in the Indian and Global Securities market.

b) Results of operation and performance.

c) Market for investment in the Banking sector.

d) Performance in Indian economy.

e) Signif icant development in India’s economicliberalization and deregulation policies, specificallythose related to the Banking sector.

f) Significant development in India’s f iscal andenvironmental regulations.

Notes

1. Networth of the Bank as on March 31, 2003 wasRs741.08 crores

2. The present Public Issue of the Bank aggregates Rs.240 crores.

3. The Book Value per share as on March 31, 2003 for Rs.10/- face value is Rs. 22.22.

4. Cost per share of the Bank to the Government of Indiais Rs. 10.

5. The Bank has adjusted its accumulated losses of Rs.297.07 crores by setting off the same against the paid-up capital as on March 31, 2000.

6. As per Section 3 (2E) of the Bank Nationalisation Act,“no shareholder other than Central Government shallbe entitled to exercise voting rights in respect of anyequity shares held by him/her in excess of one per centof the total voting rights of all the shareholders of theBank”.

7. Section 3(2B)(c) of the Bank Nationalisation Actprovides that the paid-up capital may, from time to time,be increased by such amounts as the Board of Directorsof the Bank may, after consultation with the RBI andwith the previous sanction of the Central Government,raise by Public Issue of equity shares as may beprescribed, so however, that the Central Government,at all times, hold not less than fifty-one per cent of thepaid-up capital of each of the Corresponding New Bank.

8. The shareholders of the Bank do not have a right toreceive dividend within 42 days as is available tocompanies under the Companies Act.

9. RBI carries out regular inspection of all Banks. Theinspection of the Bank by RBI is a regular exercise andis carried out periodically for all the banks and FinancialInstitutions. The reports of RBI are strictly confidentialand the Bank has informed RBI about the actions alreadytaken and measures that are under implementation inrespect of observations made by RBI in its report forthe year 2001-02.

10. VHFL, a subsidiary of Vijaya Bank has entered into thefollowing transactions with Vijaya Bank during the lastthree years:

(Rs. in lakhs)

Particulars 2000-2001 2001-2002 2002-2003

Term Loan availed during the year Nil 1500.00 2500.00

Term Loan repaid during the year Nil 75.00 406.00

Interest on Term Loan Nil 91.02 153.24

Fixed Deposits made withVijaya Bank during the year 5.00 Nil 1103.25

Fixed Deposits matured/withdrawn from Vijaya Bank 5.00 Nil 1100.00

Investments made throughVijaya Bank Nil Nil i) GS 2012 for

Rs.20.00 lakh.

ii) KarnatakaBond KSDL

2012 for Rs.100.00 lakh.

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Details of Rent Paid to Vijaya Bank for Premises usedby Vibank Housing Finance Ltd.

(Rs. in lakhs)

Particulars 2000-2001 2001-2002 2002-2003

Vijaya Bank premises used by Primrose Road, Infantry Road, Mangalore &Vibank Housing Finance Ltd. Infantry Road, Mangalore & Mumbai

Mangalore & MumbaiMumbai

Rent paid to Vijaya Bank 2.74 1.67 Rs. 1.15

11. Vi jaya Bank had fol lowing transact ions withVisveshvarya Grameena Bank during last three years.

(Rs. in lakhs)

Particulars (As on March 31) 2001 2002 2003

Overdraft taken by the RRB 187 229 228

Deposit kept with Vijaya Bank 945 1105 300

Interest earned on overdraft 14 15 17

Interest earned on deposits 93 102 81

Dividend received from Vijaya Bank 0.08 0.32 0.32

Current account maintained withVijaya Bank 305 273 269

Remuneration to Vijaya Bankemployee on deputation toRRB as chairman 2 2 2

Share capital held in Vijaya Bank 2.7 2.7 2.7

Share capital held by Vijaya Bank 35 35 35

Deposit from Vijaya Bank asshare capital deposit 148 148 148

Investment in Bonds of Vijaya Bank 45 45 45

Interest earned on bonds of Vijaya Bank 5.5 5.5 5.5

12. Vibank Housing Finance Ltd.has decided to merge itselfwith Vijaya Bank. The proposal of merger was approvedby the Board of Directors of the Company vide boardresolution dated March 24 2003. Vijaya Bank andNational Housing Bank, who are the shareholders ofthe Company, have also given their consent to the saidmerger, subject to approval of RBI, MoF and CompanyLaw Board’s approval.

IMPORTANT NOTES:

1. The financial information as contained in PART IIincluding the notes to accounts, significant accountingpolicies as well as auditors’ qualifications has been dulycertified by the statutory auditors of the Bank. As far aspossible, these audited numbers have been used forcomputation or derivation of other financial informationcontained in the offer document. However, such otherfinancial information contained in the offer documentexcept as contained in PART II, has been certified by

the management of the Bank. Further, all notes toaccounts as well as Auditors’ qualifications have beendisclosed in the Auditors’ Report.

2. In terms of recommendations of RBI Working Group on‘Consolidated Accounting and Other QuantitativeMethods to Facil i tate Consolidated Supervision’(December 2001), all banks, whether listed or unlisted,should prepare and disclose Consolidated FinancialStatement (CFS) from the financial year commencingfrom April 1, 2002. Conforming to the said requirement,the Auditors have provided consolidated financialstatements of the Bank in their report contained in PartII of the offer document.

3. Some sections of the Offer Document such as theCorporate Vision, Mission & Strategy, Loan Policy etc.may contain some qual i tat ive forward- lookingstatements, which may not materialise in future.Investors are requested to exercise due discretion whileperusing such sections.

4. The Bank would like to clarify that the inspection of theBank by RBI is a regular exercise and is carried outperiodically by RBI for all the banks and financialinstitutions. The reports of RBI are strictly confidentialand the Bank is in dialogue with RBI in respect ofobservations made by RBI in their report for previousyears. RBI does not allow disclosure of its inspectionreport and that all the disclosures in the offer documentare on the basis of management and audit reports ofthe Bank.

5. In the event of a difference in the provisions of BankingCompanies (Acquisition and Transfer of Undertakings)Act 1980 and Companies Act on a given issueparticularly with reference to shareholders rights, theformer overrides the latter.

6. In addition to the Lead Manager, the Bank is also obligedto update the Offer Document and keep the publicinformed of any material changes till the listing andtrading commences.

7. For the purposes of compliance with AS 4 regardingevents occurring after Balance sheet date, the Bankcertifies as under:

a. There are no contingencies save and except asdisclosed in the Offer Document, the outcome ofwhich might have material impact on the financesof the Bank

b. There have been no significant material events that

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The agreement between the Bank and the Registrars to theIssue provides for the retention of Issue records with theRegistrars for a period of at least six months from the lastdate of despatch of Letters of Allotment/Share Certificates/Refund Orders to enable the investors to approach theRegistrars for redressal of their complaints. The Bankattempts to ensure that various types of investors grievancesare disposed off immediately on the receipt of the same. Ason August 31 2003, the Bank confirms that there are noinvestors’ grievances pending for more than one month.

Shri. K. Gopalkrishnan Nair has been designated as theCompliance Officer for the Issue. In case of any pre-issue/post-issue related problems such as non- receipt of lettersof allotment/ share certificates/ refund orders/ cancelledstockinvests, etc. the investors are requested to contact theCompliance Officer at:

Vijaya BankHead Office41/2, M G RoadBangalore - 560 001Tel: (080) 559 4737Fax: (080) 558 8853E-mail: vijbank@blg.vsnl.net.in

The Shareholders/Investors Grievances Committee

In accordance with Clause 49 of the Listing agreement, theShareholders/Investors Grievances Committee has beenconstituted by the Board with the following Directors as themembers of the Committee:

Sri A P Hota, Director, RBI nominee Chairman of the Committee

Sri P A Sethi, Executive Director Member

Sri M Kiran ,Director- Workmen Member

Sri S Ananthan,Shareholder Nominee Director Member

Sri R Ashok Kumar,Shareholder Nominee Director Member

Sri Michael Bastian was appointed as the C&MD of SyndicateBank and was relieved on 23rd August, 2002. Sri R Acharretired as the Director of the Bank on 31st May 2002. Sri AP Hota Joined as Director of the Board (RBI Nominee) on11.06.2002 and Sri S Ananthan and Sri R Asok Kumar (both

shareholder nominee directors) were nominated to theCommittee on 23rd October 2002.

The committees approves and monitors the Shareholders’grievances with respect to transfers, transmission, splittingand consolidation of shares issued by the Bank and allotmentof shares to the Employees and any other grievances of theshareholders. The Committee monitors the redressal of theshareholders/investors grievances like transfer of shares,non-receipt of Balance Sheet, non-receipt of dividends, etc.During the year four meetings of the ShareholdersGrievances Committee were held on 27.04.2002,13.07.2002, 23.10.2002 and 19.02.2003.The attendance ofDirectors at the above meetings are furnished below:

Directors No. of MeetingsAttended

Sri P A Sethi (joined on 08.03.2003) -

Sri Michael Bastian (relieved on 23.08.2002) 2

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PART II

XI. GENERAL INFORMATION

CONSENTS

Consents in writing of the Lead Managers to the Issue,Directors, Auditors, Legal Advisor, Compliance Officer, Co-Managers to the Issue, Advisor to the Issue, Bankers, andRegistrars to the Issue to act in their respective capacitieshave been obtained and filed, along with a copy of the OfferDocument with the Designated Stock Exchange (BSE), andsuch consents have not been withdrawn up to the time ofdelivery of the Offer Document with the said Stock Exchange.The Auditors of the Bank have given their written consent tothe inclusion of their Report in the form and content in whichthey appear in the Offer Document, and also the tax benefitsavailable to the Bank and its Shareholders, and suchconsents and reports have not been withdrawn up to thetime of delivery of the Offer Document.

EXPERT OPINION

Save as stated elsewhere in the Offer Document, the Bankhas not obtained any other expert opinion.

Changes in Directors

The following changes in the Board of Directors of VijayaBank have taken place in the last 3 years:

Name of Director Reasons for change Date of change

Shri R. Achar Superannuation May 31 2002

Shri Michael Bastian Elevated as CMD of August 23, 2002Syndicate Bank

Shri S. Gopalakrishnan Superannuation January 31 2002

Shri B.S. Meena Ceased March 20 2001

Shri V.P. Bharadwaj Ceased April 19 2001

Shri S.K. Thakur Ceased March 19 2002

Shri M. Kiran Inducted July 3 2000

Shri M. S. Kapur Inducted August 14 2002

Shri P.A. Sethi Inducted March 7 2003

Shri R Renganath Inducted March 20 2002

Shri A. P. Hota Inducted June 11 2002

Shri Babuseth Tyerwala Inducted May 8 2001

Smt. Sukhada Mishra Inducted May 8 2001

Shri Pawan Kumar Sharma Inducted December 20 2001

Shri S. Ananthan Inducted August 3 2002

Shri R. Ashok Kumar Inducted August 3 2002

Shri B. K. Jagdish Chandra Inducted August 3 2002

Shri S. P. Krishnaswamy Inducted August 3 2002

CHANGES IN AUDITORS

Given below are the changes in the Bank’s Auditors duringthe past three years. Since the RBI recommendsappointments of Auditors each year, these changes havebeen effected as per RBI’s approval.

Name of Reasons for Year ofAuditor change change

M/s B. Purushotham & Co. Ceased to be statutory auditors 2002as per RBI norms

M/s B. K. Khare & Co. Ceased to be statutory auditors asper RBI norms 2002

M/s. Nawn & Co. Ceased to be statutory auditors as perRBI norms 2003

M/s S.P. Marwaha & Co. Appointed as statutory auditors as perRBI norms 2003

M/s Raju & Prasad Appointed as statutory auditors as per 2003

RBI norms

M/s D. V. Ramana Rao Appointed as statutory auditors as per 2003RBI norms

AUTHORITY FOR THE PRESENT ISSUE

The issue of equity shares is being made pursuant to thesanction of Government of India (GoI) in consultation withthe Reserve Bank of India (RBI), vide their letter no. F.No.11/15/2001-BOA dated 09.06.2003, under Section 3(2B)(c) ofthe Banking Companies (Acquisition and Transfer ofUndertakings) Act 1980, as amended by the BankingCompanies (Acquisition and Transfer of Undertakings) Act1994, Banking Companies (Acquisition and Transfer ofUndertakings) Act 1995, Banking Companies (Acquisitionand Transfer of Undertakings) Act 1996, (herein collectivelyreferred to as the “Bank Nationalisation Act”), to increasethe paid-up capital, the resolution passed at the meeting ofthe Board of Directors of the Bank (the Board), held on March27 2003 and the resolution passed by shareholders of theBank in the Annual General Meeting held on 19.06.2003.The Board of Directors of the Bank has finalised the price ofthe equity shares in its meeting held on September 12 2003.The Bank has received permission from Exchange ControlDepartment, RBI vide its letter EC.CO.FID/1872/10.02.40/(9105) 2003-04 dated 29.08.2003 for allowing NRIs, OCBsand FIIs to invest in the shares offered in the Issue onrepatriation basis to the extent of 20% of the paid up capitalout of the present issue of 10 crore equity shares.

DISPOSAL OF APPLICATIONS AND APPLICATIONMONEY

The Board of Directors reserves in its full, unqualified andabsolute discretion without giving any reason, the right toaccept or reject any application in whole or in part. If anyapplication is rejected in full, the whole of the applicationmoney received will be refunded to the applicant and wherean application is rejected in part, the excess applicationmoney received would be refunded to the applicants by

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registered post/speed post (Refund orders up to Rs.1500/-will be sent under certificate of posting) as far as possiblewithin 30 days from the date of closing of the subscriptionlist. Any delay beyond 30 days will entail payment of interestat 15% per annum.

The subscription received in respect of Public Issue will bekept in a separate bank account and the Bank shall not haveaccess to such funds unless approvals from all the StockExchanges, where listing has been proposed and approvalof the Designated Stock Exchange for allotment has beenobtained.

No separate receipt will be issued for the application money.However, the nominated branches of the Bankers to theIssue at the collection centres receiving the application formwill acknowledge receipt of application by stamping andreturning the acknowledgement slip given at the foot of eachapplication form.

PROCEDURE AND TIME SCHEDULE FORALLOTMENT / REFUND

In the event of oversubscription, allotment will be on aproportionate basis and in consultation with the DesignatedStock Exchange.

The Bank shall as far as possible complete allotment ofshares offered to the public within 30 days of the closure ofthe Issue. If allotment is not made and/or the refund ordershave not been despatched to the investors within 30 daysfrom the date of closure of the Issue, the Bank will payinterest @ 15% per annum for any delay beyond 30 days tillthe date of allotment/despatch of refund orders. The Bankwill despatch refund orders in excess of Rs.1500/-, byRegistered Post/Speed Post at the applicant’s sole risk.Refund orders up to Rs.1500/- will be sent under certificateof posting. The Bank will provide adequate funds to theRegistrars to the Issue for this purpose. The Bank shalldespatch the share certificates/refund orders /cancelledstockinvests and demat credit is completed and the allotmentand listing documents are submitted to the Stock Exchangewithin 2 working days of finalisation of the basis of allotment.

In case of joint applications, refund/pay orders, if any, willbe made out in the first name and all communications willbe addressed to the person whose name appears first inthe application form.

ALLOTMENT/REFUND IN CASE OF APPLICATIONSMADE BY STOCKINVEST

The procedure for disposal of Applications made in cash/cheques/Stockinvests/Bank drafts will apply, mutatismutandis, except the following:

1. In case of non-allotment, the Registrars to the Issueshall return the Stockinvest directly to the investors.

2. On allotment/partial allotment, Registrars to the Issueshall fill in the amount, which would be less than or equalto the amount filled in by the investor before presentingthe Stockinvest to the respective issuing Bank forpayment to the extent of allotment.

3. The Registrars to the Issue, pursuant to a resolution ofthe Board of the Bank have been authorised to sign onbehalf of the Bank for realising the proceeds ofStockinvest of the allottees from the issuing Bank or tocancel the Stockinvests of the non/partial allottees. TheRegistrars shall return the cancelled instruments withnon-allotment advice to the investors directly byregistered post within 30 days of the date of closing ofthe subscription lists.

4. Multiple applications received with a single Stockinvestare liable to be rejected.

OVERSUBSCRIPTION AND BASIS OF ALLOTMENT

In the event of the present Issue of equity shares beingoversubscribed, allotment will be on proportionate basis andthe basis of allotment will be finalised in consultation withthe Stock Exchange, Mumbai, being the Designated StockExchange.

The drawal of lots (where required) to finalise the basis ofallotment, shall be done in the presence of a PublicRepresentative on the governing board of the DesignatedStock Exchange. The Executive Director/Managing Directorof the Designated Stock Exchange along with the post-issueLead Managers and the Registrars to the Issue shall beresponsible to ensure that the basis of allotment is finalisedin a fair and proper manner in accordance with the SEBIGuidelines.

The allotment shall be on proportionate basis under thereservation for employees’ category as well as under thenet public offer category, subject to allotment of Shares inmarketable lots, and the basis of allotment would be arrivedat as explained below:

1. Applicants will be categorised according to the numberof shares applied for.

2. The total number of shares to be allotted to eachcategory as a whole shal l be arr ived at on aproportionate basis i.e. the total number of sharesapplied for in that category (number of applicants in thecategory x number of shares applied for) multiplied bythe inverse of the oversubscription ratio.

3. Number of shares to be allotted to the successfulallottees will be arrived at on a proportionate basis i.e.total number of shares applied for by each applicant inthat category mult ip l ied by the inverse of theoversubscription ratio.

4. In all the applications where the proportionate allotmentworks out to less than 100 shares per applicant, theallotment shall be made as follows:

a. Each successful applicant shall be allotted aminimum of 100 shares.

b. The successful applicant out of the total applicantsfor that category shall be determined by draw oflots in such a manner that the total number of sharesallotted in that category is equal to the number ofshares worked out as per 2 above.

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5. If the proportionate allotment to an applicant works outto a number that is more than 100 but is not a multipleof 100, it would be rounded off to the higher multiple of100 if that number is 50 or higher. If that number is lowerthan 50, it would be rounded off to the lower multiple of100. All applicants in such categories would be allottedshares arrived at after such rounding off.

6. If the shares allocated on a proportionate basis to anycategory are more than the shares allotted to theapplicants in that category, the balance available sharesfor allotment shall be first adjusted against any othercategory where the allocated shares are not sufficient forproportionate allotment to the successful applicants in thatcategory. The balance shares, if any, remaining after suchadjustment will be added to the category comprising ofapplicants applying for minimum number of shares.

7. A minimum 50% of the net offer of equity shares to thepublic will be made available for allotment in favour ofthose individual applicants who have applied for suchnumber of shares the value of which aggregates to Rs.50,000 or less (i.e. an application for 2000 shares orless). This percentage may be increased in consultationwith the Designated Stock Exchange depending on theextent of response to the Issue from investors in thiscategory. The balance of the net offer of equity sharesto the public shall be made available for allotment toinvestors, including Corporate Bodies, Institutions andindividual applicants who have applied for such numberof shares the value of which aggregates to more thanRs. 50,000 (i.e. an application for more than 2000shares). The unsubscribed portion of the net offer toany one of the above two categories shall be madeavailable to the applicants in the other category, if sorequired and allotment made on a proportionate basisas per the relevant SEBI guidelines.

In the event of oversubscription, in the process of roundingoff to ensure allotment in marketable lots, the Bank will makeadjustments in the basis of allotment as may be necessaryin consultation with the Designated Stock Exchange (BSE),such that the Issue size does not exceed 10,80,00,000 equityshares (i.e. a retention of oversubscription upto 10% of Netoffer to the Public)

Similar proportionate allotment procedure shall be followedfor the 2 reserved categories i.e. Employees’ category andthe NR category.

