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    EXECUTIVE SUMMARY

    This project was undertaken to analyze all the sectors of company, to find out theposition in banking industry and compare it with other major bank in banking sector.

    This project is being made in order to understand the position of Axis Bank in India.

    Following are the goals of this project:

    To understand the strategies of bank.

    To understand the banking industry.

    To understand the companys functions.

    To suggest ways for improving the market share, profit margin.

    To make an effective advertising campaign.

    This report is divided into various parts according to the objective of the project:

    1. The first part of the project deals with an overview of company.

    2. The second part of the project deals with analysis of Company (FinancialAnalysis, Competitor analysis, Industry Analysis, SWOT Analysis & Ratio Analysis).

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    AXIS BANK-AN INTRODUCTION.

    Axis Bank was the first of the new private banks to have begun operations in 1994,

    after the Government of India allowed new private banks to be established. The Bank

    was promoted jointly by the Administrator of the specified undertaking of the Unit

    Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and GeneralInsurance Corporation of India (GIC) and other four PSU insurance companies, i.e.

    National Insurance Company Ltd., The New India Assurance Company Ltd., The

    Oriental Insurance Company Ltd. and United India Insurance Company Ltd.

    The Bank today is capitalized to the extent of Rs. 357.71 crore with the public holding

    (other than promoters) at 57.49%.

    The Bank's Registered Office is at Ahmedabad and its Central Office is located atMumbai. Presently, the Bank has a very wide network of more than 671 branch

    offices and Extension Counters. The Bank has a network of over 2764 ATMs

    providing 24 hrs a day banking convenience to its customers. This is one of the largest

    ATM networks in the country.

    The Bank has strengths in both retail and corporate banking and is committed toadopting the best industry practices internationally in order to achieve excellence.

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    ACHIEVEMENTS

    AXIS bank one of the biggest banks in private sector in India.As on the year endedMarch 31, 2006 the Bank had a net worth of Rs. 2872.19 crore with the public holding(other than promoters) at 56.65%. Net Profit for the year was up 44.98% to Rs 485.08crores. At the end of April 2008, the Bank has a very wide network of more than 671

    branch offices and Extension Counters. The Bank has a network of over 2764 ATMs.The Bank's Registered Office is at Ahmedabad and its Central Office is located atMumbai. Presently,

    MISION OF THE BANK

    Customer Service and Product Innovation tuned to diverse needs of individual andcorporate clientele.

    Continuous technology up gradation while maintaining human values.

    Progressive globalization and achieving international standards.

    Efficiency and effectiveness built on ethical practices.

    Values

    Customer Satisfaction through providing quality service effectively and efficiently

    Smile, it enhances your face value" is a service quality stressed on

    Periodic Customer Service Audits

    Maximization of Stakeholder

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    CURRENT SITUATION OF THE BANK

    Today, more than a century after those tentative first steps, AXIS BANK fairy tale isnot only going strong but blazing new standards, and that minuscule initial investmenthas grown by leaps and bounds to crores of rupees in wealth for AXIS BANKshareholders. The companys offerings are spread across the spectrum with service.

    Having succeeded in garnering the trust of almost one-third of Indias one billionpopulations and a strong management at the helm means axis will continue to dreambig on its path of innovation. And millions of customer will savour the results, happilyever after.

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    Types of Deposit Accounts

    While various deposit products offered by the Bank are assigned different names. The

    deposit products can be categorised broadly into the following types."Demand deposits" means a deposit received by the Bank which is withdraw able ondemand."Savings deposits" means a form of demand deposit which is subject to restrictions asto the number of withdrawals as also the amounts of withdrawals permitted by theBank during any specified period.

    " Term Deposit" means a deposit received by the Bank for a fixed period withdrawable only after the expiry of the fixed period and include deposits such asRecurring/Reinvestment Income Certificate/ Encash 24/Short term Deposits/ Fixed

    Deposits/ Monthly Income Certificate/ Quarterly Income Certificate etc.

    "Current Account" means a form of demand deposit wherefrom withdrawals areallowed any number of times depending upon the balance in the account or up to a

    particular agreed amount and will also include other deposit accounts which areneither Savings Deposit nor Term Deposit.

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    Account Opening and Operation of Deposit Accounts

    The Bank before opening any deposit account will carry out due diligence as requiredunder "Know Your Customer" (KYC) guidelines issued by RBI and or such othernorms or procedures adopted by the Bank. In the Bank, the authority to open aDeposit Account is vested in the Branch Head. In very rare case clarifications arerequired to be sought from the higher authority. However, in such unlikely event when

    the Branch Head cannot open the account and the matter has to be referred to higherauthority, the reasons for such delay would be conveyed to the customer.

    The account opening forms and other material would be provided to the prospectivedepositor by the Bank. The same will contain details of information to be furnishedand documents to be produced for verification and or for record, it is expected of theBank official opening the account, to explain the procedural formalities and providenecessary clarifications sought by the prospective depositor when he approaches foropening a deposit account.

    For deposit products like Savings Bank Account and Current Deposit Account, the

    Bank will normally stipulate certain minimum balances to be maintained as part ofterms and conditions governing operation of such accounts. Failure to maintainminimum balance in the account will attract levy of charges as specified by the Bankfrom time to time. For Saving Bank Account the Bank may also place restrictions onnumber of transactions, cash withdrawals, etc., for given period. Similarly, the Bankmay specify charges for issue of cheques books, additional statement of accounts,duplicate pass book, folio charges, etc. All such details, regarding terms andconditions for operation of the accounts and schedule of charges for various services

    provided will be communicated to the prospective depositor while opening theaccount.

    Savings Bank Accounts can be opened for eligible person / persons and certainorganizations / agencies (as advised by Reserve Bank of India (RBI) from time to time)

    Current Accounts can be opened by individuals / proprietorship firms/ partnership firms /Private and Public Limited Companies / HUFs / Associations / Societies / Trusts, etc.

    Term Deposits Accounts can be opened by individuals / proprietorship firms/ partnershipfirms / Private and Public Limited Companies / HUFs/ Associations / Societies / Trusts,

    etc. The due diligence process, while opening a deposit account will involve satisfying

    about the identity of the person, verification of address, satisfying about hisoccupation. Obtaining introduction of the prospective depositor from a personacceptable to the Bank or through self introduction by way of production of certaindocumentary evidence and obtaining recent photograph of the person/s opening /operating the account are part of due diligence process.

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    In addition to the due diligence requirements, under KYC norms the Bank is requiredby law to obtain Permanent Account Number (PAN) or General Index Register (GIR)Number or alternatively declaration in Form No. 60 or 61 as specified under theIncome Tax Act / Rules.Deposit accounts can be opened by an individual in his own name (known as accountin single name) or by more than one individual in their own names (known as JointAccount) . Savings Bank Account can also be opened by a minor jointly with natural

    guardian or with mother as the guardian (known as Minor's Account). Minors abovethe age of 12 will also be allowed to open and operate saving bank accountindependently.

    Operation of Joint Account - The Joint Account opened by more than one individualcan be operated by single individual or by more than one individual jointly. Themandate for operating the account can be modified with the consent of all accountholders. The Savings Bank Account opened by minor jointly with natural guardian /guardian can be operated by natural guardian only.

    The joint account holders can give any of the following mandates for the disposal of

    balance in the above accounts:Either or Survivor : If the account is held by two individuals say, A & B, the final

    balance along with interest, if applicable, will be paid to survivor on death of anyone ofthe account holders.o Anyone or Survivor/s : If the account is held by more than two individuals say, A, B

    and C, the final balance along with interest, if applicable, will be paid to the survivoron death of any two account holders.

    The above mandates will be applicable to or become operational only on or after thedate of maturity of term deposits. This mandate can be modified by the consent of all

    the account holders. At the request of the depositor, the Bank will register mandate / power of attorney

    given by him authorizing another person to operate the account on his behalf.The term deposit account holders at the time of placing their deposits can giveinstructions with regard to closure of deposit account or renewal of deposit for further

    period on the date of maturity. In absence of such mandate, the Bank will seekinstructions from the depositor/s as to the disposal of the deposit by sendingintimation before 15 days of the maturity date of term deposit.

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    Information

    Helping you to choose products and services, which meet your needs?

    Before you become a customer, axis will:Give you clear information explaining the key features of the services and products.

    Give you information on any type of account facility which we offer and may suityour needs

    tell you what information we need from you to prove your identity and address and tocomply with legal and regulatory requirements, and request for additional informationabout you and your family to build a database but such information can be furnished

    by you only if you wish and we will not compel you to give this information for

    opening your account.

    Axis will tell you if we offer products and services in more than one way [forexample, through ATMs on the internet, over the phone, in branches and so on] andtell you how to find out more about them.

