PRIVATE & CONFIDENTIALNOT FOR CIRCULATION

INDUSTRIAL DEVELOPMENT BANK OF INDIA(Established under the Industrial Development Bank of India Act, 1964)

IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005.Tel: (022) 22189117/22161746/22161913/22152882 Fax: (022) 22188137, 22181155

Grams: INDBANKIND. Website : www.idbi.com

MEMORANDUM OF PRIVATE PLACEMENTINDUSTRIAL DEVELOPMENT BANK OF INDIA

PRIVATE PLACEMENT OF OMNI BONDSOF RS.10 LAKHS EACH FOR CASH AT PAR

IDBI OMNI BONDS 2004/A

Note: This memorandum of private placement is neither a prospectus nor a statement in lieu of prospectus. This is only aninformation brochure intended for private use and should not be construed to be a prospectus and / or an invitation to thepublic for subscription to bonds.

Applications to Omni Bonds 2004/Awould be accepted between January 5, 2004 to January 9, 2004

Rating : AA+ by CRISIL, AA+(ind) by FITCH and LAA by ICRA

Head Office

INDUSTRIAL DEVELOPMENT BANK OF INDIAIDBI TOWER, WTC COMPLEX, CUFFE PARADE, MUMBAI – 400 005

TEL : (022) 22161746, 22152882; FAX : (022) 2218 1155, 2218 8137

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DISCLAIMER

This Memorandum of Private Placement is neither a Prospectus nor a statement in lieu of Prospectus. It does not constitutean offer or an invitation to subscribe to the bonds issued by Industrial Development Bank of India “IDBI”. Apart from thisMemorandum of Private Placement, no offer document or prospectus has been prepared in connection with the offering ofthis Bond Issue or in relation to the Issuer nor is such a prospectus required to be registered under the applicable laws.Accordingly, this Memorandum of Private Placement has neither been delivered for registration nor is it intended to beregistered.

This Memorandum of Private Placement is not intended to form the basis of evaluation for the potential investors to whomit is addressed and who are willing and eligible to subscribe to these Bonds issued by IDBI. This Memorandum of PrivatePlacement has been prepared to give general information regarding IDBI to persons proposing to invest in this issue of Bondsand it does not purport to contain all the information that any such person may require. IDBI believes that the informationcontained in this Memorandum of Private Placement is accurate in all respects as of the date hereof. IDBI does not undertaketo update this Memorandum of Private Placement to reflect subsequent events and thus it should not be relied upon withoutfirst confirming its accuracy with IDBI.

Potential investors are required to make their own independent evaluation and judgment before making the investment. Itis the responsibility of potential investors to have obtained all consents, approvals or authorisations required by them tomake an offer to subscribe for, and purchase the Bonds. Potential investors should also consult their tax advisor(s) on thetax implications of the acquisitions, ownership, sale and redemption of Bonds and income arising thereon either by way ofinterest or capital gains.

This Memorandum of Private Placement is not intended for distribution and it is meant solely for the consideration of theperson to whom it is addressed and should not be reproduced by the recipient. The Bonds mentioned herein are being issuedon a private placement basis and this offer does not constitute nor should it be considered a public offer/invitation.

FORCE MAJEURE

IDBI reserves the right to withdraw the issue any time in the event of any unforeseen development adversely affecting theeconomic and regulatory environment. In such an event, IDBI will refund the application money, if any, alongwith the interestpayable on such application money.

This Memorandum of Private Placement is issued by IDBI and signed by its authorized signatory.

R.K. BANSALGeneral Manager

January 2, 2004

Industrial Development Bank of India has been established under the Industrial Development Bank of India Act, 1964(IDBI Act).

In terms of Section 11(1) (a) of the IDBI Act, IDBI is authorised to issue and sell Bonds with or without the guaranteeof the Central Government for the purpose of raising resources for carrying out its functions under the Act.

This offer is being made on a Private Placement basis and cannot be acted upon by any person other than the oneto whom the offer has been made.

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RISK FACTORSInternal Factors(a) Redemption Reserve: Creation of Redemption Reserve is not envisaged for the proposed issue of Bonds.

IDBI being a public financial institution has been raising resources both from domestic market andoverseas market in the form of unsecured borrowings. In respect of the monies borrowed from overseasmarkets, IDBI has agreed to create pari passu charge if any other lender is offered security on the assetsof IDBI. Since the resources raised by IDBI are being utilised for the purpose of its business i.e. providingcredit and other facilities to the industry, the assets of IDBI are mostly in form of loans and advances.Hence it is proposed that the Bonds shall be unsecured in nature in that they shall not be secured againstany asset of IDBI. IDBI has appointed a trustee to protect the interest of the investors.

(b) Credit Risk: The business of lending carries the risk of default by borrowers.

Any term lending activity is exposed to credit risk arising from the risk of default by the borrowers. IDBI has putup a systematic credit evaluation process in place. Necessary control measures like maintaining a diversifiedportfolio with industry-wise, promoter group-wise and specific client-wise exposure limits are set to avoidconcentration of lending to any specific industry segment/ promoter group/ company. These limits helpminimise credit risk. With a view to derisk the portfolio the exposure limits have been reviewed and exposure byway of Project Finance assistance to greenfield projects have been reduced as a matter of deliberate strategy.A Credit Risk Monitoring Group (CRMG) has been set up at the Head Office to monitor the risk associated withlending to individual projects, business groups and industries. IDBI monitors the performance of its assetportfolio on a regular basis and also constantly evaluates the changes and developments in industries to whichit has substantial exposure.

(c) Market Risk: Increased interest rate volatility exposes IDBI to market rate risk arising out of maturity/rate mismatches.Risk arising from interest rate volatility is inherent to the business of financial intermediation and termlending. This risk is minimised by linking the interest rates on term lending to a base rate (PLR / MTPLRetc), which varies in accordance with overall movement in market rates. Further, the rate applicable to eachtranche of disbursement varies in accordance with the prevailing base rate. In case of lending pegged tofloating rates, they are generally matched by floating rate liability (both rupee and foreign currency). IDBImanages market risks through active Asset Liability Management (ALM), viz. liquidity, interest rate andforeign exchange risk by way of Gap/Duration Analysis so as to optimize matching of the Assets andLiabilities. Active Asset Liability Management with efforts to match Duration of Assets and Liabilities as alsoavailability of hedging mechanisms help moderate the market risk.

(d) Asset Liability mismatch : The maturity profile of assets and liabilities as on March 31, 2003 showsnegative gaps in over 1 to 3 years bucket and Over 5 years bucket.As can be observed from the Table on Maturity profile of Assets and Liabilities given on page 47 there arenegative gaps of Rs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years timebucket. However, the maturity buckets upto 1 year and over 3 years to 5 years have positive gaps of Rs.1303crore and Rs.4801 crore. On cumulative basis, there is negative gap in only over 1 to 3 years time bucketamounting to Rs.337 crore. This situation has arisen because the balance sheet of IDBI is Assets sensitiveand the assets are maturing faster than liabilities. The statement does not take into account the effect ofrelending of these repayments from clients and fresh borrowings in future. Any gap resulting in any of thematurity buckets at any future date will be managed dynamically through suitable structuring of maturityprofile of investment products, asset portfolio and liability products.

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

The revision in ratings reflects the perception of the rating agencies. While CRISIL has reaffirmed its ratingsassigned to Fixed Deposit program of IDBI at “FAAA” and assigned the highest rating “P1+” to the Term MoneyBonds, Commercial Papers and Corporate Deposits of IDBI, it has revised during 2001-02 its rating assigned tothe outstanding bond issues and Certificate of Deposit program of IDBI from “AAA” to “AA+”. ICRA has assignedthe highest rating “A1+” to Commercial Paper, Term Money Bonds, Inter Corporate Deposits and Certificate ofDeposits of IDBI. The ratings for Fixed Deposit Programme has been reaffirmed at “MAA+”. ICRA has revisedits rating from “LAAA” to LAA+ during FY 2001-02 and to “LAA” during FY 2002-03 for bonds. FITCH hasrevised its rating during FY 2002-02 from “IndAAA” to “IndAA+” for bonds and Fixed Deposits program. While“AAA” denotes highest safety in terms of timely payment of interest and principal, “AA+” denotes high safety of

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timely payment of interest and principal. “LAA” indicates high safety. Risk Factors are modest and may varyslightly. The protective factors are strong and the prospect of timely payment of principal and interest as perterms under adverse circumstances, as may be visualized, differs from LAAA only marginally.

(f) Contingent Liabilities: As on March 31, 2003, IDBI had contingent liabilities of about Rs.4494 crore onaccount of Guarantees, Letters of credit, Underwriting Commitments, uncalled monies on partly paidshares/debentures, claims against IDBI not acknowledged as debt and Disputed Tax claims.

The contingent liabilities are solely on account of normal operations and are subject to the prudential normsapplicable to lending and investment operations.

(g) Pending Grievances : As on October 31, 2003 there were 17 references pending pertaining to Flexibonds-6, 12 pertaining to Flexibonds–8, 15 pertaining to Flexibonds-9, 52 pertaining to Flexibonds-10, 7 pertainingto Flexibonds-11, 20 pertaining to Flexibonds-12, 21 pertaining to Flexibonds-13, 5 pertaining to Flexibonds-14 and 1 pertaining to Equity shares. Further no complaint was pending for more than 60 days.

(h) Tax Liabilities: As on October 31, 2003, the gross demand raised by the Income Tax Department onaccount of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision made isRs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which IDBI has favourabledecisions in its own case in the earlier years. Thus the amount of contingent liability on account of Tax indispute is Rs.700.33 crore.

Although the entire amount is in dispute, an amount of Rs.3851.24 crore has been paid.

Appeals have been filed on matters covered by the disputed amount.

(i) Non Performing Assets (NPA) : The total NPAs of IDBI in amount terms has been increasing over the past5 years. Movement of Net NPAs over the past 5 years is detailed in the Table on page 36. Net NPAs (percentof total assets) has increased from Rs.6490 crore (12.05%) as on March 31, 1999 to Rs.7330 crore as onMarch 31, 2003 (14.20%).

IDBI has initiated measures for NPA containment by setting up Close Monitoring Cells and RestructuringCommittees. IDBI actively monitors all assisted companies for timely recovery of dues. With respect todefaulting accounts, IDBI places emphasis on recovery, settlement and containment of NPAs. The CloseMonitoring Cells constantly monitor performance of assisted companies to improve recovery and initiate pro-active remedial actions. Efforts of Close Monitoring Cells are reinforced by Empowered Committee and HighPower Committee at Head Office. These committees assess and advise necessary restructuring and one-timesettlement process. Wherever the long-term viability of assisted companies is in question, legal measures areinitiated and securities are enforced. In cases where financial restructuring is under consideration,discussions are held with other term lenders as also with working capital bankers to have a co-ordinatedapproach to ensure quicker recovery. A Corporate Debt Restructuring (CDR) mechanism has been set up tofacilitate this. Further, there has been substantial changes in the legislative and operating environment enablingFIs and banks to aggressively pursue recovery of overdues. Besides the Debt Recovery Tribunal (DRT) set upfor faster settlement of recovery litigation, GOI has recently promulgated ‘The Securitisation andReconstruction of Financial Assets and Enforcement of Security Interest (SRES) Act, 2002’, enabling FIs andbanks to securitise and reconstruct the financial assets and enforce security of FIs and banks without pursuingthe available legal route. As on May 31, 2003 IDBI has issued notices to 49 defaulting borrowers with anoutstanding assistance of Rs.1588 crore by invoking provisions under the said Act. Further in 33 cases IDBIhas sought consent of other secured creditors for initiating action under the Act. After the SRES Act has comeinto effect IDBI has initiated action against chronic defaulters resulting in many defaulters willinglly comingforward for settlement of their dues. IDBI has been taking recourse to all available methods for recovery ofoverdues including reporting to RBI the name of wilful defaulters simultaneous with initiation of necessarysteps for recovery. IDBI has also initiated aggressive One Time Settlement (OTS) measures to recoveroverdues. Aggregate of provisions / write offs as a percentage of Gross NPAs stood at 54% as on March 31,2003. To facilitate recovery of overdues and reconstruction of weaker assets, IDBI in participation with SBI,ICICI Bank and a few other institutions and Banks have set-up an Asset Reconstruction Company (ARC). Withthe changes in operating and legislative environment including formation of the ARC coupled with the NPAmanagement measures initiated the NPA levels are expected to be contained/ reduced.

(j) Overdues : The overdues of Videocon Group Companies, in which Shri R. N. Dhoot (industrialist director inthe Board of IDBI) was associated, as on December 29, 2003 amounted to Rs.30.77 crore. The group hasindicated that it would clear the overdues by January 2004.

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(k) Asset concentration to few industries : The top 5 industries account for 48.17% of the total outstandingassistance as on March 31, 2003. Large exposures to specific industries will be impacted by global trendsin these industries.

IDBI’s loan portfolio is well diversified among industries. The major outstandings are to the iron and steel, power,cotton textiles, telecom services and petrochemicals, which together accounted for about 48% of theoutstandings as at March 31, 2003. As a prudential measure, IDBI has recently revised the exposure limit toindividual industry at 10% of its total portfolio or Rs.5000 crore whichever is lower. As on March 31, 2003 onlytwo industries viz. Iron & Steel (18.31%) and Electricity Generation (12.58%) exceeded the limit. This excesshas been largely due to historical factors wherein IDBI had been extending assistance to core sector projectsin line with overall national objectives. IDBI particularly monitors both domestic and global trends anddevelopments in industries accounting for higher exposure within its portfolio and takes necessary actions andremedial measures to maintain its portfolio quality and reduce any possible adverse impact on its financials.

(l) Change In Balance Sheet size : IDBI’s total asset and liabilities have decreased from Rs.66,643 crore toRs.63,116 crore during FY 2003.

To improve the asset quality, IDBI has restricted new assistance and extends assistance only on veryselective basis. On the liability side, IDBI has exercised call option on its high cost borrowings during theyear. Change in the Balance Sheet size is a part of the deliberate strategy of IDBI to pursue quality assetgrowth and profitability in operations.

(m) Nature of Bonds : The Bonds/Letter of Allotment/ Certificate of Holding are valuable documents and shouldbe kept safely. Duplicate bonds will be issued only in accordance with the procedure specified later in theoffer document. The bonds are also offered in demat mode.

(n) Decrease in profit : The profit after tax of IDBI is Rs.401 crore for FY 2003 as against Rs.424 crore forFY 2002 and Rs.691 crore for FY 2001. IDBI’s profit after Tax for the half year ended September 2003 stoodat Rs.176 crore as against Rs.152 crores in the corresponding half year ended September 30, 2002.

General economic slowdown in the recent past has led to lower industrial activity. During the last couple ofyears credit off-take has been low due to lower industrial growth in spite of fall in interest rates and othersteps taken by the Government to boost the industrial performance. Foray of commercial banks into termlending has also resulted in increased competition to extend assistance to creditworthy clients at verycompetitive rates. Resultant lowering of interest income and overall squeezing of margin has impacted theprofit after tax. However with the expected economic upturn the position is expected to improve. Furtherrecovery out of written off cases will directly add to the profit of IDBI.

(o) Return on Assets : The return on average assets has declined from 10.4% in FY 2002 to 9.8% in FY2003 while the average cost of funds has also gone down from 9.2% to 8.5% over the same period.

The major factor impacting the returns and costs is the sharp drop in interest rates during the last few years.This has resulted in prepayment of borrowing by high credit clients which in turn has, to some extentimpacted credit composition of the portfolio. This coupled with NPAs adversely affected return on assets.On the cost front, impact of drop in incremental cost of rupee borrowing (12.08% in FY 2000 to 11.21%in FY 2001, to 9.81% in FY 2002 and further down to 8.35% in FY 2003) and exercising of call optionon high cost borrowings by IDBI has resulted in decline in cost of borrowing. The average cost of loanfunds has reduced from 11.5% in FY 2002 to 10.5% in FY 2003. As may be observed from above, thedecline in average cost of funds has been more than the decline in average return on assets. Further asmentioned on page 43 of this Memorandum of Private Placement a proposal has been formulated under theauspicies of GOI wherein the liabilities of IDBI to public sector Banks, Institutions etc. will be restructuredwhich will bring down the average cost of funds significantly.

(p) Quoted Investments : IDBI has in its portfolio quoted investments aggregating Rs.2730.22 crore as onMarch 31, 2003 which are booked at cost whose market value amounted to Rs.2152.54 crore. As onMarch 31, 2003, IDBI had debentures of Rs.4389.16 crore in its portfolio. All the debentures are securedby hypothecation/mortgage of fixed assets. However, in case of debentures amounting to Rs.795 crore,the final security by way of mortgage was yet to be created as on March 31, 2003.

IDBI’s investment portfolio is predominantly of long term and strategic nature. Temporary diminution in valueof securities arises on account of price volatility due to factors and forces affecting the stock market, interestrates, etc. IDBI has been classifying its investment portfolio and making appropriate provision for diminutionin value as per RBI guidelines issued from time to time in this regard. The investments are classified underthe following categories (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading. These investments were

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valued according to the prevailing valuation norms.

(q) Foreign Exchange Risk : IDBI may be exposed to foreign exchange risk on account of changes in foreignexchange rates.

IDBI maintains a currency-wise matching of assets and liabilities. IDBI makes foreign currency loans onterms that are similar to its foreign currency borrowings thereby transferring the foreign exchange risk tothe borrower. In case of certain foreign currency borrowings that are re-lent in rupees, the Govt. of Indiabears the foreign exchange risk on these borrowings pursuant to certain agreements between IDBI and GOI.IDBI’s foreign currency cash balances are generally maintained abroad in currencies matching with theunderlying borrowings. IDBI also operates a USD denominated single currency pool (SCP) and interest raterisks under the SCPs are hedged through basic SWAPs. IDBI is therefore not exposed to any significantrisk on account of foreign exchange fluctuations.

External Factors(a) Changes in Government policies may impact the performance of the industrial sector, which may in

turn affect IDBI

Indian industry has demonstrated remarkable resilience in adjusting to the changed environment andcompetition in the wake of the economic reforms initiated by the Government. Further, IDBI’s diversifiedportfolio provides a sufficient cushion against any downtrend in a particular industry or sector.

(b) Risk of Competition : Competition in the financial sector has increased and is likely to increase furtherwith the entry of commercial banks and other new players in term lending. IDBI faces competition bothin corporate lending and in raising resources.

While focusing attention on its core business of project financing and infrastructure financing in particular,IDBI has taken steps to diversify its operations in various other areas like working capital financing,merchant banking, corporate advisory services, forex services, venture capital, non-fund based activities etc.IDBI, through its subsidiary/ associate companies also addresses the needs of its clients for commercialbanking requirements, depository services, capital market related services, information technology servicesetc.

On the resource-raising front, avenues like Mutual Funds,Charitable and Religious Trusts, Private insurancecompanies, Pension Funds, etc. hold good potential. IDBI has over the years strengthened its reach to retailsegment through its public issues of retail bonds and Fixed Deposits marketed through its 35 branch offices,large agent network, broking outfits and debt market intermediaries. IDBI is also in the process of convertingitself into a commercial bank.

(c) Development of the capital markets may lead to disintermediation by borrowers.

With the development and maturing of the capital markets, there has been a distinct shift in the pattern ofindustrial financing. However, it will be noteworthy that while a part of the financial requirement of theindustrial projects may be met by direct borrowing from the investors, a major portion will still need to beserviced by financial intermediaries. Consequent to the opening up of the economy, large projects ininfrastructure, power, petroleum, telecom, etc. with huge financial outlays are being set up. Their large fundrequirements are unlikely to be met by private investments alone. Accordingly, the requirement of funds bothfrom lending institutions/banks and the capital market is likely to increase substantially. Also, thedisintermediation brings with it the opportunity for IDBI to expand its fee based activities.

General Risks

Investors are advised to read the risk factors carefully before taking an investment decision in thisoffering. For taking an investment decision, the investor must rely on his/her own examination of theissuer and the issue including the risks involved. The Bonds have not been recommended or approvedby SEBI nor does SEBI guarantee the accuracy or adequacy of this document.

Notes

1. IDBI would like to clarify that inspction by RBI is a regular exercise and is carried out periodically by RBIfor all banks and Financial Institutions. IDBI is in dialogue with RBI in respect of observation made by RBIin their report for the previous year. The reports of RBI are strictly cnfidential. RBI does not allow disclosureof its inspection report and that all the disclosures in the Memorandum of Private Placement are on the basisof Management and Audit Reports of the issuer.

2. The Networth of IDBI as on March 31, 2003 was Rs.6945 crore.

3. The Book Value per share of IDBI as on March 31, 2003 was Rs.106.4. Cost per share to the promoter of

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IDBI i.e. GOI is Rs.10 (i.e. at par).

4. Shri R. N. Dhoot, a director on the board of IDBI, nominated by the Government of India, was on the boardof some of the Videocon group companies during the last 5 years. SEBI had taken action against one ofthe Videocon group companies viz. Videocon International Ltd. and 3 of its officials. On an appeal filed byVideocon International Ltd, the SAT vide its order dated June 20, 2002 has set aside SEBI’s order directingVideocon International Ltd. in so far as not to raise money from the public in the capital market for a periodof 3 years. SEBI has filed an appeal against the said SAT order in the Hon’ble High Court of Mumbai andthe appeal is not so far admitted. Shri R.N. Dhoot is, however, not a Director on the Board of VideoconInternational Ltd., nor does he figure in the list of 3 officials mentioned above.

5. As on March 31, 2003, loan outstanding to companies with which industrialist directors presently on theBoard of IDBI were associated in the past, amounted to Rs.908.64 crore, comprising of loans to (i) 8companies engaged in the electronics and electronics appliances industry (Rs.567.44 crore), (ii) a companyin petroleum industry (Rs.341.20 crore). These loans constituted 1.76% of the total loan outstanding and13.08% of IDBI’s Net Worth as on March 31, 2003.

6. The bonds may have various features/options. Such features need specific attention of the investor.

7. Summary of transactions of IDBI with its subsidiaries for three years ended

(Rs. crore)

March 31, 2001 March 31, 2002 March 31, 2003

Interest income 145.42 5.81 2.91

Dividend, fees, commission and other revenue 93.09 51.51 152.00

Interest expense 5.86 2.57 0.17

Administrative and other expenses 1.75 8.37 7.73

Outstanding BalancesLoans 809.76 1.20 58.00

Investments 648.10 388.10 296.60

Current assets 0.27 19.47 105.73

Long term debt 112.58 50.00 4.61

Current Liabilities 2.20 7.67 8.63

8. The financial information as contained in the Auditor’s Report, including the notes to accounts, significantaccounting policies as well as Auditor’s qualifications have been duly certified by the Auditors of IDBI. asfar as possible, the Audited numbers have been used for computation of or arriving at the other financialinformation contained in the Memorandum of Private Placement. However, such other financial informationcontained in the Memorandum of Private Placement except as contained in the Auditor’s Report has beencertified by the management of IDBI.