BSE reserves the right to modify the above stated Basis ofAllotment within the overall conformity to the extantregulations in this regard.

ISSUE MANAGEMENT TEAM

LEAD MANAGERS TO THE ISSUESBI CAPITAL MARKETS LIMITED202, Maker Tower ‘E’Cuffe Parade Mumbai - 400 005Tel : (022) 218 9166Fax : (022) 218 8332Email : vijaya.cmg@sbicaps.com

DSP MERRILL LYNCH LTD.Mafatlal Centre, 10th FloorNariman Point,Mumbai - 400 021Tel : 022-56328000Fax : 022-22048518Email : vijayabankipo@in.ml.com

J M MORGAN STANLEY PVT. LTD.141, Maker Chambers III,Nariman PointMumbai - 400 021Tel : 022-56303030Fax : 022-56301694Email : vijayabankipo@jmmorganstanley.com

A K CAPITAL SERVICES LTD.135 & 136, Free Press House, 13th Floor,Free Press Journal Marg,215, Nariman Point, Mumbai - 400 021.Tel : 022-56349300 • Fax : 022-56360977Email : akcap@bom9.vsnl.net.in

ALLIANZ SECURITIES LTDC-2, Green Park Extension,New Delhi- 110 016Tel : 011- 26568613/8618 • Fax : 011-26969478Email : tsn_allianz@yahoo.com

CO-MANAGERS TO THE ISSUE

Karvy Investor Services Ltd.Karvy House, 21, Avenue No.4,Street No. 1, Banjara Hills,Hyderabad - 500 034.Tel. : 040-23312456Fax : 040-23351968

Centrum Finance Ltd.Khetan Bhavan, 5th Floor,198, J. Tata Road,Churchgate,Mumbai - 400020.Tel : 022-22023838Fax : 022-22046096

REGISTRAR TO THE ISSUE

MCS LimitedSri Padmavathi Bhavan, Plot No.93,Road No.16, M.I.D.C. Area,Andheri (East) MUMBAI - 400 093Tel : (022) 28201785Fax : (022) 28201783E-mail : mcsmum@bom2.vsnl.net.in

Legal Advisor to the IssueK.S. Hanumantha Rao, Advocate579, 31st Cross Road, 10th Main,4th Block, Jayanagar,Bangalore - 560 011Tel : 080-6631 209Fax : 080-6650 019

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Vijaya Bank ANNEXURE A PART I

Five Years Profit & Loss account

1. Statement of Profit & Loss for last five years

Rupees in Lakhs

Particulars 1998-99 1999-2000 2000-01 2001-02 2002-03

1 Income

Interest Earned

1.1 Interest and discount on advances/bills 47,618.73 55,699.45 65,173.09 71,425.24 75,582.75

1.2 Income on investment 47,144.49 58,527.02 64,601.01 76,513.95 86,301.92

1.3 Interest on balances with RBI and other

inter -bank lendings 4,672.41 4,064.45 4,775.70 5,453.66 4,309.06

1.4 Interest on Income Tax 27.40 169.21 474.63 330.50 420.93

1.5 Others 535.07 1,293.44 594.00 127.08 465.94

2 Other Income

2.1 Commission, Exchange and brokerage 4,345.59 5,070.97 5,152.78 4,722.94 4,556.35

2.2 Profit on exchange transactions (net) 1,815.50 1,550.80 2,350.11 3,691.29 2,166.53

2.3 Profit on sale of investments (net) 1,306.22 1,250.14 267.20 9,016.65 22,508.87

2.4 Profit on sale of Land, building & other assets (net) 14.13 11.03 19.50 14.65 5.49

2.5 Income from Dividends 195.59 613.97 534.24 754.29 1,056.84

2.6 Income from Bullion Trading

2.7 Profit /(Loss) on revaluation of Investments (Net) - 3,908.08 (2,933.15) -

2.8 Miscellaneous Income (net) 3,230.05 3,183.74 3,394.19 3,615.75 4,307.95

Total 110,905.18 131,434.22 151,244.53 172,732.85 201,682.63

1.0 Expenses

Interest Expended

1.1 On Deposits 66,728.47 77,840.99 85,983.26 100,133.70 99,010.80

1.2 On RBI/ inter bank borrowings 313.81 416.72 434.50 217.47 192.18

1.3 On Others 1,228.52 2,679.08 3,165.73 4,968.11 3,538.66

2 Payments to and provisions for employees 22,034.98 27,264.95 27,781.77 25,091.92 26,762.55

3 Amortisation of VRS Expenditure - - 5,260.00 5,500.00 16,138.00

4 Rent, taxes and lighting 2,558.94 2,898.21 3,075.00 3,882.09 4,430.75

5 Insurance 543.55 641.60 677.80 786.89 960.80

6 Printing and stationery 361.21 376.04 639.10 355.23 420.99

7 Advertisement and publicity 41.37 46.30 60.51 35.76 138.85

8 Postage, Telegrams, Telephones, etc 183.82 181.03 211.30 255.62 157.37

9 Repairs and Maintenance 130.67 129.14 105.58 135.83 107.75

10 Law charges 39.86 37.03 60.27 37.43 77.92

11 Directors’ Fees, allowances & expenses 20.88 12.29 2.29 10.75 21.84

12 Auditors’ Fees & Expenses 200.00 172.00 233.00 294.93 334.42

13 Other Expenditure 3,169.73 4,381.00 4,103.56 3,882.56 4,179.92

14 Depreciation on bank’s property 1,735.09 1,813.87 1,603.01 1,893.77 1,973.44

Total 99,290.90 118,890.25 133,396.68 147,482.06 158,446.24

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Rupees in Lakhs

Particulars 1998-99 1999-2000 2000-01 2001-02 2002-03

Gross Profit before Tax and extraordinary items 11,614.28 12,543.97 17,847.85 25,250.79 43,236.39

Less

Extra ordinary items - - - - -

Gross Profit before provision for tax 11,614.28 12,543.97 17,847.85 25,250.79 43,236.39

Less

Provisions and contingencies * * 8,591.36 7,259.97 10,775.02 12,160.42 23,580.38

Net Profit / (Loss) 3,022.92 5,284.00 7,072.83 13,090.37 19,656.01

Balance of Profit /( Loss) brought forward (32,409.70) (29,706.78) 3,309.51 9,190.10 11,770.79

Less Adjusted against Bank’s Capital ( in terms of

Govt of India Approval) 29,706.78

Deferred Tax Liability 475.18

Prior Period Adjustment

(Loss)/Profit Available for appropriation (29,386.78) 5,284.00 10,382.34 21,805.29 31,426.80

APPROPRIATIONS

Transfer to Statutory Reserves - 1,057.00 1,768.20 3,274.51 4,916.50

Transfer to Capital Reserves - - - - -

Transfer to/(from Investment Fluctuation Reserve) 320.00 362.49 (1,763.60) 2,757.77 7,272.00

Redemption Reserve for Bonds - - - - -

Transfer to Staff Welfare Fund - - - - 200.00

Central Govt./Proposed dividend(Including Tax) - 555.00 1,187.64 4,002.22 4,002.22

Balance carried to Balance Sheet (29,706.78) 3,309.51 9,190.10 11,770.79 15,036.08

Adjustments resulting from audit qualifications , material amounts relating to Adjustments for previous years andchanges in accounting policies :

1998-99 1999-2000 2000-01 2001-02 2002-03Net Profit /(Loss) as per Audited Accounts 3,022.92 5,284.00 7,072.83 13,090.37 19,656.01Adjustments forADD /( LESS)Accounting for initial contribution to Pension Fund (2,222.00) 1,111.00 1,111.00 - -Estimated liability for wage revision (1,020.00) 1,020.00 - -Depreciation on investments appropriated fromInvestment Fluctuation Reserve as permitted by RBI (1,234.00) - -VRS Expenses (21,039.00) 4,901.00 16,138.00Initial Public Offer Expenditure - - (225.00) 56.00 169.00Leave Encashment (1,728.00) 1,728.00Adjusted Profit / (Loss) (1,453.08) 7,415.00 (13,080.17) 16,319.37 37,691.01Extraordinary ItemsAdd/( Less)VRS Expenses 26,299.00Initial Public Offer Expenditure 281.00Interest on Return of Capital - - - 1,159.96 -Adjusted Profit / (Loss) after excluding extraordinary items (1,453.08) 7,415.00 13,499.83 17,479.33 37,691.01Impact onReserve & Surplus (3,242.00) 2,131.00 (20,153.00) 4,388.96 18,035.00Provision & Contingencies - - - - -

Total (3,242.00) 2,131.00 (20,153.00) 4,388.96 18,035.00

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1998-99 1999-2000 2000-01 2001-02 2002-03

Increase /( Decrease) in Assets / Liabilities ( Cumulative) *

Nature of Adjustments

Assets - - (21,264.00) (16,307.00) -

Total Increase/( Decrease) in Assets - - (21,264.00) (16,307.00) -

Liabilities 3,242.00 1,111.00 - 568.04 (1,159.96)

Reserve & Surplus (3,242.00) (1,111.00) (21,264.00) (16,875.04) 1,159.96

Total Increase/( Decrease) in Liabilities - - (21,264.00) (16,307.00) -

* Impact of extraordinary item of VRS Expenditure in the year 2000-01 has not been taken in consideration.

Notes :

1) Adjustments to Profit / (Loss) have been done in respect of the following as required to be done as per the SEBIguidelines, in respect of those items which are disclosed in the audited financial statements of the five financialyears wherever ascertainable and material:

- amounts relating to previous years although events triggering off profit / loss accrued in the subsequent year

- extraordinary items

- changes in accounting policies and

- prior period items.

2) For the years ended March 31,1999 to March 31,2003 Reserve Bank of India has issued various directives onincome Recognition, Asset Classification, Provisioning in respect of Non-performing assets, valuation of depreciationon investments and on fixed assets to be followed by banks. The Bank has amended its accounting policies in therelevant years so as to be in consonance with Reserve Bank of India directives. Adjustment to Profit/Loss, assetsand liabilities of the Bank arising from the compliance with the aforesaid directives have not been carried out, asit is not practicable.

* * Details of provisions and contingencies debited to profit and loss account during the said years :

(Rs. in Lakhs)

Financial year ended March 31, 1998-99 1999-2000 2000-2001 2001-02 2002-03

1 Bad & Doubtful Debts 4,167.39 - (281.73) 9,663.60 19,259.83

2 Depreciation on Investments/(written back) (362.25) (362.49) 796.09 11.51 1,627.65

3 Gratuity - - - - -

4 Legal Expenses - - - - -

5 Stationary wastage - - - - -

6 Fraud & Forgery 459.88 24.00 243.00 30.00 13.00

7 Wealth Tax - 10.00 11.00 11.18 11.30

8 Intangible Assets(Deferred Tax) - - - - 913.24

9 Debit Note receivable - - - - -

10 Pension - - - - -

11 Interest Tax 850.00 961.00 - - -

12 Income Tax 475.00 382.00 625.00 1,000.00 2,900.00

13 Revenue Suspense - - - - -

14 Standard Advances 195.00 1,090.00 249.00 115.00 470.00

15 Others 2,806.34 5,155.46 9,132.66 1,550.17 2,559.41

16 Deferred tax written back - - - (221.04) (4,174.05)

Total 8,591.36 7,259.97 10,775.02 12,160.42 23,580.38

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VIJAYA BANK ANNEXURE A PART II

Statement of Assets and Liabilities

(Rs. in Lakhs)

Financial Year Ended as on March 31, 1,999 2,000 2,001 2,002 2,003

A ASSETS

1 Cash in hand 8,198.19 8,899.94 7,514.91 9,384.46 9,751.60

2 Balances with RBI 107,159.04 114,759.71 77,593.26 93,233.84 98,875.02

3 Balances with Banks

In India 10,020.39 14,281.52 27,841.50 36,186.89 38,491.86

Outside India 18,159.91 21,420.87 23,492.50 9,718.47 3,229.13

4 Money at Call & Short Notice 12,500.00 10,000.00 8,232.40 17,000.00 10,000.00

5 Investments in India 444,115.12 508,887.25 587,014.68 736,072.90 886,161.37

6 Advances in India 376,720.00 468,760.99 572,000.98 619,666.05 789,134.23

7 Fixed Assets 8,335.56 7,467.30 7,672.46 9,812.20 9,721.25

( Net of Revaluation Reserve)

8 Other Assets 115,663.80 116,753.03 106,968.32 75,727.16 55,554.13

* Includes unadjusted Balance of loss

** Net of Deferred Tax Reserve

A Total (A) 1,100,872.01 1,271,230.61 1,418,331.01 1,606,801.97 1,900,918.59

B LIABILITIES

1 Demand Deposits

From Banks 7,036.60 10,348.10 6,602.32 6,581.88 4,995.35

From Others 159,254.55 182,629.21 167,769.10 180,024.78 191,914.03

2 Savings Deposits 198,832.52 229,434.35 254,800.70 289,461.51 351,113.12

3 Term Deposits

From Banks 1,278.88 2,318.73 7,795.68 7,864.36 13,871.83

from Others 602,620.46 734,557.89 826,256.37 984,118.45 1,140,086.76

4 Borrowings

In India 13,283.60 6,128.01 11,575.19 6,394.01 25,216.10

Outside India 1,342.11 1,890.00 2,651.52 2,413.08 6,865.68

5 Other Liabilities & Provisions 43,516.70 49,195.51 70,266.13 53,288.93 59,746.96

6 Subordinated Debts 12,000.00 18,000.00 18,000.00 18,000.00 33,000.00

B Total (B) 1,039,165.42 1,234,501.80 1,365,717.01 1,548,147.00 1,826,809.83

C NET ASSETS (C = A - B) 61,706.59 36,728.81 52,614.00 58,654.97 74,108.76

Represented by :

D Share Capital 55,630.56 25,923.78 35,923.78 33,351.78 33,351.78

E Reserve & Surplus

1 Statutory Reserve 1,656.29 2,713.29 4,481.49 7,756.00 12,672.50

2 Capital Reserve - - - - -

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(Rs. in Lakhs)

1,999 2,000 2,001 2,002 2,003

3 Investment Fluctuation Reserve 4,419.74 4,782.23 3,018.63 5,776.40 13,048.40

4 Revenue and other Reserve - - - - -

5 Balance of Profit and Loss Account - 3,309.51 9,190.10 11,770.79 15,036.08

Total (E) 6,076.03 10,805.03 16,690.22 25,303.19 40,756.98

F Total (D+E) 61,706.59 36,728.81 52,614.00 58,654.97 74,108.76

1. In 1999-2000 Accumulated losses of Rs. 29707lakh were adjusted by reducing the paid up capital of the bank.

2. In 2000-01 Rs. 10000 lakh were added due to IPO by the Bank

3. In 2001-02 Rs. 2572 lakh were returned to Government of India (GOI) against equity of the GOI

Rs in Lakhs

Financial year 1998-99 1999-2000 2000-01 2001-02 2002-03

CONTINGENT LIABILITIES

Claims against the Bank not acknowledged as debts 1,831.94 1,156.31 2,328.69 1,642.48 3,718.34

Disputed Income Tax demand under - 300.53 - - -

appeal/references etc.

Liability for partly paid Investment - - - - -

Liability on account of outstanding forward

exchange contracts 100,171.73 114,886.00 139,428.70 141,989.66 385,845.50

Guarantees given on behalf of constituents

(Net of Margin) 47,587.06 55,082.83 59,484.53 60,769.88 73,159.97

Acceptances, endorsements and other

obligations( Net of Margin) 28,673.84 31,270.94 33,148.97 45,376.40 44,120.73

Other items for which the Bank is contingently liable 254.65 1,709.01 30.52 321.47 903.21

Total (G) 178,519.22 204,405.62 234,421.41 250,099.89 507,747.75

BILLS FOR COLLECTION 41,244.99 43,184.63 48,233.80 40,033.89 42,554.51

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ANNEXURE-A PART-III

PRINCIPAL ACCOUNTING POLICIES OF VIJAYABANK

1. ACCOUNTING CONVENTION: The financial statementshave been prepared by following the going concernconcept on historical cost basis except as otherwisestated and conform to the statutory provisions andpractices prevailing in the country.

2. FOREIGN EXCHANGE TRANSACTIONS:

(I) Transact ions other than FCNR/EEFC/RFCAccounts

i) Foreign Currency balances both under assetsand l iabi l i t ies and outstanding forwardexchange contracts and swaps are evaluatedat the year end rates as quoted by ForeignExchange Dealers’ Association of India.(FEDAI). The resultant profit/loss is shown asincome/loss.

ii) Income and expenditure items have beentranslated at the exchange rates ruling on thedates of the transactions.

iii) Cont ingent l iabi l i t ies on account ofacceptances, endorsements and otherobligations including guarantees and Lettersof Credit issued in Foreign Currencies, shownin the Balance Sheet are valued at theexchange rates prevailing at the year end.

(II) Transactions relating to FCNR/EEFC/RFC accounts

Foreign Currency Deposits in FCNR/ EEFC/RFCaccounts including interest accrued and also thecorresponding assets are recorded at marketrelated notional rates, which are periodicallyreviewed. Assets and Liabilities at the year-end arerevalued at rates quoted by FEDAI.

3. INVESTMENTS

(I) Investments are grouped and shown in BalanceSheet under the following six groups:

i) Government Securities

ii) Other Approved Securities

iii) Shares

iv) Debentures and Bonds

v) Investments in Subsidiaries/Joint Ventures

vi) Others (Commercial Paper, Units of MutualFund etc.,)

(II) The Investment portfolio of the Bank is classifiedinto the following three categories:

i) Held to Maturity

ii) Available for Sale

iii) Held for Trading

Bank decides the category of each investmentat the time of acquisition and classifies thesame accordingly. Transfer of securities fromone category to another is done at the least ofthe acquisition cost/book value/ market valueon the date of transfer. The depreciation, if any,on such transfer is provided for and the bookvalue of the security is changed.

(III) Valuation

(a) Held to Maturity:

i) Investments classified under this categoryare valued at the year end at the acquisitioncost, except where the acquisition cost ismore than the face value, in which casethe premium is amort ised over theremaining maturity period.

ii) In the case of investments in subsidiaries/joint ventures, any diminution in value,other than temporary, is recognised andprovided for each investment individually.Investment in RRB is valued at carryingcost.

(iii) Prof i t on sale of investments in thiscategory is first taken to Profit and LossAccount and thereafter appropriated to the“Capital Reserve Account”. Loss on saleis recognised in the Prof i t and LossAccount..

(b) Available for Sale:

(i) The individual scrips in this category arevalued at the market rates available on theBalance Sheet date from trades/quotes onthe Stock Exchanges, SGL accounttransactions, price list of Reserve Bank ofIndia, prices declared by Primary DealersAssociation of India (PDAI) jointly with theFixed Income Money Market andDerivatives Association of India (FIMMDA).Unquoted securities are valued as per theReserve Bank of India guidelines

(ii) The net depreciation under each groupreferred to in item 3(I) above is recognisedand fully provided for. The net appreciationunder each group is ignored. The netdepreciation required to be provided for inany one group is not reduced on accountof net appreciation in any other group.

(iii) The book value of the securities is notchanged after revaluation, except asrequired by the Reserve Bank of Indiaguidelines.

(iv) Profit or loss on sale of investments in thiscategory is accounted for in the Profit andLoss account.

