IndusInd Bank Ltd

2010-11

To all Members,

The Bank's Directors have pleasure in presenting the Seventeenth Annual Report coveringbusiness and operations of the Bank, together with the audited accounts for the year endedMarch 31, 2011.

The financial performance for the year ended March 31, 2011 is summarized as under:

During the year, the Bank's deposits grew by 28.66% and advances increased by 27.32%,despite the mixed growth signals in the Indian economy and the tentative recoverywitnessed in the global outlook.

The focus during the year continued to be on increasing the earnings from core bankingbusiness and on strengthening the fee income streams.

Operating Profit (before Depreciation and Provisions and Contingencies) during the yearunder review rose by 52.46% to Rs.1,142.22 crores, from the level of Rs.749.19 crores inthe previous year.

The Bank's Net Profit, after considering necessary provisions and contingencies and allexpenses, was higher by 64.80% at Rs.577.32 crores as against Rs.350.31 crores in theprevious year.

Appropriations

The Directors recommend appropriation of profit as under:

Dividend

The Earning per Share (EPS) of the Bank has risen to Rs.13.16 during the year 2010-11from Rs.9.01 in the previous year.

Looking to the overall improvement in performance and the growth outlook for thecurrent year, the Directors recommend a dividend of Rs.2.00 per equity share of Rs.10/-each for the year ended March 31, 2011. (Dividend for the year 2009-10 was Rs.1.80 perequity share of Rs.10/- each). The Bank shall pay tax on the amount of dividend paid,which will be tax-free in the hands of the shareholders.

Financial Performance

During the year 2010-11, the Bank continued to leverage its business on the threeperformance planks of Productivity, Profitability and Efficiency, which brought about asignificant change in the year-on-year performance. There has been substantial andall-round improvement in various financial parameters during the year.

The Bank's Total Income grew by 31.98% to Rs.4,303.02 crores from Rs.3,260.47 croreslast year.

The sharp rise in profitability was the result of a healthy increase in the core incomestreams. Net Interest Income improved by 55.29% to Rs.1,376.49 crores from Rs.886.41crores while the Non-Interest Income rose to Rs.713.66 crores from Rs.553.48 crores, arise of 28.94%.

Yield on advances was marginally lower at 12.36% during the year, as against the yieldof 12.61% in 2009-10. Cost of deposits, however, decreased more sharply to 6.32% asagainst 6.82% in the previous year. Accordingly, the Net Interest Margin (NIM) rose to3.47% during the year, as compared with 2.88% in 2009-10.

Though the Bank expanded its branch network substantially to reach 300 branches asagainst 210 at the beginning of the year, higher revenue growth and better cost managementresulted in Cost / Income (Efficiency) Ratio improving to 48.25% in 2010-11 as against51.12% in 2009-10. Revenue per employee during the year improved to Rs.29.83 lakhs fromRs.26.75 lakhs in the previous year.

Quality of the Bank's assets improved further, with Net Non-Performing Assets (NetNPAs) falling to 0.28% as at March 31, 2011 from 0.50% last year. The ProvisioningCoverage Ratio (PCR) improved significantly to 72.61% as compared to 60.14% last year.

On the liabilities side, the emphasis continued to be on broadbasing the depositfranchise and on reduction in the overall cost of deposits. This task was accomplished byleveraging on the expanded branch network and the pan-India marketing setup, offeringinnovative products and service propositions, sustained promotional campaigns, andenabling customers with alternate channels like ATMs, Internet Banking, etc. Thestrengthened infrastructure was leveraged to boost the Current and Savings Account (CASA)balances to 27.15% from the level of 23.67% last year.

The Bank introduced several new products and services for its chosen client segments,through its Transaction Banking Group and Global Markets Group. Deeper understanding ofclient requirements and the ability to put technology to efficient use formed the bedrockon which new products and service propositions were created.

The Bank kept up its focus on broadbasing as well as strengthening the fee-based incomestreams, resulting in a smart growth in non-interest income. Moving forward, the Bankplans to upscale the growth momentum through further enhancements in diverse revenuestreams such as foreign exchange business, investment banking, structured trade andtreasury products, distribution of third party products like mutual funds and insurance,international remittances, bullion operations and transaction banking activities,including the depository business and the commodity market business.