    Once you have chosen an account or service, we will tell you how it works.When you open a single account or a joint account, we will give you information onyour rights and responsibilities.

    We recommend that you avail nomination facility offered on all deposit accounts,articles in safe custody and safe deposit vaults.

    We will guide you how we will deal with deposits and other assets held with us in thename of a deceased person in the absence of nomination

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    Net interest income up 45.34% to Rs.1, 567.08 Crores

    Network of branches and extension counters increased from 450 to 561.Total number of ATMs went up from 1891 to2341.

    Net NPA ratio as a percentage of net customer assets down to0.61% from 0.75%.

    Capital Adequacy Ratio stood at11.57% as against the minimum regulatory norm of

    9%.

    Proposed Dividend up from 35% to45%

    Fee & Other income up 60.72 earning per share (Basic) increased from Rs. 17.45 toRs.23.50. % to Rs. 824.39 Crores.

    Deposits up 46.55% to Rs. 58,785.60 Crores

    Advances up 65.26% to Rs. 36,876.48 Crores.

    Retail assets up 37.56% to Rs. 8,927.54 Crores.

    Demand deposits up 46.11% to Rs. 23,430.19 Crores.

    Profit after tax up 35.86% to Rs. 659.03 Crores.

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    Both business and earnings continued to display high growth in 2006-07. And theBank earned a net profit of Rs. 659.03 crores against Rs. 485.08 crores in the previousyear, registering a growth of 35.86%.

    The total income of the Bank increased by 53.95% to Rs. 5,570.52 crores from Rs.3,618.42 crores last year, while the operating profit rose by 37.11% to Rs. 1,362.60

    crores from Rs. 993.81crores last year.

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    BOARD OF DIRECTORS

    P. J. Nayak Chairman & Managing Director

    Surendra Singh Director

    N. C. Singhal Director

    T. Pannir Selvam Director

    J. R. Varma Director

    R. H. Patil Director

    Rama Bijapurkar Director

    R. B. L. Vaish Director

    S. B. Mathur Director

    M. V. Subbiah Director

    Ramesh Ramanathan DirectorP. J. Oza

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    CAPITAL & RESERVES

    During the year 2006-07, the Bank has raised capital aggregating Rs. 1,762.81 croresthrough Innovative Perpetual Debt Instrument (IPDI), eligible as Tier I capital, andTier II capital in the form of Upper Tier II and subordinated bonds (unsecuredredeemable non-convertible Debentures). Of this, the Bank has raised Rs. 389.30

    crores by way of subordinated bonds (unsecured redeemable non-convertibledebentures) qualifying as Tier II capital, Rs. 307.50 crores by way of Upper Tier IIdebentures and Rs. 214 crores by way of Hybrid Tier I capital in the form ofInnovative Perpetual Debt Instruments. The Bank has further raised US Dollars 150million (equivalent to Rs. 652.05 crores) as Upper Tier II capital and US Dollars 46million (equivalent to Rs. 199.96 crores) as Hybrid Tier I capital in the form ofInnovative Perpetual Debt Instruments from Singapore under the MTN Programme.The raising of this non-equity capital has helped the Bank continue its growth strategyand has strengthened its capital adequacy ratio. As a result, the Bank is satisfactorily

    capitalized with the capital adequacy ratio at the end of year being 11.57% comparedto 11.08% at the end of the preceding year (and as against a minimum regulatoryrequirement of 9% CRAR). Of this, Tier I capital constituted 6.42%, while Tier IIcapital amounted to 5.15%. During the year under review, 29, 40,060 equity shareswere allotted to employees of the Bank pursuant to the exercise of options under theBank's Employee Stock Option Plan. The paid up capital of the Bank as on 31 March2007 thereby rose to Rs. 281.63 crores from Rs. 278.69 crores as on 31 March 2006.The Bank's shares are listed on the NSE, the BSE, the Ahmedabad Stock Exchangeand the OTCEI. The GDRs issued by the Bank are listed on the London StockExchange (LSE). The Bonds issued by the Bank under the MTN programme are listed

    on the Singapore Stock Exchange. The listing fee relating to all stock exchanges forthe current year has been paid. With effect from 26 March 2001, the shares of theBank have been included and traded in the BSE the diluted Earning per Share (EPS)of the Bank for 2006-07 has risen to Rs. 22.79 from Rs. 17.08 last year. In view of theoverall performance of the Bank and the objective of rewarding shareholders withcash dividends while retaining capital to maintain a healthy capital adequacy ratio tosupport future growth, the Board of Directors has recommended a higher dividend rateof 45% on equity shares, compared to the 35% dividend declared for the financial year2005-06.

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    EMPLOYEE STOCK OPTION PLAN (ESOP)

    To enable employees including whole-time Directors of the Bank to participate in thefuture growth and financial success of the Bank, the Bank has instituted an EmployeeStock Option Scheme under which 2,78,00,000 options can be granted to employees.The employee stock option scheme is in accordance with the Securities and ExchangeBoard of India (Employee Stock Option and Employee Stock Purchase Scheme)

    Guidelines, 1999. The eligibility and number of options to be granted to an employeeis determined on the basis of the employee's work Performance and is approved by theBoard of Directors.The Bank's shareholders approved plans in February 2001, June 2004 and June 2006for the issuance of stock options to employees. Under the first two plans and up to thegrant made on 29 April 2004, the option conversion price was set at the average dailyhigh-low price of the Bank's equity shares traded during the 52 weeks preceding thedate of grant at the Stock Exchange which has had the maximum trading volume ofthe Bank's equity share during that period (presently the NSE). Under the third plan

    and with effect from the grant made by the Company on 10 June 2005, the pricingformula has been changed to the closing price of the previous day of the grant date.The Remuneration and Nomination Committee granted options under these plans onsix occasions, of options of 11,18,925; 17,79,700; 27,74,450; 38,09,830; 57,08,240and 46,95,860 during 2000-01, 2001-02, 2003-04, 2004-05, 2005-06 and 2006-07respectively. The options granted, which are non-transferable, vest at the rate of 30%,30% and 40% on each of three successive anniversaries following the granting,subject to standard vesting conditions, and must be exercised within three years of thedate of vesting. As of 31 March 2007, 79, 64,083 options had been exercised and98,72,910 options were in force. Other statutory disclosures as required by the revised

    SEBI guidelines on ESOPs are given in the Anne

    CORPORATE GOVERNANCE

    The Bank is committed to achieving a high standard of corporate governance and itaspires to benchmark itself with international best practices. The corporate governance

    practices followed by the Bank are enclosed as an Annexure to this report.

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    DIRECTORS' RESPONSIBILITY STATEMENT

    The Board of Directors hereby declares and confirms that:The applicable accounting standards have been followed in the preparation of theannual accounts and proper explanations have been furnished, relating to materialdepartures.ii. Accounting policies have been selected, and applied consistently and reasonably,

    and prudent judgements and estimates have been made so as to give a true and fairview of the state of affairs of the Bank and of the Profit & Loss of the Bank for thefinancial year ended 31 March 2007.iii. Proper and sufficient care has been taken for the maintenance of adequateaccounting records, in accordance with the provisions of the Companies (Amendment)Act, 2000, for safeguarding the assets of the Bank and for preventing and detectingfraud and other irregularities.iv. The annual accounts have been prepared on a going concern basis.

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    STATUTORY DISCLOSURE

    Considering the nature of activities of the Bank, the provisions of Section 217(1)(e) ofthe Companies Act, 1956 relating to conservation of energy and technologyabsorption do not apply to the Bank. The Bank has, however, used informationtechnology extensively in its operations.The statement containing particulars of employees as required under Section 217(2A)

    of the Companies Act, 1956 and the rule made there under, is given in an Annexureappended hereto and forms part of this report. In terms of Section 219(1) (iv) of theAct, the Report and Accounts are being sent to the shareholders excluding theaforesaid annexure. Any shareholder interested in obtaining a copy of the Annexuremay write to the Company Secretary at the Registered Office of the Bank.

    AUDITORS

    M/s S. R. Batliboi & Co., Chartered Accountants, statutory auditors of the Bank since2006 retire on the conclusion of the Thirteenth Annual General Meeting and areeligible for re-appointment, subject to the approval of Reserve Bank of India, and ofthe shareholders. As recommended by the Audit Committee, the Board has proposedthe appointment of S.R. Batliboi & Co., Chartered Accountants as statutory auditorsfor the financial year 2007-08. The shareholders are requested to consider theirappointment.