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DEFINITIONSThe Corporation/IDBI/Issuer Industrial Development Bank of India, has been established in July, 1964 under

the IDBI Act, 1964Issue/Offer/Private Placement Private Placement of OMNI Bonds 2004/AThe Act The Industrial Development Bank of India Act, 1964The Bond(s) IDBI OMNI BondsBondholder/Debenture holder The Holder of the BondsRegistered Bondholder Bondholder whose name appears in the register of Bondholders maintained by

IDBI or its Registrar and beneficial ownersRegistrars Investor Services of India Ltd (ISIL) has been appointed by IDBI to monitor

the applications while the Private Placement is open and co-ordinate thepost private placement activities of allotment, dispatching interest warrantsetc.Contact Address:Investor Services of India Ltd.IDBI Building, Plot No.39-41; Sector 13, CBD Belapur,Navi Mumbai - 400 614.Tel. : (022) 27579636 Fax : (022) 27579650.

ON TAP ISSUE OF OMNI BOND OF RS.10 LAKHS EACH FOR CASH AT PAR UNDER OMNI BOND PRIVATEPLACEMENT

OPTIONS AT A GLANCE

Brief particulars of the options offered are tabulated below.

IDBI OMNI BONDS 2004/A

RRB I RRB II RRB III RRB IV(Floating)

Face Value Rs.10 Lakhs Rs.10 Lakhs Rs.10 Lakhs Rs.10 Lakhs

Minimum One Bond One Bond One Bond One BondInvestment i.e. Rs.10 Lakhs i.e. Rs.10 Lakhs i.e. Rs.10 Lakhs i.e. Rs.10 Lakhs

Additional Multiples of Multiples of Multiples of Multiples ofone bond one bond one bond one bond one bond

Interest Rate* 6.00% p.a. 115 bps over 6.20% p.a. 6.30% p.a.5 year G-Sec

Tenor 5 years 5 years 7 years 10 years

Put/ Call option None None None None

* Subject to TDS as applicable. Investors are advised to read the Tax Treatment for more details.

Dates of Private Placement

Application to OMNI Bonds 2004/A would be accepted between January 5, 2004 and January 9, 2004. IDBI at its solediscretion may close the issue earlier or extend the date of closure.

Deemed Date of Allotment

Deemed date of allotment for OMNI Bonds 2004/A would be January 16, 2004.

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Rating

The bonds have been rated AA+ (Rating Watch with Developing Implications) by CRISIL, AA+(ind) (the outlook on the ratingis ‘Evolving’) by FITCH and LAA by ICRA.

Institution Rating Category Meaning of the rating

CRISIL(Credit Rating and “AA+” Debentures (Bonds) High safety with regard to timely payment ofInformation Services principal and interest. Though the circumstancesIndia Ltd) providing this degree of safety are likely to change,

of such changes as can be envisaged are mostunlikely to affect adversely the fundamentallystrong position of such issues

FITCH Ratings “AA+(ind)” Long term debt High credit quality, AA(ind) ratings indicate a lowIndia Pvt Ltd expectation of credit risk. They indicate strong

capacity for timely payment of financialcommitments. This capacity may vary slightly fromtime to time because of economic conditions.

ICRA (Investment “LAA” Debentures, High safety. Risk factors are modest and may varyInformation and Bonds, slightly. The protective factors are strong and theCredit Rating Agency) Preference Shares prospect of timely payment of principal and

interest as per terms under adversecircumstances, as may be visualised, differs from‘LAAA’ only marginally.

The Rating(s) are not a recommendation to buy, sell or hold securities and Investors should take their owndecisions. The rating may be subject to revision or withdrawal at any time by the assigning Rating Agency on thebasis of new information. Each rating should be evaluated independently of any other rating.

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PART – I

PRIVATE PLACEMENT STRUCTURE

GENERAL INFORMATIONIndustrial Development Bank of India is offering for subscription, on private placement basis, the OMNI Bonds of the facevalue of Rs.10 lakhs each for cash at par.

The minimum investment shall be one bond i.e. Rs.10 lakhs and in multiples of one bond thereafter.

AUTHORITY FOR THE ISSUEThe Issue is made pursuant to Section 11(1)(a) of the IDBI Act. The Board of Directors of IDBI at its Meeting held on June20, 2003 and October 29, 2003, passed resolution approving the the borrowing programme for the FY 2003-04.

The current issue of IDBI is in accordance with the terms of RBI’s letter No. DBS.FID. 21/09.01.02/1999-2000 dated June 21,2000 and DBS.FID No.966/09.01.02/2001-02 dated March 2, 2002 regarding issue of bonds by Financial Institutions.

IDBI, being a public financial institution, has been raising resources both from domestic and overseas market in the formof unsecured borrowings. In respect of the monies borrowed from overseas markets, IDBI has agreed to create pari passucharge, if any other lender is offered security on the assets of IDBI. Since the resources raised by IDBI are being utilisedfor the purpose of its business i.e. providing credit and other facilities to the industry, the assets of IDBI are mostly in formof loans and advances. Hence it is proposed that the Bonds shall be unsecured in nature in that they shall not be securedagainst any assets of IDBI.

TERMS OF THE ISSUEThe Bonds will be subject to the provisions of the IDBI Act, the Industrial Development Bank of India General Regulations,1994, Industrial Development Bank of India (Issue and Management of Bonds) Regulations, 1972, Industrial DevelopmentBank of India Bonds and Deposits (Nomination) Regulations, 1997, relevant other statutory guidelines and the terms of thismemorandum.

OBJECTS OF THE ISSUEThe Issue is for augmenting the medium to long-term rupee resources of IDBI for the purpose of carrying out its functionsauthorised under the IDBI Act.

The Main Object Clause of IDBI, as contained in the IDBI Act, authorises IDBI to undertake the activities for which the fundsare being raised under the present issue. Also, the main objects of IDBI as contained in IDBI Act adequately cover theactivities undertaken by IDBI.

NATURE OF BONDSThe Bonds are unsecured and are in the form of entry in the books of IDBI and are issued in the form of Letter of Allotment/Certificate of Holding governed by the Industrial Development Bank of India (Issue Management of Bonds) Regulations, 1972(the Bond Regulations).

The Bonds shall rank pari passu, inter se, and subject to any obligations preferred by mandatory provisions of the lawprevailing from time to time and with regard to repayment of principal and payment of interest, with all other unsecuredunsubordinated borrowings of IDBI. These Bonds will rank superior to all the existing and future unsecured subordinatedborrowings of IDBI.

FUTURE BORROWINGSIDBI will be entitled to borrow/raise loans or avail financial assistance in whatever form as also issue of debentures/bonds/other securities in any manner having such ranking in priority, pari-passu or otherwise and change the capital structureincluding issue of shares of any class or redemption or reduction of any class of paid-up capital on such terms and conditionsas IDBI may think appropriate without the consent of or intimation to the bondholders.

PRINCIPAL TERMS OF THE BONDS

Issue Size : Rs.600 crore with green shoe option of Rs.600 crore

Interest RateThe Investor in the IDBI OMNI Bonds 2004/A will have the following options.

IDBI Regular Return Bond I (RRB I)The Investor receives interest at 6.00% p.a. annually for 5 years.

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IDBI Regular Return Bond II(Floating)(RRB II)Interest Rate on the bonds will be linked to the 5 year Government of India Securities of residual maturity 5 years. These rates willbe reset on January 16 every year. The applicable rate will be fixed at 115 bps above the average yield (simple average) of the 5 yearbenchmark security for the 6 business days preceding the date of allotment (for the first interest payment period)/due date ofpayment of interest.

The benchmark 5 year rate will be the 5 year G-Sec rate put out by Reuters at 12.00 hrs IST on its page 0#INBMK=. The rate asappearing on the reference page is a semi annual rate and the same will be annualised while fixing the rate.

If the above mentioned Screen has either been renamed or if the identical information is being presented by Reuters on a differentscreen (the Replacement screen), the rate will be determined by utilizing the methodology set out above but with reference to theReplacement Screen. If such a rate does not appear on the Reuters Screen 0#INBMK= without a replacement being provided, therate for the Reset will be the 5 yr bench mark rate appearing on Reuters page INCMT.

IDBI Regular Return Bond III (RRB III)The Investor receives interest at 6.20% p.a. annually for 7 years.

IDBI Regular Return Bond IV (RRB IV)

The investor receives interest at 6.30% p.a. annually for 10 years.

Minimum InvestmentEach bond has a issue price of Rs.10 Lakhs. The minimum investment shall be 1 bond i.e. Rs.10 Lakhs and in multiples of1 bond i.e. Rs.10 Lakhs thereafter.

Interest Payment Dates for Options RRB I to IVInterest on bonds under IDBI Regular Return Bond I to IV accrues from the deemed date of allotment, i.e. January 16, 2004.Interest will be due and payable on January 16 every year. The first payment of interest for the period from the deemed dateof allotment upto January 15, 2005 will be made on January 16, 2005. In case, the date of payment of interest falls on Saturday/Sunday/Public Holiday, payment of interest will be made on immediately preceeding business day without any adjustmentto the actual days vis-a-vis the notified interest payment date.

MaturityIDBI Regular Return Bond I and II: The Bonds under these options will mature on the expiry of 5 years from the deemeddate of allotment. i.e. January 16 2004. The date of maturity will be January 16, 2009. On maturity, the Bonds will be redeemedat face value (Rs. 10 Lakhs per bond).

IDBI Regular Return Bond III: The Bonds under this option will mature on the expiry of 7 years from the deemed date ofallotment i.e. January 16, 2004. The date of maturity will be January 16, 2011. On maturity, the bonds will be redeemed at theface value (Rs.10 Lakhs per bond).

IDBI Regular Return Bond IV: The Bonds under this option will mature on the expiry of 10 years from the deemed dateof allotment. i.e January 16, 2004. The date of maturity will be January 16, 2014. On maturity, the bonds will be redeemedat the face value (Rs.10 Lakhs per bond).

Put/ Call Option

There is no put option to the investor or call option for IDBI in the IDBI OMNI Bonds 2004/A.

Deemed Date of Allotment

Deemed Date of Allotment of the Bonds under 2004/A will be January 16, 2004.

Tax Deduction at SourcePayment of interest will be subject to deduction of tax at source as per prevailing tax laws. Please refer to the section ‘TaxTreatment’.

Interest on Application moneySuccessful applicants will be paid interest on their application money, at the coupon rate for the respective Regular ReturnBond from the date of realisation of cheque/DD by IDBI up to the Deemed Date of Allotment. In case of Regular ReturnBond II (Floating), interest on application will be paid at the rate arrived at for the first setting i.e. as on the Deemed Date

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of Allotment. Interest on application money will be paid within 30 days from the Deemed Date of Allotment. These wouldbe despatched by registered post at the allotteess’ risk. Income Tax as applicable will be deducted at source at the time ofpayment of interest on application money. Those desirous of claiming exemption from tax are required to submit a certificateissued by the income-tax officer concerned in form 15AA or submit Form 15G in duplicate as applicable along with theapplication form.

TAX TREATMENTTax Deduction at Source :No Income tax will be deducted at source from interest payable on Bonds in the following cases:

(a) On listing of the bonds, in case of payment of interest to a Bondholder, who is an individual and resident in India, where theinterest payment in the aggregate during the financial year does not exceed Rs.2,500/-.

(b) Where the Bondholder submits a declaration (wherever applicable), every financial year, in the prescribed form (15G/15H asthe case may be) and verified in the prescribed manner.

(c) Where on application by any Bondholder, the Assessing Officer issues a certificate that the total income of the bondholderjustified no deduction, as per the provisions of Section 197(1) of the IT Act (Form 15AA).

(d) Tax will be deducted at a lower rate where the Assessing Officer, on an application of any Bondholder, issues a certificatefor deduction of tax at such lower rate as per provisions of the Section 197(1) of the IT Act (Form 15AA).

Capital GainsThe difference between the sale price on transfer and the cost of acquisition of the Bond held by the bondholder as a capitalasset, will be treated as long-term capital gain/loss in the hands of the investor, provided that such Bond was held for acontinuous period of more than twelve months (on listing on The Stock Exchange, Mumbai). It may be noted that the variousBonds under consideration, being debt instruments, will not have the benefit of cost indexation.

Investors who wish to avail of the exemption from tax on capital gains on transfer of capital asset as provided in sections54EC, 54ED or 54F of IT Act, may do so subject to the conditions as prescribed in those sections. Moreover, investors areadvised to consult their tax advisors in this matter.

Income from the BondsInterest payable on these bonds in any financial year will be taxable in that year.

WEALTH TAXThe Bonds are exempt from Wealth Tax without any monetary limit, as per the present provisions of the Wealth Tax Act,1957.

GENERAL TERMSISSUE OF BONDSThe necessary arrangements for dematerialisation of bonds will be done with National Securities Depository Ltd. (NSDL) andCentral Depository Services Ltd. (CDSL). Investors should indicate the necessary details in the application form. Theapplication forms without these details will not be accepted. Bonds will be credited in the demat account on allotment.

REDEMPTIONThe investors should furnish a receipt in the prescribed form (Form XIV) of the Bonds Regulations for the principal amountalongwith relevant certificate of holding for obtaining the repayment. The bondholders should get his/her/its name registeredwith IDBI.

RIGHT TO ACCEPT OR REJECT APPLICATIONSIDBI is entitled at its sole and absolute discretion, to accept or reject any application in part or in full, without assigningany reason. The application forms which are not complete in all respects are liable to be rejected. Application Forms withoutthe Phone and/or Fax numbers of the applicant would be treated as incomplete.

NOTICESAll notices to the Bond holder(s) required to be given by IDBI shall be deemed to have been given if published in one Englishand one regional language daily newspaper, or may, at the sole discretion of IDBI, but without any obligation, be sent to

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the Bonds holder(s) at the address stated in the Application Form, or at the address as notified by the Bonds holder(s) indue course. All notices to IDBI by the Bonds holder(s) must be sent by registered post or by hand delivery to IDBI at itsHead Office or to such person(s) at such address as may be notified by IDBI from time to time.

REGISTER OF BONDHOLDERSThe register of Bondholders containing necessary particulars will be maintained by IDBI/Registrar to the Issue at their HeadOffices.

RIGHTS OF ALL BONDHOLDERSThe bondholder(s) shall not be entitled to any of the rights and privileges of shareholders other than those available to themunder statutory provisions. The bonds shall not confer upon the holders the right to receive notice or to attend and voteat the General Meetings of IDBI. The bonds shall be subject to other usual terms and conditions incorporated in theCertificate(s) of Holding that will be issued to the allottees of such bonds by IDBI, this memorandum and the IDBI BondRegulations.

TRUSTEE TO THE BONDHOLDERS

IDBI Trusteeship Services Ltd. is proposed to be appointed as trustee for the bondholders. IDBI and the Trustees will enterinto a Trustee Agreement, specifying inter alia, the powers, authorities and obligations of the Trustees and IDBI. Thebondholders shall, without further act or deed, be deemed to have irrevocably given their consent to the Trustees or anyof their agents or authorised officials to do all such acts, deeds, matters and things in respect of or relating to the Bondsas the Trustees may in their absolute discretion deem necessary or require to be done in the interest of the bondholders.

AMENDMENT OF THE TERMS OF BONDSIDBI may amend the terms of the Bond(s) at any time by a resolution passed at a meeting of the bondholders with the consentof the bondholders holding in the aggregate more than 50% in nominal value of the Bonds outstanding out of those presentand voting.

TRANSFERABILITY OF BONDSThe transfer can be effected through NSDL or CDSL, as the case may be.

LOSS OF INTEREST WARRANT(S)Loss of Interest warrant(s) should be intimated to IDBI along with the request for issue of a duplicate certificate(s) of holding/Interest warrant(s).

ISSUE OF DUPLICATE INTEREST WARRANT(S)If any, Interest Warrant(s) is lost, stolen or destroyed, then upon production of proof thereof, to the satisfaction of IDBIand upon furnishing such indemnity, as IDBI may deem adequate and upon payment of any expenses incurred by IDBI inconnection thereof, new interest warrants shall be issued. A fee will be charged by IDBI, not exceeding such sum as maybe prescribed by law on each duplicate interest warrant(s) issued in accordance with this provision. If any interest warrant(s)is/are mutilated or defaced, then, upon surrender of such interest warrant(s), IDBI shall cancel the same and issue a duplicateinterest warrant(s) in lieu thereof. The procedure for issue of the duplicate shall be governed by the provisions of the BondRegulations.

RECORD DATEThe Record Date for all interest payments and for the repayment of the face value amount upon redemption of the Bondswill be one month prior to the due date of payment of interest or repayment of face value. The interest accruing upto January15 every year will be paid on January 16 every year. Therefore, December 16 of the previous year shall always be consideredas Record Date for the purpose of such payment of interest. Interest will be paid as mentioned under the head ‘InterestPayment Dates’ under key terms of each bond.

REDEMPTION OF BONDThe investors should furnish a receipt in the prescribed form (Form XIV) of the Bond Regulations for the principal amountfor obtaining the repayment/redemption. The bondholders should get his/her name registered with IDBI.

The record date in such instances will be one month prior to the date of redemption.

In case, the date of payment of redemption proceeds falls on Saturday/ Sunday/ Public Holiday, the same will be paid onthe immediately succeeding business day with interest at the coupon rate for the intervening period.

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BUY-BACK

IDBI may buyback the OMNI Bonds issued by it before maturity. Also, IDBI reserves the right to prematurely redeem theBonds at its sole discretion at the express request of the bondholder in exceptional cases, subject to regulatory provisions.

LISTINGIDBI has requested The Stock Exchange, Mumbai (BSE) for listing the Bonds. Final application for listing the bonds on theBSE will be made after allotment.

NOMINATIONThe sole Bondholder or all the holders jointly (or the surviving holder or holders) not being person(s) holding the Bondas holder of an office, or acting for a trust, or acting in any other capacity for any other person with a beneficialinterest in the Bond, may nominate one or more persons not exceeding four, including a minor, who shall in theevent of death of the sole holder or all the joint-holders, be entitled to the amount payable by IDBI in respect ofthe bond. The nomination made at the time of Application may be substituted or cancelled at a later date by arequest in writing to IDBI or Registrars to the Issue, signed by all the bondholders. A nomination shall standrescinded upon the transfer of the Bond by the person nominating. A transferee will be entitled to make a freshnomination for which request in writing should be made to IDBI or the Registrars to the Issue. When the Bond isheld by two or more persons, the nominee shall become entitled to receive the amount only on the demise of allthe holders. Nominations so made by investors will be subject to the Industrial Development Bank of India Bondsand Deposits (Nomination) Regulations, 1997. The share of each nominee may also be specified.

SUCCESSIONOn the death of the sole holder or in the case of a Bond held in joint names, IDBI will recognise the title of such person(s)in accordance with the provisions of the Bond Regulations.

WHO CAN APPLYThe eligible applicants include individuals, HUFs, Corporations, Banks (including Co-operative Banks and Regional Rural

Banks), Companies, Trusts, Mutual Funds, Provident/Super Annuation/Gratuity/Pension Funds/Societies/Associationsof Persons, FIs, Inusrance/Investment Companies. Non-Resident Indians may also subscribe to Omni Bonds but only onNON-REPATRIABLE basis. Such bonds cannot be endorsed to another Non-Resident Indian in the secondary market.

HOW TO APPLYInvestors are advised to comply with the following General Instructions:

1. Instructions for filling in Application Forms

a) Application for the Bonds must be in the prescribed form and completed in BLOCK LETTERS in English as per theinstructions contained therein.

b) Thumb impressions and signatures other than in English, Hindi or any of the other languages specified in the EighthSchedule of the Constitution of India must be attested by a Magistrate or a Notary Public or a Special ExecutiveMagistrate under his/her official seal.

c) Application Form Number (including the prefix) should be mentioned on the reverse of the cheque/draft.

d) A separate cheque/draft must accompany each application form.

2. Applications under Power of Attorney or by Authorised Representatives

A certified copy of the Power of Attorney and/or the relevant authority, as the case may be, alongwith the names andspecimen signatures of all the authorised signatories and the tax exemption certificate/document, if any, must be lodgedalongwith the submission of the completed application form. Future modifications/additions in the Power of Attorney orAuthority should also be notified with the Registrar of Issue.

3. PAN/GIR Number

All the applicants should mention their Permanent Account Number (PAN) allotted under the IT Act or where the same hasnot been allotted, the GIR No. and the Income Tax Circle/Ward/District. In case neither the PAN nor the GIR No. has beenallotted, or the Applicant is not assessed to income tax, the appropriate information should be mentioned in the spaceprovided. Application Forms without this information will be considered incomplete and are liable to be rejected.

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Commissioner of Income Tax has advised that the Finance Act, 2001 has made it mandatory for the deductors (IDBI) toquote the correct PAN of deductees (investors) on TDS certificates (on Form 16 & Form 16A) and TDS Returns. Investorswhose interest income from the bonds will attract provisions of tax deduction at source (TDS) are advised to furnish thePAN in the appropriate Box in the Application Form.

4. Joint Applications in the case of Individuals

Applications may be made in single or joint names (not more than three). In the case of joint applications, all payments willbe made out in favour of the first applicant. All communications will be addressed to the applicant whose name appears firstat the address stated in the Application Form.

5. Bank Account Details

The applicant must fill in the relevant column in the application form giving particulars of their Bank Account number andname of the bank with whom such account is held, to enable the Registrars to the Issue to print the said details in theredemption / interest warrant. This is in the interest of the applicant for avoiding misuse of the redemption / interest warrant.Furnishing this information is mandatory and applications not containing such details are liable to be rejected.

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

PAYMENT INSTRUCTIONS(a) Payment may be made by way of cheque/drafts only. Cheques/drafts may be drawn on any bank, including a Co-operative

Bank which is situated at and is a member or sub-member of the Bankers’ Clearing House located at the IDBI Branch Officewhere the Application Form is submitted. Outstation cheques/bank drafts or cheques/bank drafts drawn on a bank notparticipating in the clearing process will not be accepted. Money orders/Postal orders/Cash/Stock Invest will also not beaccepted.

(b) All cheques/drafts must be made payable to “INDUSTRIAL DEVELOPMENT BANK OF INDIA” and crossed “A/C PAYEEONLY”.

SUBMISSION OF COMPLETED APPLICATION FORMSApplications, duly completed and accompanied by cheque/demand draft must be lodged, while the issue under privateplacement of the bond is open, with the IDBI Offices as mentioned in the last page of the Memorandum.

AcknowledgementsNo separate receipts will be issued for the application money. However, the IDBI Offices receiving the duly completedApplication Form will acknowledge receipt of the application by stamping and returning to the applicant theAcknowledgement slip at the bottom of each Application Form.

REGISTRARSInvestor Services of India Ltd. has been appointed as Registrars to the Issue. The Registrar will monitor the applicationswhile the private placement is open and will coordinate the post private placement activities of allotment, dispatching interestwarrants etc. any query/complaint regarding application/ allotment/ transfer should be forwarded to ISIL at their address givenbelow. All requests for registration of transfer along with appropriate documents should also be sent to the registrars.