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c) Held for Trading

(i) The individual scrips are valued and theappreciat ion i f any is ignored anddepreciation is recognised in the Profit &Loss account. For valuation, the marketrates available on the Balance sheet datefrom trades/quotes on the StockExchanges, SGL account transactions,price list of the Reserve Bank of India,pr ices declared by Primary DealersAssociation of India (PDAI) jointly with theFixed Income Money Market andDerivatives Association of India (FIMMDA)are adopted. Unquoted securities arevalued as per the Reserve Bank of Indiaguidelines.

(ii) The book value of the individual scrip isnot changed after each revaluat ion,wherever depreciation is effected, exceptas required by the Reserve Bank of Indiaguidelines.

(iii) Profit or loss on sale of investments in thiscategory is accounted in the Profit andLoss account.

IV. Prudential Norms

(i) Securities with guarantees of the CentralGovernment/State Governments (where StateGovernment Guarantees are not invoked) aretreated as performing investments,notwithstanding arrears of principal/interestpayments. However, interest if not realised formore than 180 days is recognised as incomeonly on cash basis. In case, the StateGovernment guarantee is invoked and nothonoured within 180 days, such investmentswill be treated as Non Performing Investments.

(ii) Securities not guaranteed by the CentralGovernment/State Governments: Where thePrincipal/Interest is due but not paid for a periodof more than 180 days the items are treated asNon Performing Investments and provided foras per the Reserve Bank of India guidelines.

(iii) In the case of debentures/bonds when principal/interest is in arrears, provision is made as inthe case of advances.

(iv) The depreciation/provision requirement inrespect of non-performing investments is notset off against the appreciation in respect ofother performing investments.

4. FIXED ASSETS/DEPRECIATION

I) Fixed Assets:

(i) Premises of the bank include free hold as wellas lease hold properties. Land and buildingspurchased or allotted have been capitalised

based on agreements/ letters of allotment andphysical possession. Premises and other FixedAssets are stated at their historical cost exceptthose which were revalued. Such Fixed Assetsare stated on the revalued amount.

(ii) Advance payments made for acquisition ofcapital assets and deposits made in respect ofproperties taken on lease/rent are includedunder ‘Other Assets’.

II) Depreciation:

(i) Fixed Assets other than Computers aredepreciated at the rates prescribed under the‘Income Tax Rules’ on reducing balance methodincluding on the composite cost of certainproperties where it is not possible to segregatethe land cost. Computers are depreciated onStraight Line Method at the rate of 33.33% perannum.

Depreciation on additions to Fixed Asset duringthe financial year is provided at 100% of therate of depreciation prescribed, if the asset isput to use for 180 days and above during theyear and at 50% of the rate of depreciationprescribed, if the asset is put to use for lessthan 180 days during the year.

No depreciation is provided in the year of sale/disposal on all fixed assets

(ii) Incremental depreciation on revalued amountin respect of premises is adjusted fromRevaluation Reserve account.

5. LEASED OUT ASSETS:

Accounting is done as per the Guidance Note of theInstitute of Chartered Accountants of India. Provisionin respect of non-performing assets is made by applyingthe asset classification norms prescribed by the ReserveBank of India for advances.

6. NON BANKING ASSETS:

Non-Banking assets are shown at cost.

7. NON PERFORMING ADVANCES

(i) In terms of guidelines of Reserve Bank of India,advances are classified as “performing” and “non-performing assets” based on recovery of principal/interest. Advances with guarantees of the CentralGovernment and State Governments are treated asPerforming advances, notwithstanding arrears ofprincipal/interest payments. However in such casesinterest, if not realised for more than 180 days, isrecognised as income only on cash basis.

In case the State Government Guarantee is invokedand not honoured within 180 days, the advance willbe treated as a Non Performing Advance.

Non Performing Advances (NPAs) are categorisedas sub-standard, doubtful and loss assets for thepurpose of provision.

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(ii) Advances shown in the Balance Sheet are net ofprovisions [including floating provisions] in respectof non-performing advances.

(iii) Provision on Standard Advances and for recognitionof loan impairments on 90 days norms are shownunder “Other Liabilities and Provisions”.

iv) Provision on advances is made as per ReserveBank of India guidelines as under.

(a) Standard Assets 0.25% of the outstandingadvances.

(b) Sub standard assets 10% of the outstandingadvances.

(c) Doubtful assets -

(1) 20% to 50% of the secured portion ofadvances, depending upon the period forwhich the asset has remained doubtful and

(2) 100% of the unsecured portion of theoutstanding advance after netting realizedamount in respect of DICGC scheme andrealized/realisable amount of guaranteecover under the ECGC/CGSTI Schemes.

(d) Loss Assets 100% of the outstandingadvances.

(e) Recognition of loan impairment on 90 daysnorms on adhoc basis.

8. REVENUE RECOGNITION:

Income/Expenditure is accounted on accrual basisexcept in the following cases:

(i) In the case of Non Performing Assets, income isrecognised on cash basis, in terms of guidelines ofthe Reserve Bank of India. Where recovery is notadequate to upgrade the Non Performing Assetsaccounts by way of regularisation, such recovery isbeing appropriated towards the principal/bookbalance in the first instance and towards interestdues thereafter.

In respect of Non Performing Investments, the sameaccounting treatment as above is followed exceptother wise agreed.

(ii) In the case of advances guaranteed by the Central/State Governments, income is recognised on cashbasis if the interest is not realised for more than180 days, though the same are treated asPerforming Assets.

(iii) Interest on securities which is due and not paid fora period of more than 180 days is recognised onrealisation basis as per R.B.I guidelines.

(iv) Dividend on investment in shares, units of MutualFunds, income from Merchant Banking transactions,locker rent, commission on Government business,etc., are accounted on cash/realisation basis.

(v) Income relating to credit card is accounted on thebasis of bills raised.

(vi) In the case of matured Term Deposits, interest isprovided as and when such deposits are renewed.

Expenses arising out of claims in respect ofemployee matters under dispute/ negotiation areaccounted during the year of final settlement/determination.

9. STAFF BENEFITS:

(i) In respect of employees who have opted forProvident Fund scheme, matching contribution ismade. For others who have opted for pensionscheme, contribution to Pension Fund is madebased on actuarial valuation at the year-end.

(ii) Contribution to Gratuity Fund is made based onactuarial valuation at the year end.

(iii) Liability towards leave encashment is providedbased on actuarial valuation at the year end.

10. PROVISION FOR TAXATION:

Provision for taxation is made on the basis of theestimated tax liability with adjustment for deferred tax,in terms of the Accounting Standard 22 formulated bythe Institute of Chartered Accountants of India.

11. NET PROFIT:

The net profit is arrived at after -

i) Provisions for Income Tax & Wealth Tax inaccordance with statutory requirements.

ii) Provision on advances/investments

iii) Adjustments to the value of investments

iv) Transfers to provisions and contingencies

v) Other usual and necessary provisions

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ANNEXURE A PART-IV

NOTES ON ACCOUNTS OF VIJAYA BANK

1. Reconciliation of entries outstanding as on 31.03.2003in the inter-branch and other accounts has been drawn.Elimination of entries outstanding in inter-branch andinter-bank accounts including balances with foreignbanks and Reserve Bank of India, drafts accounts,suspense accounts, branch adjustment accounts,clearing transactions, funds transfers, telegraphictransfers, balances pertaining to dividends/interest/refund orders paid/payable accounts, advances paid foracquisition of assets, etc., is under progress.

In the opinion of the Bank, consequential effect of theabove on the revenue/ assets/liabilities is not material.

2. In respect of certain premises acquired by the Bankcosting Rs.20.54 crore, (previous year Rs.24.28 crore)documentation/registration formalities are yet to becompleted.

3. In the case of un-audited branches, the returns/classification of advances as reported by the concernedbranches have been adopted.

4. Premises were re-valued during the year 1994-95 onthe basis of approved valuer’s reports. The incrementalportion amounting to Rs.124.88 crore was credited toRevaluation Reserve in that year.

5. Claims pending and to be preferred with ECGCI Limitedamounting to Rs.27.28 crore (Rs.28.14 crore as on31.03.2002) have been considered as realisable for thepurpose of computing provisions.

6. Changes made during the year in the AccountingPolicies and the impact thereof on the Profit & LossAccount are as under: -

i) Leave Encashment: Accrued liability towards leaveencashment amounting to Rs.20.66 crore as on31.03.2003 (inclusive of Rs.17.28 crore upto31.03.2002) has been provided during the year

based on actuarial valuation as against the ‘pay asyou go’ basis followed hitherto. As a result, the profitfor the year is lower by Rs.20.66 crore.

ii) The balance deferred expenditure of Rs.1.69 crorein respect of Public Issue has been charged to Profit& Loss account for the current year as against thepolicy of amortising it over the remaining period of3 years. As a result, the profit for the year is lowerby Rs.1.13 crore with corresponding decrease indeferred revenue expenditure.

iii) The balance deferred expenditure of Rs.161.38crore relat ing to expenditure on VoluntaryRetirement Scheme has been charged to Profit &Loss Account for the current year as againstprevious policy of amortising it over the remainingperiod of 3 years. As a result, the profit of the Bankis lower by Rs.107.58 crore with correspondingdecrease in deferred revenue expenditure.

7. Investment Fluctuation Reserve

The bank has transferred Rs.72.72 crore to InvestmentFluctuation Reserve during the year and the amount inInvestment Fluctuation Reserve of Rs.130.48 crore ason 31.03.2003 is 2% of book value of investment otherthan investments held to maturity as at the end of theyear as per RBI directive.

8. VRS Bonds

Out of balance of Rs.10.40 crore as on 31.03.2002, asum of Rs.0.37 crore has been refunded during the yearto VRS Optees exercising the option before 31.01.2002for payment in cash in lieu of bonds.

9. There are no material prior period items included in Profitand Loss account required to be disclosed as per AS 5read with RBI guidelines except those disclosedelsewhere in the notes.

10. In terms of AS-17 of the ICAI (segment information) isgiven for the consolidated financial statement.

11. In compliance with Accounting Standard 18 issued by the ICAI and the RBI guidelines, details pertaining to RelatedParty Transactions are disclosed as under:

i) Key Management Personnel

Sl. Name Designation Item Period AmountNo. (in rupees)

01 Shri M.S. Kapur Chairman & Salary and From 16.08.2002 2,76,564Managing Director emoluments

02 Shri Michael Executive Director Salary and Till 1,67,873Bastian emoluments 30.08.2002

03 Shri P. A. Sethi Executive Director Salary and From 08.03.2003 *emoluments

* In the absence of instructions in this regard from the Government of India.

ii) Subsidiary & Associate

The subsidiary of the Bank - Vibank Housing Finance Limited and the associate viz. Visvesvaraya GrameenaBank are only the entities in their respective categories.

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12. The Bank has accounted for Income Tax in compliance with Accounting Standard 22 - “Accounting for taxes onIncome” issued by the ICAI. Accordingly, deferred tax assets and liabilities are recognised.

i) The major components of deferred tax are as under:

Amount rupees in lakh

Timing Difference Deferred Tax Asset Deferred tax liability

1. Expenses in connection with Tier II Bonds 2.36 -

2. V R S Ex gratia 2812.59 -

3. Provision for wage revision 367.50 -

4. Provision for leave encashment 759.39 -

5. Depreciation on computers - 15.68

ii) In the opinion of the Management, there is no timing difference arising in connection with NPA provisions, so nodeferred tax asset has been recognised.

13. In view of the favourable judgements by the ITAT Bangalore for some other bank, no provision is considered necessaryby the management in respect of disputed tax liabilities and provision for tax for the year has been made accordingly.

14. In terms of the guidelines issued by the Reserve Bank of India, the following additional disclosures are made:

(a) Capital Adequacy Ratio as at 31st March 2003 is 12.66%* [previous year 12.25%].

* The calculation of the ratio for the current year has been made considering the eligible amount of InvestmentFluctuation Reserve based on the RBI Credit Policy for the year 2003-2004.

(Amount rupees in 000s)

ii) As at As at31.03.2003 31.03.2002

a) Percentage of shareholding of the Government of India 70.02% 70.02%b) Percentage of net non-performing advances to net advances 2.61% 6.02%c) Details of Provisions & Contingencies debited to Profit and Loss

Account during the year� Provision for Depreciation in investments 16,28,59 7,78,18� Provision for Non Performing Investments 2,10,00 9,34,70� Bad Debts Written off (net) Nil 1,27,62� Provision for Income Tax and Wealth Tax

(including dividend tax) 29,11,30 10,11,18� Provision for Deferred Tax 9,13,24 (2,21,04)� Provision for Standard Assets 4,70,00 1,15,00� Provision for recognition of loan impairment on

90 days norms 6,75,00 3,15,00� Provision for NPA 192,59,83 96,63,60� Other Provision and Contingencies 16,95,89 2,31,15

277,63,85 129,55,39Less: excess provision written back As at As at

31.3.2003 31.3.2002Depreciation in investments 94 7,66,67Provision for NPA 8,48 28,30Deferred Tax 41,74,05 - 83.47 7,94,97

41,83,47 235,80,38 121,60,42d) Equity Capital repaid/raised as Tier-I Capital - (-)25,72,00e) Sub-ordinated debt raised as Tier - II Capital 150,00,00 -f) Capital Adequacy Ratio - [i] Tier - I Capital 7.42% 8.86%

[ii] Tier - II Capital 5.24% 3.39%g) Interest Income as a percentage to Working Funds 9.63% 9.97%h) Non-interest income as a percentage to Working Funds 1.98% 1.22%i) Operating Profit as percentage to Working Funds 2.50% 1.63%j) Return on Assets 1.13% 0.86%k) Average Business [Deposits + Advances] per employee 193.62 169.38

(Rs. in lakh)l) Profit per employee (Rs. in lakh) 1.76 1.16

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iii) Maturity pattern of Assets and Liabilities: [Rupees in crore]

1 - 14 15 - 28 29 days - Over 3 Over 6 Over 1 Over 3 Over 5 Totaldays days 3 months months months year to Years Years

to 6 to 12 3 tomonths months Years 5 Years

Loans and Advances * 326.91 103.48 269.47 199.09 996.43 4627.41 590.64 777.91 7891.34

Investment in Securities * 14.98 1.00 40.30 100.62 321.71 924.44 1603.31 5855.25 8861.61

Deposits 964.64 305.75 935.19 1696.20 3854.57 8288.09 692.16 283.21 17019.81

Borrowings ** 0.08 0.00 0.38 250.29 0.51 0.78 0.10 0.02 252.16

Foreign Currency Assets 125.79 0.00 84.73 67.08 58.47 0.00 0.00 0.00 336.07

Foreign Currency Liabilities 61.06 5.80 53.60 55.18 46.39 63.68 0.00 4.58 290.29

Assets and Liabilities are classified as per the guidelines issued by the Reserve Bank of India

� Figures are broadly net of provision, reckoned of performing assets

** Borrowings in India.

iv) Movements in NPA (funded) Advances (Rupees in crore)

31.03.2003 31.03.2002

Gross NPAs as at the commencement of the year 602.69 594.92

Additions during the year 149.12 751.81 190.17 785.09

Less: Reduction during the year

Amounts recovered 90.19 65.20

ECGC adjusted 1.64 3.59

Amounts written off 122.59 107.73

Upgradation 31.85 246.27 5.88 182.40

Gross NPAs as at the close of the year 505.54 602.69

Less: Provisions 290.45 220.44

Interest Suspense 2.20 Nil

DICGC/ECGC settled unadjusted 7.08 299.73 9.01 229.45

Net NPA as at the close of the year 205.81 373.24

v) Movement in provision for Non Performing Advances

(Rs. in crore)

31.03.2003 31.03.2002

Opening balance

(excluding provisions

on standard assets) 220.44 229.01

Add: Provision made

during the year 192.60 99.16

413.04 328.17

Less: Write off/write

back of

excess provisions 122.59 107.73

Closing balance 290.45 220.44

vi) Movement in provision for Non PerformingInvestments

(Rs in lakh)

31.03.2003 31.03.2002

Opening balance 2679.52 1773.12

Add: Provision made

during the year 210.00 934.70

Less: Write off/write back of

excess provisions 8.48 28.30

Closing balance 2881.04 2679.52

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vii) Depreciation on

investments (Rs. in lakh)

31.03.2003 31.03.2002

Opening balance 3005.26 2993.75

Add: i) Provision madeduring the year 140.40 778.18

ii) Diminution shifting 1488.19 -

4633.85 3771.93

Less: Write off/write backof excess provisions 0.94 766.67Closing balance 4632.91 3005.26

viii) Lending to Sensitive Sectors

(Rs .in lakh)

31.03.2003 31.03.2002

i) Capital Market Sector 2214.28 815.71

ii) Real Estate Sector 36308.57 17983.17

iii) Commodities Sector 21074.06 13260.61

ix) Financing of equities and investments in shares

(Rs. in lakh)

31.03.2003 31.03.2002

(a) Investments inequity shares 4722.16 4668.90

(b) Convertibledebentures - -

(c) Units of equity orientedmutual funds 6182.29 4982.19

Total 10904.45 9651.09

Net of Provisions

(d) Advances againstsecurity/collateral ofshares 2214.28 815.71

x) Information in respect of loan assets subjected torestructuring etc., during the year -

b) Loans to Industrial Units (in terms of RBI CircularDBOD.No.BP.BC.98.21.04.048. 2000.01 dated30.03.2001)

(Rs. in lakh)

31.03.03 31.03.0201 Total amount of loan

assets subjected torestructuring etc. 13301.07 7018.84

02 Amount of standardassets subjected torestructuring, etc. 8831.20 6697.24

03 Amount of sub standard/doubtful assets subjectedto restructuring, 4469.87 321.60

c) Corporate Debts (in terms of RBI Circular No.BP.BC.15/

21.01.114/2000-01 dated 23.08.2001, read with Circular

No.BP.BC:68:21.04.132:2002-2003 dated 05.02.2003).

(Rs. in lakh)

31.03.03 31.03.02

01 Total amount of loan

assets subjected to

C D R 1540.64 -

02 Amount of standard

assets subjected to CDR - -

03 Amount of sub standard

assets subjected to CDR 1540.64 -

04 Amount of doubtful assets

subjected to CDR - -

d) Loans to Coffee growers (in terms of RBI letter

no.DO.IECD.No.4984/04.02. 02/2000/2001 dated

04.05.2001).

(Rs. in lakh)

31.03.03 31.03.02

01 Total amount of loan

assets subjected to

restructuring 9385.95 -

02 Amount of standard assets

subjected to restructuring 9362.52 -

03 Amount of sub standard

assets subjected to

restructuring 23.43 -

xi) The net funded exposure of the bank in respect offoreign exchange transactions with each country iswithin 2% of the total assets of the Bank and henceno provision and disclosure is required to be madeas per the RBI Circular DBOD.BP.BC.71/21.04.103/2002-03 dated 19.02.2003.

xii) The Bank has not made any financing for margintrading during the year.

The additional disclosures made herein above withregard to Maturity Pattern of Assets and Liabilities,movement of NPA advances and lending to sensitivesectors as on 31.03.2003 and restructured accountsare based on the records/information compiled bythe Bank and relied upon by the Auditors.

15. Previous year ’s figures have been re-grouped/re-classified wherever necessary to confirm current year’sclassification.