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    ACKNOWLEDGEMENTS

    The Board of Directors places on record its gratitude to the Reserve Bank of India,

    other government and regulatory authorities, financial institutions and correspondentbanks for their strong support and guidance. The Board acknowledges the support ofthe shareholders and also places on record its sincere thanks to its valued clients andcustomers for their continued patronage. The Board also expresses its deep sense ofAppreciation to all employees of the Bank for their strong work ethic, excellent

    performance, professionalism, team work, commitment, and Initiative which has ledto the Bank making commendable progress in today's challenging environment.

    For and on behalf of the

    Board of DirectorsDate: 17 April 2007 P. J. NayakPlace: Mumbai Chairman & Managing Director

    MANAGEMENT DISCUSSION AND ANALYSIS

    MACRO-ECONOMIC ENVIRONMENT

    While macro-economic fundamentals have generally been strong in 2006-07,inflation, largely due to supply-side constraints, had become an overriding concern inthe closing months of fiscal 2006-07. The GDP is expected to show a growth of 9.2%for the fiscal 2006-07 against 9% last fiscal year. Agriculture and allied sectors areexpected to grow at a rate of 2.7% in 2006-07, while industrial production is expectedto grow by about 10%. The growth in industrial production was driven mainly by themanufacturing sector, which grew by 11.3% in 2006-07 following a growth of 9.1%in the previous fiscal. The momentum of growth in the services sector continued with

    a growth of 11.2% in fiscal 2006-07. Among the three sub-sectors of services, 'trade,hotels, transport and communication services' has continued to boost the sector bygrowing at double-digit rates for the fourth successive year. Inflation, with its roots insupply-side factors, was accompanied by buoyant growth of money and credit in thelast two years. Starting with a rate of 3.98%, the rate of inflation in 2006-07 has beenon a generally upward trend with intermittent falls. However, average inflation during2006-07 remained at 5%, with continuing fiscal and monetary policy interventions

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    aimed at controlling price levels. Liquidity conditions remained fairly comfortable upto early September 2006. With year-on-year inflation stubbornly above 5% in thesecond half of the year, RBI announced further measures to stem inflationaryexpectations and also to contain the credit growth that put pressure on the liquidity

    position, thereby hardening interest rates in the economy.Growth trends were accompanied by robustness of overall macro-economicfundamentals, particularly with tangible progress towards fiscal consolidation and a

    strong balance of payments position. With an upsurge in investment, the outlook isdistinctly upbeat. However, the major challenges lie in taking macro-economic levelcorrective action to tackle the supply side constraints to keep inflation at an acceptablelevel. Interest rates have already shown signs of hardening, which may affect furtherinvestments in the industrial sector. In order to maintain the GDP growth over 9% inthe coming years, the major challenge lies in balancing of current pace of growth withnon-accelerating inflation. The current policy measures adopted by monetaryauthorities to tighten liquidity in order to fight inflation led to an increase in interestrates, which could slow down economic growth in the coming year, particularly in

    respect of infrastructure and other core sector projects. Against the backdrop ofgenerally strong economic fundamentals in the last year, the banking system seems tohave done well during 2006-07, reflected in the growth of business in the form ofaggregate deposits and advances. In terms of the Weekly Statistical Supplement

    published by RBI, the aggregate deposits of All Scheduled Commercial Banks(ASCB) as on 30 March 2007 have grown by 24.27% from 31 March 2006, while

    bank credit has grown by 28.51%. However, there continue to be areas of concern,primarily hardening interest rates that may result in pressure upon the net interestmargins. The continuing rise in interest rates may make various projects economicallyunviable, resulting in higher NPAs and also affect valuations. Lastly, the sharp

    increase in provisions on standard assets will impact the profitability of banks.

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    OVERVIEW OF FINANCIAL AND BUSINESS PERFORMANCE

    During the year 2006-07, the Bank has witnessed a strong growth in business volumesas well as profits, with the net profit increasing by 35.86% to Rs. 659.03 crores fromRs. 485.08 crores the previous year.The total income of the Bank rose by 53.95% to Rs. 5,570.52 crores from Rs.

    3,618.42 crores the previous year.

    During the same period, the operating revenue increased by 42.55% to Rs. 2,577.19crores, while operating profit increased by 37.11% to Rs. 1,362.60 crores. On 31March 2007, the Bank's total assets increased by 47.31% to Rs.73, 257 crores.The total deposits of the Bank grew by 46.55% to Rs.58, 786 crores, while the total

    advances grew by 65.26% to Rs. 36,876crores.The total demand deposits (savings bank and current account deposits) have increased

    by 46.11% to Rs. 23,430.19 crores, constituting39.86% of total deposits.

    The Bank has increased its market share of aggregate deposits in All ScheduledCommercial Banks (ASCB), which rose from 1.76% as on 31 March 2006 to 2.08%on 30 March 2007, While its share of advances rose from 1.50% to 1.78% during thesame period.In the financial year 2006-07, the Bank's incremental market share of aggregatedeposits in ASCB was 3.39% while its incremental share in advances was 2.75%. Thesolid performance of the Bank despite higher provisioning on standard assets, increasein risk weights on select asset classes, reduction on interest paid on CRR and ahardening of interest rates due to tightening of the overall liquidity situationunderscores the efficacy of the business model adopted by the Bank.

    The Bank continued to enhance shareholder value and the diluted earnings per sharefor the year 2006-07 increased to Rs. 22.79 from Rs. 17.08 the previous year. As on31 March 2007, the book value per share of the Bank has increased to Rs. 120.50 fromRs. 103.06 as on 31 March 2006.The Bank will continue to derive benefit from the infrastructure createdOver the years and will continue to pursue a strategy of profitable growth throughstronger corporate relationships and an accelerated retail customer expansion

    programmed driven by the Bank's multiple channels. In 2007-08, the Bank's strategywill continue to revolve around further increasing its market-share in the expanding

    financial services industry and to become an International Bank with a pan-Asiapresence. The Bank will continue to emphasize growth opportunities through higherLevels of customer satisfaction and loyalty, and deepening relationships with existingcustomers. It seeks to maintain and enhance a strong retail and corporate franchise,strengthen the structures and delivery channels for increasing SME and agricultural

    businesses, exploit cross-sell opportunities, offer private banking for high-net worthcustomers, consolidate new business initiatives such as Credit Cards, Wealth

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    Management and Banc assurance for Life Insurance, and encase opportunities throughoverseas offices for cross-border trade finance, syndication of debt and NRI businessdevelopment.The Bank will continue to focus on high-quality earnings growth through an emphasison core income streams such as NII and fee-based income and on maintaining a highstandard of asset quality by providing emphasis on rigorous risk-management

    practices. The Bank will continue to use Technology extensively to maintain

    competitive advantage and continue to up-grade the technology platform to provideleverage for bringing in higher cost efficiencies.

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    CAPITAL MANAGEMENT

    The Bank strives for the continual enhancement of shareholder value. Its capitalmanagement framework helps to optimise the use of capital by ensuring the rightcomposition of capital in relation to business growth and the efficient use of capitalthrough an optimal mix of products and services.During the year, the Bank continued to attract investor interest from domestic and

    foreign institutional investors, with a sizeable increase in trading volume and price.During 2006-07, the Bank has raised capital aggregating Rs. 1,762.81 crores throughInnovative Perpetual Debt Instrument (IPDI), eligible as Tier I capital and Tier IIcapital in the form of Upper Tier II and subordinated bonds (unsecured redeemablenonconvertible debentures). Of this, the Bank has raised US Dollars 196 million(equivalent to Rs. 852.01 crores) by way of Hybrid Tier I capital and Upper Tier IIcapital from Singapore under the MTN Programme. This additional capital enabledthe Bank to reinforce its growth strategy and shore up its capital adequacy ratio.Consequently, as on 31 March 2007, the Bank's capital adequacy ratio rose to 11.57%

    from 11.08% last year.The following table sets forth the risk-based capital, risk-weighted assets and capitaladequacy ratios computed in accordance with the applicable RBI guidelines 20. TheBank has always focused on innovation and differentiation. In this direction, duringthe year, the Bank has opened specialised Priority Banking branches for the highnetworth customer segment. Priority Banking branches have been conceived as asingle stop shop for affluent Customers, catering to all their banking and investmentneeds, and the Bank is the first to launch such a concept in India. These branches areexclusive boutique banking branches with a plush ambience catering to high networthindividuals, that takes the Priority Banking product to an experiential level, offering

    service in a discreet manner while maintaining comfort and confidentiality for thecustomers. During 2006-07, three such branches were opened in the cities of Pune,Mumbai and Kolkata, with plans to open more such branches at other urban centers in2007-08.The Bank is very sensitive to the privacy of its customers and does not engage inunsolicited tale-calling. In this regard, the Bank has taken proactive measures to seek

    positive customer consent on cross-selling initiatives. The Bank launched project'Sampark', which involves meeting customers face-to-face at branch locations, oroutside ATMs and seeking their written consent for cross-selling initiatives. The

    project is an intensive logistical exercise and by end-March 2007, 8 lacs customerconsents have been acquired. This gives the Bank a fully compliant internal databasefor cross-sell initiatives such as for investment advisory services and insurance

    products. This will facilitate in boosting the fee income from cross-sell of variousproducts. In its constant endeavour to provide convenience to its customers, the Bankhas been aggressively developing its alternative banking channels, namely the ATMnetwork, Internet Banking and Mobile Banking. These channels have received