Investor Services of India Ltd.IDBI Building, Plot No.39-41Sector 11, CBD Belapur, Navi Mumbai - 400 614Tel. : (022) 27579636 Fax : (022) 27579650

Investor Relations and Grievance RedressalArrangements have been made to redress investor grievances expeditiously. All grievances related to the Issue, quoting theApplication Number (including prefix), number of Bonds applied for, amount paid on application and the IDBI Office wherethe Application was submitted, may be addressed to the Registrars at the address given above.

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Compliance OfficerShri R.K. Bansal, General Manager

Domestic Resources Department,

22nd Floor, IDBI Tower, WTC Complex,Cuffe Parade, Mumbai - 400 005

Tel: (022) 2216 1746

Fax: (022) 2218 1155, 2218 8137E-Mail: rk.bansal@idbi.co.in

Applicants may also get in touch with the Domestic Resources Department of IDBI for assistance, at the following address:

Deputy General ManagerDomestic Resources DepartmentIndustrial Development Bank of India22nd Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005Tel : (022) 22161763/22152882, Fax : (022) 22181155/22188137

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PART II

INDUSTRIAL DEVELOPMENT BANK OF INDIA

Constitution and MilestonesIndustrial Development Bank of India (IDBI) was established in 1964 by the Government of India under an Act ofParliament, the Industrial Development Bank of India Act, 1964 (the IDBI Act). The functions and working of IDBI aregoverned by the IDBI Act. Initially, IDBI was set up as a wholly-owned subsidiary of Reserve Bank of India (RBI) toprovide credit and other facilities for the development of industry. In 1976, the ownership of IDBI was transferred tothe Government of India and it was entrusted with the additional responsibility of acting as the principal financialinstitution for co-ordinating the activities of institutions engaged in the financing, promotion or development of industry.

In 1982, IDBI’s portfolio relating to its International Finance Division (which was providing export finance to industry),was transferred to Export-Import Bank of India (EXIM Bank), which was established as a wholly owned corporationof the Government of India under the Export-Import Bank of India Act, 1982.

In 1990, IDBI’s portfolio relating to the small scale industrial sector was transferred to the Small IndustriesDevelopment Bank of India (SIDBI) which was established as a wholly-owned subsidiary of IDBI under the SmallIndustries Development Bank of India Act, 1989 (SIDBI Act, 1989).

RBI vide its circular No.C-24/01-02-00/2000-2001 dated 28-April-2001 has mentioned that DFI’s can eitherconvert themselves into a commercial bank or a Non Banking Finance Company (NBFC). The Board of Directorsof IDBI has decided ‘in-principle’ to convert IDBI into a Commercial Bank.

The Hon’ble Finance Minister while presenting the Union Budget for the year 2002-03 to the Parliament announced theproposal to make legislative changes to corporatise IDBI to provide greater flexibility.

Accordingly, the Govt. of India had introduced ‘The Industrial Development Bank (Transfer of Undertaking andRepeal) Bill, 2002’, wherein, inter-alia, repeal of IDBI Act, 1964 and corporatisation of IDBI was proposed, inthe Winter Session of Parliament. The said Bill was referred to the Standing Committee on Finance. Thecommittee’s report was placed in the Parliament in its Monsoon Session and again in the Winter Session.

The Bill proposing the repeal of IDBI Act, 1964 has been approved by both the Houses of Parliament viz. Lok Sabha(Lower House) and Rajya Sabha (Upper House) on December 8 and December 15, 2003 respectively. The Billenvisages transfer of all assets and liabilities to a company to be named as “Industrial Development Bank of India Ltd.”.All the existing shareholders of IDBI will become shareholders of the new company. The Bill facilitates the newcompany to become a banking company, without the need to obtain a separate banking license under BankingRegulation Act, 1949 and thus enable it to access funds at cheaper cost. It envisages, inter alia, the conversion ofIDBI into a Commercial Bank while continuing to be a Development Bank which will provide term lending to industry- large, medium and small. The Bank will be given certain regulatory forbearance which include reserve requirementsand tax benefits. All the assets and liabilities of IDBI shall, with effect from a date to be notified (appointed date) vestin the new company and be discharged by it. The IDBI Act, 1964 will stand repealed. Any guarantee given for or infavour of IDBI with respect to any loan, finance or other assistance shall continue to be operative in relation to thecompany. The Bill has also received the assent of the President of India. The Bill would require a notification in theOfficial Gazette and further notification of the appointed date after the fulfilment of the formalities connected withincorporation of a new company under the Companies Act, 1956.

FunctionsOver the last thirty eight years, IDBI’s role as a catalyst to industrial development has encompassed broad spectrumof activities. IDBI can finance all types of industrial concerns covered under the provisions of the IDBI Act, irrespectiveof the size or form of organisation. IDBI primarily provides finance to large and medium industrial enterprises and isauthorised to finance all types of industrial concerns engaged or to be engaged in the manufacture, processing orpreservation of goods, mining, shipping, transport, hotel industry, information technology, medical and health services,leasing, generation or distribution of power, maintenance, repair, testing or servicing of vehicles, vessels and othertypes of machinery and the setting up and development of industrial estates. IDBI may also assist industrial concernsengaged in the research and development of any process or product or in the provision of special technical knowledgeor other services for the promotion of industrial growth. In addition, floriculture, road construction and the establishmentand development of tourism related facilities including amusement parks, cultural centres, restaurants, travel andtransport facilities and other tourist services, film industry and construction activity have been recognised as industrialactivities eligible for finance from IDBI.

IDBI has been assigned a special role for co-ordinating the activities of institutions engaged in financing, promoting

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or developing industries as also provision of technical, legal and marketing assistance to industry and undertakingmarket surveys, investment research as well as techno-economic studies in connection with the development ofindustry.

OfficesIDBI has its Head Office at Mumbai and has an all India presence through its branch network. It operates through anetwork of 5 Zonal offices, one each in Chennai, Guwahati, Kolkata, Mumbai and New Delhi. Besides, IDBI has 36branch offices located in state capitals and major commercial centres in India.

Government HoldingThe IDBI Act was amended in October 1994 which, inter alia, permitted IDBI to raise equity from the public subjectto the holding of the Government not falling below 51% of the issued capital. Pursuant to the amendment, in July 1995,IDBI made its initial public offering of equity shares aggregating Rs. 2184 crore. Simultaneously, the Government alsooffered for sale a part of its holding of equity shares in the capital of IDBI aggregating Rs.187.5 crore (includingpremium of Rs.120 per share) to the Indian public. On completion of the allotment of the shares offered to the public,the Government’s shareholding in IDBI reduced to 72.14%. The Government’s share holding has further come downto 57.76% with effect from June 5, 2000 as the Government of India converted 24.7 crore equity shares (out of itsholding of 48.6 crore equity shares) into 24.70 crore fully paid preference shares of Rs. 10 each (equivalent to Rs.247crore) redeemable within 3 years and carrying dividend @ 13% p.a. The preference shares have since beenredeemed. On August 25, 2000, 18,074,300 partly paid up equity shares of face value Rs. 10/- each were forfeitedand aggregate face value of Rs. 180,743,000 has been reduced from the subscribed and paid-up equity capital. Onaccount of this, Government’s shareholding has gone up to 58.5% with effect from August 25, 2000.

IDBI made its bonus issue in March 2001 in the ratio of 3 bonus shares for every 5 held. Accordingly, GOI has beenallotted 1,431,48,000 bonus shares. The shareholding of GOI remains at 58.5 % only.

Regulation and Supervision

IDBI, being a statutory organization is governed by the Industrial Development Bank of India Act, 1964 (IDBI Act). Thefunctions and business of IDBI are regulated by the IDBI Act. In addition, IDBI being a financial institution is subjectto regulatory supervision by RBI. Section 45L of the Reserve Bank of India Act, 1934 empowers RBI, inter alia, to callfor certain information relating to the business of IDBI and give directions relating to the conduct of its business. RBIhad set up a Board for Financial Supervision (BFS) in 1995 under the chairmanship of the Governor of Reserve Bankof India. Under the guidance of the Board for Financial Supervision, the department of Financial Supervision of the RBIsupervises Financial Institutions and Commercial Banks. The Department of Financial Supervision also undertakesoff-site and on-site supervision over banks and financial institutions. As part of such surveillance, the Reserve Bankof India carries out periodical inspection of IDBI. As clarified by RBI the contents of the inspection report is strictlyconfidential. It may be mentioned that IDBI has replied all the points referred to by the RBI in its latest inspection report.

The Reserve Bank of India has been issuing detailed guidelines to Financial Institutions on Asset Classification,Income Recognition and Provisioning, Capital Adequacy, Asset Liability Management etc. from time to time. IDBIadheres to all such guidelines and submits necessary information to RBI as per the guidelines.

MANAGEMENT AND ORGANISATION

CORPORATE GOVERNANCE

Corporate governance is administered in IDBI through the Board and three major committees of the Board, i.e. theExecutive Committee, Audit Committee and Shareholders/ Investors Grievances Committee. However the primaryresponsibility of upholding high standards of corporate governance in its operations and providing necessarydisclosures within the framework of legal provisions and banking conventions with commitment to enhance theshareholders’ value, lies with the Board of IDBI.

IDBI has complied with SEBI guidelines in respect of Corporate Governance specially with respect to broad basingof Board, Constituting the Committees such as Shareholders/ Investors Grievances Committee and Audit Committeeetc.

The Board

The general superintendence, direction and management of the affairs and business of IDBI is vested in the Boardof Directors which exercises all powers and does all acts and things which may be done by IDBI under the IDBI Act.The Board may direct that any power exercisable by it may also be exercised by the Chairman, Managing Directoror Wholetime Director.

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As per the IDBI Act, 1964 the Board can have maximum 12 directors, consisting of a Chairman and a ManagingDirector appointed by the Government of India (both functions can be assumed by the same person), a wholetimeDirector appointed by the Government on the recommendations of the Board, two Government nominees, threedirectors having special knowledge/ professional experience in diverse fields nominated by the Central Governmentand four directors elected by the shareholders other than the Government of India.

Shri M. Damodaran, Chairman, UTI, has assumed concurrent charge of the post of Chairman & Managing Directorof IDBI in addition to his own duties w.e.f. October 1, 2003 in terms of Notification F.No. 24(4)/2003-IF-I datedSeptember 29, 2003 issued by Government of India. Presently the Board comprises of 10 directors includingGovernment nominees and independent professionals. The primary responsibilities of the Board include:

1. Maintaining high standards of corporate governance and compliance with various laws and regulations.

2. Shaping the policies and procedures of the Bank.

3. Monitoring performance of the organization and evolving the growth strategy.

4. Setting up various prudential risk management limits.

5. Overseeing financial management of the Bank and approve various products and their policies.

The Executive Committee

The Executive Committee, presently comprising of 6 directors including the CMD of IDBI as the committee Chairman,deals with sanctions of assistance and other operational matters. All project proposals for sanction of assistanceabove the threshold limits applicable to Credit Committee are dealt with by the Executive Committee. The EC alsodecides on matters relating to Business Plans, Resource Mobilization, Investments, Capital Expenditure, RiskManagement Systems, assessment of performance against goals, initiating corrective measures etc.

Audit Committee

Audit Committee presently comprises of 5 directors including one independent professional director qualified asChartered and Cost Accountant as chairman of the committee. Executive Directors are invited as and whenconsidered necessary. The Audit Committee acts as an interface between the management and the statutoryand internal auditors overseeing the internal audit functions. The functions of the Audit Committee are asfollows:

1. To provide direction and oversee audit functions of the Bank.

2. To review periodically financial statements before submission to the Board focussing primarily on:

- Any changes in accounting policies and practices.

- Major accounting entries on exercise of judgement by management.

- Qualification in draft audit report.

- Significant adjustments arising out of credit.

- The going concern assumption

- Compliance of accounting standards.

- Compliance with stock exchange and legal requirements concerning financial statements.

- Any related party transactions i.e. transactions of the bank of material nature, with promoters or themanagement, their subsidiaries or associates etc. that may have potential conflict with the interestsof the bank at large.

3. Review with management, external and internal auditors, adequacy of internal control system.

4. Discussions with internal auditors and in house Audit Committee.

5. Review action taken on inspection reports of RBI and Statutory Auditors Report.

6. Review action taken on major findings of internal audit reports having bearing on policy, business risk, controland corporate governance.

7. To review cases of fraud and action taken.

8. Such other matters as may be delegated by the Board.

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Shareholder/ Investor Grievances Committee

The Committee presently consists of 4 independent directors. The Committee looks into the redressal ofshareholders’ and investors’ grievances mainly relating to transfer of shares/bonds, non-receipt of annualaccounts and dividend, interest etc.

Policy CommitteeA Policy committee has been constituted and presently comprises of 5 Directors including CMD as the Chairmanof the committee.

Board of Directors

The present composition of Board is as follows :

Name Tenure Age Qualification Other Directorships/Membership

1. Shri M. Damodaran As may be 56 Graduate in AdministratorChairman and Managing decided by GOI Economics Administrator of the SpecifiedDirector (Rank holder) Undertaking of the UTIIndustrial Development University of Chairman & Managing DirectorBank of India, Madras UTI AMC Pvt. Ltd.Cuffe Parade, Graduate in Law ChairmanMumbai 400 005 (First Division) The India Infrastructure Fund

Ltd University of UTIAS (Mauritius) Ltd., Delhi UTI - Investment Advisory

Services Ltd.The India Media, Internet & Communication Fund Ltd. (IMIC Fund)UTI - Investor Services Ltd.UTI - Securities Ltd.India FundInfrastructure Leasing & Financial Services Ltd.

Chairman of GoverningCouncil - Indian Institute of Capital MarketsDirectorNational Stock Exchange of India Ltd.The India IT Fund Ltd.Indian Airlines Ltd.Export Import Bank of India

2. Shri Lakshmi Chand As may be 58 Graduate (English) Exim BankSecretary, Ministry of decided by Post GraduateCommerce & Industry, GOI (Economics)Department of IndustrialPolicy & Promotion,Government of India,Udyog Bhavan,New Delhi-110011

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Name Tenure Age Qualification Other Directorships/ Memberships

3. Shri N S Sisodia As may be 58 Masters Degree DirectorSecretary decided by in Public Policy State Bank of India(Banking & Insurance) GOI & Management Life Insurance Corpn of IndiaDepartment of Economic from Harvard LIC International (Bahrain) LtdAffairs, Ministry of Finance, Universiy, USA LIC (Nepal) Ltd3rd floor, Room No. 35, M.Phil (Social India International InsuranceJeevan Deep Building, Sciences) Pte Ltd, SingaporeParliament Street,New Delhi - 110001

4. Shri R. N. Dhoot Upto 47 B.Com., M.E. -NIL-Dhoot Bungalow, March – A.M.I.E.Station Road, Aurangabad 29, 2004

5. Shri Shekhar Datta Upto 65 Graduate in DirectorChairman, March Mech. Engg. Piaggio Vehicles Pvt. Ltd.Piaggio Vehicles Pvt. Ltd., 29, 2004 [London], Piaggio India Pvt. Ltd.Trade World, B Wing, 4th floor F.I.M.A. Lombardini (India) Pvt. Ltd.Unit No.5, Kamala Mills Wockhardt Ltd.Compound, Lower Parel, Vesuvius India Ltd.Mumbai - 400013 Member

National Council, Confederation of Indian Industries

6. Shri K. Narasimha Murthy Upto 46 B.Sc., F.C.A., Non-Executive ChairmanPartner - Narsimha Murthy & Co. March 29, F.I.C.W.A. SWIL Ltd. (Copper Project(Cost Accountants firm) 2004 after demerger of other104, Pavani Estate, Divisions)Himayat Nagar, DirectorHyderabad – 500 029. UTI Bank Ltd.

Srikari ManagementConsultants Pvt. Ltd.

SWIL Ltd.Spectrum PowerPartnerNarasimha Murthy & Co.

(Cost Accountants Firm)MemberExpert Group on Transfer Pricing, Dept. of Company Affairs, Govt. of India

22

Name Tenure Age Qualification Other Directorship/Memberhip

7. Dr. Kirit S. Parikh Upto 67 B.E. [Civil], DirectorProfessor Emeritns May 31,Indira Gandhi Institute of 2006 M.Tech Business Standard Ltd.Development Research, [Structures] SKP Cross BorderGen. Vaidya Marg, I.I.T. Kharagpur, Consulting Pvt. Ltd.Goregaon (E), Sc.D. [CivilMumbai 400 065. Engineering],

MIT, USA,M.S. [Economicsand Engineering],MIT, USA

8. Shri. R.V. Gupta Upto 65 B.A (Honours) Chairman

9, Anand Lok, August 02 Economics & Pannel Keir Foster (PKF)August Kranti Marg, 2005 Course on Consultants

New Delhi - 110049 Development, Ambit Corporate FinanceCambridge Local advisory board for

India in Deutsche BankVira Charitable Society.DirectorSouthern PertrochemicalIndustries CorporationGoodyear(India) Ltd.Delhi Safe Deposit Company Ltd.Steel Authority of India Ltd.DCM Precision Engineering Ltd.Seshasayee Paper andBoards Ltd.,GW Capital Pvt. Ltd.TrusteeIndian National Theatre TrustPresidentShriram Centre for thePerforming ArtsMemberNational Committee for United World Colleges

9. Shri. M. G. Bhide Upto 64 M.A. Director & Chairman of theDirector, Credit Rating August 02 CAIIB Audit Committee (ACB)Information Services of India 2005 Mahindra & Mahindra FinancialLtd., CRISIL House, Service Ltd.121/122,Andheri Kurla Road Mahindra Shubhalabh Services LtdAndheri(East) JP Morgan Securites India Pvt. Ltd.Mumbai-400093 Global Trade Finance Pvt. Ltd.

Director & Member of ACB- Finolex Industries Ltd.

Director & Member of ACB& Investor GrievanceCommittee (IGC)Shipping Corporation of India

23

Name Tenure Age Qualification Other Directorship/Memberhip

Inv. Com. & Executive Com.- The Credit Rating Information Services of India Ltd. (CRISIL)

DirectorDeposit Insurance andCredit Guarantee Corporation of India,IMO Communication Pvt. Ltd.Indian Oiltanking Ltd.

Asset Reconstructions Company (India) Ltd.AdviserBoard of Advisors of the Specified Undertaking of the Unit Trust of India (Transfer of Undertaking and Repeal Act, 2002)

10. Shri Hiralal Zutshi Upto 61 B.E. (Hons) ChairmanD-25, Defence Colony, August 22, Mechanical Petroleum, Coal and RelatedNew Delhi - 110 024 2006 Products, Division Council

DirectorRain Calcining Ltd.MemberMOU setting Committee of adhoctask Force for 2003-04,Department of Public Enterprise, Govt. Of India.

The holding of equity shares of IDBI by the above Directors is Nil.

24

MANAGEMENT

Chairman and Managing Director

Shri M Damodaran

Principal Executive Officers

Name & Age Date of Qualifications Details of Work SharesDesignation (yrs) joining Previous employment Experience held

IDBI Total in inIDBI IDBI

Shri J.N. 58 Dec. 3, B.Tech Production In-Charge, 35 y 28 y 200Godbole, 1974 (Chem. Engg.) Narmada Valley 1 m 10 mExecutive Director (Hons), Chemical Industries

AMI IE. Pvt. Ltd.

Shri A.K. 56 Apr.24, B.Tech.(Civil) Asst. Executive 34 y 31 y 320Doda, 1972 (Hons), CAIIB Engineer, Central Water 10 m 5 mExecutive Director & Power Commission

Shri R. 55 Sep.29, B.E. (Mech), Asst. Superintendent, 33 y 25 y 320Jayaraman Iyer, 1978 D.I.E. WG Forge & Allied 1 mExecutive Director Industries Ltd.

Shri K. 54 Apr. 12, B.Com, A.C.A, Superintendent (Credit) 30 y 21 y 320Sivaprakasam, 1982 I.C.W.A, C.S(Inter) Union Bank of india 8 m 5 mExecutive Director CAIIB, L.L.B

Shri O.V. 53 Oct. 29, M.Sc, M.F.M, Manager 29 y 21 y 320Bundellu, 1981 CAIIB-I Indian Bank 10 m 11 mExecutive Director

Shri S. 58 Jan. 17, B.E (Elec.) Asst. Engineer 33 y 24 y 320Gajendran, 1979 Tamilnadu Electricity Board 9 m 8 mDirector- JNIDB

Shri G.M. 56 July 14, B.Sc, B.L, CAIIB, Law Officer 35 y 25 y 320Ramamurthy, 1978 Praveen, D.L.L, Canara Bank 2 mLegal Adviser D.C.L, D.T.L, C.S

All the Principal Executive Officers shown in above table are on the rolls of IDBI as permanent employees.

Changes in Auditors

M/s. V. Sankar Aiyar and Company was the Auditors for IDBI till 1996-97. Subsequently, M/s. G.P. Kapadia andCompany and M/s Ray & Ray were appointed as the Auditors and thereafter M/s Ray & Ray and M/s M.P. Chitaleand Co were the Auditors of IDBI. From FY 2002-03 M/s Sorab S. Engineer & Co. and M/s Suri & Co. are the Auditorsof IDBI.

HUMAN RESOURCESAs on May 1, 2003, IDBI had 2,837 employees (figures excludes staff on deputation - 25, on study leave - 3, on foreginleave - 2) of whom 1,441 are officers including professionals in accountancy, management, engineering, law,computers, economics and banking. IDBI has a good and cordial relationship with its employees and their Association/Union. Since inception in 1964, no major industrial action has been resorted to by IDBI’s employees. During the lastthree years, there were 5 occasions of strike resorted to by a section of IDBI’s employees on issues not exclusivelyof IDBI. The same, however, did not affect the normal functioning of IDBI.

25

PRODUCTS AND SERVICES

IDBI provides project related finance for the establishment of new industrial projects as well as for expansion,diversification and modernisation of existing industrial enterprises. In view of the changed financial needs of theindustries, IDBI has also designed other products to meet the short term funding, core working capital and treasuryrequirements of the industrial clients. IDBI also extends non-fund based assistance, advisory services, forex servicesetc,. IDBI has also set up specialised subsidiaries and associates to extend mutual fund products, capital marketservices, banking services as also Registrar and transfer agent services.

IDBI currently offers the following major products and services to industrial concerns:

1. DIRECT FINANCE

The expression “direct finance” refers to the provision of finance directly to an industrial unit without the involvementof an intermediary financial institution. During FY 2002-03, approximately 91% of total sanctions and 94% of totaldisbursements of IDBI were accounted for by direct finance.

(a) Project Finance

Project Finance involves providing credit and other facilities to medium and large scale units for theestablishment of new projects as well as for expansion, diversification or modernisation of existingindustrial units. Project finance is granted directly to units established as companies in private, jointand public sectors, and to co-operatives.

As part of Project Finance, IDBI provides term loans in Rupee and in Foreign currency repayable over5-10 years depending upon the debt servicing capacity of the borrowing unit, and secured by a chargeover the immovable/ movable assets. It also provides financial guarantees, usually in foreign currency,to cover deferred payments and to enable corporates to raise loans from overseas. IDBI’s guaranteesare of near sovereign nature and have been an important segment of operations in the recent years.