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ANNEXURE-A PART V

AUDITORS’ REPORT TO THE PRESIDENT OF INDIA

1) We have audited the attached Balance Sheet of VijayaBank as at 31st March 2003, the Profit and Loss Accountand the Cash Flow Statement for the year ended onthat date annexed thereto in which are incorporated thereturns of 20 branches audited by us and 792 branchesaudited by other auditors. The branches audited by usand those audited by other auditors have been selectedby the Bank in accordance with the guidelines issued tothe Bank by the Reserve Bank of India. Alsoincorporated in the Balance Sheet, the Profit and LossAccount and the Cash Flow Statement are the returnsfrom 31 branches, which have not been subjected toaudit. These un-audited branches account for 0.21percent of advances, 0.65 percent of deposits, 0.09percent of interest income and 0.01 percent of interestexpenses. These f inancial statements are theresponsibi l i ty of the Bank’s management. Ourresponsibility is to express our opinion based on ouraudit.

2) We have conducted our audit in accordance with theauditing standards generally accepted in India. TheseStandards require that we plan and perform the audit toobtain reasonable assurance about whether the financialstatements are free of material mis-statements. An auditincludes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accountingprinciples used and significant estimates made bymanagement, as well as evaluating the overall financialstatement presentation. We believe that our auditprovides a reasonable basis for our opinion.

3) Subject to the limitations of the audit indicated inparagraph 1 above and as required by the BankingCompanies (Acquisition and Transfer of Undertakings)Act, 1980, and subject also to the l imitations ofdisclosure required therein, and further subject to

I. Note-1, Schedule-17, regarding reconciliation ofbalances and clearance of outstanding entries ininter-branch and inter-bank accounts includingbalances with foreign banks and Reserve Bank ofIndia, drafts accounts, suspense accounts, branchadjustment accounts, clearing transactions, fundstransfers, telegraphic transfers, balances pertainingto dividends/interest/refund orders paid/payableaccounts, advances paid for acquisition of assets,etc. The consequential effect of the above onRevenue/Assets/Liabilities of the Bank is notascertainable.

II. Note-2, Schedule-17, in respect of certain premiseswhere registrat ion formal i t ies are yet to becompleted.

III. Non disclosure of prior period items separately inthe Profit and Loss Account as required by theAccounting Standard (AS) - 5 on “Net Profit or Lossfor the Period, Prior Period items and Changes inAccounting Policies” issued by the Institute ofChartered Accountants of India. Such amounts havebeen charged/accounted for to their natural headsof account and not separately disclosed in a mannerthat their impact on the profit for the year can beperceived.

The effect of our observations in the foregoing paragraphson the accounts, as also on the Capital Adequacy Ratio andother ratios/disclosures set out in Note 14, Schedule 17 couldnot be determined.

We report that

(a) The Balance Sheet and the Profit and Loss Accounthave been drawn up in forms “A” and “B” respectivelyof the Third Schedule to the Banking Regulation Act,1949.

(b) In our opinion and to the best of our information andaccording to the explanations given to us and as shownby the books of the bank:

I. The Balance Sheet read with the notes thereon is afull and fair Balance Sheet containing the necessaryparticulars and is properly drawn up so as to exhibita true and fair view of the affairs of the Bank as at31st March 2003.

II. The Profit and Loss Account read with the notesthereon shows a true balance of Profit for the yearcovered by the account.

III. The Cash Flow Statement gives a true and fair viewof the cash flows for the period covered by theStatement.

(c) We have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purposes of our audit and have foundthem to be satisfactory.

(d) The transactions of the Bank, which have come to ournotice, have been within the powers of the Bank.

(e) Read with Note 3, Schedule-17, the returns receivedfrom the offices and the branches of the Bank have beenfound adequate for the purposes of our audit.

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ANNEXURE-A PART-VI

VIJAYA BANK

SIGNIFICANT CHANGES IN ACCOUNTINGPOLICIES :1. During the five consecutive financial years ended 31st

March’2003, various guidelines were issued by theReserve Bank of India on Income Recognition, AssetsClassification, Provisioning in respect of StandardAssets /Non-Performing Advances, Other Assets,Classif ication of Investments, Valuation thereof,Treatment of Depreciation on Investments /Fixed /Leased Assets and amortisation of Voluntary RetirementScheme expenditure. Necessary amendments in theaccounting policies have been carried out by the Bankin the relevant years, to be in conformity with theReserve Bank of India guidelines. Adjustment to Profit/Loss, Assets and Liabilities of the Bank arising from thecompliance with the aforesaid directives have not beencarried out, as it is not practicable.

2. During the year 2000-2001, printing and stationery atthe branches was charged off to the Profit & LossAccount as against the earlier practice of valuing suchstock. This has resulted in profit for the year being lowerby Rs. 2.08 crore.

3. Acceptances, endorsements and other obligationsincluding guarantees in transactions involving foreignexchange were stated at the exchange rates prevailingon the commitment dates up to 31st March’2000 and inthe year ended on 31st March’2001, the same aretreated at the year-end rates as advised by FEDAI.Consequential affect, if any , was not ascertained.

4. During the year 2001-2002, the Bank accounted forIncome Tax on the basis of income tax liability withadjustment for deferred tax assets and liabilities as perthe AS-22 issued by the Inst i tute of CharteredAccountants of India. As a result , Provisions &Contingencies was lower by Rs 221.04 lakh, otherassets were higher by Rs 772.04 lakh and Revenue &other reserves were higher by Rs 907.39 lakh.

5. During the year 2001-2002, the DICGC claims wereconsidered on realised basis instead of on realisablebasis for the purpose of provisioning against advances,in the opinion of the Bank, impact thereof on accountswas not material.

6. During the year 2002-2003, accrued liability for leaveencashment amounting to Rs. 20.66 crore (inclusive ofRs. 17.28 crore relating to the period up to 31.03.2002)has been provided based on actuarial valuation asagainst the ‘pay as you go’ basis hitherto followed, as aresult, the profit is lower by Rs. 20.66 crore.

7. During the year 2002-2003, balance of DeferredExpenditures of Rs. 1.69 crore in respect of public issuehas been charged to Profit & Loss Account as againstthe earlier policy of amortising it over the remainingperiod of 3 years, as a result, the profit for the year islower by Rs. 1.13 crore.

8. During the year 2002-2003, balance of DeferredExpenditure of Rs. 161.38 crore relating to VoluntaryRetirement Scheme has been charged to Profit & LossAccount as against previous policy of amortising it overthe remaining period of 3 years, as a result, the profitfor the year is lower by Rs. 107.58 crore.

VIJAYA BANK

ANNEXURE-A PART-VII

AUDITORS’ QUALIFICATIONS IN RESPECT OF WHICHADJUSTMENTS COULD NOT BE CARRIED OUT ASCONSEQUENTIAL EFFECT COULD NOT BEASCERTAINED

The effect of following audit observations on the accountsof the year 1999 to 2003, as also on capital adequacy ratioand other ratios/disclosures could not be determined.

(1) 1998-99 UPTO 2002-2003

a) Impact of pending reconciliation of balances andclearance of outstanding entries in inter-branch and inter-bank accounts including balances with foreign banks andReserve Bank of India, drafts accounts, suspense accounts,branch adjustment accounts, clearing transactions, fundstransfers, telegraphic transfers, balances pertaining todividends/interest/refund orders paid/payable accounts,advances paid for acquisi t ion of assets, etc. Theconsequential effect of the above on Revenue/Assets/Liabilities of the Bank is not ascertainable.

b) In respect of certain premises where registrationformalities are yet to be completed.

(2) 2000-01 UPTO 2002-2003

Non disclosure of prior period items separately in the Profitand Loss Account as required by the Accounting Standard(AS) - 5 on “Net Profit or Loss for the Period, Prior Perioditems and Changes in Accounting Policies” issued by theInstitute of Chartered Accountants of India, such amountshave been charged/ accounted for to their natural heads ofaccount and not separately disclosed in a manner that theirimpact on the profit for the year can be perceived.

(3) 1998-99 UPTO 2000-2001

Non-provision for unutilised leave encashment, which iscontrary to the Accounting Standard (AS) 15 on Accountingfor Retirement Benefits issued by the Institute of CharteredAccountants of India, the effect thereof is not ascertained.

(4) 1998-99 UPTO 2000-2001

Pending DICGC and/or ECGCI claims outstanding andconsidered realisable by the Bank in respective years, therealisability of which is not ascertainable and provision, ifany, required in respect thereof has not been made.

(5) 1998 - 1999

The reconstruction of records at two branches in the wakeof a fire/theft and basis of Provision in respect of non-performing advances, the effect thereof is not ascertainable.

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Annexure B - Part I

Vibank Housing Finance Limited

The audited statements of the subsidiary of the bank, Vibank Housing Finance Limited, are as under :

Statement of profit Rs. in lakhFinancial years ended on 31st March 1999 2000 2001 2002 2003A. Income

INTEREST EARNEDInterest on Housing Loans 459.18 839.22 1134.07 1555.66 1790.71Other Interest income 56.79 41.68 9.13 15.34 47.26

OTHER INCOME

Fees and other charges 55.65 80.09 91.99 124.93 122.10Other income 0.48 4.32 40.67 43.29 80.26

Total 572.11 965.30 1275.86 1739.23 2040.33B. Expenditure

INTEREST EXPENDEDInterest and other charges 335.56 625.69 833.13 1228.42 1514.55OPERATING EXPENSES

Staff Expenses 60.27 73.40 76.31 56.30 58.77Establishment Expenses 14.32 24.61 38.26 38.66 41.70

Other Expenses 16.88 26.91 29.64 34.46 40.65Depreciation 4.32 5.47 6.50 9.33 9.00

Deferred Revenue expenditure written off 1.53 4.99 5.25 4.42 0.83

Preliminary Expenses written off 0.53 0.53 0.53 1.07 1.07Provision for doubtful debts 0.00 4.48 9.11 37.39 48.19

Total 433.41 766.09 998.73 1410.06 1714.75Profit before provisions for Tax and

extraordinary items 138.70 199.21 277.13 329.17 325.58

Previous year adjustments 1.44 1.01 -0.23 9.61 0.02Provision for Income-Tax 30.00 45.20 65.57 71.68 86.55

Excess provision withdrawn 0.10 0.41 0.00 3.01 -2.35Net Profit 110.24 155.42 211.33 270.11 236.70Vibank Housing Finance LimitedAdjustments resulting from audit qualification and changes in accounting policies Statement of profitFinancial years ended on 31st March 1999 2000 2001 2002 2003Net Profit 110.24 155.42 211.33 270.11 236.70ADD / (LESS)

Previous year adjustment -1.44 -1.01 0.23 -9.61 -0.02Adjustments made in the subsequent years 1.01 -0.23 9.61 0.02 0.00

Adjusted profit / (loss) after tax 109.81 154.18 221.17 260.52 236.68

Extent of interest so far as it concerns membersof Vijaya Bank, the holding bank in the capital

of the subsidiary 80% 80% 88% 88% 88%The above statement of accounts does

not include the followingTRANSFER TO :

Special Reserves 50.34 76.45 107.32 128.39 125.44

General Reserves 5.00 0.00 0.00 0.00 0.00Proposed dividend (including Tax) 33.30 53.28 85.84 90.00 101.25

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Annexure B Part IIVIBANK HOUSING FINANCE LIMITEDStatement of Assets and Liabilities

Rs. in Lakh

Financial Year Ended March 31, 1999 2000 2001 2002 2003A. ASSETS

FIXED ASSETS (net) 28.66 42.18 39.97 37.22 38.65

Plant and Machinery in Transit 0.00 2.64 0.00 0.00 0.00

Capital Work in progress 2.50 2.50 2.50 0.00 0.00

INVESTMENTS 264.01 264.01 264.01 364.01 348.59

HOUSING LOANS 4146.59 6845.74 9253.06 12864.21 15338.32

SITE LOAN, V-RENT, CONSUMER 0.00 0.00 0.00 0.00 182.77

DURABLE LOAN

CURRENT ASSETS

Cash-in-hand 0.40 1.34 1.12 2.19 10.05

Balances with Banks

Current Accounts 22.72 23.83 73.80 74.08 283.79

Deposit Accounts 0.00 0.00 0.00 0.00 3.25

Interest accrued on deposits & investments 8.40 8.40 8.41 8.86 10.18

LOANS & ADVANCES

Loans against deposits (secured) 33.13 26.72 29.30 51.47 76.55

Instalment and interest due from customers 16.95 25.83 59.41 183.03 395.87

Advances (Unsecured, considered good) 9.18 17.89 17.90 17.36 18.69

Taxes paid in advance and TDS 85.58 79.60 116.33 158.58 227.67

Deferred Tax Asset 0.00 0.00 0.00 10.59 8.18

Miscellaneous expenditure to the extent

not written off 6.34 10.74 7.55 2.03 1.11

Total (A) 4624.46 7351.42 9873.36 13773.62 16943.67B. LIABILITIES

SECURED LOANSNHB refinance 1838.52 3828.94 5702.80 7532.88 8236.65

OD from Vijaya Bank 466.25 511.91 537.45 148.78 36.62

Term Loan from Vijaya Bank 0.00 0.00 0.00 1425.00 3519.30

UNSECURED LOANS

Fixed Deposits 542.67 719.24 710.87 1099.17 1117.03

Cumulative Deposits 764.91 1073.83 1078.99 1452.32 1411.87

NRNR Deposits 10.50 17.32 14.32 14.32 17.32

CURRENT LIABILITIES AND PROVISIONS 212.51 308.93 412.19 504.31 872.57

Total (B) 3835.35 6460.17 8456.62 12176.77 15211.37

C. NET WORTH (C = A - B) 789.11 891.25 1416.74 1596.85 1732.30

Represented by :

D. SHARE CAPITAL (D) 600.00 600.00 1000.00 1000.00 1000.00

E. RESERVES & SURPLUS (E)Special Reserve u/s. 36(1) (viii) 97.87 174.32 281.64 410.02 535.46

General Reserve 5.00 5.00 5.00 5.00 5.00

Balance of Profit and Loss Account 86.24 111.93 130.11 181.83 191.84

Total (E) 189.11 291.25 416.74 596.85 732.30

F. Total (D + E) 789.11 891.25 1416.74 1596.85 1732.30

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VIBANK HOUSING FINANCE LIMITED

Details of Unsecured Loans other than deposits

The following table represents the break-up of outstanding unsecured loan in respect of

The Vibank Housing Finance Limited as on March 31, 2003

(Rs. in lacs)

Sr. No. Name of the Lender Amount Repayment Schedule

Date Amount

NIL NIL

Agewise analysis of Sundry Debtors

Agewise break-up Amount (Rs. in lacs)

Less than six months - Not Applicable -

More than six months

Total 0

Certificate regarding investments as on 31.03.2003

Sr. No. Details of Investment Book value Market Diminution in the

(Rs. in lakh) value / quoted value value (Rs.)

1 - 13.50% NHB Bonds 105.00 Not Applicable Not Applicable

2 - 13.75% NHB Bonds 10.00 Not Applicable Not Applicable

3 - KBJNL 17.50% Series IV Bonds 12.00 Not Applicable Not Applicable

4 - MSRDCL 11.50% SLR Bonds 100.00 Not Applicable Not Applicable

5 - Karnataka 8.00% Tax free SLR Bonds 100.00 Not Applicable Not Applicable

6 - GS 2012 7.40% Tax free SLR Bonds 21.58 23.37 Nil

Others

7 - NSC 0.01 Not Applicable Not Applicable

Contingent Liabilities as on 31.03.2003

Sr. No. Particulars Amount (Rs. in lacs)

NIL NIL

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6. In view of the excess payment made in the earlier years towards gratuity and pension in respect of deputed officials ofVijaya Bank, no provision has been made during the year.

7. Remuneration to Managing Director on deputation from Vijaya Bank included in Profit & Loss account is as under:

Salaries, allowances, P.F. etc

Rs.3,10,409/- (Previous year Rs.2,86,413.60)

8. Expenditure / Income in Foreign Currency - Nil.

9. The reserve required as per NHB guidelines is 20% on profit before tax which is at Rs.65,11,598/-. This is adequatelycovered by the special reserve created in terms of Sec.36 (1) (viii) of IT Act.

10. The figure in the Balance Sheet and Profit & Loss Account have been rounded off to the nearest rupee.

11. Loans includes instalments of long term loans falling due within next 12 months to the extent of Rs.860.47 lakhstowards NHB refinance and Rs.770.32 lakhs towards deposits accepted by the company.

12. There are no dues outstanding for more than 30 days over Rs.1,00,000/- in respect of SSI units under Current Liabilities.

13. The Balance Sheet and Profit & Loss Account approved by the Board of Directors in their meeting held on 17.04.2003and certified by the Statutory Auditors on 17.04.2003 were revised in the light of observations of the Comptroller &Auditor General of India under Sec.619(4) of the Companies Act, 1956. This has resulted in

(Rs. in lakhs)

Net Decrease in Income 0.25

Increase in provision for Income Tax 2.33

Decrease in amount available for appropriation 2.58

14. PRIOR PERIOD ITEMS :Prior period Adjustments represent the following items of the previous year.

Debit (Rs.) Credit (Rs.)

TA paid to Sri. R. Rajagopalan

for March 2002 1383.00

Payment towards

surcharge

for 2001-2002 6148.00

Internal Audit Fees for

Dec 2001 & Mar 2002 (Jayanagar) 2625.00

Internal Audit Fees for

Dec 2001 & Mar 2002 (R T Nagar) 2625.00

Provision for Statutory Auditors for

the year 2001-2002 (Trinity Circle) 8000.00

TDS of Deposits for the year

2001-2002 (Trinity Circle) 19243.00

Provision for Deferred Revenue

Expenditure for the year 2000-2001 15472.00

Total 26870.00 28626.00

Net (Rs.) 1756.00

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ANNEXURE -B PART-V

AUDITOR’S REPORT

TO THE MEMBERS OF VIBANK HOUSING FINANCE LIMITED, BANGALORE

We have audited the attached Balance Sheet of VIBANK HOUSING FINANCE LIMITED, BANGALORE as at 31.03.2003and the Profit and Loss Account of the Company for the year ended on that date annexed thereto and have to reportthereon as follows :

1. We had earlier given our report on 17th April 2003 on above referred accounts. Subsequent to our report, the accountsof the Company have been revised in the light of observations of the Comptroller and Auditors General of India andthe effect of such revision is as reflected in Note No.13 of Notes on Accounts forming part of the accounts for the yearended 31.03.2003. This report supersedes our report dated 17th April 2003.

2. We have obtained all the information and explanations, which to the best of our knowledge and belief, were necessaryfor the purpose of our audit.

3. In our opinion, proper books of accounts, as required by law have been kept by the company so far as appears fromthe examination of the books.

4. The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the Books of Accounts.

5. In our opinion the Profit and Loss Account and the Balance Sheet dealt with by this report comply with the accountingstandards referred to in sub-section (3C) of the Section 211 of the Companies Act, 1956 to the extent such standardshave been made applicable by the Institute of Chartered Accountants of India.

6. On the basis of written representations received from the Directors and taken on record by the Board of Directors, wereport that none of the Directors is disqualified as on 31.03.2003 from being appointed as a Director in terms of clause(g) of sub-section (1) of Section 274 of the Companies Act, 1956.

7. Vibank Housing Finance Limited is incorporated before 12th June 2000 and has obtained registration as provided inParagraph 3A of the Directions vide NHB letter No. NHB (ND)/HFC (RC)/3244/99 dt.15.10.1999.

8. The company has complied with the liquidity requirements as specified under Section 29B of the National HousingBank Act, 1987 and kept the securities with Vijaya Bank.

9. The company has complied with Section 29C of the National Housing Bank Act, 1987

10. The company has complied with the provisions of Directions of National Housing Bank

11. The capital adequacy ratio as disclosed in the return submitted to National Housing Bank has been correctly determinedand the ratio is in compliance with the minimum capital to risk weighted asset ratio as prescribed by the NationalHousing Bank in these Directions.