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    overwhelming response from its customers with registration and transaction figuresincreasing substantially over the previous year. During the year, the Bank added 450ATMs, thereby taking the network size to 2,341 on 31 March 2007. The Bank offersaccess to its customers to over 19,000 ATMs across the country through bilateral andmultilateral ATM sharing arrangements. Beginning 2001, the Bank had identified theATM channel as a strong tool for customer acquisition and convenience. At 4.70ATMs per branch, the Bank has the highest ATM to branch ratio in the country. The

    high ATM to branch ratio has been part of the growth strategy and has been a majorfactor in the high growth of savings bank deposits accounts and balances. Continuingwith its efforts in providing the utmost in convenience and safety to its customers, theBank has promoted its mobile banking services to enable customers to access theiraccounts on their mobile phones. The service also sends out specific transaction alertson the mobile phones of registered customers, informing the customer of the activityin the account, thereby giving an added level of safety to the customer. The mobilechannel has found increasing acceptance among the Bank's customers. During thefinancial year, 40% of the incremental customers signed on for mobile banking

    services. With 1.10 million customers registered for mobile banking, the Bank hasamong the highest mobile registration penetration levels among bank customers. TheBank is uniquely poised to take advantage of the growth of mobile commerce in thecountry. On the Internet Banking front, the registered user base of the Bank rose from1.89 million accounts as on 31 March 2006 to 3.35 million accounts as on 31 March2007. To give the customers more reliable service, the Internet Banking platform wasrevamped in the current year. To counter phasing attacks on our customers, the BankhasIntroduced an added security measure whereby the customer has to enter certainadditional details from his debit card number in addition to his Login Identification

    and password for conducting a financial transaction.The Bank has set up a Call Centre, available 24/7, providing assistance in 11languages. The Call Centre as of March 2007 handled over 20,000 calls per day. With508 branches, 53 extension counters, 2,341 ATMs, 3.35 million internet bankingcustomers and 1.10 million mobile registered customers, the Bank provides one of the

    best networks in the country with real time on-line access to it customers.

    RETAIL BANKING

    On the retail assets front, for the larger part of the year, retail and consumer lendingcontinued its growth, in spite of the rising interest costs. However, the last quarter sawsigns of a slow-down, owing to rising Property prices and interest rates. For the Bank,the year-on-year growth, in business terms, was 38%, growing from Rs. 6,490 crores

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    on 31 March 2006 to Rs. 8,928 corers as on 31 March 2007. This constituted 24.21%of the Bank's total loan portfolio as on 31 March 2007. The Retail Asset Centre(RAC) network of the Bank also grew from 43 to 67 in 2006-07.

    During the year under review, the Bank successfully launched its auto loans productand it expects to carve out a significant share in the passenger car financing market in2007-08. The rise in interest rates in the economy may provoke a certain amount of

    stress on the portfolio and the Bank is gearing up its machinery to pre-empt anyslippage from our present standards, insofar as loan losses are concerned. The Bankfurther consolidated its position in the Cards business in the country during the year.The Bank today offers a wide array of payment solutions to its customers by way ofDebit Cards, Credit Cards, Pre-paid Cards, Cards Acceptance Service and the InternetPayment Gateway. As on 31 March 2007, the total debit card base of the Bank stoodat 6 million. The Bank has the third largest debit card portfolio in the country. Fromthe initial one-size-fits-all debit card product, the Bank now offers as many as 7variants, customized for specific liability customer segments: the Gold Debit Card for

    the high spenders and the Business Debit Card for current account and SME segmentcustomers launched this year, has found very good acceptance. The Bank also offerstravel currency cards in 5 currencies as a convenient alternative to the travelers'cheques. The Bank Also offers Rewards Card, targeted at corporate requirementswhere recurring payments are required to be made to employees, agents anddistributors towards their commissions and incentives. During the year, the Banklaunched the Annuity Card, the Meal Card and the Gift Card.The Annuity Card is a co-branded pre-paid card in association with the Life InsuranceCorporation of India for disbursing the annuity/pension payments to the annuitants ofLIC. The Meal Card is an electronic variant of the meal vouchers in existence today.

    The card is the first of its kind in India and will seek to replace the inefficient systemof paper-based offerings. The Gift Card is the first free-form card in the country, witha unique gift-wrapped shape. The product seeks to replace cash, cheque, and voucher-

    based gifts. During the year, the Bank has launched its own Credit Card and over80,000 cards have since been issued in the year. The Bank started the credit card

    business with four variants in the Gold and Silver card category. The Bank haslaunched two co-brands viz. a Store card and a card exclusively for Small RoadTransport Operators (SRTOs) in association with Shriram Transport Finance Co. Ltd.The Bank has also introduced "Corporate Cards" backed by a very strong online

    Travel and Expense Management Solution. The Bank entered the merchant acquiringbusiness in December 2003 and as on 31 March 2007, the Bank had installed over40,000 Electronic Data Capture (EDC) machines against 21,084 in the previous year.The terminals installed by the Bank are capable of accepting all Debit/CreditMasterCard/ Visa cards & American Express Cards. These terminals come equippedwith state-of-the-art technology and have now been enabled for processing smartcards as well. The Bank also offers an Internet Payment Gateway for accepting credit

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    and debit cards on the internet, and is a leading player in e-commerce. The Bank has asignificant presence in electronic payment systems of the country and is a major

    beneficiary of the Increasing number of transactions migrating from cash to electronicforms of payment.One of the focus areas for the Bank during the financial year under review was thedistribution of third party products, with a special thrust on mutual funds and Bankassurance. While the Bank consolidated its position in the sales of mutual funds and

    general insurance during the year, from December 2006 it also started distributing lifeinsurance products through its widespread branch network. The Bank's launch of itslife insurance product, in association with MetLife India as partners, has been verysuccessful. All branches of the Bank were activated within a short span of two monthsto enable their customers to have access to life insurance products.The year also saw the launch of the On-Line Trading product of the Bank for retailcustomers. The response to the product has been very positive. Wealth AdvisoryServices for high networth customers of the Bank were launched during the year inreview. Offering a clear product and service advantage, the service is offering wealth

    advisory for direct equities, mutual funds, insurance, real estate and other value addedproducts. No. of Clients 23 Financial Advisory Services (FAS) for the mass affluentand affluent customers expanded its value added services by providing the customersa single page snapshot of their complete relationship with the Bank including bank

    balances, deposits, depository holdings marked-to-market, mutual fund investmentsmade through the Bank marked-to- market, RBI Bonds purchased through the Bankand loans taken through the Bank. While the assets under management grew by over100% during the year, the number of customers for FAS also increased by over50%.In the last few years, most of the retail segments of the Bank have grown at morethan 50% YOY. In order to continue a similar growth pattern in the years to come, the

    Bank has identified its existing customer base a crucial determinant of futureprofitability. A key driver of revenue growth and profitability of the Bank in futurewill be its ability to maximize customer value by effectively marketing additional

    products and services to existing customers. The Bank has started a separate'Customer Analytics & Cross Sell' function under Retail Banking to ensure that crosssell is implemented efficiently. The group has to ensure the integrity, accuracy andcompleteness of customer data, oversee effective customer lead generation (throughdata mining and analytics), devise a lead tracking mechanism and monitor the leadsacross channels and various customer touch points made available by the Bank.