Infrastructure financing continues to be the Bank’s thrust area with IDBI financing projects involvinglarge financial outlay to power, telecom and port projects. Assistance to infrastructure projectsduring 2003-04 amounted to Rs.440 crore (sanctions) and Rs.813 crore (disbursements).

(b) Equipment Finance and Asset Credit

Under Equipment Finance, rupee and foreign currency loans are given to industrial units conformingto certain minimum financial criteria for the purpose of financing acquisition of specific items ofmachinery and equipment. Such loans are secured by charge on specific assets and generally havea maturity of upto 6 years including moratorium. Under Asset Credit Facility a line of credit is extendedto industrial units for financing their normal capital expenditure over a specified period. Such creditis normally extended for a period of upto 5-6 years and is secured by a charge on the assets soacquired.

(c) Working Capital

IDBI provides loans to corporates for meeting core working capital requirements. The loan is grantedin the nature of a term loan either rupee or foreign currency for meeting the core component of theworking capital requirements of the company assessed for period upto 18 months.

(e) Direct Discounting of BillsIDBI provides facilities for direct discounting of bills of exchange and promissory notes which arisefrom the sale of indigenous machinery on a deferred payment basis by a seller to a domesticpurchaser.

(f) Underwriting and Direct SubscriptionAs part of Project Finance and Capital Market activities, IDBI underwrites public and rights issues andprovides direct subscription support in respect of equity as well as debt instruments.

(g) Energy ConservationIDBI has extended rupee and foreign currency term loans for the acquisition and installation of energyconservation equipment, as also to pollution control and prevention projects in highly polluting industrialsectors. Further, IDBI also provides finance for implementing Ozone Depleting Substances (ODS) Phase-out projects under the Montreal Protocol.

26

(h) Venture CapitalVenture Capital finance is extended by IDBI for projects involving the development and use of indigenoustechnology and for adaptation and development of imported technology, as well as high-risk, high-returnventures. With the development of new economy sectors like technology, media and entertainment, bio-technology, etc. the scope of Venture Capital Fund Scheme has been widened since January 2000.

(i) Equity Participation SchemeIDBI has formulated a separate Equity participation scheme for investment in select companies with highgrowth and profitability potential to facilitate early financial closure of projects.

(j) Film FinancingConsequent upon GOI conferring industry status to the “Entertainment Industry including Films” andapproving the same as an eligible activity for financing under Section 2(c)(xvii) of IDBI Act, 1964, the Bankhas introduced a scheme for financing the Film Industry.

2. INDIRECT FINANCEThe expression “indirect finance” refers to the provision of finance to industrial concerns through State FinancialCorporations (SFCs) and State Industrial Development Corporations (SIDCs). In indirect finance, the responsibilityfor repayment to IDBI rests with the relevant intermediary institution or bank.

(a) Refinancing of Industrial LoansIDBI grants refinance facilities to SFCs, SIDCs and Banks against their loans to medium-sizedindustrial concerns throughout India. IDBI has widened the scope of the Refinance Scheme to coverinfrastructure/Technology Upgradation Fund Scheme projects.

(b) Bills RediscountingBills of exchange discounted by banks arising from the sale of indigenous machinery on deferredpayment terms are rediscounted by IDBI.

(c) Investment in Shares and Bonds of other Financial institutionsIDBI subscribes to the share capital, bonds and debentures issued by SFCs and other financialinstitutions.

(d) Lines of Credit to InstitutionsIDBI provides lines of credit to select SFCs and SIDCs by way of resource support.

3. FINANCIAL SERVICES(a) Merchant Banking

IDBI’s Capital Markets Division provides professional advice and services to industry for capital marketissues, loan and guarantee syndication, project advice/appraisal, capital restructuring and mergers andacquisitions.

(b) Forex ServicesIDBI opens Letters of Credit (LCs) and effects foreign currency remittances on behalf of its assistedcompanies for import of goods and services. In line with the prevailing guidelines for External CommercialBorrowings (ECBs), the Bank also disburses FC loans for project related Rupee expenditure. A ForexTrader Software has been implemented which enables speedier generation and transmission of LCsand amendments through the SWIFT connectivity. To enhance customer service, the LC and FCoperations have been decentralised to cover more branches. IDBI offers various foreign exchangerelated services, namely spot and forward purchases of currencies for letters of credit and debtservicing, as well as forex advisory services through its dealing room.

IDBI has been awarded ISO 9002 certification for its Treasury Operations for implementation ofQuality Management System (QMS). This certification assures that the Treasury Operations of IDBIconform to international standards.

27

(c) Debenture TrusteeshipIDBI was registered as a Debenture Trustee with SEBI and had provided these services to holders ofdebentures issued by companies. It also acted as a Mortgage Trustee or Security Agent in respect of loansprovided by domestic and foreign lenders. Government of India vide its Gazette notification dated August8, 2000 had notified amendments to the SEBI (Debenture Trustees) Rules & Regulations. In terms ofthese amendments there has to be ‘arms length’ relationship between the trustees and issuer of thesecurities. Keeping this in view, IDBI alongwith other institutional shareholders has promoted companyknown as “IDBI Trusteeship Services Ltd.” (ITSL) for carrying out corporate trusteeship and other relatedbusiness. ITSL is not a subsidiary of IDBI.

4. INSTITUTIONAL DEVELOPMENT AND PROMOTIONAL ACTIVITIESIDBI’s developmental activities have included a range of promotional services to build an institutional structurefor entrepreneurship development, credit delivery and capital market development.

(a) Institutional DevelopmentIDBI has been playing a major role in sponsoring / supporting several institutions for the development of aneffective institutional structure for financing Indian industry. The major institutions that have been sponsoredare the SIDBI, Export-Import Bank of India (EXIM Bank), Industrial Investment Bank of India Ltd. (IIBI)formerly known as Industrial Reconstruction Bank of India (IRBI), SCICI Ltd (since merged with ICICI) andTourism Finance Corporation of India Ltd (TFCI). In addition, IDBI, as the nodal agency, promoted the NorthEastern Development Finance Corporation Ltd, (NeDFI) for catering to the finance and development needsof the North-Eastern region of India. IDBI is also one of the promoters of Infrastructure Development FinanceCompany Ltd (IDFC) which has special focus on providing finance and guarantee products to infrastructureprojects.

(b) Capital Markets DevelopmentIDBI is also playing a major role in the development of Indian Capital Markets. It played a key role in theformation of Securities and Exchange Board of India (SEBI) for effective regulation of the capital markets.It sponsored National Stock Exchange of India Ltd. (NSE), which first introduced electronic trading insecurities in India. IDBI has sponsored/ supported the formation of Stock Holding Corporation of India Ltd(SHCIL), Credit Analysis and Research Ltd. (CARE), Investor Services of India Ltd. (ISIL) and OTCExchange of India Ltd (OTCEI). In order to reduce paperwork and the difficulties associated with securitiessettlements, IDBI has promoted the National Securities Depository Ltd. (NSDL) in association with Unit Trustof India (UTI) and NSE.

(c) Money Market Institutions

IDBI is one of the original subscribers to the capital of Discount and Finance House of India Ltd (DFHI) andSecurities Trading Corporation of India Ltd (STCI), which are contributing significantly to the development ofmoney markets. IDBI is one of the main promoters of The Clearing Corporation of India Ltd. (CCIL). It hasbeen set up to facilitate clearing and settlement of dealings in all kinds of Securities and Money Marketinstruments including Government Securities, Treasury Bills, Corporate Bonds, inter-bank transactions inforeign exchange and dealings in derivatives.

(d) Entrepreneurship Development

IDBI took the lead in setting up the Entrepreneurship Development Institute of India Ltd. (EDII) atAhmedabad as a national institute to foster entrepreneurship development. IDBI has also taken thelead in creating similar institutions in some of the industrially less developed states. IDBI supportedthe establishment of the Biotech Consortium of India Ltd., to assist in the promotion of bio-technology projects.

IDBI sponsored industrial potential surveys in various parts of the country in 1970s which wasfollowed by setting up of a chain of Technical Consultancy Organisations (TCOs) in collaboration withother financial institutions and banks. TCOs provide advisory services to entrepreneurs on productselection, preparation of feasibility studies and technology selection and evaluation. In its role asthe premier development bank of India, IDBI undertakes a variety of promotional activities includingthe sponsorship of quality testing centres, science and technology parks, industrial potential surveys,entrepreneurship development programmes and training programmes for the staff of otherdevelopment institutions.

28

Shareholding in Institutions

IDBI’s shareholding in institutions other than its subsidiaries as on March 31, 2003 is given below.

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

Small Industries Development Bank of India 220.00 49.00IDBI Trusteeship Services Ltd. 0.40 40.00

Securities Trading Corporation of India Ltd. 36.40 7.30Infrastructure Development Finance Co. Ltd. 50.00 5.00Tourism Finance Corporation of India Ltd. 7.50 11.12

National Stock Exchange of India Ltd. 5.84 12.98Stock Holding Corporation of India Ltd. 3.57 16.96Over the Counter Exchange of India Ltd. 1.70 17.00

Twin Function State Industrial Development Corporations 41.30 28.89North Eastern Development Finance Corporation Ltd. 25.00 25.00Investor Services of India Ltd. 3.00 25.00

Credit Analysis and Research Ltd. 2.08 26.00Biotech Consortium Ltd. 1.50 27.90IFCI Ltd. 202.50 31.70

Clearing Corporation of India Ltd. 2.75 5.50State Financial Corporations 349.38* 28.34National Securities Depository Ltd. 24.00 30.00

Unit Trust of India 2.50** 50.00

* the budget for 1998-99 provides for transfer of IDBI’s shareholding in SFCs to SIDBI.IDBI’s shareholding in SFCs is required to be transferred to SIDBI at a mutually agreed pricesin terms of Section 4(H) of the SFCs (Amendment) Act 2000.

** contribution to initial unit capital.

LENDING POLICIES

1. LENDING POLICIES FOR DIRECT ASSISTANCE

a) Financing Criteria

IDBI periodically assesses the composition of its asset portfolio in terms of industry wise exposure, return,overall domestic and global trends in these industries, demand-supply gap, capacity built up as also thefuture potential. Accordingly, the proposed portfolio composition is directed. Market Research Department(MRD) carries out industry research and provides inputs to Project Appraisal Department/Corporate FinanceDepartment and facilitates appraisal and follow up work. MRD maintains a large updated data base ofindustry trends built up during the past 10 years.

IDBI is presently in the process of updating the present credit risk evaluation system and convert itinto a technology driven module.

b) Lending RatesInterest on specific loans are fixed within a band (3.5% at present) over the MTLR (12.50% at present)depending upon the risk perception of the project, the track record of the borrower and the industry outlook.IDBI has also introduced a minimum short term lending rate (MSTLR) (12.0 % at present) which isapplicable to short term/working capital loan.

c) Credit Approval ProcessIn the context of emerging environment, the crezdit delivery mechanism has been revamped basedon the recommendation of Booz-Allen & Hamilton, the consultants appointed by IDBI. The customerbase has been segmented into corporate and mid-corporate divisions, with industry focussed groupsin these divisions. A dedicated group has been constituted to deal with infrastructure related projects.All sanctions and credit related matters are approved by specific Committees. Different committees

29

are formed to assess and approve credit proposals depending on the size and complexities of theproposals. Major committees constituted are Credit Committee at the Head Office and ZonalCommittees at the zonal level. Proposals outside the powers of Credit and Zonal Committees arereferred to the Executive Committee.

The functions and the composition of various committees involved in the credit approval process are asfollows:

(i) Zonal Committees

Four Zonal Committees have been constituted at the respective zones viz. Western Zonal Committeeat Mumbai, Northern Zonal Committee at Delhi, Southern Zonal Committee at Chennai and Easternand North Eastern Zonal Committee at Kolkata. The Zonal Committees comprise of the Chief GeneralManager (CGM) for the respective zone as the Chairman and the General Managers (GMs) of therespective branches within that zone as the members of the committee. This apart, an official of CGMrank from Head Office also participates in Zonal Committees as a member.

The functions of the Zonal Committees are as follows:1. To screen the proposals from the branches in their respective Zones, with exposure within their

delegated authority for taking up detailed appraisal.

2. To sanction assistance under the powers delegated to it by the Board of Directors.

3. To review the progress and performance of assisted projects periodically and take appropriateaction.

4. To review the quality of portfolio, asset classification, provisioning etc, at quarterly intervals.

5. To review the operational targets, performance, profitability etc. of individual branches.

(ii) Credit Committee

The Credit Committee is empowered to sanction assistance upto specified limits with respect to HeadOffice cases and cases from branches wherever it exceeds the power of Zonal Committee. Casesfor assistance above the threshold limits of Credit Committee are referred to the ExecutiveCommittee.

The Credit Committee comprises of Executive Directors and Chief General Manager from theCorporate Finance Department as the members of the Committee. Chief General Managers/ GeneralManagers of the Treasury & Funding Division, ALM group, General Manager (Legal) and GeneralManagers from other operational departments are invited as participants.

The functions of the Credit Committee includes :1. Screening the proposals for assistance received at the HO for a detailed appraisal2. Sanctioning assistance under the powers delegated to it by the Board of Directors from time

to time.3. Reviewing the progress/ performance of assisted projects periodically and take necessary

actions.4. Review the quality of the portfolio, asset classification, provisioning etc. at quarterly intervals.

5. Review the policies, products, pricing etc. relating to direct finance operations and initiateaction, as may be considered necessary.

(iii) Executive Committee:

All proposals beyond the threshold limit of Credit Committees are referred to the Executive Committeewhich is a sub-committee of the Board. The Executive Committee deals with sanctions of assistanceand other operational matters.

d) Follow-up and MonitoringAn elaborate project monitoring system has been set-up by IDBI over the years. Project monitoring is doneboth during implementation and operating periods through periodical progress reports/annual reports of theborrowing units, follow-up visits and periodic interaction with the Chief Executive/Senior Executives of thecompanies. The system enables IDBI to monitor the progress of the project, diagnose difficulty if any andwork out remedial measures where needed. Where considered necessary on grounds of higher exposure,IDBI also considers nomination of IDBI officers / outside professionals on the Boards of assisted companies.All assisted cases are periodically reviewed at the appropriate credit forum like Zonal/ Credit / Executivecommittees.

30

2. LENDING POLICIES FOR INDIRECT ASSISTANCEIDBI considers the business plans and resource forecasts of State Financial Corporations (SFCs) and StateIndustrial Development Corporations (SIDCs) to evaluate their fund requirements. Limits for refinancing and linesof credit are fixed taking into consideration other resources available.

Under Bills Rediscounting, IDBI extends annual limits to commercial banks, Electricity Boards, State RoadTransport Organisations and Corporations. The limits are reviewed periodically.

Since the credit risk in indirect finance is borne by the primary lender, IDBI fixes uniform interest rates forrefinance assistance to primarly lenders (SFCs / SIDCs), in tune with the movement in prime lending rates forsuch finance.

OPERATIONS

IDBI’s portfolio of direct finance comprises over 3,000 companies representing the complete range of industrialactivities and a well diversified client profile. Its portfolio including loans, investments and guarantees, etc. ason March 31, 2003 was Rs.57850 crore.

Particulars regarding effective sanctions (net of cancellations) and disbursements for the last 5 years endingMarch 31, 2003 and for the period April - September 2003 are indicated in the table below:

SANCTIONS (Rs. crore)

Year ended March 31 1999 2000 2001 2002 2003 Sept 2003(Effective sanctions net ofcancellations)

Direct Finance

Rupee Loans 12904 15604 17121 9722 1377 1806

Foreign Currency Loans 2882 3442 2564 2029 1123 640

Underwriting and direct 387 512 457 512 105 0subscription to shares,bonds and debentures ofindustrial concerns

Equipment leasing 233 299 250 12 0 0

Sub Total (A) 16406 19857 20392 12275 2605 2446

Guarantees for loans anddeferred payments 1671 236 1362 403 31 1

Total Direct Finance (B) 18077 20093 21754 12678 2636 2447

Indirect Finance

Refinance of Industrial loans 92 242 363 187 0 12

Bills finance 675 723 286 123 87 13

Loans to and investments in 95 968 246 291 53 0shares and bonds of financialinstitutions

Others – 34 529 226 113 0

Total Indirect finance (C ) 862 1967 1424 827 253 25

Total Sanctions (B+C) 18939 22060 23178 13505 2889 2472

Annual Growth Rate (%) (6.4) 16.5 5.1 (41.7) (78.6) -

The compounded annual growth rate (CAGR) over the 5-year period ended March 31, 2003 works out to (-)37.5%.

31

DISBURSEMENTS (Rs. crore)

Year ended March 31 1999 2000 2001 2002 2003 Sept. 2003

Direct Finance

Rupee Loans 9858 10719 11181.4 5812.44 2011.16 828

Foreign Currency Loans 1809 2614 1341.3 1609.96 1541.74 439

Underwiting and direct 1901 1745 3391.3 2892 139.7 35subscription to shares,bonds and Debentures ofIndustrial concerns

Equipment leasing 232 370 254.8 12 0 0

Sub Total (A) 13800 15448 16168.8 10326.4 3692.6 1302

Guarantees for loans anddeferred payments 0 0 0 0 0 0

Total Direct Finance (B) 13800 15448 16168.8 10326.4 3692.6 1302

Indirect Finance

Refinance of Industrial loans 102.1 229.5 331.7 158.8 0 16

Bills finance 475.6 527.9 201.7 84.9 60.8 9

Loans to and investments 95 823.5 287.5 313 53.8 64in shares and bonds offinancial institutions

Others 0 34 483.7 267.9 117.1 0

Total Indirect Finance ( C) 672.7 1614.9 1304.6 824.6 231.7 89

Total Disbursements (B+C) 14473.4 17062.8 17473.4 11151 3924.3 1391

Annual Growth rate (%) (5.8) 17.9 2.4 (36.2) (64.8)

The CAGR in disbursements over the 5-year period ended March 31, 2003 works out to (-)27.8%

Trend in Sanctions and Disbursements March 1999 - March 2003. (Rs. crore)

1 8 9 3 9

2 2 0 6 0

2 3 1 7 8

1 3 5 0 5

2 8 8 9

1 7 0 6 31 7 4 7 3

1 1 1 5 1

3 9 2 4

1 4 4 7 3

0

5 0 0 0

1 0 0 0 0

1 5 0 0 0

2 0 0 0 0

2 5 0 0 0

1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3

S A N C T IO N S

D IS B U R S E M E N T S

32

OUTSTANDING ASSISTANCE PORTFOLIO

The following table provides a breakdown of IDBI’s outstanding portfolio of loans, investments and guarantees as atMarch 31, 1999 to March 31, 2003.

(Rs. crore)

As at March 31 1999 2000 2001 2002 2003

Direct FinanceRupee Loans 35144 38322 39484 38460 37876Foreign Currency Loans 7585 8426 6618 6522 5677Underwriting and direct subscription 5494 5492 6673 7514 6405to shares, bonds and debentures ofIndustrial concernsEquipment leasing 1089 1245 1300 1148 955Sub total (A) 49312 53485 54075 53644 50913Guarantees for loans and 3830 4005 4617 4011 3369deferred payments

Total Direct Finance (B) 53142 57490 58692 57655 54282

Indirect FinanceRefinance of Industrial loans 1767 1310 1666 1643 1490Bills finance 2336 2031 1443 965 612Loans to and investments in shares &bonds of financial institutions of whichi) Shares of FIs 1320 1465 1341 1010 1066ii) Loans to and Bonds of FIs 313 656 140 249 236iii) Consideration receivable form SIDBI 1656 1284 755 525 164iv) Others 355 349 0 0 0

Total Indirect Finance (C) 7747 7095 5346 4392 3568

Total (B+C) 60889 64585 64038 62047 57850

Annual Growth rate (%) 11.2 6.1 (0.9) (3.1) (6.8)

The CAGR in outstandings over the 5-year period ended March 31, 2003 works out to 0.5% in respect of direct financeand (-)1.3% in respect of total outstandings.

Guarantees given by the issuer to third parties

The outstanding guarantees for loans and deferred payments amounted to Rs.3369 crores as on March 31,2003. Theguarantee has extended are solely on account of normal business operations and are subject to prudential applicablenorms. Guarantees are extended by IDBI are normally secured by assets / way of charge over the fixed assets ofassisted companies.

Trend in Outstanding Loan Portfolio during March 1999 - March 2003 (Rs. crore)

6 0 8 8 9

6 4 0 3 8

6 2 0 4 7

5 7 8 5 0

6 4 5 8 5

5 4 0 0 0

5 6 0 0 0

5 8 0 0 0

6 0 0 0 0

6 2 0 0 0

6 4 0 0 0

6 6 0 0 0

1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3

33

INDUSTRYWISE BREAK-UP

IDBI’s loan portfolio is well diversified among industries. The major outstandings are to the iron and steel, power, cottontextiles, telecom services and petrochemicals, which together accounted for about 48% of the outstandings as atMarch 31, 2003. As a prudential measure, IDBI has recently revised the exposure limit to individual industry at 10%of its total portfolio or Rs.5000 crore whichever is lower. As on March 31, 2003 only two industries viz. Iron & Steel(18.31%) and Electricity Generation (12.58%) exceeded the limit. This excess has been largely due to historical factorswherein IDBI had been extending assistance to core sector projects in line with overall national objectives. Thefollowing table shows the breakdown, by industry category, of direct assistance outstanding as at March 31, 2003.

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

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

Iron and steel 9104.90 18.31% 56.27% 73.14%Electricity Generation 6257.90 12.58% 64.34% 82.25%Cotton Textiles 4414.66 8.88% 15.49% 25.65%Telecom Services 2132.63 4.29% 69.86% 98.45%Petrochemicals 2045.08 4.11% 86.58% 94.45%Fertilizers 1895.71 3.81% 94.35% 99.58%

Cement 1517.69 3.05% 62.98% 77.55%

Artificial Fibres 1704.43 3.25% 53.86% 68.64%

Chemical (Others) 1082.12 2.18% 28.95% 41.85%

Food (others) 1174.34 2.36% 23.87% 34.77%

Basic Industrial Chemicals 1216.21 2.45% 61.96% 80.59%

Services (Others) 912.54 1.84% 52.11% 64.76%

Electronics 1069.87 2.15% 63.11% 74.46%

Drugs & Pharmaceuticals 1080.28 2.06% 59.40% 75.08%

Paper & Paper Products 1250.76 2.52% 48.39% 61.85%

Other Industries* 12003.98 24.14% 14.71% 22.73%* Total of all industries excluding top 15

Industry-Wise Outstandings (%)Iron and steel

19%

B asic Industria l C hem icals

3%S ervices

2%

E lectronics2%

D rugs & P harm aceutica l

2%

P aper & P aper P roducts

3%C otton Textiles

9%

Telecom S ervices

4%

O ther Industries25%

Petrochem icals4%

Fertilizers4%

C em ent 3%

A rtif ic ia l F ibres3%

C hem ica l (O thers)

2%

Food (others)2%

E lectric ity G eneration

13%

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Industry-Wise break up of outstandings in respect of top 10 borrowers as a percentage of total Assets as on March31, 2003 is given in the table below.