12. Public deposits accepted by the company are within admissible limits

13. Total borrowings of the company i.e. deposits inclusive of public deposits together with the amounts referred to in sub-clauses (iii) to (vii) of sub-section (bb) of Section 45 I of the Reserve Bank of India Act, 1934 and loans or otherassistance from the NHB are within the limit prescribed in these Directions

14. The Credit Rating for deposits i.e. FAA assigned by the Credit Rating Agency viz., CRISIL on 05.02.2003 is in forceand the aggregate amount of deposits outstanding as at any point during the year has not exceeded the limit specifiedby the Rating Agency.

15. The company has not opened any new branch during the financial year 2002-2003 or offices for acceptance of publicdeposits or closure of branches or offices, the company has complied with the relative provisions of these directions.

16. The company has not defaulted in paying to its depositors the interest and / or principal amounts of deposits after suchinterest and / or principal became due

17. In our opinion, and to the best of our information and explanations given to us, the said accounts, together with notesannexed there to, give the information required by the Companies Act, 1956, in the manner so required and give a trueand fair view :

i) In the case of Balance Sheet of the state of affairs of the Company as at 31.03.2003 and

ii) In the case of the P & L Account of the profit of the Company for the year ended on that date.

18. As required by the Manufacturing and Other Companies (Auditor’s Report) Order, 1988 issued by the Company LawBoard, in terms of Section 227(4A) of the Companies Act, 1956,on the basis of such checks of Books of Accounts andrecords as considered appropriate and according to the information and explanations given to us during the course ofour audit, we report that :

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i) The Company has maintained proper records to show full particulars including quantitative details and situation offixed assets. The fixed assets of the company have been physically verified by the management during the yearand no discrepancies were noticed on such verification. The verification of fixed assets is being done once in ayear.

ii) The fixed assets of the Company have not been revalued during the year.

iii) The Company has not taken any loans secured or unsecured from companies, firms or other parties listed in theregister maintained under Sec 301 of the Companies Act 1956 and / or from the companies under the samemanagement as defined under Sub-section (1 B) of Section 370 of the Companies Act, 1956.

iv) The Company has not granted any loan, secured or unsecured to companies, firms or other parties listed in theregister maintained under Section 301 of the Companies Act, 1956 and / or to companies under the samemanagement as defined under Section 370(1-B) of the Companies Act, 1956.

v) The parties to whom loans or advances in the nature of loans have been given by the Company are generallyregular in repaying the principal amounts as stipulated and also regular in payment of interest.

vi) The Internal control procedures for purchase of assets and loans given by the Company are adequate andcommensurate with size of the company and its nature of business.

vii) The Company has complied with the provisions of Section 58A of the Companies Act, 1956 and the rules framedthereunder to the extent applicable and the Housing Finance Companies (NHB) Directions 2001, with regard tothe Deposits accepted from the public.

viii) The Company has an Internal Audit system, which is commensurate with the size and nature of business.

ix) The Company’s contribution towards Provident Fund, Gratuity and Pension with respect to the Officers/Executivesof the Company who are on deputation from Vijaya Bank, have not been transferred to the said bank and provisionmade for 2001-2002 has been withdrawn, in view of the excess payment made in the earlier years and VijayaBank agreed to adjust the excess amount in the next year based on Consultant’s certificate, with respect to thefinancial years 2001-2002 and 2002-2003. The employees who have been recruited are covered by the ProvidentFund scheme. The Company has registered under the Employees’ State Insurance Act. No delays were noticedon remittances of PF and ESI.

x) According to records of the Company examined by us, there were no undisputed amounts payable in respect ofIncome Tax, Wealth Tax or Sales Tax, outstanding as at 31.03.2003 for a period of more than six months from thedate they became payable.

xi) During the course of our examination of the Books of Accounts carried out in accordance with generally acceptedauditing practices, no personal expenses of employees or directors have been charged to revenue account otherthan those payable under contractual obligations or in accordance with generally accepted business practices.

xii) The Company has granted Housing Loans on security of equitable mortgage of properties and other securities, forwhich adequate documents and records have been maintained.

xiii) The provisions of any special statute applicable to a Chit Fund, Nidhi or Mutual Benefit Society are not applicableto the Company.

xiv) As per the information and explanations given to us and taking into consideration the nature of business of theCompany, the other provisions of Manufacturing and Other Companies (Auditors’ Report) Order 1988, are notapplicable to this Company for the period covered by the aforesaid accounts.

For M/s. Radhika & Co.Chartered Accountants

Place : Bangalore (KRISHNAN)Date : 07.05.2003 Partner

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ANNEXURE-B PART-VI

VIBANK HOUSING FINANCE LIMITED, BANGALORE

SIGNIFICANT CHANGES IN ACCOUNTING POLICIES :

1. The Company follows National Housing Bank’s guidelines on prudential norms for income recognition, AssetClassification and provisioning. Necessary amendments in the accounting policies have been carried out by theCompany in the relevant years to be in conformity with the National Housing Bank’s guidelines. Adjustment to Profit/Loss, Assets and Liabilities of the Company arising from the compliance with the aforesaid directives have not beencarried out, as it is not practicable.

2. During the year 1998-1999, interest on Investments was accounted for on accrual basis, which was hitherto accountedonly on the date of payment. Resulting profit is higher by Rs. 0.08 crore.

3. During the year 2002-03, the amount incurred on software, which was charged off to revenue upto 2001-2002, hasbeen capitalised to be written off over a period of five years. Due to the above the profit of the Company for the yearhas been increased by Rs 4,00,000/-

ANNEXURE - C

VIJAYA BANK

DIVIDENDS DECLARED IN RESPECT OF FIVE FINANCIAL YEARS

(Rs. In lakh)

FINANCIAL YEAR ENDED MARCH 31, 1999 2000 2001 2002 2003

EQUITY CAPITAL 55631 25924 35924 33352 33352

AMOUNT OF DIVIDEND NIL 500 1078 4002 4002

PERCENTAGE NA 1.93% 3.00% 12.00% 12.00%

ANNEXURE - D1

VIJAYA BANK

MANDATORY ACCOUNTING RATIOS

ACCOUNTING RATIOS 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003

Earnings per share(EPS) (Rs.) -0.26 1.33 4.75 4.87 11.30

Cash Earnings per share (RS.) 1.84 2.99 -0.25 8.79 18.97

Return on Networth (%) -2.35 20.19 25.66 29.80 50.86

Net Asset value per share (Rs.) 11.09 6.60 18.51 16.33 22.22

Other Ratios

Net NPA to Net Advances ratio(%) 6.65 6.62 6.23 6.02 2.61

Interest Income /Average working fund (%) 10.03 10.28 10.41 9.98 9.62

Non-interest income/Average working fund (%) 1.09 1.00 1.20 1.22 1.99

Return on Assets (%) -0.15 0.64 1.04 1.13 2.17

Business per employee (Rs. In lacs) 98.80 117.27 137.94 178.39 215.00

Net Profit per employee (Rs. In lacs) -0.10 0.52 1.00 1.48 3.22

Capital Adequacy Ratio

Tier I 5.70 6.01 8.04 8.86 7.42

Tier II 4.30 4.60 3.46 3.39 5.24

Credit/Deposit Ratio(%) (net) 38.88 40.44 45.28 42.21 46.37

Interest Spread/Average working fund (%) 3.33 3.41 3.53 3.15 3.70

Gross Profit / Average working fund (%) 0.72 1.26 1.86 1.92 3.53

Return on Average networth -2.34 15.07 30.22 31.42 56.78

-95-

MANDATORY ACCOUNTING RATIOS

ACCOUNTING RATIOS 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003

Yield on advances (%) 12.70 12.40 12.84 11.93 11.34

Yield on investments (%) 12.00 12.20 11.87 11.35 10.49

Cost of deposits(%) 7.90 7.80 7.61 7.51 6.58

Cost of borrowings (%) 11.30 12.20 12.28 11.14 10.96

Gross profit per employee (Rs. In lacs) 0.50 1.02 1.80 2.51 5.23

Business per branch (Rs. In lacs) 1681.14 2006.88 2206.81 2548.02 2989.77

Gross profit per branch (Rs. In lacs) 8.59 17.53 28.83 35.80 72.68

Definitions of key ratios :

Earnings per share (EPS) (Rs.) Net Profit after tax(adjusted ) after excluding extra-ordinary itemsdivided by weighted average of shares at the end of each fiscal year

Cash EPS (Rs.) PAT(adjusted) after excluding extra-ordinary items plus non-cashcharges divided by weighted average of equity shares at the end ofeach fiscal year.

Return on Networth(%) PAT(adjusted) after excluding extra-ordinary items divided by totalnetworth (capital plus reserves excluding revaluation and deferredtax reserve at the end of the year

Net NPA to Net Advances (%) Net NPA / net advances for each year

Interest income /AWF % Total interest income divided by average working funds for each year

Non-interest income/AWF% Other income divided by average working funds for each year

Net Aset Value per share (Rs) Equity net worth arrived at the end of the year divided by the weightedaverage number of equity shares at the end of each fiscal year

Return on assets (%) PAT (adjusted) (after excluding extra-ordinary items) divided by theaverage assets of each year

Business per employee (Rs. In lac) Year end deposits plus Gross advances /No: of employees

Net profit per employee (Rs. In lac) Adjusted net profit(after excluding extea-ordinary items) /No: ofemployees

Credit /Deposit ratio (net) (%) Total net advances/total deposits

Interest spread/AWF(%) (Interest income -interest expenditure) Net interest spread/AWF

Gross profit/AWF(%) Adjusted net profit(after excluding extra-ordinary items) prior toprovisions and contingencies divided by AWF

Return on average networth(%) Adjusted net profit(after excluding extra-ordinary items divided by theaverage of opening + closing networth for each year

Yield on advances(%) Interest earned on advances /Average of fortnightly advances

Yield on Investments(%) Interest on investments/Daily average of investments

Cost of deposits (%) Interest on deposits/Average of fortnightly deposits

Cost of borrowings (%) Interest on borrowings/Average of fortnightly borrowings

Gross profit per employee(Rs. In lac) Gross Profit /No: of employees

Business per branch(Rs. In lac) Year end deposit plus gross advances /No: of branches

Gross profit per branch (Rs. In lac) Gross Profit /No: of branches

Average Working Funds (AWF) Average of monthly assets as reported to RBI in Form No. X

-96-

Annexure- D2VIJAYA BANKDetails of Unsecured Loans as on 31.03.2003 *

(Rs in lakh)Sr.No Name of the Lender Amount Repayment Schedule

Date of Repayment Amount1 SIDBI (Short Term Loan) 25000.00 8-Aug-03 25000.002 SIDBI (Refinance) 208.11 1-Jun-03 38.41

1-Sep-03 28.891-Dec-03 31.061-Mar-04 20.241-Jun-04 19.031-Sep-04 13.571-Dec-04 15.951-Mar-05 8.171-Jun-05 10.201-Sep-05 4.661-Dec-05 3.411-Mar-06 2.631-Jun-06 1.531-Sep-06 1.521-Dec-06 1.081-Mar-07 1.521-Jun-07 1.081-Sep-07 1.521-Dec-07 0.811-Mar-08 0.811-Jun-08 0.811-Sep-08 0.261-Dec-08 0.261-Mar-09 0.171-Jun-09 0.131-Sep-09 0.131-Dec-09 0.131-Mar-10 0.13

3 Borrowings outside India 5700.00a CITIBank Bahrain@ 1.7400% 30-Sep-03 1187.50b CITIBank Bahrain @1.6675% 22-Sep-03 1187.50c Union Bank of California@1.6400% 19-Jun-03 950.00d Union Bank of California@1.6400% 30-Jun-03 2375.00

4 Tier II Bonds Series I @14.20% 12000.00 4-Apr-04 12000.005 Tier II Bonds Series II @12.35% 6000.00 6-Dec-06 6000.006 Tier II Bonds Series III @7.50% 15000.00 8-May-10 15000.007 VRS Bonds@11% 1009.00

30-Apr-06 451.502-Jun-06 25.10

30-Aug-06 256.1030-Sep-06 147.3030-Oct-06 48.1030-Dec-06 14.4015-Jan-07 3.4030-Apr-07 16.102-Jun-07 31.70

Pending Issue of Bonds 15.30TOTAL 64917.11 TOTAL 64917.11

* Excluding Deposits, adverse clearing balances and Nostro Mirror Balances as on 31.03.2003

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Annexure D3

VIJAYA BANK

Rs in Lakh

Details of Other Income of the Bank for the last Five years

Financial Year ended March 31, 1999 2000 2001 2002 2003

Commission, Exchange and brokerage 4345.59 5070.97 5152.78 4722.94 4556.35

Profit on sale of investments (net) 1306.22 1250.14 267.20 9016.65 22508.87

Profit(Loss) on revaluation of investments(Net) 0 0 3908.08 -2933.15 0

Profit on sale of Land, building & other assets (net) 14.13 11.03 19.50 14.65 5.49

Profit on exchange transactions (net) 1815.50 1550.80 2350.11 3691.29 2166.53

Miscellaneous Income * 3425.64 3797.71 3928.43 4370.04 5364.79

Total 10907.08 11680.65 15626.10 18882.42 34602.03

* Includes lease rental income & lease equalisation account

VIJAYA BANK

ANNEXURE D4

Certificate regarding Investments

(Rs. In lakh)

Sr.No Details of the investment Book Value Market Value Diminution in the

as on 31.03.03 as on 31.03.03 value as on 31.03.03

(Gross)

1 Government Securities 701231.77 743350.72

2 Other approved Securities 14171.17 14171.17 0.00

3 Shares 4722.15 3202.11 -1520.04

4 Debentures & Bonds 147590.45 150756.81

5 Subsidiaries and or 1063.14 1063.14 0.00

other Ventures

6 Others 22598.34 21783.66 -814.68

Total 891377.13 934327.61 -2334.72

Less: NPA provision: 2881.04

Dimunition: 2334.72 5215.76

Net Investment as per Balance sheet as on 31.03.03886161.37

Note : Above particulars are as per RBI guidelines on valuation of investment

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ANNEXURE - D5

VIJAYA BANK

Capitalisation Statement as at 31.03.2003

(Rs. in lakh)

Pre-issue Adjusted for

the Public Issue

Borrowing

Short-term debt 30826 30826

Long-term debt 34091 34091

Total Debt 64917 64917

Shareholders’ funds

Share Capital

- Equity 33352 43352

Less : Calls-in-arrears

- Preference

Share premium 14000

Reserves & Surplus (Excluding Revaluation &Deferred Tax Reserve) 40757 40757

Less : Miscellaneous Expenditure not written off -

Total Shareholders Funds 74109 98109

Long term Debt / Equity Ratio 46% 40.53%

Note :

1. Long Term Debts are loans repayable beyond a period of one year and do not include deposits with the Banks,adverse clearing balances and Nostro Mirror balances as on 31.03.2003.

VIJAYA BANK : HEAD OFFICE: BANGALORE TAX SHELTER STATEMENT

ANNEXURE- D6

TAX SHELTER STATEMENT

(Rs. In lacs )

FINANCIAL YEAR ENDED MARCH, 31 1999 2000 2001 2002 2003

Income Tax Rate 35.00% 38.50% 39.55% 35.70% 36.75%

Tax at actual rate on profit 1,224.27 2,185.26 3,048.84 4,955.34 8,629.11

ADJUSTMENTS

Permanent Differences

1) INCOME FROM TAX FREE BONDS (135.97) (137.28) (158.07) (161.86) (218.95)

2) DIVIDEND INCOME (129.52) (613.97) (534.24) (754.29) (1,056.84)

3) INTEREST EXEMPT U/S 10(23G) - (685.78) (1,152.16) (2,995.79) (3,883.90)

4) INTEREST ON ZERO COUPON BONDS (309.06) (136.43) 1,620.32 - -

5) NPA PROVISION (4,926.41) (4,280.16) (2,326.02) (5,778.29) (2,665.48)

6) PROFIT / LOSS / AMORTISATION /

INTEREST ADJUSTMENTS RELATING

TO INVESTMENTS (108.78) 1,273.19 (1,958.85) 5,168.04 (9,531.46)

7) OTHERS 1,106.62 198.29 622.35 (178.17) (2,409.87)

Total A (4,503.11) (4,382.14) (3,886.67) (4,700.37)(19,766.49)

Timing Differences

-99-

FINANCIAL YEAR ENDED MARCH, 31 1999 2000 2001 2002 2003

1) INTEREST ACCRUED BUT NOT

DUE ON SECURITIES (4,489.35) (2,850.44) 16,225.11 - -

2) DIFFERENCE BETWEEN IT

DEPRECIATION & BOOK

DEPRECIATION ON FIXED

ASSETS (94.85) 171.05 (96.84) 32.67 -

3) VRS EXPENDITURE - - - - 7,653.30

4) PROVISION FOR WAGE REVISION - - - - -

5) TIER II BONDS EXPENSES - - - (25.41) (25.41)

6) PROVISION FOR LEAVE ENCASHMENT - - - - 2,066.37

7) OTHERS (1,406.82) (9.71) (6,207.48) 1,560.52 4,658.66

8) CURRENT LOSS / (CARRY

FORWARD LOSS SET OFF) 6,996.20 1,395.24 (11,940.19) (10,747.62) (11,622.25)

Total B 1,005.18 (1,293.86) (2,019.40) (9,179.84) 2,730.66

Net Adjustments (A and B) (3,497.93) (5,676.00) (5,906.07) (13,880.21) (17,035.83)

Tax Saving thereon (1,224.27) (2,185.26) (2,335.85) (4,955.23) (6,260.67)

Tax saving on Capital gains & MAT Credit 572.07

Total Taxation - - 140.92 0.11 2,368.44

The figures for the four financial years-ended 31.03.2002 have been computed as per Income Tax Returns of therespective years only. For the Financial year ended 31.03.2003, pending finalisation of return of Income figuresare calculated on estimated basis. In respect of Financial Year ended 31.03.1999, 31.03.2000 & 31.03.2002 thebank paid tax as per the provisions of Minimum Alternate Tax.

ANNEXURE- D7

VIJAYA BANK

CONTINGENT LIABILITIES

1. The Bank has following contingent liabilities outstanding as per Audited accounts for the year ended as at 31.03.2003for which no provision was considered necessary in the books of accounts of the Bank for that year.

Sr.No. Particulars Amount(Rs. in Lakh)

I Claims against the Bank not acknowledged as debts 3718

II Liability for Partly Paid Investments Nil

III Liability on account of Outstanding Forward Exchange Contracts 385846

IV Guarantees given on behalf of Constituents - in India 73160

V Acceptances, Endorsements and Other Obligations 44121

VI Other items 903

TOTAL 507748

2. We have examined the contracts, claims and litigations against the Bank as provided for our verification and haveanalysed the likely impact of the same as indicated above. We certify that apart from the contingent liabilities indicatedabove and based upon the information & explanations provided by the Management, the Bank does not have anyother contingent liabilities as on the Balance Sheet date.

-100-

VIJAYA BANK

[A Government of India Undertaking]

RELEVANT PRINCIPAL ACCOUNTING POLICIES ON THECONSOLIDATED ACCOUNTS

1. BASIS OF PREPARATION OF ACCOUNTS

The accompanying financial statements have beenprepared to comply, in al l material aspects withapplicable statutory/regulatory provisions. Accountingstandards and generally accepted accounting principlesand practices prevailing in India except otherwise stated.