Share Capital

On September 24, 2010, the Bank issued 5,00,00,000 equity shares of Rs.10/- eachthrough a Qualified Institutional Placement (QIP), at a premium of Rs.224.55 per share.During the year under review Bank allotted 53,19,195 equity shares to employees pursuantto the exercise of Options under its Employees Stock Option Scheme, 2007.

Pursuant to the above, the Paid-up Share Capital and Share Premium Account increased byRs.55.32 crores and Rs.1129.19 crores respectively.

As at March 31, 2011, the Paid-up Equity Capital of the Bank consisted of 46,57,73,835shares of Rs.10/- each, excluding forfeited shares.

Tier II Capital

In view of the Tier I capital infusion through the issue of equity shares, the Bank didnot raise any Tier II capital during the year. There is substantial headroom available tothe Bank to raise Tier II Capital in future.

Capital Adequacy

The Bank is adequately capitalized. The Capital Adequacy Ratio of the Bank, calculatedas per the New Capital Adequacy Framework (Basel II norms) of RBI, is set out below:

Ratings

Given below are some of the ratings assigned by Credit Rating Agencies to the Bank'sdeposit and borrowing programmes:

• P1+ rating for Fixed Deposits and Certificate of Deposits (upto 1 yearcontracted maturity) by CRISIL.

• 'LAA-' for Lower Tier II Subordinate Debt program and 'LA+' for Upper Tier IIBond program by ICRA.

• 'CARE AA-' for Lower Tier II Subordinate Debt program by CARE.

• 'AA-(ind)' for Lower Tier II Subordinate Debt program, 'A(ind)' for Upper TierII bond program and F1+ for Short Term program by Fitch Ratings.

Directors

Mr. R. Seshasayee was re-appointed Non-executive Chairman of the Bank in July 24,2009 for a further period of two years. Mr. Seshasayee's tenure accordingly concludes onJuly 23, 2011.

Re-appointment of Mr. Seshasayee as Non-executive Chairman of the Bank, for a furtherperiod of two years with effect from July 24, 2011 is accordingly proposed, subject toapproval of the Reserve Bank of India.

Mr. Ashok Kini and Mr. T. Anantha Narayanan, Directors, retire by rotation, andbeing eligible, have offered themselves for re-appointment.

Mr. Romesh Sobti was appointed Managing Director and CEO of the Bank w.e.f.February 1, 2008 for a period of three years. Since Mr. Sobti's tenure would conclude onJanuary 31, 2011, approval of the Members for his re-appointment was sought in the 16thAnnual General Meeting of the Bank held on June 28, 2010, subject to the approval of theReserve Bank of India.

The Bank has since received the approval from Reserve Bank of India for re-appointmentof Mr. Romesh Sobti as Managing Director and CEO for a period of three years, w.e.f.February 1, 2011, vide RBI letter dated January 13, 2011 on the terms and conditionsindicated therein.

Mr. R. Sundararaman, who had joined the Bank's Board on October 30, 2002, ceased tohold office from October 30, 2010 upon completion of the maximum permissible tenure of 8years on the Board of the Bank vide Section 10A(2A)(i) of the Banking Regulation Act,1949. The Directors wish to place on record their sincere appreciation for the valuableservices rendered by him during his tenure as Director of the Bank.

Auditors

M/s M. P. Chitale & Co., Chartered Accountants are the Auditors of the Bank andwill retire at the conclusion of the ensuing Annual General Meeting. They have beenassociated with the Bank as Statutory Auditors for the past four financial years, and arenot eligible for re-appointment in accordance with the RBI's policy of rotation andresting. The Board places on record its deep appreciation of the professional servicesrendered by M/s M. P Chitale & Co., during their association with the Bank.

M/s B S R & Co., Chartered Accountants are proposed to be appointed as theStatutory Auditors of the Bank for the year 2011-12. Members are requested to consider theappointment of M/s B S R & Co., as the Statutory Auditors of the Bank till theconclusion of the next Annual General Meeting at a remuneration to be decided by the Boardof Directors. Their appointment is subject to the approval of the Reserve Bank of India. Acertificate from M/s B S R & Co. has been received to the effect that theirappointment, if made, would be within the prescribed limits under Section 224(1) of theCompanies Act, 1956.