Borrower Industry Outstanding as % to Total Loan Quality of Write off/ total assets as on Disbursed till the asset Provision

March 31, 2003 March 31, 2003*(Rs. crore) (Rs. crore)

A Electricity Generation 3.91 548.74 Standard NilB Iron & Steel 2.48 1008.75 Standard NilC Iron & Steel 1.89 865.77 Standard NilD Refineries & Oil Exploration 1.70 731.46 Standard NilE Iron & Steel 1.33 729.03 Standard NilF Iron & Steel 1.33 558.58 Standard NilG Petrochemicals 1.18 1675.37 Standard NilH Refineries & Oil Exploration 1.13 2056.99 Standard NilI Iron & steel 1.09 500.37 Sub-Standard 74.32J Petrochemicals 1.08 535.00 Standard Nil

*Total amount disbursed does not indicate total amount outstanding as on March 31, 2003.

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

As on March 31, 2003 As % to Capital funds As % to Total Assets

The largest single borrower 15.28 3.63The largest borrower group 24.30 5.77The 10 largest single borrowers 87.23 20.70The 10 largest borrower groups 108.33 25.71

Deployment of funds raised by issue of Infrastructure BondsIn respect of InfrastructureBonds issued by IDBI, the deployment has been in accordance with the relevant taxguidelines. Also the deployment of funds raised under Infrastructure Bonds has been duly certified by the auditors.

INVESTMENTSIDBI’s investment portfolio is predominantly of long term and strategic nature. Temporary diminution in value of securitiesarises on account of price volatility due to factors and forces affecting the stock market, interest rates, etc. IDBI has beenclassifying its investment portfolio and making appropriate provision for diminution in value as per RBI guidelines issued fromtime to time in this regard. The investments are classified under the following categories (i) Held to Maturity, (ii) Availablefor Sale (iii) Held for Trading. These investments were valued according to the guidelines in the matter issued by RBI toFIs.

As on March 31, 2003 the portfolio of quoted investments aggregated Rs.2730.22 crore, whose market valueamounted to Rs.2152.54 crore. IDBI had debentures of Rs.4389.16 crore in its portfolio as on March 31, 2003.All the debentures are secured by hypothecation/mortgage of fixed assets.

Debentures on which final security was yet to be created by way of mortgage amounted to Rs.795 crore as onMarch 31, 2003.

Since March 2001, IDBI is active in secondary market transactions in equity. The transactions under Secondary MarketOperations are conducted in accordance with the policy regarding investment in equities, as formulated by the Board.The valuation of equity investments is done in accordance with the RBI guidelines.

Provision for Depreciation on Investments

Opening Balance as on April 1, 2002 Rs.56.96 crore

Add : (i) Provisions made during the year Rs.158.79 crore

(ii) Appropriation, if any, from Investment Fluctuation Reserve Account during the year –

Less :(i) Write off during the year Rs.66.51 crore

(ii) Transfer, if any, to Investment Fluctuation Reserve Account –

Closing balance as on March 31, 2003 Rs.149.24 crore

Note : During the year ended March 31, 2002 and 2003, Rs.25 crore each was appropriated from profits to Investment

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Fluctuation Reserve Account and as on March 31, 2003, the balance in the Investment Fluctuation Reserve Accountwas Rs.50 crore.

ASSET CLASSIFICATION, INCOME RECOGNITION, PROVISIONING FOR NON-PERFORMING LOANS AND NPA STRATEGY

ASSET CLASSIFICATIONIDBI has evolved a comprehensive health code system for assessing the quality of advances so as to be able tomonitor effectively and follow-up each individual advance. All advances are reviewed at regular intervals with referenceto factors like past performance, immediate and future prospects and asset backing. In addition, the borrower’sbalance sheets and profit and loss accounts are critically analysed and information relating to credit record with otherinstitutions/banks, quality of management, the industrial environment in which the borrower operates and relevanttechnological issues is kept up-to-date to enable IDBI to have a complete picture of the risk profile of its assets.

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

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

Performing/Standard AssetsLoan Assets in respect of which interest and principal are received regularly and where arrears of interest and/or ofprincipal, if any, do not exceed 180 days as at the end of the financial year, are classified as performing assets(standard assets). A general provision of 0.25% on outstanding standard assets has been made.

Non-performing AssetsLoan assets where interest and/or principal installments are in arrears beyond 180 days are classified as non-performing assets (NPAs). NPAs are further sub-classified into sub-standard, doubtful and loss assets asfollows:

Sub-standard assetsSub-standard assets are those which are non-performing for a period not exceeding eighteen months. Inaddition, companies which have been exhibiting signs of weaknesses in their viability or whose viability hasbeen weakened due to delayed implementation are also classified within the sub-standard category.

Doubtful assetsA doubtful asset is one which has remained non-performing for a period exceeding eighteen months and whichis not considered as a loss asset. A major portion of assets under this category relate to “sick” companiesreferred to the Board for Industrial and Financial Reconstruction (BIFR) and awaiting finalisation of rehabilitationpackages.

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

INCOME RECOGNITION

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

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

1. Standard assets – A global provision of 0.25% on outstanding standard assets

2. Sub-Standard Assets – 10% of loan/assistance

3. Doubtful assets – 100 % of unsecured portion plus 20%/30 %/50% of secured portiondepending on the period for which the loan / assistance has remaineddoubtful.

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

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The following table provides a summary of IDBI’s loan assets in accordance with RBI classification in the lastfive years.

ASSET CLASSIFICATION AS PER RBI GUIDELINES (Rs. crore)

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

(before w/o) (cumulative) and w/o to gross assets

31st March, 1999Standard 47377 2 47375 88.0 0.0Sub-standard 4635 450 4185 7.7 9.7Doubtful 4030 1725 2305 4.3 42.8Loss 857 857 0 0.0 100.0Total 56899 3034 53865 100.0 5.3

31st March, 2000Standard 49425 0 49425 86.6 0.0Sub-standard 4484 429 4055 7.1 9.6Doubtful 6017 2397 3620 6.3 39.8Loss 926 926 0 0.0 100.0Total 60852 3752 57100 100.0 6.2

31st March, 2001Standard 48107 0 48107 85.2 0.00Sub-standard 3518 504 3014 5.3 14.3Doubtful 8686 3330 5356 9.5 38.3Loss 1026 1026 0 0.0 100.0Total 61337 4860 56477 100.0 7.9

31st March, 2002Standard 49107 0 49107 88.3 0.0Sub-standard 2831 321 2511 4.5 11.3Doubtful 10466 6476 3990 7.2 61.9Loss 1152 1152 0 0.0 100.0Total 63556 7949 55607 100.0 12.5

31st March, 2003

Standard 44311 22 44289 85.8 0.1Sub Standard 3353 444 2910 5.6 13.2Doubtful 11478 7058 4420 8.6 61.5Loss 1175 1175 0 0 100.0Total 60317 8699 51619 100.0 14.4

*A prudential provision of Rs.123.51 crore ( @ 0.25% on outstanding standard assets ) has been made as per RBIguidelines.It may be noted that the above information conforms to classification norms issued by RBI from time to time. IDBIhas made full provisions in respect of all its non-performing assets as per RBI norms. Further, all loan assets of IDBIare secured and provide recourse to the borrower. Net NPAs, adjusted for the value of collateral, account only for

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a marginal proportion of total assets, as in the following table :

Net NPAs - Details of Assets for 5 years (Rs.crore)

As on March 31 1999 2000 2001 2002 2003

No. of cases # 1204 1332 1392 525 630Gross Principal Outstanding 9523 11428 13230 14449 16007Gross interest outstanding (#) 5376 5532 7029 8646 5366Gross total outstanding 14899 16960 20259 23095 21373Net NPA (net of write offs and provisions) 6490 7675 8371 6500 7330Total Assets (net) 53865 57099 56478 55607 51619%of Net NPAs to Total Assets 12.05 13.44 14.82 11.69 14.20%of Net NPAs (net of collateral) to Total Assets @ 0.70 1.09 1.67 1.81 2.27

# Direct Finance@ Value of collateral represents asset cover available against direct finance assets only.Write off during the years ended March 31, 2002 and March 31, 2003 aggregated Rs.3142 crore and Rs.907 crorerespectively. However, where a loan is written off partially or fully, it does not necessarily mean that the loan will notbe recoverable by IDBI. Intensive efforts towards the recovery of the outstanding balances continue. As and whenfunds are realised in respect of such outstandings, they are credited to the revenue account.

Classification of Assets/ Liabilities based on Interest rate band (March 31, 2003) (Rs. crore)

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

Standard Assets 12463 1589 7295 22964 Gross NPAs 1064 246 1349 13347 Rupee Liabilities 26394 4936 7737 6128

All FC liabilities are predominantly at floating rate of interest and presently carry rates below 9%.

Amount of provision/write offs made during the year towards Standard assets, NPAs, investments (Otherthan those in the nature of an advance), income tax:

March 31, 2003 (Rs.crore)

Standard assets –

NPA 950.90

Accelerated provisioning / write off 0

Investments(Other than those in the nature of advance) 158.79

Income Tax 92.36

Total 1202.05

Movement in net NPAs:

Particulars Net NPA (Rs.crore)

As on April 2002 6500.18

Additions 2272.27

Recoveries 1442.51

As on March 2003 7329.94

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

FY 2003 (Rs.crore)

Opening balance at the beginning of the financial year 1657.90

Add : Provisions made during the year 1082.97

Less : Write-off, write back of excess provision 1038.03

Closing balance at the close of the financial year 1702.84

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Restructured Accounts (FY 2003)

Total amount of loan and debenture assets which have been subjected to Rs.10346.51 crore Restructuring/rescheduling/renegotiation

(Includes cases restructured under CDR agreegating Rs.3892.44 crore)

Total substandard assets which have been subjected to restructuring/ Rs. 349.73 crore rescheduling/renegotiation

Restructured Accounts - Top 5 Industries (FY 2003) (Rs. crore)

Sl. Industry Net Outstanding

1 Iron & Steel 4053 2 Electricity Generation 971 3 Petrochemicals 830 4 Cotton Textiles 792 5 Cement 639

Top 10 Accounts Restructured (FY 2003) (Rs. crore)

Sl. Company Name Net Outstanding

1 Borrower 1 1332

2 Borrower 2 1117

3 Borrower 3 811

4 Borrower 4 708

5 Borrower 5 681

6 Borrower 6 488

7 Borrower 7 342

8 Borrower 8 335

9 Borrower 9 298

10 Borrower 10 239

Industry-wise classification of NPAs

Industry-wise outstanding NPAs (Gross) for direct finance (excluding investments) as a percentage to total NPAs forthe past 3 years is given in the table below.

As on March 31, 2001 2002 2003

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

Iron & Steel 721 9.89 838 15.54 1393 21.54

Cotton Textiles 973 13.34 738 13.68 822 12.70

Food (Others) 564 7.73 482 8.93 461 7.12

Metal Products 472 6.48 357 6.61 355 5.50

Vehicles 0 0.00 0 0.00 344 5.33

Chemical (Others) 539 7.39 364 6.74 324 5.01

Plastic & Plastic Goods 291 4.00 270 5.00 284 4.40

Drugs & Pharmaceuticals 378 5.18 266 4.93 235 3.63

Paper & Paper Products 255 3.50 197 3.64 193 2.98

Artificial Fibres 313 4.29 158 2.93 178 2.76

Textiles 179 2.45 174 3.22 178 2.75

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As on March 31, 2001 2002 2003

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

Electronics 243 3.34 141 2.62 149 2.30

Non-Ferrous 201 2.76 80 1.49 131 2.02

Electrical Machinery 202 2.77 130 2.41 118 1.82

Sugar 140 1.92 128 2.37 108 1.67

Services 26 0.35 112 2.07 102 1.58

Ceramics & Refractories 155 2.12 96 1.77 99 1.52

Machinery 152 2.09 87 1.61 93 1.43

Services (Others) 71 0.98 71 1.31 82 1.26

Basic Industrial Cemicals 151 2.07 85 1.58 80 1.24

Other Industries 1266 17.35 623 11.55 738 11.43

Total 7292 100 5397 100 6467 100

TOP 10 NON PERFORMING ASSETS AS ON 31.3.2003 (Rs. crore)

Sl. Name of the Gross o/s Net o/s* I n d u s t r y No company

1 Borrower 1 743 669 IRON & STEEL2 Borrower 2 383 345 VEHICLES3 Borrower 3 392 274 IRON & STEEL4 Borrower 4 138 96 IRON & STEEL5 Borrower 5 100 80 SERVICES6 Borrower 6 114 80 CHEMICALS7 Borrower 7 82 74 COTTON TEXTILES8 Borrower 8 77 69 NON FERROUS9 Borrower 9 76 69 COTTON TEXTILES10 Borrower 10 76 69 PLASTIC & PLASTIC GOODS

*Net of write off/provision

NPA STRATEGYAsset QualityIDBI is focusing on quality lending. It has developed sophisticated credit analysis and loan monitoring system. IDBI hasbeen following a well formulated conservative accounting policy regarding income recognition even before RBIguidelines on the above subject were prescribed. IDBI has strictly followed RBI’s guidelines for asset classification,income recognition and provisioning. As on March 31, 2003, IDBI’s standard assets constituted 85.80% of loanportfolio.

IDBI has initiated several measures for containment of NPAs. The Bank has set up Close Monitoring Cells (CMCs)for constantly monitoring the performance of assisted companies to improve recovery and initiate timely remedialaction. Further Restructuring Committees (RCs) have been set up in various zones to tackle NPAs. The RCs lookinto the long term viability of the projects and recommend restructuring schemes to various delegated authorities. Forexpeditious decision-making Empowered Committee and High Powered Committee have been set up. IDBI is alsocurrently in the process of fine-tuning a comprehensive recovery policy, which would help in efficient management ofits efforts as also standardisation of the systems and procedures across departments and offices.

The composition and functions of the High Powered Committee and the Empowered Committee are as follows:

1. High Powered CommitteeThe Board of IDBI has constituted a High Powered Committee headed by CMD and all the Executive Directorsas members. This committee deals with restructuring and one- time settlement cases of large size.

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2. Empowered CommitteeThe Empowered Committee headed by an Executive Director with Executive Directors and Chief GeneralManagers as members has been constituted to approve restructuring and one time settlement of dues fromclients upto a certain limit.

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

THE SECURTISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OFSECURITY INTEREST (SRES) ACT, 2002

NPA containment measures adopted by IDBI as mentioned above have been further strengthened by theSecurtisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SRES) Act, 2002.The provisions of the Act are applicable to NPAs only. The Act provides legal framework for (i) securitisation offinancial assets by setting up of Securitisation Company (SC) or Reconstruction Company (RC), (ii)Reconstruction of assets through SC or RC, and (iii) foreclosure of NPA accounts. The Act provides for transferof financial asset from banks and FIs to SC or RC on mutually agreed terms and conditions notwithstandinganything contained in any other law or agreement. Under the Act, the SC and RC can effect change ofmanagement, sale or lease the business, reschedule the dues, enter into settlement of dues, take possessionof the secured assets or enforce the security interest by selling the secured assets.

The Act also gives powers to certain types of secured creditors viz. SC/RC, FIs, banks, Debenture Trusteesappointed by FIs and banks, International Finance Corporation and any other institution or Non Banking FinanceCompany (NBFC) as may be notified by Central Government to enforce their security interest in respect of NPAaccounts without going through the long and cumbersome judicial process for recovery of their dues. Salientfeatures of the provisions relating to enforcement of security interest are summarized below.

Under the Act, action for enforcement of security interest against a borrower can be taken only if there is a defaultin payment of dues and the account is classified as NPA in accordance with RBI guidelines. As a first step,secured creditor has to issue a notice to the borrower in writing calling upon him to make the full payment ofthe dues within 60 days. If the borrower fails to make the payment, the secured creditor is entitled to one or moreof the following measures to recover the dues :

Ø Taking possession of the secured assets including the right to transfer these assets by way of lease, assignmentor sale for realising the secured loans.

Ø Taking over the management of secured assets including the right to transfer these assets by way of lease,assignment or sale for realising the secured loans.

Ø Appointing any person to manage the secured assets after taking possession.Ø Advising any person who owes money because of acquiring any of the secured assets from the borrower,

to pay the money directly to the banks and institutions.

If required, the secured creditors may request the Chief Metropolitan Magistrate or District Magistrate to takepossession of part or whole of the secured assets and other related documents and forward the assets/documents to the secured creditors. The sale proceeds would first be utilized to meet all the expenses incurredin enforcement of security interest and then for payment of dues of secured creditors. The residual amountwould be paid to others in accordance with their rights and interests. In case the dues are not fully recoveredby sale of secured assets then the secured creditors may file an application to Debt Recovery Tribunal (DRT)for the remaining dues. The secured creditors are also entitled to proceed against the guarantors and sell thepledged assets independent of their action for enforcement of security interest.

As per the Act, the borrower cannot make a reference to BIFR after transfer of financial assets to SC or RC.Similarly, any pending reference before BIFR shall abate if 75% of secured creditors (in terms of amount outstanding)have taken any action to recover their dues under the Act.

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It may, thus, be observed that the Act gives wide-ranging powers to the secured creditors to recover their dues fromNPA accounts by sale of secured assets without intervention of the Court. IDBI has already taken proactive action tomake effective use of SRES Act for speedy recovery of NPA cases.

Notices under the Act have been issued to 49 defaulting borrowers as May 31, 2003 with an aggregate outstandingassistance of Rs.1588 crore. In many cases the promoters of the defaulting borrowers have approached IDBI withproposals for settlement of dues/ restructuring the assistance outstanding, which are under various stages ofnegotiation. Some companies have also made token payments. In 33 cases IDBI has sought consent of other securedcreditors for taking action under the Act and notices to these defaulting borrowers would be issued after obtaining therequisite consents and completion of necessary legal formalities. IDBI has also given consent for initiation of actionunder the Act against the defaulters to other institutions/banks in 32 cases. Identification of cases for action under theAct is a continuous process and IDBI is in the process of identifying more defaulting cases for possible action underthe Act to take maximum usage of the Act for recovery of dues out of NPAs. After the act has come in effect IDBIhas initiated action against chronic defaulters resulting in many defaulter companies willingly coming forward forsettlement of their dues, fearing initiation of action under section 13(2) of the act. However, IDBI is adopting a cautiousapproach in the mater in view of the restrictions passed by various courts in the matter. If the pending court casesare decided and clear directions are issued by the courts, the institutions and banks will be able to successfullycontain the NPAs. IDBI expects a positive result out of all these efforts. It is expected that the defaulter companieswould come forward to clear their dues, which would improve the profitability of the institution. Further, the Act wouldalso deter the presently regular borrowers from defaulting in future, thus, preventing accretion of fresh NPAs.

IDBI, in participation with ICICI Bank, SBI and some other institutions/ banks has taken steps to set up an ARC. Someof IDBI’s NPAs would be considered for transferring to the ARC, once it becomes operational.

CORPORATE DEBT RESTRUCTURING (CDR) MECHANISM

To improve the quality of its asset portfolio and arrest any deterioration, IDBI has also initiated action under CDRmechanism.

The objective of CDR is (a) to ensure timely and transparent mechanism for restructuring of corporate debtsof viable entities affected by certain internal and external factors and (b) to minimise the losses to the creditorsand other stake holders through an orderly and coordinated restructuring programme.

RBI, in terms of letter dated August 23, 2001 addressed to all the Commercial Banks and Financial Institutionscommunicated the formation of Corporate Debt Restructuring system and its implementation mechanism. Thescope of CDR frame work was enlarged by RBI vide its circular dated February 5,2003.

Eligibility Criteria

Ø The Scheme is applicable only to multiple banking accounts, syndication accounts with outstanding exposure ofnot less than Rs. 20 crore by Banks /Institutions

Ø Corporates declared as willful defaulter or who commit misfeasance will not be considered for restructuring underthe CDR system

Ø Reference to the CDR system could be triggered by one or more of the secured creditors who have minimum20 % share in either working capital or term finance or (ii) by the concerned corporate if supported by a bank/financial institution having stake as at (i) above.

CDR mechanism is expected to ensure quicker response and better co-ordination among lender so as to ensuresmooth operation by the assisted unit after adoption of a restructuring package.

Schemes Approved

FIs/Banks have submitted 73 applications to the CDR Cell. The CDR Empowered Group has approved final schemesin 40 cases involving aggregate assistance of Rs.37459 crore. Seventeen cases have been rejected by theEmpowered Group. The remaining 16 cases are in various stages of processing.

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RESOURCE MANAGEMENT

IDBI’s principal sources of outstanding funds are (i) borrowings from the Government and RBI, (ii) borrowingsby way of Government guaranteed bonds (iii) private placement and public issue of unsecured bonds (iv) marketrelated borrowings including certificates of deposit and fixed deposits, (v) foreign currency borrowings and (vi) internalgeneration.

(a) Borrowings from the GovernmentThe outstanding borrowings from the Government of India mostly represent loans from the International Bankfor Reconstruction and Development (IBRD) routed through the Government to IDBI. The loans drawn by IDBIwere repayable within 15 years from the date of agreement. As mentioned below, the outstandings under theIBRD line has been converted into a 20 year liability.

(b) Borrowings from Reserve Bank of India RBI provided resource support to certain institutions, including IDBI, out of the National Industrial Credit (Long-Term Operations) Fund [NIC (LTO) Fund] which was set up by RBI in July 1964. The assistance under theNIC(LTO) fund was provided by subscribing to bonds and debentures of the institutions as well as by grantingloans. The loans drawn by IDBI are repayable within 15 years from the date of agreement. This facility has beendiscontinued from April 1990.

As provided for in the Union Budget, GOI has since taken over IDBI’s liabilities under NIC(LTO) fund andconverted the same along with outstanding borrowings under IBRD lines of credit into a 20 year liability. Inconsideration thereof IDBI has issued unsecured bonds of Rs.2130 crore with an initial maturity period of 20years i.e. upto March 30, 2022. The amount comprises Rs.1150 crore and Rs.973 crore towards the outstandingsunder NIC(LTO) and IBRD line of credit carrying an interest rate of 8% and 11.88% respectively. The bonds carrya provision for conversion into equity or roll-over for another 20 year period after the initial maturity as may berequested by IDBI. The Govt would favourably consider foregoing interest payable on these bonds in the yearswhen IDBI’s profit is not enough to cover the interest. The bonds qualify for treatment as Tier I Capital.

(c) Government Guaranteed Rupee BondsIDBI’s Government guaranteed bonds enjoy the status of trustee securities and are also approved securitiesunder the Banking Regulation Act, 1949. The bonds are largely taken up by commercial banks and form partof their statutory liquid assets. Total outstanding as at March 31, 2003 stood at Rs.5672 crore representing11.02% of total debt. IDBI’s access to this source of finance has been gradually phased out.

(d) Public Issues and Private Placements of Unsecured BondsIn January 1992, IDBI floated its first public issue of unsecured bonds in India. The issue was successful andattracted subscriptions in excess of the target amount from over 11 lakh investors. IDBI launched its secondpublic issue of bonds in March 1993 which also elicited subscription in excess of the target amount. IDBI hasalso made eighteen more public issue of bonds under Flexi series (Flexi –1 to Flexi –18) during Feb 96 to March2003 collecting Rs.14922 crore. In addition to public issues of Bonds which are targeted mainly at retail investors,IDBI also raises funds from Banks, Institutions and wholesale investors such as, Provident Funds, CharitableTrusts etc. through private placement of bonds.