2. CONSOLIDATION PROCEDURE

2.1.Consolidated financial statements have beenprepared on the basis of audi ted f inancialstatements of Vijaya Bank (Parent) and one non-banking subsidiary (referred to as non bankingentity) and after eliminating inter-group transactions,unreal ised prof i t / loss and making necessaryadjustments wherever required. The financialstatements of the subsidiary is drawn upto the samereporting date as that of the parent i.e 31st March2003.

2.2.The difference between cost to the bank of itsinvestment in the sponsored bank (RRB) and thebank’s portion of the equity of the RRB is recognisedin the financial statements as Goodwill/Capitalreserve.

2.3.Minority interest in the net assets of the consolidatedfinancial statements consists of :

a. The amount of equity attributable to the Minorityat the date on which the investment in subsidiaryis made and

b. The minority share of movements in equity sincethe date the parent-subsidiary relationship cameinto existence.

3. Investments: Non-Banking Entity

Investments are accounted for at cost or market valuewhichever is less.

4. FIXED ASSETS/DEPRECIATION - Non-Banking entity

4.1.FIXED ASSETS

Fixed assets are capitalized at cost. Cost includesinstallation charges, levy duty cess etc and financingcost relating to borrowed funds attributable to theacquisition of fixed cost upto the date the asset is readyfor use. Certain expenditure like flooring, false ceilingetc which are not represented by specific asset classifiedas Deferred Revenue Expenditure. Assets less thanRs.5000/- are charged off in the year of purchase.

4.2.Depreciation

Depreciation is calculated on the Straight Line Methodat the rates prescr ibed in Schedule XIV of theCompanies Act 1956. The depreciation is calculated onpro-rata basis for the assets acquired during the year.

5. NON PERFORMING ASSETS

National Housing Bank’s guidelines on prudential normsare being fol lowed for income recognit ion andprovisioning.

REVENUE RECOGNITION:

6. NON BANKING ENTITY

6.1. Interest on Housing Loans: Repayment of loans isby way of Equated Monthly Instalments (EMIs)comprising of principal and interest. Interest iscalculated on the last day of the year on outstandingbalance as at the beginning of the year. EMIscommence once the loan is disbursed in full.Pending commencement of EMIs, Pre EMI interestis payable every month.

6.2.Processing fee received in respect of housing loanis accounted for in the year in which the loan issanctioned.

6.3. Income from Non performing asset is recognised inaccordance with the guidelines on the prudentialnorms of nationalhousing Bank. Provision for NPAis made in accordance with such guidelines.

6.4.Administrative fee received in respect of a housingloan is accounted for in the year in which firstdisbursement of the loan is made.

6.5. Interest in come on loans / investments is accountedfor on accrual basis.

6.6.Delayed payment charges on housing loans areaccounted for on accrual basis.

7. DEFERRED REVENUE EXPENDITURE: Non bankingentity

Certain expenditures like flooring, false ceiling which donot represent specific assets are classified as DeferredRevenue Expenditure and will be written off over a periodof 3 years.

8. SEGMENT REPORTING ON CONSOLIDATEDACCOUNTS :

For the purpose of segment reporting as per AccountingStandard 17, the fol lowing segments have beenidentified as Primary segments.

a. Treasury

b. Banking operations

Other than above no other reportable segments to beshown as residual operations.

-101-

CONSOLIDATED BALANCE SHEET OF VIJAYA BANK AS ON MARCH 31, 2003

PARTICULARS

Schedule [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

CAPITAL AND LIABILITIES

Capital 1 333,51,78 333,51,78

Reserves and Surplus 2 484,97,61 335,11,63

Minorities Interest 2A 2,47,57 2,28,62

Deposits 3 17042,95,71 14705,58,43

Borrowings 4 403,18,43 163,39,98

Other Liabilities and Provisions 5 931,52,44 718,92,56

TOTAL 19198,63,54 16258,83,00

ASSETS

Cash and Balances with Reserve Bank of India 6 1086,37,72 1026,20,49

Balance with Banks and Money at Call and Short Notice 7 516,50,11 628,39,51

Investments 8 8857,22,97 7355,92,99

Loans and Advances 9 8014,88,52 6311,53,59

Fixed Assets 10 159,77,10 165,89,60

Other Assets 11 563,87,12 770,71,96

Goodwill on consolidation - 14,86

Debit Balance of Profit & Loss Account - -

TOTAL 19198,63,54 16258,83,00

Contingent Liabilities 12 5051,69,05 2500,99,89

Bills for Collection 425,54,51 400,33,89

Relevant Accounting Policies, Notes and Schedules referred to above form an integral part of the Consolidated Accounts.

-102-

CONSOLIDATED PROFIT & LOSS ACCOUNT OF VIJAYA BANK FOR THE YEAR ENDED 31ST MARCH, 2003

PARTICULARS Schedule [Rupees 000’s omitted]

For the year For the yearended 31.03.2003 ended 31.03.2002

I. INCOME

Interest Earned 13 1688,37,51 1553,75,21

Other Income 14 346,27,22 188,89,90

TOTAL 2034,64,73 1742,65,11

II. EXPENDITURE

Interest Expended 15 1040,44,49 1063,82,45

Operating Expenses 16 558,92,13 423,33,62

Provisions and Contingencies 237,09,71 122,69,50

TOTAL 1836,46,33 1609,85,57

Share of earnings/(loss) in Associates 17 56,93 50,94

Consolidated Net Profit/(loss) for the year before

deducting Minorities interest 198,75,33 133,30,48

LESS : Minorities’ Interest 28,71 32,41

Consolidated profit/(loss) for the year attributable

to the group 198,46,62 132,98,07

31.03.2003 31.03.2002

ADD: Brought for-ward consolidated profit/ (loss) 119,52,62 93,20,21

LESS: Deferred Tax Liability - 4,75,18

ADD: Write back of tax provision and previous year

adjustments (2,33) 12,62

TOTAL 119,50,29 88,57,65

TOTAL 317,96,91 221,55,72

III. APPROPRIATIONS

Transfer to statutory reserves 49,16,50 32,74,51

Transfer to special reserve 1,25,69 1,28,39

Transfer to Investment Fluctuation Reserve 72,72,00 27,57,77

Transfer to Government/Proposed dividend 40,14,37 40,13,02

Transfer to Staff Welfare Fund 2,00,00 -

Balance carried over to consolidated Balance Sheet 152,68,35 119,82,03

TOTAL 317,96,91 221,55,72

EARNINGS PER SHARE Rs.5.95 Rs.3.85

Relevant Accounting Policies, Notes and the Schedules form an integral part of the consolidated accounts.

-103-

VIJAYA BANK

[A Govt. of India Undertaking]

CONSOLIDATED SCHEDULES OF VIJAYA BANK FOR THE YEAR ENDED MARCH 2003

SCHEDULE - 1: CAPITAL

-104-

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

b) Deferred Tax Reserve

Opening Balance 9,07,39 -

Additions (deductions) during the year (1,06,70) 9,07,39

TOTAL 8,00,69 9,07,39

c) Special Reserve under section 36(1) (viii)

Opening Balance 3,60,82 2,81,63

Additions during the year 1,25,69 1,28,39

Less: Transferred to Minority Interest 15,09 49,20

TOTAL 4,71,42 3,60,82

d) General Reserve

Opening Balance 4,40 5,00

Less: Transferred to minority interest - 60

TOTAL 4,40 4,40

vii. Balance in Profit & Loss Account 152,68,35 119,82,03

Less : Transferred to Minority interest 21,79 15,60

TOTAL 152,46,56 119,66,43

GRAND TOTAL 484,97,61 335,11,63

SCHEDULE - 2A: MINORITIES INTEREST

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

Minority interest at the date on which the parent subsidiary

relationship came into existence 1,20,00 1,20,00

Subsequent increase/(decrease) 1,27,57 1,08,62

Minority interest on the date of Balance Sheet 2,47,57 2,28,62

SCHEDULE - 3: DEPOSITS

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

A. I Demand Deposits

i) From Banks 49,95,35 65,81,88

ii) From Others 1916,85,68 1799,66,43

II Savings Bank Deposits 3511,13,12 2894,61,51

III Term Deposits

i) From Banks 138,71,83 78,64,36

ii) From Others 11426,29,73 9866,84,25

Total (I, II and III) 17042,95,71 14705,58,43

B. i) Deposits of branches in India 17042,95,71 14705,58,43

ii) Deposits of branches outside India - -

Total (i and ii) 17042,95,71 14705,58,43

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SCHEDULE - 4 : BORROWINGS

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

i) BORROWINGS IN INDIA

a) Reserve Bank of India - 32,62,00

b) Other Banks 7,99 30,80

c) Other Institutions & Agencies 334,44,76 106,34,10

ii) BORROWINGS OUTSIDE INDIA (includes pipeline

and unadjusted items in NOSTRO Mirror balance in case

of the parent bank only) 68,65,68 24,13,08

TOTAL (I & II above) 403,18,43 163,39,98

Secured Borrowings included in I and II above - 5,81,43

SCHEDULE - 5: OTHER LIABILITIES AND PROVISIONS

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

(i) Bills Payable 307,63,15 305,74,81

(ii) Interest accrued 44,96,18 43,19,69

(iii) Sub-ordinated debts - Bonds raised as Tier II capital

(a) 5 year Bonds 2004 @ 14.20% 120,00,00 120,00,00

(b) 7 year Bonds 2006 @ 12.35% 60,00,00 60,00,00

(c) 7.5 year Bonds 2010 @ 7.50% 150,00,00 -

(iv) VRS Bonds @ 11% 10,09,00 10,40,40

(v) Provision against Standard Assets 19,24,00 14,54,00

(vi) Provision for recognition of loan impairment on 90 days norms 9,90,00 3,15,00

(vii) Others (including provisions) 209,54,43 158,31,27

(viii) Deferred Tax Liabilities 15,68 3,57,39

TOTAL 931,52,44 718,92,56

SCHEDULE - 6: CASH AND BALANCES WITH RESERVE BANK OF INDIA

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

I. Cash in hand [including foreign currency notes] 97,62,70 93,86,65

II. Balances with Reserve Bank of India

(i) In Current Account 988,75,02 932,33,84

(ii) In other accounts - -

TOTAL (I & II) 1086,37,72 1026,20,49

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SCHEDULE - 7: BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

I. IN INDIA

(i) Balances with Banks

(a) in Current Accounts 69,20,98 140,58,99

(b) in Other Deposit Accounts 315,00,00 220,62,05

(ii) Money at Call and Short Notice

(a) with Banks 75,00,00 70,00,00

(b) with other Institutions 25,00,00 100,00,00

TOTAL (i + ii) 484,20,98 531,21,04

II. OUTSIDE INDIA

(i) In Current Accounts (includes pipeline transactions

and unadjusted items in Nostro

Mirror Balances of Parent Bank) 9,71,23 6,00,53

(ii) In Other Deposit Accounts 22,57,90 91,17,94

(iii) Money at call and short notice - -

TOTAL (i + ii + iii) 32,29,13 97,18,47

GRAND TOTAL {I + II} 516,50,11 628,39,51

SCHEDULE - 8: INVESTMENTS

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

I. INVESTMENTS IN INDIA

i) Government Securities 7013,31,88 5568,07,13

ii) Other Approved Securities 144,19,76 156,86,97

iii) Shares 32,02,11 31,47,92

iv) Debentures and Bonds 1447,09,41 1494,83,14

v) Investment in Associates {(Visvesvaraya Grameena Bank (RRB)} 2,76,15 2,19,22

vi) Others (to be specified) 217,83,66 102,48,61

TOTAL 8857,22,97 7355,92,99

II. INVESTMENTS OUTSIDE INDIA IN

i) Government securities (including local authorities) - -

ii) Investment in Associates - -

iii) Other investments (to be specified) - -

TOTAL - -

Grand Total (I & II) 8857,22,97 7355,92,99

III. INVESTMENTS IN INDIA

i) Gross value of Investments 8932,36,92 7382,72,51

ii) Aggregate of provisions for depreciation 75,13,95 26,79,52

iii) Net investment 8857,22,97 7355,92,99

IV INVESTMENTS OUTSIDE INDIA

i) Gross value of investments - -

ii) Aggregate of provisions for depreciation - -

iii) Other investments (to be specified) - -

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SCHEDULE - 9: ADVANCES

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002A. i) Bills purchased and discounted 361,29,13 319,01,55

ii) Cash Credits, Overdrafts & Loans Repayable on Demand 4009,65,30 3385,36,50iii) Term Loans 3643,94,09 2607,15,54

TOTAL 8014,88,52 6311,53,59B. i) Secured by Tangible Assets [includes advance

against book debts] 6679,44,98 4554,49,93ii) Covered by Bank/Government Guarantees 849,71,45 1161,93,49iii) Unsecured 485,72,09 595,10,17

TOTAL 8014,88,52 6311,53,59C I. ADVANCES IN INDIA -

i) Priority Sector 2830,37,70 2223,06,60ii) Public Sector 1459,04,81 1842,10,42iii) Banks 34,53,46 2,30,22iv) Others 3690,92,55 2244,06,35

[C] II. ADVANCES OUTSIDE INDIA -i] Due from banks - -ii] Due from others - -

a) Bills purchased and discounted - -b) Syndicated loans - -c) Others - -TOTAL 8014,88,52 6311,53,59

SCHEDULE - 10: FIXED ASSETSPARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

I. PREMISES 31.03.03 31.03.02

At cost as on 31st March of the preceding year 198,20,30 173,64,62

Additions during the year 32,11 24,55,68

Deductions during the year - -

Depreciation to date 85,88,60 77,17,61 112,63,81 121,02,69

I.A. Premises under construction

II. Other Fixed Assets (including furniture and fixtures)

At cost (as on 31st March of the preceding year) 153,14,69 138,39,15

Additions during the year 22,29,48 16,84,70

Deductions during the year 3,60,92 2,09,16

Depreciation to date 124,69,96 108,84,86 47,13,29 44,29,83

IIA. Leased Assets

At cost as on 31 March of the preceding year 11,02,45 11,02,45

Additions during the year (including adjustments) (91,65) (1,09,82)

Deductions during the year including provisions 36,72 -

Depreciation to date 9,74,08 9,35,55 - 57,08

Total (I, II and IIA) 159,77,10 165,89,60

III. Capital work in progress (Leased Assets) net of provisions - -

TOTAL (I, IA, II, IIA and III) 159,77,10 165,89,60

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SCHEDULE - 11: OTHER ASSETS

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

i) Inter-Office Adjustments [net] 54,99,56 118,22,89

ii) Interest accrued 290,44,92 322,69,39

iii) Tax paid in Advance/Tax Deducted at Source [net of provision] 100,94,24 21,72,22

iv) Stationery and Stamps 59,37 81,48

v) Non-banking assets acquired in satisfaction of claims 27,09 27,09

vi) Deferred Tax Assets 39,50,61 11,40,02

vii) Others (Net of provision) 77,11,33 295,58,87

TOTAL 563,87,12 770,71,96

SCHEDULE - 12: CONTINGENT LIABILITIES

PARTICULARS [Rupees 000’s omitted]

As on 31.03.2003 As on 31.03.2002

i) Claims against the Bank not acknowledged as debts 37,18,34 16,42,48

ii) Liability for Partly Paid Investments - -

iii) Liability on account of outstanding forward exchange contracts 3832,66,80 1419,89,66

iv) Guarantees given on behalf of Constituents

a) In India 731,59,97 607,69,88

b) Outside India - -

v) Acceptances, Endorsements and Other Obligations 441,20,73 453,76,40

vi) Other items for which the Bank is contingently liable 9,03,21 3,21,47

TOTAL 5051,69,05 2500,99,89

SCHEDULE - 13: INTEREST AND DIVIDENDS EARNED

PARTICULARS [Rupees 000’s omitted]

For the year ended For the year endedon 31.03.2003 on 31.03.2002

i) Interest/Discount on Advances/Bills 772,07,14 728,42,23

ii) Income on Investments 863,44,28 765,49,77

iii) Interest on Balances with RBI & other Inter-Bank Funds 43,09,06 54,53,66

iv) Others 9,77,03 5,29,55

TOTAL 1688,37,51 1553,75,21

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SCHEDULE - 14: OTHER INCOME

PARTICULARS [Rupees 000’s omitted]For the year ended For the year ended

on 31.03.2003 on 31.03.200231.03.2003 31.03.2002

i) Commission, Exchange & Brokerage 45,56,35 47,22,94ii) Profit on sale of land, buildings & other assets 20,09 32,46

Less: Loss on sale of land, buildings andother assets 14,60 17,81 5,49 14,65

iii) Profit on exchange transactions 21,66,53 36,91,30Less: Loss on exchange transactions - 1 21,66,53 36,91,29

iv) Profit on sale of investments 225,26,04 90,42,96Less: Loss on sale of investments 17,17 26,31 225,08,87 90,16,65

v) Profit /(loss)Net on Revaluationof Investments - (29,33,15)

vi) Miscellaneous income 53,89,98 43,77,52TOTAL 346,27,22 188,89,90

SCHEDULE - 15: INTEREST EXPENDEDPARTICULARS [Rupees 000’s omitted]

For the year ended For the year endedon 31.03.2003 on 31.03.2002

i) Interest on Deposits 993,25,99 1003,76,81ii) Interest on Reserve Bank of India/Inter-Bank borrowings 1,92,18 2,17,47iii) Others 45,26,32 57,88,17

TOTAL 1040,44,49 1063,82,45

SCHEDULE - 16: OPERATING EXPENSESPARTICULARS [Rupees 000’s omitted]

For the year ended For the year endedon 31.03.2003 on 31.03.2002

i) Payments to and provisions for employees 429,59,32 306,48,22ii) Rent, Taxes and Lighting 44,58,56 39,10,67iii) Printing & Stationery 4,27,94 3,59,34iv) Advertisement and Publicity 1,47,27 40,69v) a) Depreciation on bank’s property other than Leased Assets 19,41,77 18,15,55

b) Depreciation on Leased Assets 38,53 87,55vi) Directors’ Fees, Allowances & Expenses 21,97 10,87vii) Auditors’ Fees & Expenses [inclusive of Branch Auditors’

fees & expenses] 3,35,56 2,95,61viii) Law Charges 80,74 43,87ix) Postage, Telegrams, Telephones, etc 1,64,11 2,61,51x) Repairs and Maintenance 1,14,43 1,39,47xi) Insurance 9,61,04 7,87,13xii) Other expenditure 42,40,89 39,33,14

TOTAL 558,92,13 423,33,62

SCHEDULE - 17: SHARE OF EARNINGS IN ASSOCIATESPARTICULARS [Rupees 000’s omitted]

For the year ended For the year endedon 31.03.2003 on 31.03.2002

SHARE OF CURRENT YEAR’S PROFIT 56,93 50,94TOTAL 56,93 50,94

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RELEVANT NOTES ON ACCOUNTS TO THE CONSOLIDATED ACCOUNTS

1) The individual audited financial statements of the bank (Vijaya Bank) and its subsidiary (Vi Bank Housing FinanceLimited) have been considered in the preparation of the consolidated financial statements. Vi Bank Housing FinanceLimited has been incorporated in India and Vijaya Bank holds 88% interest in the subsidiary company.

2) Advances :

(a) ViBank Housing Finance Limited has followed the guidelines issued by National Housing Bank on prudentialnorms relating to Income Recognition, Asset Classification and provision thereon.

(b) In the case of ViBank Housing Finance Limited, housing loans and instalments due from borrowers are securedby :

� Equitable mortgage of property and/or

� Personal guarantees/Company guarantees and/or

� Undertaking to create a security and/or

� Assignment of Life Insurance Policies, deposits and other Government securities.