Auditors' Report

M/s. M. P Chitale & Co., Chartered Accountants, have audited the accounts of theBank for the year 2010-11 and their Report is annexed. There are no qualifications in theAuditors' Report.

Statutory Disclosures

Information, wherever required under the Banking Regulation Act, 1949 or the CompaniesAct, 1956 as applicable to a banking company, has been laid out in the schedules attachedand forms part of the Balance Sheet and Profit and Loss Account.

There are no material changes and commitments affecting the financial position of theBank, which have occurred between the end of the financial year 2010-11 to which theBalance Sheet relates and the date of this Report.

Considering the nature of activities as an entity in the financial services sector, theprovisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation ofenergy and technology absorption do not apply to the Bank. The Bank has, however, madeoptimum use of information technology in its operations.

The Bank had 7008 employees on its rolls as on March 31, 2011. The information requiredunder Section 217(2A) of the Companies Act, 1956 and the rules made thereunder is given inthe annexure appended hereto and forms part of this Report. In terms of Section219(1)(b)(iv) of the Companies Act, this Report and the Accounts are being sent to theshareholders excluding the aforesaid annexure. Any shareholder interested in obtaining acopy of the said annexure may write to the Company Secretary at the Registered Office ofthe Bank.

Employee Stock Option Scheme

The Bank had instituted an Employee Stock Option Scheme (ESOS) to enable its employees,including Whole-time Directors, to participate in the future growth of the Bank. Under theScheme, Options which upon exercise or conversion could give rise to the issue of a numberof shares not exceeding in the aggregate 7% of the issued equity capital of the Bank fromtime to time can be granted. The Employee Stock Option Scheme is in accordance with theSecurities and Exchange Board of India (Employee Stock Option Scheme and Employee StockPurchase Scheme) Guidelines, 1999. The eligibility and number of options to be granted toan employee is determined on the basis of criteria laid down in the Scheme and is approvedby the Compensation Committee of the Board of Directors.

An aggregate of 2,36,25,450 Options have been granted under the Scheme. Statutorydisclosures as required by the revised SEBI Guidelines on ESOS are given in the Annexureto this Report.

Corporate Governance

The Bank continues its endeavour to adopt the best prevalent Corporate Governancepractices. A separate report on the status of implementation of Corporate Governance, asrequired under Clause 49 of the Listing Agreements with the relevant Stock Exchanges, isincluded in the section on 'Corporate Governance' which forms part of this Report. M/s.Bhandari & Associates, Company Secretaries have certified that the conditions ofCorporate Governance as stipulated in Clause 49 of the Listing Agreements with the StockExchanges have been complied with by the Bank. A copy of their Certificate is alsoattached to the Section on 'Corporate Governance'.

Directors' Responsibility Statement

Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956, theDirectors hereby certify and confirm that:

(i) in the preparation of the Annual Accounts, the applicable Accounting Standards havebeen followed along with proper explanation relating to material departures;

(ii) the Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Bank as at March 31, 2011 and of the profit ofthe Bank for the year ended on that date.

(iii) the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956and Banking Regulation Act, 1949 for safeguarding the assets of the Bank and forpreventing and detecting fraud and other irregularities; and

(iv) the Annual Accounts have been prepared on a 'going concern' basis.

Acknowledgements

The Directors are grateful to the shareholders of the Bank for the trust and confidencereposed by them in the Bank.

The Directors are also grateful to the Reserve Bank of India, the Ministry of CorporateAffairs, the Securities and Exchange Board of India and the Stock Exchanges for theguidance and support extended by them to the Bank.

The Board expresses its deep sense of appreciation to all employees for their excellentperformance, strong work ethic and unswerving commitment, which qualities have contributedto the Bank's continued progress in a challenging environment.

The Board thanks its valued customers for their patronage, and looks forward to thegrowing of this mutually supportive relationship in future.

STATUTORY DISCLOSURES REGARDING ESOPS (FORMING PART OF THE DIRECTORS' REPORT FOR THEYEAR ENDED MARCH 31, 2011)

The details of employee compensation cost, method and significant assumptions usedduring the year to estimate the fair values of options, including weighted averageinformation covering risk-free interest rate, expected life, expected volatility, expecteddividends, etc. are given under Notes on Accounts (Schedule 18) of the Balance Sheet

Annexure 1