As of March 31, 2003, the outstanding amount against unsecured bonds (raised through public issues andthrough private placements) stood at Rs.34946 crore representing 67.87% of total debt.

(e) Deposits and BorrowingsTotal outstandings of CDs, fixed deposits, term money bonds and other borrowings as at March 31, 2003amounted to Rs.4565 crore representing 8.87% of total debt.

(f) Foreign Currency BondsSince 1986, IDBI has issued foreign currency bonds (denominated in Deutsche Mark, US Dollar, Japanese Yenand Swiss Francs) in the international debt markets. Total outstanding as at March 31, 2003 amounted toRs.1180 crore representing 2.29% of total debt.

(g) Multilateral and Bilateral Credits, Syndicated Loans and other foreign currency borrowingsIDBI has been borrowing in foreign currency from multilateral agencies and international banks on a regular basissince 1982. It has obtained funding from International Development Agency (IDA)/IBRD for financing varioussectors viz. small scale industries, cement, fertilisers, electronics etc. and for specific end uses like PollutionControl. With the exception of the Electronics Line and the Pollution Control Line, all IDA/IBRD credits have been

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routed through the Government of India where IDBI’s liability has been rupee denominated and the exchange riskis borne by the Government.As part of the Financial Sector Development Project Loan (USD 700 million) for the Indian Banking sector, IBRDhas routed the Modernisation and Institutional Development Loan component (USD 150 million) through IDBI foron lending to eligible banks. ADB has extended three lines of credit to IDBI, one in 1987 for on lending to smalland medium industries (USD 100 million), for Industrial Energy Efficiency Projects (USD 150 million) in1995 and for Infrastructure Projects in private sector (USD 100 million) in 2003.Over the years IDBI has also raised funds by means of syndicated loans, bilateral credits and private placements.Total outstandings under these heads as at March 31, 2003 stood at Rs.4951 crore representing 9.62% of totaldebt.

(h) Internal GenerationInternally generated funds by way of repayment of loans by borrowing companies, receipt of interest, guaranteecommissions and sale of investments in shares and bonds of companies constitute an important source offunds for IDBI.

(i) Equity IssueIn July 1995, IDBI made its first public Issue of Equity Shares. 16.8 crore equity shares of Rs 10 each were offeredto the public at a premium of Rs.120 per share for an aggregate amount of Rs 2184 crore. In addition, 1.44 croreshares were offered by the Government of India for sale at the same price, raising the total amount of the PublicIssue to Rs.2371.5 crore.

RESTRUCTURING OF LIABILITIES

In view of the difficulties faced by the certain industries viz. steel, textile, etc. IDBI has been extending relief to selectcorporates in these sectors and after examining the viability, by way of reschedulement of principal, reduction ininterest rates/ stepping-up of interest payments in line with the revised cash-flow projections. Since there is nocorresponding change in the terms of liabilities raised for financing these assets, it creates asset-liability mismatch.Declining interest rate scenario also is an added problem, as the liabilities to finance these assets have been raisedat higher cost in the range of about 11%-16%. While, wherever call options on the liabilities are available, IDBI hasbeen exercising the same, in case of other liabilities, IDBI has been discussing the issue with some of the largeinvestors for accepting prepayment at par or at lower premium. While some investors have accepted, many arereluctant to accept prepayments.

In this backdrop, the issue was taken up with the Govt. of India (GOI), to help in reducing interest cost in respect ofIDBI’s liabilities. After a series of discussions with GOI in the matter, a proposal was formulated and the same wasdiscussed at the meeting of select Banks/ Institutions convened by the Ministry of Finance, GOI on November 26 andDecember 2, 2002. It was agreed in the meeting that the liabilities of IDBI to public sector Banks/ Institutions/ UTI/ ArmyGroup Insurance Fund will be restructured from the appointed date as under:

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

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

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

The appointed date for restructuring was subsequently conveyed by GOI as March 1, 2003. In order to implement therestructuring proposal & make it administratively simpler, IDBI, after discussion with GOI, has decided to continuepaying interest at the document rate to the select Banks/Institutions, with the difference to be claimed by IDBI directlyfrom GOI. Thus, the essence of the proposal now is only reinvestment of amount on maturity at the then prevailingmarket rates for the period of original maturity, with no loss to the banks/ institutions.

All the 35 banks/ institutions, except AGIF and UTI, have approved the scheme. AGIF has opted to keep out of thescheme due to the nature of the fund and as requested by them, their entire outstanding liabilities (Rs. 710.9 cr ason March 1, 2003) have been repaid/ prepaid, at par. The matter regarding UTI’s participation is being discussedseparately with GOI.

44

The total liabilities, which will be reinvested in IDBI Bonds on maturity in terms of the scheme, aggregate to Rs.14753cr. These are falling due over the next 10 years’ period. The total liabilities which will be reinvested in FY 2003-04aggregate to Rs.2354 cr.

As mentioned earlier, IDBI would pay interest at the document rate to the select banks/institutions and claim theinterest differential between the document rate and 8% p.a. from GOI. This would have the effect of reduction ininterest cost debited to the P&L Account of IDBI. The total reduction in the interest cost for FY 2002-03 amounts toRs.354.37 cr representing the interest differential accrued/ reimbursable by GOI. The total interest differential to bereceived from GOI over the next 5 years period works out to about Rs.2500 crore. On the liquidity front, therestructuring has resulted in elongating the maturity profile of the liabilities.

DEBT OUTSTANDINGSet forth below is a summary of IDBI’s outstanding debt as at March 31, 1999 to March 31, 2003.

(Rs. crore)

As at March 31, 1999 2000 2001 2002 2003

1. Bonds and Debenturesa. Issued in India 35525 41509 42047 41762 40618b. Issued outside India 3466 2467 1771 1857 1180

2. Deposits 2092 1753 2639 3384 43303. Borrowings

a. From RBI 2000 1740 1440 0 0b. From GOI 1456 1366 1269 198 174c. from other sources

(i) Inside India 675 75 0 120 235(ii) Outside India 7754 8268 7253 6561 4951

Total 52968 57178 56419 53882 51488

Top 25 Borrowings of IDBI under various schemes as on March 31, 2003

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

Borrowing 1 1521 12.40-13.00 5-15 Yrs 11-09-1999Borrowing 2 1500 12.10-12.30 5-7 Yrs 06-01-2000Borrowing 3 1492 13.90-14.00 7-17 Yrs 16-11-1998Borrowing 4 1233 12.50-14.00 3-14 Yrs 27-03-1999Borrowing 5 1221 Libor+0.34 13 Yrs 21-01-1996Borrowing 6 1215 12.50-14.00 3-7 Yrs 11-02-1999Borrowing 7 1174 14.75-16.00 4-10 Yrs 31-01-1997Borrowing 8 1000 13.10 5 Yrs 8-09-1998Borrowing 9 871 13.75-14.00 5-7 Yrs 12-12-1998Borrowing 10 853 13.75-14.00 5-7 Yrs 07-08-1998

Borrowing 11 788 13.75-14.00 5-7 Yrs 05-10-1998

Borrowing 12 763 13.42 7 Yrs 06-10-1997

Borrowing 13 712 Libor+0.60 7 Yrs 07-04-1997

Borrowing 14 659 11.75-12.00 3-5 Yrs 04-10-2000

Borrowing 15 613 10.50-11.10 3-7 Yrs 30-03-2001

Borrowing 16 588 10.50-11.50 3-6 Yrs 05-01-2001

Borrowing 17 538 10.25-10.50 3 Yrs 02-07-2001

Borrowing 18 537 6.31 14 Yrs 30-03-1995

Borrowing 19 536 8.00-8.30 3-7 Yrs 17-01-2003

Borrowing 20 531 8.25-9.70 3-9 Yrs 25-11-2002

45

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

Borrowing 21 516 7.20-8.00 3-10 Yrs 04-03-2003

Borrowing 22 485 7.00-7.60 3-10 Yrs 25-04-2003

Borrowing 23 475 Libor+0.85 4 Yrs 17-05-2000

Borrowing 24 475 Libor+0.68 5 Yrs 19-01-2001

Borrowing 25 380 Libor+1.30 5 Yrs 20-03-2003

* In case of issues offering more than one structure / instrument, interest rate band is indicated

@ In case of issues offering more than one structure / instrument, maturity band is indicated.

Notes

• All borrowings of IDBI are unsecured in nature.

• The promoters/ directors have not given any personal guarantees for collaterally securing any borrowings.

• IDBI has not defaulted on any of its previous borrowings including the above-mentioned borrowings and hasneither sought any roll over facility on the same.

Call Option to IDBI on previous Flexibonds Public Issues/ Private Placements (March 31, 2003)

Instrument Date Amount (Rs. crore)

Flexibonds-4 Deep Discount Bonds 11.11.2005 59.72

Flexibonds-7 Deep Discount Bonds 11.09.2004 102.27

Flexibonds-11 Regular Income Bonds(Option C) 05.02.2009 47.68Regular Income Bonds(Option D) 05.02.2009 0.46

Flexibonds-15 Growing Interest Bonds 25.11.2004 1.21

Flexibonds-17 Growing Interest Bonds 04.03.2005 2.70

Omni I 2001 A RRB I 02.07.2003@ 255.30

Omni I FII C 03.10.2003@ 250.00

Omni 2002 A RRB I 14.06.2003@ 68.07

Omni 2002 B RRB III 26.09.2007 0.77

@ Call option exercised on the respective dates.

DEBT SERVICING TRACK RECORD

IDBI has a consistent record of paying principal installments and interest on all loans, bonds and deposits on duedates.

RISK MANAGEMENT

IDBI in the course of its operations is exposed to various risks like Credit Risk (mainly on account of the borrowersand other counter-parties’ inability to meet their repayment commitments), Market Risk (arising out of movement ofmarket values/interest rates impacting earning potential, fair valuation or realisable value of the portfolio), LiquidityRisk (impacts capacity to raise necessary funds to meet debt servicing requirements and disbursements), ExchangeRisk (arising from movement of exchange rates of foreign currency) and Operational Risk (includes risks arising fromoperational processes including technology, manpower, procedures etc,.). The risk philosophy of the Bank is guidedby the twin objectives of enhancement of shareholder value and optimum allocation of capital.

RISK MANAGEMENT PROCESS

Credit Risk

The credit risk is assessed as a part of project appraisal, which considers various parameters. Management, trackrecord of the promoters and the company, technology, overall capacity, demand and supply scenario, competitors,industry environment etc are assessed to evaluate the credit risk which will in turn decide the assistance level andthe spread chargeable (credit spread) over the bench mark interest rate. While the appraisal system assesses theCredit Risk quality, exposure limits set for individual companies, groups and industries facilitate limiting credit riskquantity. IDBI also has a 10 point grading system of Health codes for its borrowers. Further, IDBI has a data base ofits borrowers which is updated regularly.

46

Credit risk management both at the transaction level as well as at the portfolio level, aims at building up sound assetquality and long-term profitability of the institution and encompasses activities like risk identification, risk measurement,risk mitigation and risk-based pricing.

The IDBI Board, in August 2000, approved the proposed implementation of a Credit Risk Management System (CRMS)in IDBI within a period of three years. Pursuant to the above decision, to manage the credit risk pro-actively, a RiskManagement Committee (RMC) was set up in the Bank. The RMC, comprising senior executives of the Bank,enunciates the overall risk philosophy of the Bank, lays down strategies and policies in accordance with the formerand reviews progress of implementation of the risk management framework. A Credit Risk Management Group(CRMG) has also been set up to establish a credit rating system suited to the business of IDBI and the Bank’s specificrequirements and eventually to put a Credit Risk Management System in place.

Risk identification and evaluation is done at the credit sanctioning stage itself. IDBI has in house experience andexpertise in appraisal of projects. The appraisal techniques are continuously reviewed and upgraded to take intoaccount the knowledge acquired and experience of project implementation as also the changing complexities of theeconomic scenario. All sanctions are committee based to ensure better discussion / evaluation. A senior officer fromRisk Management Group attends Credit Committee meetings to provide independent risk evaluation inputs, to facilitateappropriate credit decisions. As risk mitigation measures, exposure limits are set for individual corporates, corporategroups and industries. The exposure norms have recently been revised. The new norms have been designed to havean in built check against exposure to companies / groups / industries. Besides, project specific risk mitigationcovenants are incorporated in the terms and conditions of loans. The risk perception also gets reflected in pricing,within the constraints of competition.

Market Risk

The market risk arises from movement in market values including interest rate levels which in turn may be impactedby various economic and political factors, change in policies/regulatory framework etc. Movement in market rates willhave an impact on the fair valuation/realisability of adequate returns on the portfolio including investments inGovernment securities, corporate bonds, equities, etc. IDBI addresses this risk through the continuous evaluation ofmovement in market rates, analysis of past trends, stress test through rate shocks, scenario analysis etc. IDBI hasa separate group for assessment of interest rate risk on a continuous basis. Further, the interest rate on lending isfixed on the date of each disbursement which to a great extent limits the risk as compared to earlier practice of fixingthe lending rate at the time of sanction.

Liquidity Risk

IDBI will be exposed to the liquidity risk in case of low market liquidity which may in turn result in IDBI not being ableto raise necessary funds from the market to meet its operational/debt servicing requirements. As IDBI’s asset portfoliomatures faster than the liability portfolio (while assets have periodic repayment of principal, major portion of liabilitieshave bullet repayments) the cash flows are relatively favourable. The borrowing is also timed considering the overallmarket liquidity apart from requirement of funds. IDBI maintains a reasonable level of investment in liquid securitieswhich could be encashed at short notice.

Exchange Risk

IDBI has a portion of its assets and liabilities contracted in foreign currencies. As a matter of policy, IDBI maintainsa currency wise matching of assets and liabilities. IDBI makes foreign currency loans on terms that are similar toits foreign currency borrowings thereby transferring the foreign exchange risk to the borrower. In case of certainforeign currency borrowings that were on lent, in the past, in rupee equivalents under the Exchange RiskAdministration Scheme (ERAS), the Government of India bearing foreign exchange risk on these borrowings pursuantto certain agreements between IDBI and Government of India. The scheme has been foreclosed as on January 31,2003. IDBI’s foreign currency cash balances are generally maintained abroad in currencies matching with theunderlying borrowings. IDBI also operates a USD denominated Single Currency Pool (SCP) and the interest rate risksunder SCP are hedged through basis swaps. Therefore IDBI is not exposed to any risk of foreign exchangefluctuations.

Operational RiskInternal Audit Department of IDBI conducts periodic operational audit and suggests procedures for improving thesystems, procedures, documentation, etc. so as to mitigate operational risk. IDBI periodically reviews its systems andprocedures through internal groups or with the help of outside consultants. IDBI Treasury Operations have beencertified under ISO 9002.

47

Asset & Liability Management (ALM)With progressive financial deregulation, especially after the financial sector reforms of 1991, there has been a gradualenlargement of the Bank’s exposure to market risks. IDBI recognizes that these market risks, mainly interest rate,liquidity and foreign exchange need to be measured, monitored and managed. IDBI has an Asset Liability ManagementCommittee (ALCO) to manage market risks in a coordinated manner. With a view to further refine the market riskmanagement systems, IDBI has with the approval of its Board defined the ALM policies, charter and procedures, takinginto account the best practices followed internationally. The Bank has also defined its market risk philosophy and hasspecified ALM policies and charter, tolerance levels, monitoring and reporting systems etc. in terms of the operationalguidelines issued by RBI in December 1999. IDBI has been preparing Liquidity Gap Reports for liquidity riskmanagement and Interest Rate Sensitivity Reports as also Duration and Modified Duration to control the impact on NetInterest Income (NII) and Economic Value of Equity (EVE).

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

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

Liabilities1. Capital 654 0 0 0 654 6542. Reserves and Surplus 6325 0 0 0 6325 63253. Notes,Bonds & Debentures 40594 4906 12475 3955 19259 405944. Deposits 4329 2446 832 835 216 43295. Borrowings 6564 1674 2851 1290 748 65646. Current Liabilities & Provisions 4650 3259 448 93 850 4650

A. Total 63116 12284 16606 6173 28052 63116

Assets

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

Gap (B-A) 1303 (1640) 4802 (4465)

Cumulative gap 1303 (337) 4465 0

As can be observed from the Table on Maturity profile of Assets and Liabilities given above there are negative gaps ofRs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years time bucket. However, the maturitybuckets upto 1 year and over 3 years to 5 years have positive gaps of Rs.1303 crore and Rs.4801 crore. On cumulativebasis, there is negative gap in only over 1 to 3 years time bucket amounting to Rs.337 crore. This situation has arisenbecause the balance sheet of IDBI is Assets sensitive and the assets are maturing faster than liabilities. The statementdoes not take into account the effect of relending of these repayments from clients and fresh borrowings in future. Any gapresulting in any of the maturity buckets at any future date will be managed dynamically through suitable structuring ofmaturity profile of investment products and the asset portfolio.

48

FINANCIALS

CASH FLOW STATEMENT

The Cash Flow Statement of IDBI for the last two years is set out below: (Rs. Crore)

Year ended March 31, 2002 2003

Cash flow from Operating Activities

Net Profit before tax and extraordinary items 414.91 455.61Adjustments for:(Profit)/Loss on sale of investments (Net) (277.98) (419.45)Depreciation 223.03 198.59Discount/Expenses on Bond Issues written off 459.89 203.53Provisions/write-offs of Loans/Investments & other provisions 3272.87 1109.70Withdrawn from Reserve u/s 36(1)(viii) of IT Act (2500.26) 0.00Deferred Tax credit 19.38 38.16Interest credited to Staff Welfare Fund/other Funds 3.40 3.43Operating profit before Working Capital changes 1615.25 1589.57Adjustments for:Other Assets (17.19) (132.63)Current Liabilities 931.47 (1059.32)Net Deferred Tax Liabilities withdrawn from Reserves (293.35) 0.00Cash generated from operations 2236.18 397.62Payment of Income Tax/ Interest Tax (159.08) (242.07)Net Cash Flow from Operating Activities 2077.10 155.55B. Cash Flow from Investing ActivitiesPurchase of/Advance towards Fixed Assets (84.84) (32.31)Addition to Investments [adjusted for application money] (311.67) 703.83(Net of Sale /Redemption of Investments)Net Cash (used in)/raised from Investing Activities (396.51) 671.52C. Cash Flow from Financing ActivitiesReduction in share capital 0 0Decrease in share premium 0 0Reduction in premium on bond issue 0 0Loans borrowed (net of repayments made) (2931.63) (2524.65)Application money in respect of Flexibonds/unsecured bonds (4.47) 29.19Loans lent, Bills discounted and rediscounted 952.05 1372.58(net of repayments received)Receipts from borrowers pending appropriation (60.07) (21.84)Purchase of / advance towards assets for leasing 60.33 38.39Dividend paid on Equity Shares & tax on dividend (323.91) (97.92)

Expenditure out of Staff Welfare Fund (2.87) (11.42)

Increase in reserve fund - capital reserve on account of forfeiture 0 0

Transfer from Reserve Fund to Provision/TDB 0 0

Sub-total (2310.57) (1215.67)

49

Year ended March 31, 2002 2003

Sub-total (2310.57) (1215.67)

Adjustments for:

ADB and ERAS exchange fluctuation 83.97 42.27

Difference in exchange on sale of foreign currency to RBI 0 0(to be adjusted on repurchase)

Write back to Investment Equalisation Reserve 0 0

Receipts from borrowers in advance (502.87) (105.33)

Swap Adjustment account 6.60 (167.56)

Net cash (used in)/raised from Financing Activities (2722.87) (1446.29)

Net increase in Cash and Cash Equivalents (1042.27) (619.22)

Opening Cash and Cash Equivalents 3038.81 1996.54

Closing Cash and Cash Equivalents @ 1996.54 1377.32

@ Includes balance in call lending account Rs. 214.35 crore (previous year Rs.135.91 crore) and short term fundsunder BRS Rs.NIL crore(previous year Rs.20.00 crores).Figures for the previous period have been regrouped wherever considered necessary.

BALANCE SHEETThe Table below presents the summarized Balance Sheet of IDBI as at March 31, 1999 - March 31, 2003 and asat September 30, 2003. (Rs. Crore)

As at March 31, 1999 2000 2001 2002 2003 Sept 30,2003

Cash and Bank Balances 4193 1608 2365 1841 1163 1251Investments 7853 9617 9709 10607 10180 14766Loans and Advances 47339 50763 51606 47429 45569 42973Bills of Exchange and 2336 2111 1443 985 613 467Promissory NotesPremises 296 310 302 295 292 296Other Fixed Assets 1143 1283 1349 1193 993 860Other Assets 5983 6594 5009 4293 4306 4207Total Assets 69143 72285 71783 66643 63116 64820

Current Liabilities and Provisions 7210 5889 6202 6066 4650 4537Borrowings 11885 11449 9963 6879 5360 5200Deposits 2092 1753 2639 3384 4330 4094Bonds and Debentures 38990 43976 43817 43619 41798 43834Total Liabilities 60177 63067 62621 59948 56138 57665(Excluding Capital & Reserve)

Equity Capital 660 660 653 653 653 653Reserves, Funds and Surplus 8306 8558 8509 6042 6325 6507Total Capital and Reserves 8966 9218 9162 6695 6978 7155Total Liabilities, Capital 69143 72285 71783 66643 63116 64820and ReservesBook Value per Equity Share (Rs) 129.2 134.1 139.8 101.9 106.4 109.1

50

PROFIT AND LOSS ACCOUNTS

The Table below presents the Profit and Loss Account of IDBI for the years ended March 31, 1999 toMarch 31, 2003 and for the half year ended September 30, 2003. (Rs. crore)

Year ended March 31 1999 2000 2001 2002 2003 April -Sept. 2003

A. INCOME FROM OPERATIONS*

Interest and Discount Income 6359 6225 6191 5862 5219 2103

Income from investments 694 818 757 761 516 337

Commission and Brokerage etc 176 194 188 130 73 28

Net profit on sale of investments 62 382 535 278 419 291

Other income 173 240 164 145 144 46

Total Income 7464 7859 7835 7176 6371 2805

B. EXPENDITUREInterest on deposits, 5725 6370 6595 6250 5434 2831borrowings, etc.Establishment Expenses 76 74 84 117 95 54Accelerated write-off of Badand Doubtful Debts 2500Less : Withdrawn from Special (2500)Reserve u/s 36(1)(viii) of IT ActDepreciation 200 213 230 223 199 89Other Expenditure 162 175 192 171 188 84Total Expenditure 6163 6833 7101 6761 5916 2608Net Profit (NP) before Tax 1301 1027 734 415 455 197and Extraordinary itemsLess : Provision for Tax 75 80 43 (10) (92) (39)Add : Deferred Tax Credit/(Debit) – – – 19 38 18NP before Extraordinary items 1226 947 691 424 401 176Extra-ordinary items ** 33 – – – – -Net Profit as per 1259 947 691 424 401 176Audited AccountsPrior period items 4 (3) (3) (13) – (7)Diminution in value of investments – – 68 – – -Adjusted Profit After Tax 1263 944 756 411 401 169

The above figures have been rounded off to the nearest crore.