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    CORPORATE BANKING

    Corporate Banking business of the Bank provides quality products to large and mid-

    sized clients. The products include credit, trade finance for domestic as well asinternational transactions, structured finance, and project finance and syndicationservices.The Bank continues to pursue a two-pronged strategy of widening the customer baseas well as deepening existing client relationships. Careful choice of new customers

    based on appropriate risk-return guidelines forms the basis for the strategy ofwidening the customer base. The deepening of existing client relationships is achieved

    by a careful account strategy focusing on increasing the cross-sell of various corporatebanking products, as also products from other divisions of the Bank includinginvestment banking and retail products.During the year, large corporate advances grew by 76% to Rs. 16,346 crores from Rs.9,286 crores in the previous year. The Bank took steps to focus on fee income mainlyfrom trade finance facilities and document handling. This method of fee generation isstable and sustaining. Given the Increasing overseas presence of the Bank, the tradefinance business is set to grow significantly over the coming years. The Bank takesselective Exposure to project financing in areas of infrastructure as well as

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    manufacturing projects set up by reputed industry groups. It constantly works toupgrade its skills in financial structuring to be able to continue providing value to itscorporate customers.The overseas presence has enabled the Bank to leverage its existing relationshipsfurther by granting loans towards ECBs by Indian corporate as well as to enableacquisition financing. The Bank has also contributed towards financing infrastructure

    projects and other forms of project finance through its overseas branches. Channel

    finance also grew on the back of strong corporate demand. The centralised ChannelFinance Hub continued to deliver seamless service to various channel financecustomers. Syndication and underwriting of corporate debt also increased in volumesand resulted in rising fee income. Corporate Banking increased its focus on RiskManagement and on improving portfolio quality. The identification, measurement,monitoring, management and pricing of client risk are the key activities that enable allcorporate banking business. The Bank has in place procedures and practices to ensureregular updation of risks taken by the Bank on various client accounts. Portfoliodiversification remains the key for managing asset quality and preventing

    concentration risks. The credit risk in corporate banking is evaluated and managed bygroups organized with an industry sector focus. The Bank also has a RiskManagement Department, whose views are critical for decision-making with regard tocredit exposures. Overall, the risk control mechanism adopted by the Bank hascontinued to serve the Bank well, as is observed in the ratio of net NPA to netcustomer assets being at 0.61%. Corporate Banking scrupulously adheres to allstatutory, regulatory and related guidelines for all its businesses.

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    TREASURY

    The integrated Treasury manages the global funding of the balance sheet, domesticand foreign currency resources of the Bank, compliance with statutory reserverequirements, as well as optimizes on opportunities in the markets through managing

    proprietary positions in foreign exchange and interest rate markets. With theexpansion of the Bank overseas, the Treasury will look to leverage on the network to

    widen product scope as well as increase revenue generation from opportunities in theglobal markets.The continued thrust on maximizing returns from customer relationships in theTreasury has resulted in growth of 51% in customer exchange turnover and 60% inrevenues. The Treasury offered structured solutions to customers using foreignexchange and derivatives offerings, which has resulted in significant value addition tocustomer relationships. In its continued effort to offer top of the line paymentsolutions to customers, the Bank has offered Real Time Gross Settlement (RTGS) and

    National Electronic Funds Transfer (NEFT) through 470 branches and extension

    counters across the country. Throughput in RTGS grew by 251% over the previousyear. Despite a challenging interest rate environment, the Bank's holding ingovernment securities has been substantially protected from market risk as it is held as

    per specified guidelines of RBI. The portfolio gave a return of 7.64%. The Bankestablished a Medium Term Note (MTN) Programme for Euro One billion as a part ofthe funding plan for its overseas operations.During the year, the Bank raised USD 150 million as Upper Tier-II (the first hybridcapital issuance out of India) and USD 46 million as Hybrid Tier-I capital in terms ofrecent guidelines issued by RBI. The Bank also raised senior debt through theissuance of USD 250 million of three-year floating rate notes (FRN) under the MTN

    programme. The Asset Magazine published in Hong Kong voted the Bank's UpperTier-II issue as Best Deal, India. While the Upper Tier-II issue was oversubscribedsix times, the Floating Rate Note (FRN) issue was priced at the lowest coupon everfor an Indian bank debt issuance.

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    BUSINESS BANKING

    Business Banking has consistently focused on procuring low cost funds by offering arange of current account products and cash management solutions across all business

    segments covering corporate, institutions, Central and State Government Ministriesand Undertakings as well as small business customers. Cross selling of transactional

    banking products to develop account relationships, aided by product innovation and acustomer-centric approach have borne fruit in the form of growing current accountdeposit balances and increasing realisation of transaction banking fees. Sourcing ofcurrent account deposits is a focus area for growth. As of 31 March 2007, currentaccount deposits grew by 41.83% to Rs. 11,304.31 crores from Rs. 7,970.08 crores inthe previous year. On a daily average basis, current account deposits grew from a levelof Rs. 4,428 crores for the year 2005-06 to Rs. 7,193 crores for the year 2006-07.During 2006-07, the Bank sourced 97,857 new current accounts as against 77,264 inthe previous year. There was a greater focus on acquisition of high value currentaccounts, thus accelerating the pace of growth in current account deposit balances.

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    CMS GROWTH OF AXIS BANK IN BUSINESS BANKING

    CASH MANAGEMENT

    Cash Management Services (CMS) initiatives leveraged the Bank's growing branchnet work and robust technology to provide a wide range of customised solutions tosuit the dynamic requirements of its clients. The Bank offers CMS solutions forcollections and payments with an ideal blend of structured MIS and funds movementso that clients are able to enhance their fund management capabilities. Also the Bank'sWeb CMS initiative allows them to view their daily transactions on a real time basis.The strong correspondent bank alliance with partner banks offers corporate clients awide geographical coverage. CMS foray is not only emerging as an important sourceof fee income but is also contributing significantly towards garnering zero cost funds,forging large relationships.

    The Bank has established a strong presence by offering collecting bank services in theIPO/FPO segment and Dividend/Refund Warrant segments.During the year, the CMS throughput grew by 80% to Rs. 3, 79,067 crores comparedto Rs. 2,10,977 crores last year. During the same period, the number of CMS clientshas grown to 2,164 clients from 1,432 clients. The Bank has acted as an Agency Bankfor transacting Government Business for the last 6 years, offering banking services tovarious Central Government Ministries and Departments and other State Governments

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    and Union Territories. Currently, the Bank accepts Income Tax and Other DirectTaxes through its 214 Authorized Branches at 137 locations, and Central Excise andService Taxes through its 56 Authorised Branches at 13 locations. The Bank alsohandles disbursement of Civil Pension through 218 Authorised Branches and DefencePension through 151 Authorised Branches. Additionally, the Bank is providingcollection and payment services to four Central Government Ministries andDepartments and seven State Governments and Union Territories. The Bank has

    further strengthened its association with the e-Governance initiatives of various StateGovernments in India aimed at providing better citizen services by setting upintegrated citizen facilitation centers. During the year, the Bank associated with the'Choices' Project of the Government of Chhattisgarh and the 'e-Suvidha' initiative ofGovernment of Uttar Pradesh. During 2006-07, the Bank has also extended the

    business of Stamp Duty Collection through franking in Rajasthan, in addition toMaharashtra and Gujarat. The Bank also launched an e-Tax Payment Facility for

    payment of Direct Taxes on behalf of the Central Board of Direct Taxes (CBDT)through the internet for its customers. Additionally, the Bank also launched an e-

    Payment facility for payment of Commercial Taxes on behalf of the Department ofCommercial Taxes, Government of Chhattisgarh. During 2006-07, the totalGovernment business throughput registered a growth of 36% to Rs. 37,932 croresagainst Rs. 27,888 crores in the previous year.

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    CAPITAL MARKETS

    The Bank's Capital Markets business encompasses activities both in the equity capitalmarkets and debt capital markets. The equity capital market activities involve

    providing advisory services pertaining to raising of equity and quasi-equity fundsthrough various instruments by its corporate clients. The Bank is a SEBI registered

    Category I Merchant Banker with experience in management of public and rightsissues. The Bank provides debt capital market services by acting as Advisors forraising Rupee and foreign currencies term loans, foreign currency convertible bondsandRupee denominated bonds.The Bank is an active player in the domestic debt market and has syndicated anaggregate amount of Rs. 30,600 crores by way of bonds and debentures, as also termloans during 2006-07. Prime Database has ranked the Bank as the number 2 arrangerfor private placement of bonds and debentures for financial year 2006-07, Bloomberg

    has also ranked the Bank number 3 in the India Domestic Bonds League table for thecalendar year 2006.The Bank's Capital Markets business also involves providing corporate restructuringadvisory services, mergers & acquisitions advisory services, arranging services foracquisition funding, infrastructure and project advisory services (including preparationof business plans), techno-economic feasibility reports and bid process management.The Bank also provides trusteeship services, acting as both debenture and securitytrustees, monitoring agency for equity issue proceeds and trustees for securitisationissues. The Bank also conducts a depository participant business.The Bank also maintains an investment and proprietary trading portfolio in corporate

    bonds and equities. As on 31 March 2007, the Bank's investment in corporate bonds,equities and others was Rs. 9,600.60 crores, as against Rs. 8,901.27 crores in the

    previous year. Of this, as on31 March 2007, the Bank has made investments of US Dollars 129 million (equivalentto Rs. 561.87 crores) at overseas branches.