(c) In the case of Vibank Housing Finance Limited, the loans includes instalments of long term loans falling due withinnext 12 months to the extent of Rs.860.47 lakh towards NHB refinance and Rs.770.32 lakh towards depositsaccepted by the Company.

(d) In the case of Vibank Housing Finance Limited, there are no dues outstanding for more than 30 days overRs.1,00,000/- in respect of SSI units under Current Liabilities.

3) (i) The Bank and its subsidiary are operating in different circumstances and due to the impracticability in usinguniform accounting policies in preparing the consolidated financial statements, current year’s figures of thesubsidiary have not been re-arranged/re-cast/re-grouped.

(ii) The effect on profit as a result of uniform accounting policies not followed by Vijaya Bank and its subsidiary -ViBank Housing finance Limited are as under:

a) ViBank Housing finance Limited has followed the guidelines issued by National Housing Bank on prudentialnorms relating to Income Recognition, Asset Classification and provision thereon. If the policies followed byVijaya Bank had been followed, additional provision required would be Rs.48,78,928 and to this extent profitand advances are higher.

b) Depreciation is calculated by ViBank Housing Finance Limited on the Straight Line Method at the ratesprescribed in Schedule XIV to the Companies Act, 1956 and the depreciation is calculated on pro-rata basisfor the assets acquired during the year. If the policy followed by Vijaya Bank (at rates under the Income Taxrules and Written Down Value Method) is followed, depreciation excess provided is Rs.21,268/- and to thisextent profit is affected.

c) Deferred revenue expenditure in respect of amounts not represented by specific assets are written off over aperiod of 3 years. As a result, the profit for the year is overstated by Rs.1,10,798.00.

4) Additional statutory information disclosed in separate financial statements of the parent and the subsidiary having nobearing on the true and fair view of the Consolidated Financial Statements and also the information pertaining to theitems which are not material, have not been disclosed in the Consolidated Financial Statement in view of the generalclarification issued by the Institute of Chartered Accountants of India (ICAI).

5) In the case of ViBank Housing Finance Limited, Prior Period Adjustments represent the following items of the previousyear:

(Amount in rupees)

Debit Credit

a) TA paid to Shri R Rajagopalan for March 2002 - 1,383.00

b) Payment towards surcharge for 2001-02 6,148.00 -

c) Internal Audit fees for Dec 01 and Mar 02 (Jayanagar) 2,625.00 -

d) Internal Audit fees for Dec 01 and Mar 02 (R T Nagar) 2,625.00 -

e) Provision for Statutory Auditors for 2001-02 (Trinity Circle) - 8,000.00

f) TDS of deposits for 2001-02 (Trinity Circle) - 19,243.00

g) Provision for Deferred Revenue Expenditure for 2000-01 15,472.00 -

TOTAL 26,870.00 28,626.00

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6) SEGMENT REPORT :

In the matter of disclosure of segment details in compliance with AS 17, the following details are given pursuant to theReserve Bank of India guidelines in this regard.

SEGMENT REPORT ON CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED 31.03.2003

(Rs. in 000s)

BUSINESS SEGMENTS TREASURY OTHER TOTALBANKING

OPERATIONS

REVENUE 5748303 14598170 20346473

RESULTS 1505358 2431789 3937147

UNALLOCATED EXPENSES - - 1952485

OPERATING PROFIT - - 4355633

INCOME TAX - - 390876

EXTRA ORDINARY PROFIT/LOSS

NET PROFIT - - 1984662

OTHER INFORMATION

SEGMENT ASSETS 52369489 136614670 188984159

UNALLOCATED ASSETS - - 3002195

TOTAL ASSETS - - 191986354

SEGMENT LIABILITIES 49132791 134643867 183776658

UNALLOCATED LIABILITIES - - -

TOTAL LIABILITIES - - 183776658

Note :

1) For the purposes of Segment reporting in terms of AS 17 of the ICAI, the business of the bank has been broadlyclassified under two business segments :

a) Relating to Domestic Treasury Operations

b) Relating to Other Banking Operations

2) Expenses, assets and liabilities wherever directly related to segments have been accordingly allocated to segmentsand wherever not directly related have been allocated on the basis of average operating assets.

7) In the books of ViBank Housing Finance Limited, remuneration paid to the Managing Director on deputation fromVijaya Bank included in Profit and Loss Account is as under:

Salaries, allowances, P.F. etc Rs.3,10,409.00 (previous year Rs.2,86,413.00)

8) In the case of ViBank Housing finance Limited, Deferred tax represents tax on timing difference on account ofDepreciation, provision for doubtful assets, gratuity, pension fund and leave salary.

9) Vijaya Bank has sponsored Visvesvaraya Grameena Bank (VGB), a Regional Rural Bank with Vijaya Bank holding35% of VGB’s share capital.

Vijaya Bank’s share of current year’s earnings in the associate (VGB) has been aggregated into its Profit & Lossaccount of the current year.

The investment of Vijaya Bank in its associate (VGB) has been valued at carrying cost in accordance with AS 23(Accounting for investments in associates in consolidated financial statements) and this has resulted in Capital Reservewhich is shown as Capital Reserve on Consolidation in the Consolidated Balance Sheet of Vijaya Bank. (Goodwill inrespect of previous year ended 31.03.2002).

10) The accounts of ViBank Housing Finance Limited are subject to the comments of C & AG of India under section 619 (4)of the Companies Act 1956.

11) Previous year’s figures have been re-grouped/re-classified wherever necessary in conformity with presentation ofaccounts of this year.

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AUDITORS’ REPORT TO THE PRESIDENT OF INDIA ON THE CONSOLIDATED FINANCIAL STATEMENTS OF VIJAYABANK

1. We have examined the attached consolidated Balance Sheet of Vijaya Bank and its subsidiary Vibank Housing FinanceLimited as on 31st March 2003, the consolidated Profit and Loss Account and consolidated Cash Flow Statement forthe year ended on that date.

2. These financial statements are the responsibility of Vijaya Bank’s Management. Our responsibility is to express anopinion on these financial statements based on our audit. We conducted our audit in accordance with generallyaccepted Auditing Standards in India. These Standards require that we plan and perform the audit to obtain reasonableassurance whether the financial statements are prepared, in all material respects, in accordance with an identifiedfinancial reporting framework and are free of material mis-statements. An audit includes, examining on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by Management, as well as evaluating the overall financialstatements. We believe that our audit provides a reasonable basis for our opinion.

3. We have not audited the financial statements of the subsidiary Vibank Housing Finance Limited, whose financialstatements reflect total assets of Rs.160.74 crore as at 31st March 2003 and total revenues of Rs.20.38 crore for theyear then ended. These financial statements have been audited by other auditor whose report has been furnished tous, and our opinion, insofar as it relates to the amounts included in respect of the subsidiaries, is based solely on thereport of the other auditor. The individual financial statements of Vijaya Bank and Vibank Housing Finance Limitedalong with the respective audit reports thereon are enclosed.

4. We report that the

Consolidated financial statements have been prepared by the Bank in accordance with the requirements of AccountingStandard (AS) 21, ‘Consolidated Financial Statements’, issued by the Institute of Chartered Accountants of India andthe requirements of the Reserve Bank of India and on the basis of the separate audited financial statements of VijayaBank and its subsidiary included in the consolidated financial statements.

5. We invite attention to :

� As explained, the Bank and its subsidiary are operating in different circumstances and it is not practicable to useuniform accounting policies in preparing the consolidated financial statements and to make appropriate adjustmentsif any for the variation in preparing the said statements. Refer Note No.3,

� Prior period items have been identified for the Vibank Housing Finance Limited only. No such details have beenidentified for the parent bank pursuant to AS -5 issued by the ICAI,

� Limited disclosure pursuant to AS - 17 of ICAI, refer Note No.6 on Segment Reporting.

6. On the basis of the information and explanation given to us and on the consideration of the separate audit reports onindividual audited financial statements of Vijaya Bank and its aforesaid subsidiary, read with paragraph 5 given aboveand with the Notes on Accounts, Statement of Principal Accounting Policies and relevant notes and policies to theconsolidated accounts, we are of the opinion that:

(a) The consolidated Balance Sheet gives a true and fair view of the consolidated state of affairs of Vijaya Bank andits Subsidiary Vibank Housing Finance Limited as at 31st March 2003 ;

(b) The consolidated Profit and Loss account gives a true and fair view of the consolidated results of operations ofVijaya Bank and its Subsidiary Vibank Housing Finance Limited for the year ended on that date; and

(c) The consolidated Cash Flow statement of Vijaya Bank and its subsidiary Vibank Housing Finance Limited for theyear ended on that date.

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XIII. STATUTORY AND OTHER INFORMATION

MINIMUM SUBSCRIPTIONIf the Bank does not receive the minimum subscription of90% of the issue amount, till the date of closure of the Issue,or if the subscription level falls below 90% after the closureof the Issue on account of cheques having been returnedunpaid or withdrawals of applications, the Bank shallforthwith refund the entire subscription amount received. Ifthere is a delay beyond 8 days after the Company becomesliable to pay the amount, the Bank shall pay interest as perSection 73 of the Companies Act, 1956.

EXPENSES OF THE ISSUEThe expenses of the Issue payable by the Bank inclusive ofbrokerage, fees payable to the Lead Managers to the Issue,Co-Managers to the Issue, Advisor to the Issue, LegalAdvisor, Auditors, reimbursement of expenses to theRegistrars, stamp duty, printing, advertising and distributionexpenses, listing fees and other expenses are estimated tobe approximately 5% of the Issue size and will be met out ofthe proceeds of the Issue. The estimated break-up for theexpenses is as given in the following table.

Particulars (Rs. in crore)

Lead Managers/ Co-Managers / Auditors Fees 1.15

Out of Pocket Expenses 0.25

Brokerage 1.50

Advertisement budget 5.00

Printing and Stationary 1.00

Registrar fee 0.10

Professional fees to PR Agency & their travel,travelling for Conference and other expenses 0.50

Stamp Duty / Demat, etc. 1.50

Contingencies@15% 1.65

Total Expenses 12.65

FEES PAYABLE TO THE LEAD MANAGERS TO THEISSUEThe fee payable to the Lead Managers to the Issue are asset out in the relevant documents, copies of which are keptopen for inspection at the Head Office of the Bank.

FEES PAYABLE TO THE CO-MANAGERS TO THEISSUEThe fee payable to the Co-Managers to the Issue are as setout in the relevant document, a copy of which is open forinspection at the Head Office of the Bank.

FEES PAYABLE TO THE ADVISOR TO THE ISSUE

The fee payable to the Advisor to the Issue are as set out inthe relevant document, a copy of which is open for inspectionat the Head Office of the Bank.

FEES PAYABLE TO THE REGISTRARS TO THEISSUE

The fee payable to the Registrars to the Issue are as set outin the relevant documents, copies of which are kept openfor inspection at the Head Office of the Bank.

BROKERAGE

As per Section 13 of the Banking Regulation Act 1949, noBanking company can directly or indirectly pay by way ofcommission, brokerage, discount in any form in respect ofany shares issued by it, any amount exceeding in theaggregate 2.5% of the paid up value of the said shares.

The Bank has obtained an exemption from the aboverequirement vide Gazette notification issued by Governmentof India no. F. No. 11/15/2001 - BOA dated August 22 2003for a period of five years from the date of the notification.

The brokerage structure for the present issue shall bedecided by the Bank closer to the launch of the issue andshall be communicated by the Bank to the Stock Exchange,Mumbai, The National Stock Exchange and the BangaloreStock Exchange. No brokerage shall be payable in respectof QIB applications.

Brokerage at the rates as specified above will be paid bythe Bank on the basis of al lotments made againstapplications bearing the stamp of a member of anyrecognised Stock Exchange in India in the brokers/agentscolumn. Brokerage at the same rate will also be payable toBankers to the issue in respect of allotments made againstapplications procured by them provided the relativeapplication form(s) bear the respective stamps in the brokers/agents column.

The Bank, at its sole discretion, may also consider paymentof additional incentive in the form of kitty or otherwise to thebrokers or to the Lead Managers on such terms and modeas may be decided by the Bank.

In case of tampering or overstamping of broker codes onthe Application Form, the Bank’s decision to pay brokeragein this respect will be final and no further correspondencewill be entertained in the matter.

Since the Issue is not being underwritten, no underwritingcommission is payable.

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ISSUES FOR CONSIDERATION OTHER THAN FORCASH

There have not been any issues for consideration other thancash.

PREVIOUS COMMISSION AND BROKERAGE

The amounts paid by the Bank as commission and brokeragefor subscribing to or agreeing to subscribe to or procuringor agreeing to procure subscription for any of the shares ofthe Bank in its last public issue was Rs. 48.87 lacs.

OPTION TO SUBSCRIBE

Save as otherwise stated in this Offer Document, the Bankhas not given any person nor does it propose to give anyperson any option to subscribe to the shares of the Bank.The investor shall have the option either to receive the sharecertificates or to hold the securities in dematerialised formwith a depository.

TERMS OF APPOINTMENT OF CHAIRMAN ANDMANAGING DIRECTOR

In exercise of the powers conferred by clause (a) of sub-section (3) of sect ion 9 of the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1980, readwith sub-clause (1) of clause 3, clause 5, clause 6, clause 7and sub-clause (1) of clause 8 of the Nationalised Banks(Management and Miscellaneous Provisions) Scheme 1980,the Central Government, after consultation with RBI, hasappointed Shri M. S. Kapur as Chairman and ManagingDirector of the Bank and he has assumed charge of the Bankon August 14 2002. His appointment is valid upto March 312006.

His compensation details are as follows:

Salary: Rs.37, 517.50 per month in the scale of Rs. 24050-650-26000 with effect from16.08.2002.

Other benefits: As per the rules.

TERMS OF APPOINTMENT OF EXECUTIVEDIRECTOR

In exercise of the powers conferred by clause (a) of sub-section (3) of sect ion 9 of the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1980, readwith sub-clause (1) of clause 3 and sub-clause (1) of clause8 of the Nationalised Banks (Management and MiscellaneousProvisions) Scheme 1980, the Central Government, afterconsultation with RBI, has appointed Shri P.A. Sethi as aWhole Time Director (designated as Executive Director) ofthe Bank for the period from March 7 2003 or from the dateof taking charge, whichever is later and upto October 31,2004.

His compensation details are as follows:

Salary: Rs. 34,417.50 per month in the scale of Rs. 22050-500-24050 with effect from 07.03.2002.

Other benefits: As per the rules.

Payment or Benefit to the Directors and Officers of the Bank

No amount or benefit has been paid or given or is intendedto be paid or given to any Director or Officer of the Bankexcept their normal remuneration and/or reimbursement forthe services rendered to the Bank to which they are entitledor may become entitled to under the provisions of the BankNationalisation Act or otherwise in accordance with the Law.

NATURE AND INTEREST OF DIRECTORS

The Directors of the Bank are interested to the extent ofshares held by them and/ or by their friends and relatives or

PREVIOUS ISSUES BY THE BANK

The Bank came out with a public issue of equity shares in November 2000. The details of the same are as given in thefollowing table.

Year Size Times over Shares Date of Date of Date of Date of Date of(Rs. in crores) subscribed Listed on despatch allotment* despatch demat listing*

of refund of share credit toorders* certificates* shareholders*

November 2000 100 1.83 BSE, January 1 January 3 January 2 January 3 January 4

NSE and 2001 2003 2001 2001 2001

Bg SE

The Bank has also raised Tier II capital by way of private placement to augment capital adequacy as under:

Series Year of Placement Size Tenor Coupon Redemption Outstanding amount(Rs. in crores) (in months) (% p.a.) Due on as on 31.03.2003

(Rs. in crores)

I FY 1999 120 63 14.2 04.4.2004 120

II FY 2000 60 84 12.35 06.12.2006 60

III FY 2002 150 90 7.50 08.05.2010 150

* Series I and Series II bonds have not been rated. Series III bonds have been rated AA by CRISIL.

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which may be subscribed by them and/ or allotted to themby the Bank.

The Directors of the Bank are interested to the extent offees, if any, payable to them for attending meetings of theBoard or Committee and reimbursement of travelling andother incidental expenses, if any, for such attendance asper the Articles of Association of the Bank.

The Directors of the Bank are not interested in theappointment of or acting as Underwriters, Registrars andBankers to the Issue or any such intermediary registeredwith SEBI.

Save as stated above, no amount or benefit has been paidor given to the Bank’s Directors or Officers since itsincorporation nor is intended to be paid or given to anyDirectors or Officers of the Bank except the normalremuneration and/or disbursement for services as Directors,Officers or Employees of the Bank.

No Director of the Bank is interested in the appointment ofany of the Managers, Registrars and Bankers to the Issue.No Director of the Bank is interested in any property acquiredby the Bank within two years of the date of the OfferDocument or proposed to be acquired by it.

The Directors are not interested in any loan or advance givenby the Bank to any person(s)/ Company (ies) nor is anybeneficiary of such loan or advance related to any of theDirectors of the Bank.

PURCHASE OF PROPERTY

There is no property which the Bank has purchased oracquired or proposes to purchase or acquire, which is to bepaid for, wholly or partly, out of the proceeds of the presentIssue or the purchase or acquisition of which has not beencompleted on the date of issue of this Offer Document, otherthan:

a) the contracts for the purchase or acquisition whereofwere entered into, or may be entered into, in the ordinarycourse of the Bank’s business, such contracts not beingmade in contemplation of the Issue or in consequenceof the contract; or

b) property in respect of which the amount of the purchaseconsideration is not material.

The Bank has not purchased any property in which any ofits Directors had or have any direct or indirect interest or inrespect of any payment thereof.

The Bank has no plans, at present, to acquire any runningbusiness out of the proceeds of the Issue.

RIGHTS OF THE EQUITY SHAREHOLDERS

a) Right to receive dividend, if declared

b) Right to attend general meetings and exercise votingpowers, unless prohibited by law

c) Right to vote either personally or by proxy, subject toSection 3(2E) of the Bank Nationalisation Act.

TRANSFER OF SHARES AND SHARE REGISTERS

As per Section 3 (2D) of Banking Companies (Acquisition &Tansfer of Undertakings) Act 1980, the shares of everycorresponding new Bank not held by the Central Governmentshall be freely transferable.

PROVIDED that no individual or company resident outsideIndia or any company incorporated under any law not in forcein India or any branch of such company whether residentoutside India or not, shall at any time hold or acquire bytransfer or otherwise shares of the corresponding new bankso that such investment in aggregate exceeds thepercentage, not being more than twenty per cent of the paid-up capital, as may be specified by the Central Governmentby notification in the Official Gazette.

Explanation: For the purposes of this clause, “company”means any body corporate and includes a firm or otherassociation of individuals.

Amendment to the Act 2000.

(c) In sub-section (2D), the words “not held by the CentralGovernment” shall be omitted.

CAPITALISATION OF RESERVES OR PROFITS

The Bank has not capitalised the reserves or profits sinceits nationalisation.

REVALUATION OF ASSETS

The Premises of the Bank were revalued during the year1994-95 on the basis of approved valuers’ reports. Theincremental portion amounting to Rs. 142.86 crores wascredited to the Revaluation Reserve in that year.

XIV. MAIN PROVISIONS OF THE BANKNATIONALISATION ACT

Relevant provisions of the Banking Companies (Acquisitionand Transfer of Undertakings) Act, 1970/ 1980 as amendedby the Banking Companies (Acquisition and Transfer ofUndertakings) Amendment Act, 1994 & Banking Companies(Acquisition and Transfer of Undertakings) Amendment Act,1995 hereinafter collectively referred to as the BankNationalisation Act are:

AUTHORISED CAPITAL

As per the provisions of Section 3 (Sub-Section 2A) of theBanking Companies (Acquisition) Act, 1970 the AuthorisedCapital of the Bank shall be Rupees One Thousand and FiveHundred crores to be divided into One Hundred and Fiftycrores of fully paid-up equity shares of Rs.10/- each.