* after meeting of bad debts and making provisions for bad and doubtful debts and other necessary and expedient provisions.

** write back of excess income/interest tax provision/lease equalisation adj.

Notes to Adjustments1. In line with the audited accounts adjustments to profits in respect of the following have been considered:

• material amounts relating to previous years although events triggering off the profit/loss accrued in a subsequentyear

• extraordinary items and• changes in accounting policies• prior period items are required to be done as per the SEBI guidelines in respect of only those items which are

disclosed in the audited financial statements.

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ACTIVITYWISE BREAKUP OF REVENUE – FY 2003

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2003

The consolidated Balance Sheet of IDBI and its subsidiaries is given below (Rs. Crore)

L I A B I L I T I E S

1. Share Capital

Authorised

Equity Shares 1500.00

Redeemable Preference Shares 500.00 2000.00Issued and paid up

65 28 30 400 Equity Shares of Rs.10 each 652.83

2. Reserves, Funds and Surplus 6796.02

3. Bonds and Debentures

Tier I Bonds 2130.50

Tier II Bonds 3651.13

Other Bonds and Debentures 36181.33 41962.96

4. Deposits 10362.21

5. Borrowings 8461.42

6. Current Liabilities and Provisions 5147.63

7. Minority Interest 152.96

TOTAL 73536.03

A S S E T S

1. Cash and Bank Balances 1881.89

2. Investments 12296.16

3. Loans and Advances 48868.84

4. Bills of Exchange and PromissoryNotes Discounted/Rediscounted 1477.64

5. Premises(At cost less depreciation) 316.63

6. Other Fixed Assets(At cost less depreciation) 1138.93

7. Other Assets 7555.94

TOTAL 73536.03

Interest and Discount Income

82%

Other income2%

Net profit on sale of investments

7%

Commission and Brokerage etc

1%

Income from investments

8%

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CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2003

The consolidated Profit & Loss a/c of IDBI for the year ended March 31, 2003 and its subsidiaries isgiven belowINCOME (Less provisions made during the year for bad and doubtful (Rs. Crore) debts and other necessary and expedient provisions)

1. Interest and Discount etc. 5534.66

2. Income from Investments 1068.08

3. Commission, Brokerage,etc. 156.90

4. Net Gain on sale of investments (not credited to Reserves orany particular fund or account) 464.77

5. Other Income 200.63

TOTAL INCOME 7425.04

EXPENDITURE

1 Interest paid on Deposits,Borrowings,etc., 5947.51

2 Establishment Expenses 156.38

3 Directors’ & Executive Committee Members’ Fees and Expenses 0.22

4 Auditors’ Fees 0.32

5 Rent,Taxes,Insurance,Lighting, etc. 53.77

6 Law Charges 7.22

7 Postage,Telegrams & Stamps 16.62

8 Stationery,Printing,Advertisement,etc. 28.31

9 Accelerated write-off of bad and doubtful debts 2500.26

Less : Withdrawn from Special Reserve u/s 36(1) (2500.26)(viii) of IT Act, 1961

10 Depreciation / Amortisation 42.48

11 Depreciation on Leased assets 184.51

12 Other Expenditure 210.43

TOTAL 6647.77

Profit before Tax and Extraordinary Items 777.27Less : Provision for Income Tax (275.09)Add : Deferred Tax Credit 41.30

NET PROFIT 543.48

KEY RATIOSSr Year ended March 31, 1999 2000 2001 2002 2003No

Profitability and Efficiency Ratios1 Average cost of funds (%) 9.0 9.2 9.3 9.2 8.52 Average cost of loan funds (%) 11.8 11.8 11.8 11.5 10.53 Return on average assets (%) 11.6 11.1 10.9 10.4 9.84 Return on average net worth (%) 15.1 10.7 7.3 5.4 5.95 Standard assets to total assets (%) 88.0 86.6 85.2 88.36 85.86 Average income earning assets (Rs.Cr) 58611 64071 64657 62996 602447 Average interest earning assets (Rs.Cr) 51170 55691 57285 55969 52170

8 Average interest bearing liabilities (Rs.Cr) 49244 55073 56799 55151 52685

9 Gross Interest Income (Rs.Cr) 7162 7439 7775 7174 6640

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Sr Year ended March 31, 1999 2000 2001 2002 2003No

10 Net Interest Income (Rs.Cr) 6851 6665 6782 6401 5531

11 Net Profit Margin (%) 2.0 1.3 1.0 0.6 0.6

12 Margin (%) (3-1) 2.6 1.9 1.6 1.2 1.3

13 % of avg. int. earning assets to avg. 103.9 101.1 100.86 101.48 99.02int. bearing liabilities (7/8 %)

14 Interest expense apportioned to 6042 6555 6782 6441 5489interest earning assets ( Rs. crore)

15 Net Interest income based on apportioned 1120 884 993 733 1151interest expense ( Rs.crore) (9-14)

16 Net interest margin ( 15/ 7 %) 2.2 1.6 1.7 1.3 2.2

Profitability and Efficiency Ratios

17 Gross yield (9/7 %) 14.0 13.4 13.6 12.8 12.7

18 Yield spread ( 17-2)% 2.2 1.6 1.7 1.3 2.219 Average share capital and reserves to

average total assets(%) 12.9 12.5 12.6 11.4 10.4Capital Ratios

20 Average shareholders’ equity toaverage assets (%) 12.9 12.5 12.6 12.9 13.7

21 Debt to Equity 6.5 6.8 6.7 8.7# 7.9#

22 Capital Adequacy Ratio (%) 12.7 14.5 15.8 17.9 18.723 Debt Service Coverage ratio(%) @ 1.2 1.3 1.6 1.6 1.224 Notional Debt Service Coverage ratio(%) * @ 1.2 1.2 1.5 1.6 1.2

Growth Ratios25 Total assets (%) 15 4 (0.7) (7.2) (5.3)26 Direct Assistance Portfolio (%) 15 8 8.4 (0.8) (5.1)27 Net worth (%) 9 4 1.1 (27.9) (20.9)28 Earnings per Equity Share 18.7 14.1 9.4 6.5 6.2

(based on Net Profit as per Audited Accounts)29 Earnings per Equity Share

(calculated based on Adjusted Profit after tax) 18.8 14 10.3 6.3 6.2

# As per SEBI guidelines, in case of bonds convertible at the option of investors 50% of the amount is to be treated asDebt (and the balance 50% as equity). The DER on that basis would be 6.3. However, these bonds are convertible atthe request of IDBI (issuer) and not only at the option of GOI (investor).@ DSCR and NDSCR has been calculated after excluding prepayments made by IDBI during the year byexercising call option.* Notional Debt Service Coverage Ratio (NDSCR) is computed as follows :

Net Profit after tax+ interest & principal instalment on loans+non-cash profitsNDSCR = ————————————————————————————————————————————————————————————————————————- -————————- -———————————————

Interest on borrowings+ principal instalments on loans+ apportioned principal instalment during the year on bonds

Rs.401 cr + Rs.14407 cr + Rs.481 cr Rs.15289 cr = ——————————————————————————————————————————————— = —————————————— = 1.2 Rs.5863 cr + Rs.6637 cr + Rs.36 cr Rs.12536 cr

Average balances are the average of outstandings at the end of the year and at the end of the previous year.All ratios are computed after making adjustments towards items reflected in the part titled “Adjustments resulting

54

from audit qualifications, material amounts relating to adjustments for previous years and changes in accountingpolicies”, of the Auditors Report and this does not take into account consequential adjustments to the Balance Sheet.

All ratios are rounded off to a single decimal place.

Notes to ratios above alongwith reference serial no.

(1) Average Cost of Funds is interest and financial cost as a percentage of the average of total liabilities.(2) Average cost of loan funds is ratio of interest and financial expenses to average borrowings.(3) Return on Average Assets is total income net of provisions and write offs, as a percentage of the average of

total assets.(4) Return on average net worth is Adjusted Profit after tax less dividend on Preference Shares as a percentage

of average net worth (excluding earmarked reserves).(5) Standard assets are assets in respect of which no interest payment/ principal repayment is overdue beyond 180

days.(6) Average Income Earning Assets represent average of total assets less non-income earning assets.(7) Average interest earning assets consist of average loan assets + bill finance + debentures + equipment leasing.(9) Interest income before write-offs and provisions.(10) Interest income consists of income from interest earning assets(11) Net Profit Margin is Adjusted Profit after tax as a percentage of average Assets(14) Interest expense include financial expenses on borrowings(21) Debt Equity Ratio is total borrowings plus contingent liability on account of guarantees issued as a proportion

of net worth less earmarked reserves.(22) Capital Adequacy Ratio is as per RBI’s circular dated March 29, 1994 and related subsequent guidelines.

Desired v/s Actual Ratios (As on March 31, 2003)

Ratios Desired Actual

Notional Debt Service Coverage Ratio@ 1.2 1.2

Debt Equity Ratio 12:1 7.9:1#

Capital Adequacy Ratio 9 18.7

All ratios are rounded off to a single decimal place.# As per SEBI guidelines, in case of bonds convertible at the option of investors 50% of the amount is to be treated asDebt (and the balance 50% as equity). The DER on that basis would be 6.3:1. However, these bonds are convertible atthe request of IDBI (issuer) and not only at the option of GOI (investor).

@ NDSCR has been calculated after excluding prepayments made by IDBI during the year by exercising call option.

Capital Adequacy Ratio as on March 31, 2003

(a) Capital to Risk weighted Asset Ratio (CRAR) 18.72%Core CRAR 14.08%Supplementary CRAR 4.64%

(b) The amount of subordinated debt raised and outstanding as Tier II capital Rs.3481.13 crore (c) Risk weighted assets

Balance sheet items Rs.57559.95 croreOff-Balance sheet items Rs. 3406.62 crore

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AVERAGE BALANCES AND AVERAGE INTEREST RATESThe average Balances and average interest rates for the last three years is given in the table below.

March 31, 2001 March 31, 2002 March 31, 2003Avg Interest Avg Avg Interest Avg Avg Interest AvgBal Rate Bal Rate Bal Rate

(Rs.Cr) (Rs.Cr) (%) (Rs.Cr) (Rs.Cr) (%) (Rs.Cr) (Rs.Cr) (%)

ASSETSRupee loans 48253 6001 12.44 49396 6017 12.18 46070 5196 11.28FC loans 9032 781 8.64 6573 384 5.85 6100 335 5.49

Total assets 57285 6782 11.84 55969 6401 11.44 52170 5531 10.60

LIABILITIESRe borrowings 46920 5968 12.72 46429 5955 12.82 45411 5314 11.70GOI 1318 196 11.06 734 137 18.66 186 14 7.57SLR & other Govt.guaranteed bonds 7715 907 11.76 7005 837 11.94 6119 669 10.94Other Borrowings 37886 4915 12.97 38690 4981 12.87 39106 4631 11.84FC borrowings 9879 756 7.65 8721 392 4.50 7274 229 3.14

Total liabilities 56799 6724 11.84 55151 6347 11.51 52685 5543 10.52

• Average balances are the average of outstandings at the end of the year and at the end of the previous year.

DETAILS OF FIXED AND FLOATING RATE ASSETS AND LIABILITIES (Rs.Crore)

As on March 31, 2003 Assets* Liabilities#

Fixed Floating Total Fixed Floating Total

Rupee 47504 464 47968 45342 16 45357Foreign Currency 348 5763 6112 592 5538 6130Total 47853 6227 54080 45934 5554 51488

* Total assets less Fixed assets, investments in equity & MF units, Cash and Current a/c balances.# Total outstanding debt.

MANAGEMENT DISCUSSION

The following discussion and analysis should be read in conjunction with the IDBI’s audited financial statements andrelated notes which appear therein.

Result of Operations for the half year ended September 30, 2003 compared with the half year endedSeptember 30, 2002

IDBI’s total income during April-September 2003 was Rs.2805 crore as against Rs.3315 crore during April-September2002. Total expenditure before depreciation and tax decreased to Rs.2519 crore from Rs.3066 crore during the sameperiod in the previous year. Gross Profit (after interest but before depreciation and tax) amounted to Rs.286 crore asagainst Rs.249 crore during April-September 2002. After making provisions for depreciation and tax (net of deferredtax) of Rs.89 crore and Rs.21 crore respectively, Profit after Tax for the half year ended September 30, 2003 stoodat Rs.176 crore as against Rs.152 crore during the corresponding period of the previous fiscal year. Aggregate assetsof the Bank as on September 30, 2003 decreased by 0.9% to Rs.64820 crore over Rs.65417 crore as on September30, 2002.

Result of Operations for the year ended March 31, 2003 compared to the year ended March 31, 2002

IDBI’s total income during April-March 2003 was Rs.6371 crore as against Rs.7176 crore during April-March 2002.Total expenditure before depreciation and tax decreased to Rs.5717 crore from Rs.6538 crore during the same periodin the previous year i.e. by Rs.821 crores mainly due to interest cost on loan funds. Gross Profit (after interest butbefore depreciation and tax) amounted to Rs.654 crore as against Rs.638 crore during April-March 2002. After makingprovisions for depreciation and tax of Rs.199 crore and Rs.92 crore respectively and also after taking into accountdeferred tax credit of Rs.38 crore, Profit after Tax for the year ended March 31, 2003 stood at Rs.401 crore as againstRs.424 crore during the corresponding period of the previous fiscal year. Aggregate assets of the Bank as on March31, 2003 decreased by 5.3% to Rs.63116 crore over Rs.66643 crore as on March 31, 2002.

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Result of Operations for the year ended March 31, 2002 compared to the year ended March 31, 2001

IDBI’s total income during April-Mar 2002 was Rs.7176 crore as against Rs.7835 crore during April-Mar 2001. Totalexpenditure before depreciation and tax decreased to Rs.6538 crore from Rs.6871 crore during the same period inthe previous year i.e. by Rs.333 crore mainly due to interest cost on loan funds. Gross Profit (after interest but beforedepreciation and tax) amounted to Rs.638 crore as against Rs.964 crore during April-Mar 2001. After makingprovisions for depreciation and tax of Rs.223 crore and Rs.10 crore respectively and also after taking into accountdeferred tax credit of Rs.19 crore, Profit after Tax for the year ended March 31, 2002 stood at Rs.424 crore as againstRs.691 crore during the corresponding period of the previous fiscal. Aggregate assets of the Bank as on March 31,2002 decreased by 7.2% to Rs.66643 crore over Rs.71783 crore as on March 31, 2001.

Result of Operations for the year ended March 31, 2001 compared with year ended March 31, 2000

Interest and discount income during the year ended March 31, 2001 amounted to Rs.6191 crore compared withRs.6225 crore for the previous year (a decrease of 0.5%) IDBI’s portfolio of loans and advances, bills ofexchange and promissory notes discounted or rediscounted decreased at a rate of 3.96% (from Rs.52874 croreto Rs 50779 crore) Income from investments amounted to Rs.757 crore compared to Rs.818 crore in theprevious year, a decrease of 7.5%. Commision and brokerage income during the year ended March 31, 2001was Rs. 188 crore compared to Rs.194 crore earned during the year ended March 31, 2000 (a decrease of3.1%). Net gain on sale of investments at Rs.535 crore was higher by 40% compared to Rs.382 crore realisedin the previous year. Other income was Rs.164 crore compared to Rs.241 crore in the previous year, a decreaseof 32%. Interest paid on deposits and other borrowings during the year ended March 31, 2001 aggregatingRs.6595 crore compared to Rs.6370 crore spent during the previous year (an increase of 3.5%). The higherrate of growth in interest expense is mainly on account of rise in rupee borrowings to the extent of Rs.954 croreand repayment of low cost borrowings on maturity. Miscellaneous other expenditure (including establishmentexpenses, rent, taxes, insurance and depreciation) increased by 9.3% from Rs.463 crore to Rs.506 crore.

The resultant profit before tax was Rs.734 crore compared with Rs.1027 crore recorded during the year ended March31, 2000 (decrease of 28.5%) The provision for tax during the year ended March 31,2001 amounted to Rs.43 crore(an effective rate of 5.9%) compared with Rs.80 crore for the year ended March 31, 2000 (an effective rate of 7.8%),Total assets as at March 31, 2001 were Rs.71783 crore, a decrease of 0.7% from Rs.72285 crore as at March 31,2000.

IDBI confirms that

1. There have been no unusual or infrequent events or transactions, since the last audited financial accounts.

2. There are no significant economic changes that materially affected or are likely to materially affect income fromcontinued operations.

3. There are no known trends or uncertainties that have had or are likely to have a material adverse impact on therevenue or income from continuing operations.

4. There have been no changes in the activity of the Issuer which may have had a material effect on the statementof profit/ loss for the last five years.

TAXATION

IDBI was exempted from income tax by virtue of specific exemption granted under Sec 35 of the IDBI Act, 1964. IDBIbecame liable to pay income tax from the assessment year 1992-93 onwards, after Sec. 35 of the IDBI Act wasrepealed by Finance (No.2) Act, 1991.

The status of IDBI’s pending tax assessments and appeals as on October 31, 2003 is as follows:

INCOME TAXAssessment Year Status

1992-93 Appeal againt re-assessment is pending before CIT (A). Penalty proceedings u/s271(1)/(c) has been initiated. The demand outstanding Rs.38.91 crores.

1993-94 Appeal against the orginal assessment order and the reassessment order arepending before the CIT(A). Penalty proceedings u/s 271(1)/(c) is also pending.The demand outstanding is Rs.39.37 crores.

1994-95, 1995-96, 1996-97 Appeals are pending before the CIT(A) against the original assessment ordersand also the reassessment. Penalty proceeding u/s 271(1)(c) has ben inititatedby the AO. The demand outstanding is Rs.47.86 crores, Rs.197.2 crores andRs.54.24 crores respectively.

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Assessment Year Status

1997-98 Appeal is pending before the Income Tax appellate Tribunal against the order ofthe CIT(A) on certain issues. There is no outstanding demand. The assessmenthas been reopened.

1998-99,99-2000,2000-01 Appeals are pending before the CIT(A) against the Assessment order passed bythe AO. There is outstanding demand of Rs.210.95 crores, Rs.191.16 croresand Rs.373.14 crores respectively.

2001-02 & 2002-03 Return of income have been filed. Adequate provisions have been made tocover the income tax liability. The Assessment has not completed so far.

WEALTH TAX

Assessment Year Status

2001-2002 to 2002-03 Returns of wealth have been filed. Adequate provisions have been made tocover the wealth tax liability. The assessment have been completed so far.

INTEREST TAX

Assessment Year Status

1994-95 to 1996-97 Appeals are pending before the CIT(A) against the Assessment Orders. Thereis no outstanding demand. Assessment for these assessment years have alsobeen reopened.

1997-98 Appeal filed before ITAT against the order of CIT (A). There is no outstandingdemand. Assessment for these assessment years have been reopened

1998-99 to 2000-01 Appeals are pending before the CIT (A) against the assessment orders. Thereis no outstanding demand.

Tax provision as per books : As on October 31, 2003, the gross demand raised by the Income Tax Departmenton account of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision made isRs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which IDBI has favourabledecisions in its own case in the earlier years. Thus the amount of contingent liability on account of Tax in disputeis Rs.700.33 crore.

STATEMENT OF TAX COMPUTATION (Rs. crore)

For the year ended March 31, 2001 2002 2003

Tax at notional rate (A) 208 133 121

Tax Shelters

Permanent nature

– Deduction under Sec.36(1)(viii) 14 11 0

– Income exempt from tax 95 99 0

– Indexation Benefit – 39 30

– Reinvestment 110 0 15

Timing Difference

Difference between tax depreciation and book depreciation (1) (19) (26)

– Other adjustments 9 (9) 10

Total Tax Shelters (B) 228 121 29

Provision for Tax (A – B) (20) (12) 92

* Tax provision for year ended 31.3.2001, 31.3.2002 has been under Section 115JA/115JB of the Income TaxAct, at Rs.43 crores and Rs.10 crore respectively.

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SUBSIDIARIES

IDBI CAPITAL MARKET SERVICES LTD.

IDBI Capital Market Services Ltd (IDBI Capital), a wholly owned subsidiary of IDBI, was established in December1993 to offer a broad range of financial services. The Company’s business activities include Bond Trading, EquityBroking, Client Asset Management and Depository Services.IDBI Capital is one of the Primary Dealers accredited by the Reserve Bank of India to act as a market maker inGovernment Securities. The Company, during 2002-03, achieved an outright secondary market turnover in excessof Rs. 100000 crore in Government Securities for the second time in succession. The Company also achieved arepo turnover in excess of Rs 125000 crore during 2002-2003. The Company participated in the Securities auctionsconducted by RBI and achieved a success ratio of 45% in Government Securities and 40% in Treasury Bills (as againstthe requirement of 40%). The Company is also at the forefront in building a retail debt market in India. IDBI Capital is alsoan active institutional equity broker having memberships of both BSE and NSE. The company has also acquired Tradingand Clearing Memberships on the recently started Derivatives segment of BSE and NSE. The Company is also one of thelargest portfolio manager for pension and provident funds with assets under management presently being more than Rs26,000 crore. The Company also acts as an arranger in the private placement market for institutional and corporate debtand also markets products like equity, debt, mutual fund instruments, RBI relief bonds etc. through its nation-wide networkof sub-agents. As a Depository Participant, the Company offers its institutional and individual clients the facility tomaintain their investments in securities in electronic form.The abridged Balance Sheet and Profit and Loss Account of IDBI Capital is given below:

ABRIDGED BALANCE SHEET (Rs. crore)

As on March 31, 2001 2002 2003

Paid-up capital 100.0 150.0 200.0

Reserves & Surplus 41.5 238.2 315.4

Current liabilities & provisions (including loans) 1008.1 1606.8 2531.1

TOTAL LIABILITIES 1149.6 1995.0 3046.5

TOTAL ASSETS 1149.6 1995.0 3046.4

PROFIT AND LOSS ACCOUNT (Rs. crore)

For the year ended March 31, 2001 2002 2003

Total Income 141.2 469.9 503.9

Total Expenditure 63.6 99.8 136.5

Profit before tax 77.5 370.1 367.4

Profit after tax 45.0 234.0 228.1

EPS (Rs per share) 4.5 15.6 11.4

Book Value (Rs per share) 14.1 26.3 25.77

IDBI BANK LTD.