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    LENDING TO AGRICULTURE, SME AND MID CORPORATES

    To fully exploit the business potential of the Small and Medium Enterprises (SME)and Mid Corporate segments, to bring greater focus on priority sector lending, toachieve the small scale industry and agricultural lending targets fixed by RBI and toexplore new avenues of lending like microfinance, a separate business focus was

    provided during the year. Further, a separate business group was formed to targetspecific segments in SME and Mid Corporate business by rolling out schematic loan

    products where the appraisal is based on systematically designed scoring sheets andsimple appraisal techniques so as to reduce turnaround time and quickly increase thecustomer base. Advances Cells located at important business centers in the countryhave given a fillip to the Bank's SME, Mid-corporate and Agricultural lending

    business. During 2006-07, the Bank added 5 more Advances Cells, bringing the totalnumber to 15. This has resulted in significant improvement in performance and

    portfolio quality. Dedicated marketing teams at the Advances Cells and in certain

    branches have given an impetus to new business relationships.

    The Bank's focus on SSI lending was amply demonstrated by a 72% growth duringthe year. The Bank gave priority sector lending paramount importance and for thesixth year in a row, the Bank was compliant with the overall priority sector normsstipulated by RBI.

    The Bank has also laid down a well thought out strategy to grow the retail agriculturallending business. The Bank categorised centres across the country based onagricultural productivity, irrigation potential, infrastructure facilities and loan

    repayment track record, and chose districts with the good potential for agriculturallending. Further, the Bank is bringing branches in a district or even nearby districtsunder the umbrella of an 26 agriculture cluster for focused agriculture lending. TheBank has so far opened 18 such agriculture clusters. In keeping with the focus of thegovernment on increasing direct agricultural lending, the Bank rolled out several newloan products for the farming community. The Bank also fine-tuned its existing loan

    products to fully suit the varied requirements of its agriculture business clientele.During the year, the total agricultural advances of the Bank grew by an impressive115%, with direct agricultural lending recording a 91% growth over the previous year.

    Thus, for the second year in succession, the Bank's direct agricultural lending hasgrown by over 90%. At the end of the year, direct agricultural advances stood at9.59% of the net bank credit, which is the highest ever achieved by the Bank. TheBank would continue the focus on building up its agriculture business on profitablelines and is recruiting agriculture business personnel to sustain growth plans andmaintain portfolio quality.

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    The micro-finance business of the Bank witnessed increasing outreach through 64micro-finance relationships. The portfolio under micro-finance increased by 161%during the year, which corresponds to a client outreach of 6.62 lacs, the majority being

    poor women in rural areas. The Bank also initiated the process of extending microcredit to self-help groups through village organisations. The Bank has also beenimplementing various government-sponsored schemes. With a view to expanding ourreach in the Northeastern region of the country, the Bank has signed a Memorandum

    of Understanding with South Asia Enterprises Development Facility, a multi-donorfacility managed by the International Finance Corporation of the World Bank. Thescope of the collaboration includes developing a profitable micro, small and mediumenterprises business model supporting service based marketing linkages and exportoriented operations, particularly to enterprises involved in value added agricultural

    production.

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    INTERNATIONAL BANKING

    With increasing integration of the Indian economy globally and consequent two wayflows of funds and services, the Bank had identified international banking as a keyopportunity to leverage the skills and strengths built in its domestic operations inserving the requirements of its clients in the areas of trade and corporate banking, asalso investment banking by establishing presences at strategic international financial

    hubs in Asia. In this direction, the first overseas branch of the Bank was opened inSingapore in April 2006 and, subsequently, a branch in Hong Kong and arepresentative office in Shanghai in China commenced operation during the year2006-07. In addition, the Bank has also set up a branch in the Dubai InternationalFinancial Centre, UAE in early April 2007. The Bank's presence at these locations,through which the bulk of the trade inAsia gets routed, would enable the Bank to provide services at every cycle of the tradefinance products, besides providing an opportunity to foray in the internationalinvestment banking markets. In its first year of operations, the Singapore branch has

    been active in the area of corporate banking and has been able to participate in andfacilitate the debt raising activities of Indian corporates in the international markets.The Singapore branch also provides trade finance and treasury solutions. As of March31, 2007 the total assets at the overseas branches stood at US Dollars 731 million.

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    Credit risk management

    The changing operating environment for banks entails managing complex and variablerisks in a disciplined fashion. The key challenges for effective management ofvariegated risks emanate from creation of skill sets within the Bank with appropriatedomain knowledge and developing a functional framework to monitor risks with

    triggers in cases of breaches in the pre-accepted levels of identified risks. The Bank,since the inception of the Risk Department, has developed in-house skills to managekey areas of risk viz., credit risk, market risk and operational risk. In respect of creditrisk, emphasis is currently placed on evaluation and containment of risk at individualexposures for non-schematic loans and analysis of portfolio behaviour in case ofschematic loans. There is increasing use of sophisticated modelling techniques tocontain credit risk, while in the case of market risk the measurement of market risk onidentified portfolios and their effective monitoring is becoming increasing. Quantativein its use of statistical techniques. In the area of operational risk, the Bank has created

    a framework to monitor resultant risk and to capture loss data.The Bank has also formulated a global risk policy for overseas operations and acountry specific risk policy for the Singapore and Hong Kong branches during theyear. The policies were drawn based on the risk dimensions of dynamic economiesand the Bank's risk appetite. The Bank's risk management processes are guided bywell-defined policies appropriate for the various risk categories, independent riskoversight and periodic monitoring through the sub-committees of the Board ofDirectors. The Board sets the overall risk appetite and philosophy for the Bank. TheCommittee of Directors, the Risk Management Committee and the Audit Committeeof the Board, which are sub-committees of the Board, 27 review various aspects of

    risk arising from the businesses of the Bank. Various senior management committeesoperate within the broad policy framework.Credit Committees and Investment Committees operate within the delegated power toconvey approvals for acquisition of assets and manage such portfolios. The Asset andLiability Management Committee (ALCO) is responsible for reviewing the balancesheet, funding, liquidity, capital adequacy, capital raising, risk limits and interest raterisk in the trading and banking book. In addition, ALCO also monitors and reviewsexternal and economic changes affecting such risks. The Operational RiskManagement Committee assesses operational risk in various activities undertaken by

    the Bank, suggests suitable mitigants in case of identification of a gap in the processflow, and reviews product approvals.

    Credit Risk

    Credit risk covers the inability of a borrower or counter-party to honour commitmentsunder an agreement and any such failure has adverse impact on the financial

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    performance of the Bank. Accordingly, the Bank strives to effectively assess,administer, monitor and enforce recovery of loans to various clients.The Board of Directors establishes the parameters for risk appetite, which is definedquantitatively and qualitatively in accordance with the laid down strategic business

    plan.Risk Rating Systems internal reporting and oversight of assets are principallydifferentiated by credit ratings. The Bank has developed rating tools, which are

    tailored to specific market segment such as large Corporates, SME and Midcorporates, to identify underlying risk associated with such exposures. The creditrating tool uses a combination of quantitative inputs and qualitative inputs to arrive ata 'point in time' view of the rating of a counter-party. TheMonitoring tool developed by the Bank helps in objectively assessing the creditquality of the borrower taking into cognizance the actual behaviour at the postdisbursement stage. The output of the rating model is primarily to assess the

    probability that the customer will fail to make full and timely repayment of creditobligations over a one-year time horizon. Each internal rating grade corresponds to a

    distinct probability of default. Model validation is carried out by objectively assessingits calibration accuracy and stability of ratings.Additional measures of risk containment at the individual exposures and at the

    portfolio level are: Rating linked exposures norms adopted by the Bank are conservative in comparison

    to the regulatory prudential exposure norms. Industry-wise exposure ceilings are based on the industry performance, prospectsand the competitiveness of the sector. Separate risk limits are set up for credit portfolios like advances to NBFCs and

    unsecured loans that require special care and monitoring.

    With heightened activity in the real estate sector, the Bank has strengthened its riskmanagement systems to ensure that its advances are to borrowers having a good trackrecord and satisfying the criterion of minimum acceptable credit rating. Appropriatecovenants are stipulated for risk containment and monitoring. Exposures with bullet repayments, long gestation projects, longer tenor exposures,

    and longer moratorium are assessed with additional care.Committee of Directors Risk Management CommitteeAudit Committee Board of Directors

    Credit Committees & ALCO Operational RiskInvestment Committees Management Committee28 Distributions of Credit Risk Assets by Asset QualityRating scale for Large Corporates is a 14-point granular scale, which range from UB-AAA to UB-D. Rating scale for SME and Mid Corporates have an 8 point rating scalewhich range from SME1/MC1 to SME 8/MC8. A graphical representation

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    highlighting the spread of risk across various rating grades for large corporate and theSME portfolio as on 31 March 2007 is given under:Distribution of Credit Risk Assets by Industry SectorIndustry analysis plays an important part in assessing the potential concentration riskfrom within the loan portfolio. Particular attention is given to industry sectors wherethe Bank believes there is a high degree of risk or potential for volatility in the future..