Provided that the Central Government may, after consultationwith the Reserve Bank of India and by notification in theOfficial Gazette, increase or reduce the authorised capitalas it thinks fit, so however that after such increase orreduction, the authorised capital shall not exceed Rs. ThreeThousand crores, or be less than Rs. One Thousand andFive Hundred Crores.

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ISSUED CAPITAL

Section 3 (Sub-Section 2B) of the Banking Companies(Acquisition) Act, 1970 provides that the paid-up capital mayfrom time to time be increased by

(a) Such amounts as the Board of Directors of thecorresponding new Bank may, after consultation withthe Reserve Bank of India and with the previous sanctionof the Central Government transfer from the reserve fundestablished by such Bank to such paid-up capital;

(b) Such amounts as the Central Government may, afterconsultation with the Reserve Bank, contribute to suchpaid-up capital;

(c) Such amounts as the Board of Directors of thecorresponding new Bank may, after consultation withthe Reserve Bank and with the previous sanction of theCentral Government, raise by Public Issue of shares asmay be prescribed, so however, that the CentralGovernment shall at all times hold not less than 51% ofthe paid-up capital of each corresponding new Bank.

The entire paid-up capital of the corresponding new Bank,except the paid-up capital raised by public Issue underclause (c) of Sub-Section 2B shall stand vested in, andallotted to, the Central Government.

Sec 3 (2BB) of Banking Companies (Acquisition) Act, 1970provides that “notwithstanding anything contained insubsection (2), the paid capital of a corresponding new Bankconstituted under subsection (1) may from time to time andbefore any paid up capital is raised by Public Issue underclause (c) of sub section (2B) be reduced by

(a) the Central Government after consultation with theReserve Bank by cancelling any paid up capital whichis lost, or is unrepresented by available assets;

(b) the Board of Directors, after consultation with ReserveBank and with the previous sanction of the CentralGovernment, by paying off any paid up capital which isin excess of the wants of the corresponding newBank.......”

(2BBB) “Notwithstanding anything contained in sub section(2BB) or sub-sub section (2BBA), the paid up capital of acorresponding new Bank shall not be reduced at any timeso as to render it below twenty five percent of the paid upcapital of that Bank as on date of commencement of theBanking Companies (Acquisi t ion and Transfer ofUndertakings) Amendment Act, 1995.”

RIGHTS OF EQUITY SHAREHOLDERS

AS TO DIVIDEND

Section 10(7): After making provision for bad and doubtfuldebts, depreciation in assets, contributions to staff andSuperannuation funds and all other matters for whichprovision is necessary under any law, or which are usuallyprovided for by Banking companies, a corresponding newBank may, out of its net profits, declare a dividend and retainthe surplus, if any.

VOTING RIGHTS

Section 3(2E): No shareholder of the corresponding newBank, other than the Central Government, shall be entitledto exercise voting rights in respect of any shares held byhim in excess of one per cent of the total voting rights of allthe shareholders of the corresponding new Bank.

MEETING OF SHAREHOLDERS

Section 10A: A General Meeting (in this Act referred to asan Annual General Meeting) of every corresponding newBank which has issued capital under clause (c) of sub-section (2B) of Section 3 shall be held at the place of theHead Office of the Bank in each year at such time as shallfrom time to time be specified by the Board of Directors:

- Provided that such Annual General Meeting shall be heldbefore the expiry of six weeks from the date on whichthe Balance- Sheet together with the Profit and Lossaccount and Auditors’ Report is under sub-section (7A)of section 10, forwarded to the Central Government orto the Reserve Bank, whichever date is earlier.

- The shareholders present at an Annual General Meetingshall be entitled to discuss the Balance Sheet and theProfit and Loss Account of the corresponding new Bankmade up to the previous 31st day of March, the reportof the Board of Directors on the working and activitiesof the corresponding new Bank for the period coveredby the accounts and the Auditor’s Report on the BalanceSheet and Profit and Loss Account.

TRANSFER OF SHARES AND SHARE REGISTERS

Section 3 (2D): The shares of every corresponding new Banknot held by the Central Government shall be freelytransferable.

Section 3 (2F): Every corresponding new Bank shall keepat its Head Office a Register, in one or more Books, of theshareholders (in this Act referred to as the Register) andshall enter therein the following particulars:

(i) the names, addresses and occupations, if any, of theshareholders and a statement of the shares held by eachshareholder, distinguishing each share by its denotingnumber;

(ii) the date on which each person is so entered as ashareholder;

(iii) the date on which any person ceases to be a shareholderand

(iv) such other particulars as may be prescribed

Section 3(2G): Notwithstanding anything contained in sub-section (2F), it shall be lawful for every, corresponding newBank to keep the Register in computer floppies or diskettessubject to such safeguards as may be prescribed.

Section 3 (3): Notwithstanding anything contained in theIndian Evidence Act, 1872, a copy of, or extract from, theRegister, certified to be a true copy under the hands of anofficer of the corresponding new Bank authorised in this

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behalf by it, shall in all legal proceedings, be admissible inevidence.

Section 3A: Notwithstanding anything contained in sub-section (2F) of Section 3, no notice of any trust, express,implied or constructive, shall be entered on the Register, orbe receivable, by the corresponding new Bank.

BOARD OF DIRECTORS AND ITS POWERS

Constitution of the Board of Directors:

Section 9 (3): Every Board of Directors of a correspondingnew Bank, constituted under any scheme made underSection (1), shall include:

(i) not more than two whole-time directors to be appointedby the Central Government after consultation with theReserve Bank;

(ii) one director who is an official of the Central Governmentto be nominated by the Central Government providedthat no such Director will be a Director of any othercorresponding new Bank as in terms of the BankingCompanies (Acquisition) Act, 1970;

(iii) one director who is an officer of the Reserve Bank to benominated by the Central Government on therecommendations of the Reserve Bank.

Explanation: For the purpose of this clause “an officerof the Reserve Bank” includes an officer of the ReserveBank who is deputed by the Bank under Section 54AAof the Reserve Bank of India Act, 1934 to any institutionreferred to therein.

(iv) Not more than 2 directors to be nominated by the CentralGovernment from amongst SEBI established underSection (3) of SEBI Act 1992 (15 of 1992), the NationalBank for Agriculture & Rural Development establishedunder section (3) NABARD Act 1981 (61 of 1981) , Publicfinancial institutions as specified in subsection (1) ornotified from time to time under Sub-Section (2) ofSection (4A) of Companies Act 1956 (1 of 1956) andother institutions established or constituted by or underany Central Act or incorporated under the CompaniesAct 1956 and having not less than 51% of the paid-upshare capital held or control led by the CentralGovernment.

(v) one director, from among such of the employees of thecorresponding new Bank who are workmen underclause(s) of Section 2 of the Industrial Disputes Act,1947 to be nominated by the Central Government insuch manner as may be specified in a scheme madeunder this section;

(vi) one director, from among the employees of thecorresponding new Bank, who are not workmen underclause (S) of Section 2 of the Industrial Disputes Act,1947, to be nominated by the Central Government afterconsultation with Reserve Bank;

(vii) one director who has been a Chartered Accountant fornot less than 15 years to be nominated by the Central

Government after consultation with the Reserve Bank;

(viii)subject to the provisions of clause (i), not more than sixdirectors, to be nominated by the Central Government;

(ix) where the capital issued under clause (c) of sub-section(2B) of Section 3 is -

l not more than twenty per cent, of the total paid upcapital, not more than two directors.

l more than twenty per cent but not more than fortyper cent, of the total paid-up capital, not more thanfour directors.

l more than forty per cent, of the total paid-up capital,not more than six directors to be elected by theshareholders other than the Central Government,from amongst themselves.

Provided that on the assumption of charge after election ofany such directors under this clause, equal number ofdirectors nominated under clause (h) shall retire in suchmanner as may be specified in the scheme.

(3A): The directors to be nominated under clause (h) or tobe elected under clause (i) of Sub-Section 3 shall -

(A) have special knowledge or practical experience inrespect of one or more of the following matters, namely:

(i) agricultural and rural economy

(ii) Banking

(iii) co-operation

(iv) economics

(v) finance

(vi) law

(vii) small scale industry

(viii)any other matter the special knowledge of, andpractical experience in which would in the opinionof the Reserve Bank, be useful to the correspondingnew Bank;

(B) represent the interest of depositors; or

(C) represent the interests of farmers, workers and artisans.

REMOVAL OF DIRECTORS

Section 9 (3B): Where the Reserve Bank is of the opinionthat any director of a corresponding new Bank elected underclause (i) of Sub-section (3) does not fulfil the requirementsof the Sub- Section (3A), it may, after giving to such directorand the Bank a reasonable opportunity of being heard, byan order remove such director and on such removal, theBoard of Directors shall co-opt any other person fulfillingthe requirements of sub-section 3(A) in place of the personso removed till a Director is duly elected by the shareholdersof the corresponding new Bank in the next Annual GeneralMeeting and the person so co-opted shall be deemed tohave been duly elected by the shareholders of thecorresponding new Bank as a director.

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POWERS OF BOARD OF DIRECTORS

SECTION 19:(1) The Board of Directors of a corresponding new Bank

may, after consultation with the Reserve Bank and withthe previous sanction of the Central Government bynotification in the Official Gazette make the regulations,not inconsistent with the provisions of this Act or anyscheme made thereunder, to provide for all matters forwhich provision is expedient for the purpose of givingeffect to the provisions of this Act.

(2) In particular, and without prejudice to the generality ofthe foregoing power, the regulations may provide for allor any of the following matters, namely:

(a) the powers, functions and duties of local boards andrestrictions, conditions or limitations, if any, subjectto which they may be exercised or performed, theformation and constitution of local committees andcommittees of local boards (including the numberof members of any such committee) the powers,functions and duties of such committees, theholding of meetings of local committees andcommittees of local boards and the conduct ofbusiness there at;

(b) the manner in which the business of the local boardsshall be transacted and the procedure in connectiontherewith.;

b(a) the nature of shares of the corresponding new Bank,the manner in which and the conditions subject towhich shares may be held and transferred andgenerally all matters relating to the rights and dutiesof shareholders.

b(b) the maintenance of register, and the particulars tobe entered in the register in addition to thosespecified in sub-section (2F) of Section 3, thesafeguards to be observed in the maintenance ofregister on computer, f loppies or diskettes,inspection and closure of the register and all othermatters connected therewith.

b(c) the manner in which general meetings shall beconvened, the procedure to be followed thereat andthe manner in which voting rights may be exercised.

b(d) the holding of meetings of shareholders and thebusiness to be transacted thereat.

b(e) the manner in which notices may be served onbehalf of the corresponding new Bank uponshareholders or other persons.

b(f) the manner in which the directors nominated underclause (g) of sub-section (3) of Section 9 shall retire.

(c) the delegation of powers and functions of the Boardof Directors of a corresponding new Bank to thegeneral managers, directors, or other employeesof that Bank.

(d) the conditions or limitations subject to which thecorresponding new Bank may appoint advisors,

off icers or other employees and f ix theirremuneration and other terms and conditions ofservice.

(e) the duties and conduct of advisors, officers or otheremployees of the corresponding new Bank.

(f) the establ ishment and maintenance ofSuperannuation, pension, provident or other fundsfor the benefit of officers or other employees of thecorresponding new Bank or of the dependants ofsuch officers or other employees and the grantingof Superannuation allowances, annuities andpensions payable out of such funds.

(g) the conduct and defence of legal proceedings byor against the corresponding new Bank and themanner of signing and pleadings.

(h) the provision of a seal for the corresponding newBank and the manner and effect of its use.

(i) the form and manner in which contracts binding onthe corresponding new Bank may be executed.

(j) the conditions and the requirements subject towhich loans or advances may be made or bills maybe discounted or purchased by the correspondingnew Bank.

(k) the persons or authorities who shall administer anypension, provident or other fund constituted for thebenefit of officers or other employees of thecorresponding new Bank or their dependants.

(l) the preparation and submission of statements ofprogrammes of activities and financial statementsof the corresponding new Bank and the period forwhich and the time within which such statementsand estimates are to be prepared and submitted;and

(m) generally for the efficient conduct of the affairs ofthe corresponding new Bank.

XV. MATERIAL CONTRACTS AND DOCUMENTSFOR INSPECTION

The contracts referred to below (not being contracts enteredinto in the ordinary course of business carried on by theBank or entered into more than two years prior to the dateof the Offer Document) which are or may be deemed to bematerial have been entered into by the Bank. Copies of thesecontracts, together with the copies of the documents referredto below, all of which have been attached to a copy of theOffer Document, which has been delivered to the DesignatedStock Exchange, may be inspected at the Head Office ofthe Bank between 10.00 A.M. and 12.00 Noon on anyworking day of the Bank from the date of the Offer Documentuntil the date of closing of the subscription list.

A. MATERIAL CONTRACTS

1. Letter dated 10.06.2003 from the Bank appointing SBICapital Markets Ltd. as Lead Managers to the Issue.

2. Letter dated 10.06.2003 from the Bank appointing DSPMerill Lynch Ltd.. as Lead Managers to the Issue.

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3. Letter dated 10.06.2003 from the Bank appointing J MMorgan Stanley Private Ltd. as Lead Managers to theIssue.

4. Letter dated 10.06.2003 from the Bank appointingAllianz Securities Ltd. as Lead Managers to the Issue.

5. Letter dated 10.06.2003 from the Bank appointing A KCapital Services Ltd. as Lead Managers to the Issue.

6. Memorandum of Understanding dated 04.07.2003between the Bank and SBI Capital Markets Ltd. the LeadManagers to the Issue along with the Inter-se Allocationof Responsibilities between the Lead Managers.

7. Memorandum of Understanding dated 04.07.2003between the Bank and DSP Merill Lynch Ltd the LeadManagers to the Issue along with the Inter-se Allocationof Responsibilities between the Lead Managers.

8. Memorandum of Understanding dated 04.07.2003between the Bank and J M Morgan Stanley PrivateLtdthe Lead Managers to the Issue along with the Inter-seAllocation of Responsibi l i t ies between the LeadManagers.

9. Memorandum of Understanding dated 04.07.2003between the Bank and Allianz Securities Ltd the LeadManagers to the Issue along with the Inter-se Allocationof Responsibilities between the Lead Managers.

10. Memorandum of Understanding dated 04.07.2003between the Bank and A K Capital Services Ltd the LeadManagers to the Issue along with the Inter-se Allocationof Responsibilities between the Lead Managers.

11. Letter dated 10.06.2003, appointing Centrum FinanceLtd. as Co- Managers to the Issue.

12. Letter dated 10.06.2003 appointing Karvy InvestorServices Ltd.as Co- Managers to the Issue.

B. MATERIAL DOCUMENTS1. Resolution of Board of Directors of the Bank at the Board

Meeting held on 27.03.2003

i) approving the Issue

ii) appointing Lead Managers, Advisor to the Issue

iii) appointing and authorising the issue Committee fortaking any action with regard to the Issue andsigning the Offer Document

2. Resolution of the Board of Directors dated 18.06.2003

i) approving the draft offer document

ii) authorising the Registrars to sign the Stockinvestson behalf of the Bank to dispose off the applicationsreceived with Stockinvest.

3. Consent dated 28.06.2003 from the Auditors to act asAuditors to the Issue and for inclusion of their report onthe Accounts of the Bank in the form and content inwhich they appear in the Offer Document

4. Tax Benefits’ report of the Auditors and their consent tothe inclusion of the report and their name in the offerdocument.

5. Copies of the Balance Sheet and Profit and Loss Accountsof Vijaya Bank, ViBank Housing Finance Limited andVisveshvarya Grameena Bank for the five years endedMarch 31, 1999, 2000, 2001, 2002 and 2003.

6. Consent from all the other intermediaries viz. LeadManagers, Co-Managers and Registrars for acting intheir respective capacities.

7. Copies of the Listing Applications dated July 31 2003to the Stock Exchanges at Bangalore, Mumbai and theNational Stock Exchange respectively for listing of newequity shares of the Bank.

8. Letter No. F.No.11/15/2001-BOA dated 9th June 2003from Government of India, Ministry of Finance,Department of Economic Affairs (Banking Division) tothe Bank giving approval to raise the paid up capital ofthe Bank by issue of shares.

9. Letter No. F. No. 11/15/2001-BOA dated August 21 2003from Government of India, Ministry of Finance,Department of Economic Affairs (Banking Division) tothe Bank giving its consent to lock-in of its shares asper the existing stipulations.

10. Government of India, Ministry of Finance, Departmentof Economic Affairs (Banking Division), letter no F.No.12/35/99-BOA dated 27th March 2000, permitting theBank to reduce i ts paid-up capital by adjust ingaccumulated losses Rs.297.07 crores from its paid-upcapital as on March 31, 2003.

11. Gazette notification no. F.No.11/15/2001-BOA datedAugust 22 2003 from Ministry of Finance, Departmentof Economic Affairs (Banking Division) exempting theBank from provisions of Section 15 (1) of the BankingRegulation Act, 1949, relating to payment of Dividendand from Section 13 of the Banking Regulation Act,1949, relating to payment of brokerage for a period offive years from the date of the notification (i.e. August22 2003).

12. Tripartite agreement dated 22nd August 2000 enteredinto between the Bank, National Securities DepositoryLtd. (NSDL) and M/s. MCS, the Registrars to the Issue.

13. Tripartite agreement dated 28th July, 2000 among theBank, Central Depository Services (India) Ltd. (CDSL)and M/s MCS, the Registrars to the Issue.

14. Government of India notification no.F.No.9/24/2002-BOIdated 7th March 2003 appointing Sri.P A Sethi asExecutive Director of Vijaya Bank.

15. Government of India notification no. F.No.9/6/2002-BOIdated 14th August 2002 detail ing the terms andconditions of the appointment of Sri. M S Kapur asChairman cum Managing Director of Vijaya Bank.

16. Observation Letter no. CFD/DIL/UR/16270/2003 datedAugust 28 2003 from Securities & Exchange Board of India,

17. Letter dated August 12 2003 from the Bangalore StockExchange, letter dated August 13 2003 from the StockExchange, Mumbai and letter dated August 18 2003from the National Stock Exchange Ltd.

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PART III

DECLARATION

All relevant provisions of the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1970 andBanking Companies (Acquisi t ion and Transfer ofUndertakings) Amendment Act, 1994 & Banking Companies(Acquisition and Transfer of Undertakings) Amendment Act,1995 and Banking Companies (Acquisition and Transfer ofUndertakings) Amendment Act, 1996 and the guidelinesissued by the Government have been complied with and nostatement made in this Draft Offer Document is contrary tothe provisions of the said Act/ Regulations/ Guidelines andrules framed thereunder.

Signed by all the Directors of the Board/ Committee, pursuantto the authority granted by the Board of Directors of the Bankat the Board Meeting held on September 12 2003.

Sd/-

Shri M.S. Kapur - Chairman & Managing Director

Shri P. A. Sethi - Executive Director

Shri R. Renganath - Director

Shri A. P. Hota - Director

Shri M. Kiran - Director

Shri Babuseth Tyerwala - Director

Smt. Sukhada Mishra - Director

Shri Pawan Kumar Sharma - Director

Shri S. Ananthan - Director

Shri R. Ashok Kumar - Director

Shri B. K. Jagdish Chandra - Director

Shri S. P. Krishnaswamy - Director

Place : Bangalore

Dated : September 12 2003

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