IDBI Bank Ltd., a new generation private sector bank, incorporated in September 1994, was set up by IDBI to offercomplete range of commercial banking products and services to corporate and retail customers. With globally skilledmanagement team, focus on technology driven retail banking and emphasis on superior credit quality, IDBI Bank hasbeen able to build a customer-centric banking franchise on the principles of profitability, growth and quality.For the year ended March 31, 2003, IDBI Bank recorded 36% growth in Net Profits to reach Rs.71.1 crores. Significantgrowth in Net Interest Income (over 40%) and Core Fees (over 75%) were the key drivers of profitability deliveringreturn on equity of 21.8%.IDBI Bank’s distribution now extends to 68 cities across 97 banking outlets and 264 ATMs serving 800,000customers. IDBI Bank’s Total Deposits grew by 15.2% in FY03 to reach Rs.6032 crore while Savings Depositsgrew by 53% at Rs.853 crores. IDBI Bank’s Customer Assets grew by 26% to cross Rs.5000 crores while RetailAssets grew 4 times to reach Rs.1608 crores.With focus on Retail Deposits (58% of Total Deposits) and Low Cost Deposits (35% of Total Deposits), IDBI Bank was

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able to reduce its Average Cost of Deposits to 5.2% in Q4FY03 – one of the lowest in the banking industry. IDBI Banknow has net NPA/ Net Customer Assets of 0.9% and Provision Cover of 76%. With net NPA/ Net Worth of about 13%,IDBI Bank’s Credit Quality is now amongst the best across banks in India.The current market price of equity shares of IDBI Bank (as on April 30, 2003 was Rs.23.65). The highest & lowestprice of shares of IDBI Bank during previous 52 weeks was Rs.36 and Rs.18 respectively of National StockExchange.The abridged Balance Sheet and Profit & Loss Account of IDBI Bank Ltd. are as follows.

BALANCE SHEET (Rs. crore)

As on March 31, 2001 2002 2003

LiabilitiesCapital 140.0 140.0 140.1Reserves & Surplus 128.1 160.9 212.4Deposits 3567.5 5234.5 6032.3Borrowings 783.6 771.4 1041.5Other Liabilities & Provisions 299.5 334.3 502.5TOTAL LIABILITIES 4918.7 6641.1 7928.7ASSETSCash and Bank Balance with RBI 266.6 363.1 600.8Balances with Banks and Money at call and short notice 124.5 355.5 101.6Investments 2524.6 2417.8 2410.9Advances 1725.0 3099.3 4325.2Fixed Assets 115.5 158.2 164.5Deferred Tax Asset – 1.3 4.5Other Assets 162.5 245.9 321.3

TOTAL ASSETS 4918.7 6641.1 7928.8

PROFIT AND LOSS ACCOUNT (Rs. crore)

For the year ended March 31, 2001 2002 2003

IncomeInterest 539.1 508.8 598.1Other Income 69.6 122.5 165.1TOTAL 608.7 631.3 763.1ExpenditureInterest expenses 437.5 365.2 396.5Operating Expenses 102.6 143.0 206.6Provisions & Contingencies 49.2 70.7 89.0Total 589.3 578.9 692.0

Profit after Tax 19.4 52.4 71.1

EPS (Rs per share) 1.38 3.74 5.08

Book Value (Rs per share) 19.51 21.49 25.17

IDBI INTECH LTD.

Business Operations :a) IDBI Intech Ltd. (INTECH) was set up as a wholly owned subsidiary of IDBI in March, 2000 to undertakeInformation Technology (IT) related activities. It is registered with Software Technology Parks of India (STPI).The authorised capital of INTECH is Rs.100 crore comprising equity share capital of Rs.75 crore and preferenceshare capital of Rs.25 crore. IDBI subscribed an amount of Rs.8.10 crore towards the equity share capital ofINTECH. IDBI has also contributed Rs.3.50 crore as advance towards share capital.b) INTECH continued to service IT needs of IDBI both in terms of Facilities Management Services (FMS) and software

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maintenance till September 2002 and January 2003 respectively. INTECH has developed and partly deliveredintegrated software for the HR and various administration activities of IDBI as well as for Fixed Deposit in single manbranches. It is proposed to integrate a new payroll module with HR and Admin. software which is expected to becompleted by June 2003.c) INTECH managed to achieve the breakthroughs in obtaining software development orders from NABARD forFinancial Accounting and from Kerala Finance Corporation for Loan Accounting, Financial Accounting andAdministration and HR. INTECH was awarded contract by Punjab National Bank for conducting acceptance testfor ATMs, Telebanking Software, Branch Automation Software, Servers, and PCs etc. on an all India basis.d) During the year INTECH has set up a 100 seats Contact Center which would commence commercialproduction in May, 2003. Initially the operations would start with 25 seats which would be increased to 100 seatsby July 2003. It is proposed to leverage the contact center operations after it is stabilised for procuring BPOassignments. INTECH has tied up with an USA based Company for providing prospect lists and telemarketingservices on mutually agreed terms and conditions.Technology Partners : INTECH has entered into Microsoft Certified Partner program and was also appointed asCISCO reseller during the year.Empanelment : INTECH was also empanelled by the following government organisations as the service provider/ITVendor.

· National Institute of Agricultural Marketing, Rajasthan· Government of Maharashtra

Quality Certification : INTECH was awarded the ISO 9001-2002 quality certification by BVQi. INTECH has alsoinitiated activities in quality process for CMM Level 3 and the certification is expected to be received by September,2003. The Company has initiated activities for ISO certification for contact center operations which is expected to becompleted by August, 2003.Future plans : Based on a review of its existing strengths and opportunities, INTECH has business plans to focuson financial sector, provide value added services through Contact Center, target international development institutionsfor financial/loan accounting system, explore opportunities in setting up WAN and related services, explore InternationalBPO opportunities through Contact Center operations etc.Summarised financial results for the year 2002-2003 : The year 2002-2003 was the second full year of effectiveoperations of the Company. During the year under review, the aggregate revenue from Sales and Services and otherincome was Rs. 613 lakh as against Rs. 785 lakh for the previous year. Substantial part of the revenue was generatedfrom the IT services provided to IDBI. The income had come down during the year under consideration asmaintenance services to IDBI were only for part of the year. Pending orders to the extent of Rs.110 lakh remained tobe executed, the income against which would be booked based on deliverables in the financial year 2003-2004. TheCompany also provided services to Delhi Financial Corporation, IREDA, SIDBI, IDBI Bank Ltd. IDBI Principal, ISIL,NABARD, Punjab National Bank, etc. The Company earned Profit before tax of Rs. 39 lakh for the year ended March31, 2003 as against Rs. 42 lakh for the year ended March 31, 2002.The abridged Balance Sheet and Profit and Loss Account of IDBI Intech Ltd. is given below:

BALANCE SHEET (Rs crore)

As on March 31, 2001 2002 2003

Paid up Equity Capital 1.60 1.60 8.10Adv Towards Share Capital 6.50 6.50 3.50Reserves & Surplus 0.10 0.32 0.48Current Liabilities & Provisions 1.33 3.61 5.21Deferred Tax Liabilities – 0.05 0.05Total Liabilities 9.53 12.08 17.34Total Assets 9.53 12.08 17.34

PROFIT & LOSS ACCOUNT (Rs crore)

For the year ended March 31, 2001 2002 2003

Total Income 2.17 7.85 6.13Total Expenditure 2.02 7.43 5.74Profit Before Tax 0.15 0.42 0.39Profit After Tax 0.11 0.26 0.20Basic EPS (Rs per share) 0.66 1.63 0.21Book Value (Rs per share) 6.13 11.95 10.59

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Outstanding Litigation and material developmentsThe outstanding litigations as on March 31, 2003 aggregate Rs.382.65 crore with respect to 226 cases. There are nooutstanding litigations involving IDBI pertaining to matters which are likely to adversely affect the operations andfinances of IDBI. Category wise breakup of the cases is given below:

(Rs.Crore)Category Number of Cases Amount involved

Suits filed by borrowers 13 320.47Suits filed by other parties 4 48.40Property disputes 3 13.57Miscellaneous cases 4 0.21Misc consumer court cases 202 *Total 226 382.65

*not quantifiable.

The claim made in these cases are being contested by IDBI and in our view, they will not have any material adverseeffect on IDBI. There are no outstanding litigations involving any of the directors of IDBI who are elected by the publicshareholders under the IDBI Act.

Save as otherwise disclosed in the Offer Document, since the date of the last audited Balance Sheet, nocircumstances have arisen which adversely affected or are likely to adversely affect IDBI’s operations or profitability,or the value of its assets, or its ability to pay its liabilities within the next twelve months.

There are 30 litigation pending as on June 15, 2003 against IDBI Bank Ltd. (a subsidiary of IDBI) involving anamount of Rs.91.53 crore.

Details of listing of IDBI and its Subsidiaries

Company Instrument Listed on

IDBI Equity BSE, NSEFlexibonds BSE, NSEOmni Bond NSE(WDM)

IDBI Bank Equity BSE, NSE, MPSE

PUBLIC ISSUES

Details of public bond issues made in the Indian capital market during last 3 years are furnished in the following table:

Year of Issue Type of Issue Amount Amount Amount Deemed Date of Rede Rating atof Issue retained outsta Date of closure mption the time

(Rs. crore) (Rs. crore) nding Allotment date of Issue

December 2001 Regular Income Bond 250 321 324 February January 5/2/2009 or 12 ‘AA+’ byFlexi-11 Growing Interest Bond 5, 2002 15, 2002 5/2/2007 CRISIL &

Money Multiplier Bond 5/4/07 or 5/5/09 ‘LAA+’Infrastructure 5/2/05-07-09 by ICRA(Tax Saving) Bond or 5/8/2005

February 2002 Regular Income Bond 250 334 334 March February 15/3/09 or 12 ‘AA+’ byFlexi-12 Growing Interest Bond 15, 2002 25, 2002 15/3/2007 CRISIL &

Retirement Bond 15/3/09 or 12 ‘LAA+’Infrastructure 15/3/05 or 09 by ICRA(Tax Saving) Bond or 15/9/2005 & ‘IndAA+’

March 2002 Regular Income Bond 250 319 332 April April 30/4/09 or 12 by FITCHFlexi-13 Money Multiplier Bond 30, 2002 10, 2002 30/9/09 or 30/11/11

Retirement Bond 30/4/09 or 12Infrastructure 30/4/05 or 07(Tax Saving) Bond or 30/11/2005

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Year of Issue Type of Issue Amount Amount Amount Deemed Date of Redemption Rating atof Issue retained outsta Date of closure date the time

(Rs. crore) (Rs. crore) nding Allotment of Issue

July 2002 Regular Income Bond 200 294 317 September August 12/9/2007 or 09 ‘AA+’ byFlexi-14 Money Multiplier Bond 12, 2002 16, 2002 12/11/07 or 12/2/10 CRISIL &

or 12/4/2012 ‘IndAA+’Retirement Bond 12/9/09 or 12 by FITCHGrowing Interest Bond 12/9/07 & ‘LAA’

by ICRA

October 2002 Infrastructure 300 520 531 November November 25/11/05 or 08Flexi-15 (tax saving) Bond 25, 2002 2, 2002 or 25/5/06 or 09

Growing Interest Bond 25/11/07Money Multiplier Bond 25/7/07 or 25/5/10 ‘AA+’ by

or 25/9/12 CRISIL &Regular Income Bond 25/11/07 or 09 ‘AA+(ind)’

November 2002 Infrastructure 250 536 536 January December 17/1/06 or 08 by FITCHFlexi-16 (tax saving) Bond 17, 2003 23, 2002 or 17/7/06 & ‘LAA’

Floating Rate Bond 17/1/06 or 08 by ICRARetirement Bond 17/1/10 or 13Regular Income Bond 17/1/10 or 13

January 2003 Infrastructure 300 515 516 January December 4/3/06 or 08Flexi-17 (tax saving) Bond 17, 2003 23, 2002 or 4/9/06 or 08

Money Multiplier Bond 4/4/10 or 4/5/12GrowingInterest Bond 4/3/08Regular Income Bond 4/3/10 or 13

March 2003 Infrastructure 350 485 485 April March 25/4/06 or 08Flexi-18 (tax saving) Bond 25, 2003 31, 2003 or 25/10/06 or 08

Money Multiplier Bond 25/10/10 or 12Fixed Option Floating Option Bond 25/4/08Regular Income Bond 25/4/10 or 13

December 2003 Infrastructure 300 * * January December 12/1/07 or 09Flexi-19 (tax saving) Bond 12, 2004 17, 2003 or 12/7/07

Money Multiplier Bond 12/1/11 or 15Retirement Bond 12/1/11 or 14Regular Income Bond 12/1/11 or 14 or 19

The total amount of liabilities as on March 31, 2003 on account of redemption of Flexibonds over the next 10years will be as follows (Rs Crore)

Years Redemption Amount

FY 2003-04 1149FY 2004-05 4032FY 2005-06 3657FY 2006-07 1415FY 2007-08 404FY 2008-09 146FY 2009-10 357FY 2010-11 12FY 2011-12 109FY 2012-13 89

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PRIVATE PLACEMENTS

Details of private placements made during the last 3 years are furnished in the following table: (Rs. Crore)

Year of Issue Type of Issue Amount Month of Rating at the time ofmobilised Allotment Issue

2000 OMNI Bonds Tier II 1500 January 2000

2000 OMNI 2000A 660 October 2000 “CARE AAA” by CARE, “AAA”

2001 OMNI 2001A 720 July 2001 by CRISIL & “Ind AAA” by FITCH

2001 FII/D 100 July 2001

2001 OMNI 2001 B 48 October 2001 ‘IndAAA’ by FITCH & ‘AA+’ byCRISIL

2002 OMNI 2002 A 212 June 2002 ‘AA+’ by CRISIL, ‘IndAA+’ by FITCH& ‘LAA+’ by ICRA

2002 OMNI 2002 B 71 September 2002 ‘AA+’ by CRISIL, ‘AA+(ind)’ by FITCH

2003 OMNI 2003 A 68 February 2003 & ‘LAA’ by ICRA

2003 OMNI 2003 B 5 March 2003

2003 OMNI 2003 C 239 August 2003

2003 OMNI 2003 D 11 December 2003

On annual review of rating CRISIL has revised the rating of all the outstanding borrowings and bonds from ‘AAA’assigned at the time of issue to ‘AA+’ in 2001. ICRA has revised the rating from ‘LAAA’ to ‘LAA+’ and further to ‘LAA’.FITCH has revised the rating from ‘IndAAA’ to ‘IndAA+’. CARE has revised the rating from ‘CARE AAA’ to ‘CARE AA+’.As IDBI is the promoter shareholder of CARE, rating of instruments of fresh borrowings of IDBI have been discontinuedas a measure of good corporate governance. CARE will, however, monitor the rating till the securities rated by it areoutstanding.

Investor GrievancesThe status report for the total number of grievances received and pending for redressal as on October 31, 2003, isgiven in the following table:

No. Nature of complaint Pending

1 Letters from SEBI 0

2 Letters from Stock Exchanges 0

3 Non-receipt of Allotment Advice/ Bond Certificate/Share Certificate/ Duplicate Certificate 0

4 Correction in Bond certificate/ other document 81

5 Change of address/ bank details etc. 63

6 Non-receipt of Brokerage /incentive 5

7 Non-receipt of Interest /dividend Warrants 0

8 Transfer related queries 0

9 Miscellaneous/ Other queries 1

Total 150

As per IGG Cell of SEBI there were 35 complaints pending as on June 30, 2003. Out of these, 25 complaints havebeen pending for more than 30 days.

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INDUSTRIAL DEVELOPMENT BANK OF INDIAHEAD OFFICE:

IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005.Tel: (022) 22189117/22161912/22164385/22151051/22183874 Fax: (022) 22188137/22180930/22181155

Grams: INDBANKIND. Website : www.idbi.com

ZONAL OFFICESIDBI, Mumbai IDBI, Calcutta IDBI, GuwahatiIDBI Tower, 5th Floor, 44, Shakespeare Sarani, G.S.Road,WTC Complex, P.B.No.16102, Guwahati 781005Cuffe Parade, Calcutta 700017, Assam.Mumbai 400005, Maharashtra WestBengal. Tel.Nos: (0361) 2529520-22Tel.No: (022) 22160696-98 Tel.Nos. (033) 22476818-20 Fax. No: (0361) 2452136Fax.No : (022) 22160785 Fax. No: (033) 22473593/22478834

IDBI, Chennai IDBI, New Delhi115 Anna Salai Indian Red Cross Soc.Saidapet, Bldg.1, Red Cross Road,Chennai 600015 P.B.No. 231,Tel.Nos: (044) 2301245/2355201-16 New Delhi 110001Fax. No: (044) 2355226/3346 Tel. Nos: (011) 23716181-84

Fax. No: (011) 23711664/23718074

IDBI, AgartalaChapala Villa, Near Circuit House,Airport Road, Kunjaban P.O.,Agartala 799006, TripuraTel. & Fax No.: (0381) 324986

IDBI, AhmedabadIDBI Complex, Nr. Lal Bungalow,Off CG Road.,Ahmedabad 380006,Tel: (079) 6563911/6564994Fax: 6400814

IDBI, AizwalP.U. Vaivenga Bldg., Tuikhuatlang,Aizwal 796001, MizoramTel. & Fax No. (0389) 325791

IDBI, BangaloreIDBI House, 58, Mission Road,Bangalore 560027, KarnatakaTel.Nos: (080) 2245047/48Fax. No: 2215194/2213166

IDBI, Bhopal6,Malviya Nagar,Near Raj Bhavan, Adj. to LIC,Bhopal 462003, Madhya PradeshTel. Nos.: (0755) 558415/555008Fax. No: 554921

IDBI, BhubaneshwarIDBI House, Janapath,Bhubaneswar 751022, Orissa.Tel.Nos: (0674) 543243/542196Fax. No: 543442

IDBI, ChandigarhS.C.O. 72-73, Sector 17-B, P.B. No. 27,Chandigarh 160017,Tel.Nos: (0172) 709691/709689/702781Fax. No: 703409

IDBI, Chennai115, Anna Salai Saidapet,P.B. No. 1306, Chennai 600 015.Tamil Nadu,Tel. Nos: (044) 235 5201-16Fax No: 235 5226/3346

IDBI, CoimbatoreStock Exchange Bldg.,683-686, Trichy Road,Coimbatore 641005. Tamil NaduTel.Nos : (0422) 310262/67Fax. No : 310257

BRANCH OFFICESIDBI, DimapurLeirauki, 1st Floor, KhemahalJunction,P.O. 173, Dimpaur 797 112,Tel.No: (03862) 25715 Fax. No.25715

IDBI, GuwahatiG.S. Road, Guwahati 781 005,A s s a m .Tel.Nos. (0361) 25295201/2/4Fax. No : 2529853

IDBI, HyderabadD.No.5-9-89/1&2,Chapel Road, P.B.No.370,Hyderabad 500001, Andhra PradeshTel.Nos: (040) 3236846/5466Fax. No 3230613

IDBI, Indore2nd Floor, Chaturvedi Mansion,26/4 Old Palasia, Agra-Mumbai Road,Indore 452001, Madhya PradeshTel. (0731) 563496/561898Fax. No.563496

IDBI, ItanagarVIP Road, Bank Tinali,Itanagar 791111, Arunachal Pradesh.Tel & Fax. No: (0360) 211436

IDBI, JaipurAnand Bhavan,1st Floor, Sansar Chandra Road,P.B.No.22, Jaipur 302001,Rajas than.Tel.No: (0141) 365327/360581-83Fax. No: 372830

IDBI, JammuOffice Block No.: O. B. 26,Grid Bhavan, 1st Floor,Rail Head Complex, Jammu 180012.Tel. No.: (0191) 474337Fax. No.: 474338

IDBI, KanpurVirendra Smriti,2nd Floor, 15/54-B Civil Lines,Kanpur 208001, Uttar PradeshTel.Nos: (0512) 2304380/2304232Fax. No: 304286

IDBI, KochiPanampilly Nagar,P.B.No.4253, Kochi 682036, KeralaTel. Nos: (0484) 2322157-58,2318889Fax. No: 2319042

IDBI, Kolkata44, Shakespeare Sarani,P.B. No. 16102,Kolkata 700 017. West Bengal.Tel.Nos. (033) 2476818-20Fax No.: 2475094

IDBI, LudhianaB-19-110/4, 2nd Floor, 203,Carnival Shopping Centre,Mall Rd, Ludhiana 141 001,Punjab.Tel.Nos.: (0161) 406541/407436Fax No.: 406541

IDBI, Mangalore3rd Floor, Siddarth Bldg.,Bal Matta Road,Mangalore 575001, Karnataka.Tel. : (0824) 444952 Fax: 447029

IDBI, Meerut222-225, Citi Centre, 2nd Floor,Begum Bridge Road,Meerut 250 001, Uttar Pradesh.Tel.& Fax : (0121) 528970

IDBI, MumbaiIDBI Tower, 12th Floor,WTC Complex,Cuffe Parade,Mumbai 400005, MaharashtraTel.No: (022) 2160696-98Fax.No : (022) 2160785

IDBI, NagpurF-1, 1st Floor, Vasant ViharComplex,6 Shankar Nagar, West High CourtRd,Nagpur - 440 010, Maharashtra.Tel & Fax : (0712) 536505

IDBI, New DelhiIndian Red Cross Soc. Bldg.,1, Red Cross Road, P.B. No. 231,New Delhi 110 001.Tel.Nos.: (011) 23716181-84Fax : 23711664/8074/6774

IDBI, PanajiEDC House, 6th Floor,Dr. Atmaram Borkar Road,Panaji 403 001, Goa.Tel. Nos.: (0832) 221453/223112Fax No.: 223401

IDBI, PatnaMaurya Centre, 1 Fraser Road,P.B.No.183, Patna 800001, Bihar.Tel.Nos: (0612) 225535/223797/225676 Fax. No: 220758

IDBI, PuneIDBI House, F.C. Road,Dnyaneshwar Paduka Chowk,Shivajinagar,Pune 411004, Maharashtra.Tel.Nos: (020) 5677481-85Fax. No: 5676132

IDBI, Rajkot201, 235, 236, Star Chamber,2nd Floor, Dr. Rajendra Prasad Road,Rajkot 360001, Gujarat.Tel.: (0281) 234904 Fax : 233453

IDBI, RanchiArjan Place, 1st Floor, 5 Main Road,Ranchi 834001, Jharkhand.Tel. Nos: (0651) 300357/208655Fax No: 300357

IDBI, ShillongSapphire House, Don Bosco Road,Laitumkrah, P.B.No.31,Shillong 793003, Meghalaya.Tel. & Fax: (0364) 224632

IDBI, ShimlaJeevan Jyoti, Lala Lajpat Rai Chowk,The Mall, P.B. No. 52,Shimla 171001, Himachal Pradesh.Tel. No.: (0177) 252948/258999Fax No: 254169

IDBI, Surat302/ Meridian Tower, 3rd Floor,Near Rajkumar Theatre,Udyan Darwaja, Ring Road,Surat 395003, Gujarat.Tel : (0261) 8342890/8348040Fax : 8342890

IDBI, Varanasi1st floor, D-64/132-K Anant Complex,Sigra, Varanasi 221010, Uttar Pradesh.Tel. Nos. : (0542) 224023/224083Fax No.: 224023

IDBI, Vijaywada3A, Alankar Complex, 3rd Floor,Gandhi Nagar,Vijaywada 520003, Andhra Pradesh.Tel. & Fax.: (0866) 571025

IDBI, Visakhapatnam13-26-2,1st Floor, Apuroopa Arcade,Jagadamba Centre,Visakhapatnam 530002, AndhraP radesh .Tel. No.: (0891) 565067Fax No.: 565267