    Consumer Credit Risk Management

    The Bank's continuing aggressive foray into retail banking has resulted in a sharpbuild up in the retail asset portfolio. The key challenge for a healthy retail assetportfolio is to ensure a stable risk adjusted earnings stream by maintaining customerdefaults within acceptable levels. The Bank periodically carries out a comprehensive

    portfolio level analysis of retail asset portfolio with a risk return perspective. Riskmeasurement for the retail portfolio is assessed primarily on a credit scoring basis.During the year, the Bank has initiated a project to revamp its existing credit scoring

    models for retail assets with external support from a reputed international vendor.

    Market Risk

    Market risk is the risk to the Bank's earnings and capital due to changes in the marketlevel of interest rates or prices of securities, foreign exchange and equities, as well asthe volatilities of those changes. The Bank is exposed to market risk through its

    trading activities, which are carried out both for customers and on a proprietary basis.The Bank adopts a comprehensive approach to market risk management for itstrading, investment and asset/liability portfolios. The Bank uses various risk metrics,

    both statistical and non-statistical, including non-statistical measures like position,gaps and sensitivities (duration, PVBP, option Greeks); Value at Risk (VaR);sensitivity of net interest income (EaR); and sensitivity of the Economic Value ofEquity (EVE).The VaR methodology adopted by the Bank for its VaR calculation is HistoricalSimulation, and is calculated at a 99% confidence level for a someday holding period.

    The model, as with many other VaR models, assumes that the risk factor changesobserved in the past are a good estimate of those likely to occur in the future and istherefore limited by the relevance of the historical data used. The Bank typically uses500 days of historical data or two years of relative changes in historical rates and

    prices. The method however, does not make any assumption about the nature or typeof the loss distribution. The VaR models for different portfolios are back-tested atregular intervals and the results are used to maintain and improve the efficacy of the

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    model. The VaR is computed on a daily basis for the trading portfolio and reported tothe senior management of the Bank. VaR measure is also supplemented by a series ofstress scenarios and sensitivity tests that shed light on the behaviour of a portfolio andthe impact of extreme market movements. Expected Tail Loss (ETL) or ConditionalValue at Risk (CVaR) is one of the concepts used to devise stress scenarios.

    The Earnings at Risk (EaR) measures, the sensitivity of net interest income to parallelmovements in interest rates, on the entire balance sheet is reported to the seniormanagement on a weekly basis. The Risk Department computes the duration gap ofthe balance sheet and sensitivity of the Economic Value of Equity (EVE) to parallelinterest rate movements on a periodic basis.Risk limits are set according to a number of criteria including relevant marketanalysis, business strategy, management experience and the Bank's risk appetite. Risk

    limits are reviewed at least annually, to maintain consistency with trading strategiesand material developments in market conditions. Risk limits for trading positions aremonitored on a daily basis, while those for the banking book are monitored on aweekly basis.

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    Liquidity Risk

    Liquidity risk arises in any bank's general funding of its activities. As part of theliquidity management contingency planning, the Bank assesses potential trends,demands, events and uncertainties that could reasonably result in an adverse liquiditycondition. The Bank considers the impact of these potential changes on its sources ofshort term funding and long term liquidity planning. The Bank's ALM policy defines

    the gap limits for the structural liquidity and the liquidity profile of the Bank isanalysed on a static as also a dynamic basis by tracking all cash inflows and outflowsin the maturity ladder based on the expected occurrence of cash flows. The Bankundertakes behavioural analysis of the non-maturity products viz. savings and currentdeposits and cash credit/ overdraft accounts, on a periodic basis to ascertain thevolatility of residual balances in those accounts. The renewal pattern and prematurewithdrawals of term deposits and draw downs of unavailed credit limits are alsocaptured through behavioural studies. The liquidity profile of the Bank is estimated ona dynamic basis by considering the growth in deposits and loans, and investment

    obligations, for a short-term period of three months. The concentration of largedeposits is monitored on a periodic basis. The Bank's ability to meet its obligationsand fund itself in a crisis scenario is very critical and, accordingly, stress tests areconducted under different scenarios at periodical intervals to assess the impact onliquidity to withstand stressed conditions.The Liquidity positions of overseas branches are managed in line with the Bank'sinternal policies and host country regulations. Such positions are also reviewedcentrally by the Bank's ALCO along with domestic positions.

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    Country Risk

    The Bank has put in place a risk monitoring system for the management of countryrisk. The Bank uses the seven-category classification viz. insignificant, low, moderate,high, very high, restricted and off-credit followed by the Export Credit GuaranteeCorporation of India Ltd. (ECGC) and ratings of international rating agency Dun &

    Bradstreet for monitoring the country exposures. The ratings of countries are beingundertaken at monthly intervals or at more frequent intervals if the situation sowarrants i.e. in case of a significant change in the condition of a country involvingsharp deterioration of its ratings. Exposure to a country includes all credit-relatedlending, trading and investment activities, whether cross border or locally funded. TheBank has set up exposure limits for each risk category as also individual countryexposure limits, and the exposure limits are generally monitored at weekly intervals.

    Operational Risk

    Operational risk is the risk of loss resulting from inadequate or failed internalprocesses, people or systems, or normal external events. The Bank is in the process ofrolling out a software solution for an operational risk management framework withemphasis on identification of key risk indicators at the unit level, monitoringidentified risk at the unit level and then aggregating at a higher organizational level.The business units put in place the baseline internal controls as approved by theProduct Management Committee to ensure a sound and well controlled operatingenvironment throughout the organization. Each new product or service introduced issubject to a rigorous risk review and signoff process where all relevant risks are

    identified and assessed by departments independent of the risk taking unit proposingthe product. Variations of existing products, as well as outsourcing, are also subject toa similar process.Risk Management framework for Overseas Operations.The Bank has put in place a comprehensive Risk Management policy for its globaloperations and has also formulated country specific risk policy for these operations

    based on the host country regulators' guidelines. The Asset Liability Management andall the risk exposures for the overseas operations are monitored centrally byimplementing sound systems and controls, and also by adopting the norms as

    specified by the regulators in the host country.

    INFORMATION TECHNOLOGY

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    Technology is the key to deliver customised financial solutions. The Bank aims tomaintain a scalable computing infrastructure backed by a robust network architecturethat delivers service across multiple channels for customer convenience and costreduction through operational efficiency.In order to retain a competitive edge, the Bank's technology is continuously upgraded.The Information Technology initiatives of the Bank have enabled the sustainedgrowth of banking transactions across multiple channels. In addition to providing

    transaction processing capability, new products and services such as collections ofexcise, income tax and other government departments were added to the suite ofonline banking services provided by the Bank. For enabling cross selling of insurance

    products, an integrated system was introduced for collection of insurance premiumwith software driven facility to monitor the performance of sales executives.As part of transforming business processes, Image and Form processing technologieswith Intelligent Character Recognition (ICR) features were integrated with the accountopening workflow systems. This was successfully tested and initially deployed at theBank's service branch in Mumbai during the year and is being implemented in another

    banking areas and various cities across the country.Besides developing new products and services, the Bank's technology capabilities are

    being leveraged for delivery of process innovation in areas such as remittancebusiness, management information and decision support systems. To enable closermonitoring of operational risks, a software solution for following up compliance withKYC norms was implemented. Another software solution for identifying suspicioustransactions that may be part of money laundering activity was integrated with thecore-banking module.For the second year in succession, the Bank won the Indian Banks Association (IBA)awards for innovations in processes and development of new products and services.

