Federal Bank Ltd

ALUVA

1. We have audited the attached Balance Sheet of THE FEDERAL BANK LIMITED, Aluvaas at 31st March 2011 and also the Profit and Loss Account of the Bank and the Cash FlowStatement annexed thereto for the year ended on that date in which are incorporated thereturns of 20 branches /offices audited by us and 737 branches / offices audited by otherauditors. These financial statements are the responsibility of the Bank's management. Ourresponsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted inIndia. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by the management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

3. The Balance Sheet and the Profit and Loss Account have been drawn up in accordancewith the provisions of Section 29 of the Banking Regulation Act, 1949, read with Section211 of the Companies Act, 1956.

4. We report that:

a) We have obtained all the information and explanations which, to the best of ourknowledge and belief, were necessary for the purpose of our audit and have found them tobe satisfactory;

b) In our opinion, the transactions of the Bank, which have come to our notice, havebeen within the powers of the Bank;

c) The returns received from the offices and branches of the Bank have been foundadequate for the purposes of our audit;

d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash FlowStatement comply with the Accounting Standards referred to in sub-section (3C) of Section211 of the Companies Act, 1956, in so far as they apply to banks;

e) The Bank's Balance Sheet and Profit and Loss Account dealt with by this report, arein agreement with the books of account and the returns;

f) In our opinion, proper books of account as required by law have been kept by theBank so far as appears from our examination of those books;

g) The reports on the accounts of the branches audited by branch auditors have beendealt with in preparing our report in the manner considered necessary by us;

h) As per information and explanation given to us, the Central Government has, tilldate, not prescribed any cess payable under Section 441A of the Companies Act,1956;

i) On the basis of written representation received from the directors as on 31st March2011 and taken on record by the Board of Directors, none of the directors is disqualifiedas on 31st March 2011 from being appointed as a director in terms of clause (g) ofsub-section (1) of Section 274 of the Companies Act, 1956.

5. Without qualifying our opinion, we draw attention to Note No.3 of Schedule 19 to thefinancial statements, which describes deferment of pension liability of the Bank to theextent of Rs. 134.72 crore pursuant to the approval granted by the Reserve Bank of Indiato the Bank vide letter no. DBOD. No.BP.BC.15896/21.04.018/2010-11 dated 08.04.2011, foravailing the exemption from application of the provisions of Accounting Standard (AS) 15 -Employee Benefits, as provided therein.

6. In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read with the Accounting policies followed by the Bank andthe notes thereon, give the information required by the Banking Regulation Act, 1949 aswell as the Companies Act, 1956, in the manner so required for the banking companies andgive a true and fair view in conformity with the accounting principles generally acceptedin India:

i) in the case of the Balance Sheet, of the state of affairs of the Bank as at 31stMarch 2011;

ii) in the case of the Profit and Loss Account, of the profit of the Bank for the yearended on that date; and

iii) in the case of the Cash Flow Statement, of the cash flows of the Bank for the yearended on that date.