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    OPERATIONS AND COMPLIANCE

    Operational processes for delivery of products and services were constantly refinedduring the year under review, from the perspective of implementation of best

    practices, risk identification and containment. Operational instructions were revisited

    on a continuing basis and efforts were made to introduce risk free working atbranches. Emphasis was laid on structured visits of branches by functionaries of zonaloffices and analysis of various MIS concerning their functioning. Some of the policyinitiatives taken during the year for enabling branches to improve their performancewere Imaging Solution, Record Management Facility and Outsourcing Policy onFinancial Services.As a further step in the direction of improvement of customer service, bringingtransparency in dealing with customers and compliance, the Bank has become amember of the Banking Codes and Standards Board of India (BCSBI) and has adopted

    the Code of Bank's Commitment to Customers Code formulated by BCSBI. The Bankhas launched measures to become compliant with the Code. During the year, the Bankcontinued to work towards betterment of customer service. Regular meetings wereheld of the Customer Service Committee of the Board and the Standing Committeeson Customer Service. Customer-centric recommendations of these Committees weretaken up for implementation so as to bring about further improvement in the level ofcustomer service rendered by the Bank. A web-based Complaint Monitoring Softwarewas installed during the year to assist in tracking the status of complaints, generateMIS reports for analysis and initiating remedial measures.The Bank has put in place a mechanism for identifying suspected money laundering

    activities by monitoring high value and suspicious transactions at branches inaccordance with regulatory requirements and international best practices. The Bank ismeeting the reporting requirement of the Financial Intelligence Unit - India. The skillsets of staff on implementation of 'Know Your Customer' (KYC) norms and on fraud

    prevention measures have continued to improve.In lines with RBI guidelines, the Bank has framed a Compliance Policy and set up aCompliance Department to handle the compliance functions.Compliance functionaries have also been appointed in all the four zones of the Bankfor carrying out compliance related activities with the help of off-site and on-site

    surveillance tools.Corporate Banking Operations (CBO) within the Bank involves monitoring theaccounts of Large/Mid-Corporates and SME customers while ensuring compliancewith the regulatory guidelines and systems and procedures of the Bank in the conductof credit operations. A separate HUB has also been created for the opening of loanaccounts, centrally, thus relieving the operating staff at the branches for higher value-added work.

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    banking awareness to domain skills based programmes are designed according toneeds of business groups and conducted both internally and through external agencies.With the opening up of overseas offices, the HR challenge has acquired a newdimension as the entire gamut of HR activities covering recruitment, training, talentretention, performance management and personnel administration has to be done inconformity with international best practices.

    The Bank is a keen protagonist of the policy of financial inclusion for theNortheastern region. Having opened offices in 6 out of 7 States in the region, a set ofincentives has been introduced for staff domiciled elsewhere but working in the

    North-East and a few other difficult locations. These measures would serve both asmotivational and retention tools. As an equal opportunity employer, the Bank has asignificant presence of women in the workforce with a male-female ratio of 75:25.This apart, as a part of the policy of affirmative action, the Bank has been taking incandidates with physical disabilities. The current strength of such employees is 17.Thedimensions of the HR challenge are expected to multiply manifold in the coming

    years. With dynamic policies that are tailored to suit the emerging needs, the Bankexpects to effectively meet the challenge and continue to deliver value to its domesticand oversees customer.

    SELECTING EMPLOYESS OF AXIS BANK

    33sess

    Foreign currency transactions

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    Commission income on deferred payment guarantees, is recognized pro-rata over theperiod of the guarantee. All other fee income is recognized front on its becoming due.

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    COMPETITOR ANALYSIS

    Axis Bank stands apart from its private sector competitors ICICI BankandHDFCBank in one crucial respect. While the other two banks have envisaged retail

    banking as a key area of strategic emphasis with the share of the retail business(both on the funding and asset sides) growing strongly year after year the share of

    retail business, particularly retail assets, has actually come down quite sharply in thecase of Axis Bank.

    The numbers here are quite interesting. For ICICI Bank, retail loans now (as of June2007) account for as much as 70 per cent of the banks total loan book of Rs 2,00,000crore. For HDFC Bank, retail assets are around 57 per cent (Rs 28,000 crore) of thetotal loans as of March 2007.

    In the case of Axis Bank, retail loans have declined from 30 per cent of the total loanbook of Rs 25,800 crore in June 2006 to around 23 per cent of loan book of Rs.41,280crore (as of June 2007).Even over a longer period, while the overall asset growth forAxis Bank has been quite high and has matched that of the other banks, retailexposures grew at a slower pace.

    If the sharp decline in the retail asset book in the past year in the case of Axis Bank ispart of a deliberate business strategy, this could have significant implications (notnecessarily negative) for the overall future profitability of the business.

    Despite the relatively slower growth of the retail book over a period of time and the

    outright decline seen in the past year, the banks fundamentals are quite resilient. Withthe high level of mid-corporate and wholesale corporate lending the bank has beendoing, one would have expected the net interest margins to have been under greater

    pressure. The bank, though, appears to have insulated such pressures. Interest margins,while they have declined from the 3.15 per cent seen in 2003-04, are still hoveringclose to the 3 per cent mark. (The comparable margins for ICICI Bank and HDFCBank are around 2.60 per cent and 4 per cent respectively. The margins for ICICIBank are lower despite its much larger share of the higher margin retail business,since funding costs also are higher).

    Such strong emphasis and focus on lending also does not appear to have had anydeleterious impact on the overall asset quality. The banks non-performing loans areeven now, after five years of extremely rapid asset build-up, below 1 per cent of itstotal loans.

    From a medium-term perspective, it appears that Axis Bank could be charting out aniche for itself in the private bank space. It appears to be following a business strategy

    http://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/ICICI_Bank
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    quite different from the high-volume and commodity-style approach of ICICI Bankand HDFC Bank. That strategy also has its pluses in terms of the relatively highermargins in some segments of the retail business and the in-built credit riskdiversification (and mitigation) achieved through a widely dispersed retail credit

    portfolio. But, as indicated above, Axis Bank has been to able to maintain the qualityof its loan portfolio despite the concentrated nature of wholesale corporate lending

    Industry Analysis

    The banking industry has come under increasing pessimism of late because of risingshort and long-term interest rates. The banking industry's market capitalization made asubstantial decline. Most investors are concerned with whether the industry cansustain continued profitability as a result of these factors. Banks have responded inrecent years to these problems by diversifying away from interest sensitive productsand services. But interest rates are the fundamental aspect of any financial services.Therefore, I believe the financial services industry will be deeply affected by risinginterest rates. Banks have experienced good business factors over the past two years.Interest rates were low, credit quality was good, and inflation was low. These factorsare usually predictive of the types of earnings banks should report. But good timescan't continue because interest rate hikes because reduced lending activity, damagedcredit quality, and reduced values of bond portfolios. Porter's Five Forces Analysis: 1.Rivalry among competing sellers: The banking industry is continuing to restructureand position itself for our changing economy as a result, many mega-mergers haveoccurred in recent years. Citicorp and Travelers Insurance agreed to merge in April1998 at a value of $70 billion. Bank of America and Nation's Bank also agreed to

    merge shortly afterwards which became the largest bank in the United States. Bankmergers are usually consummated as a cost-cutting measure but also to compete withnon-bank providers of financial services. Bank rivalries are very strong, and as we'veseen many of the largest banks are merging to increase their power. In fact, Charlotte,

    NC is practically owned by Bank of America and First Union. 2. Potential entry ofnew competitors: There is virtually no chance of a new entrant significantly affectingthe major banks' market share. The only place that new entrants may have a chance inthe industry is through Internet banking, because of its low cost. 3. Firms offeringsubstitute products: This is not really an issue within the banking industry, becausethere aren't really any legal alternatives, except buying a safe and borrowing from aloan shark 4. Competitive pressures stemming from supplier and buyer bargaining

    power: I grouped these two categories together because in the banking industry thebuyers are the suppliers and vice versa, so I might as well just discuss the situation asa whole. Interest rates are the single most important aspect of bank profitability theyare the bargaining power. Most bank profits are derived from net interest income. Thisis interest income received on loans minus interest expense for borrowed funds.

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    Interest rates determine the amount of money a bank can earn. Another measure is abanks' net interest margin which is a bank's net interest income divided by its averageearning assets. This is a common measure of a bank's ability to squeeze profits fromits loans. When interest rates fall, they have a positive effect on a bank. First, netinterest margin can expand. Second, the value of a bank's fixed rate of investment

    portfolio is enhanced by declining rates, since a bond with a higher stated interest ratebecomes more valuable as prevailing rates drop. Third, falling rates lower the cost of

    credit, which stimulates loan demand and reduces delinquency rates. Opportunities: 1.Because of the increasing amount of technology Internet banking will begin to replacetraditional banking, thus cutting personnel costs. 2. Incorporating investment bankinginto the banking industry, as some major companies are doing, lets the bank increase

    profits and promote economic growth while improving company image. Threats: 1.An increase in interest rates causing a decline in bank activity. 2. A collapse of theFed leading to bank failures, a repeat of the crash of 1929. 3. A decline in the USeconomy leading to a fall in the value of the dollar, thus causing an instable economy.From there the US banking system would be less secure in terms of dollar values that

    many people would move their money overseas into a more stable economic situation.Similar to the situation in many South American countries. (a little far-fetched, but

    possible) Key Success Factors: Capability to use the internet for banking, investing,and general e-commerce Size of company, name recognition, innovative localmarketing Best rates (loans, checking, savings, etc.) The capability to have thefastest and simplest banking through design, innovation, and location