Vijaya Bank

DRAFT OFFER DOCUMENT
VIJAYA BANK
(A Government of India Undertaking)
Constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act,
1980
Head Office: 41/2, M.G. Road, Bangalore 560 001, Karnataka
Tel no.: (080) 558 4066 Fax no.: (080) 558 8853 E-mail: vijbank@vsnl.com
Public Issue of 10 crore-equity shares of Rs. 10 each for cash at a premium of Rs. 10 to Rs.
14 (i.e. at a price band of Rs. 20 to Rs. 24) aggregating Rs. 200 crore to Rs. 240 crore

GENERAL RISK
Investment in equity and equity related securities involve a degree of risk and investors
should not invest any funds in this offer unless they can afford to take the risk of losing their
investment. Investors are advised to read the risk factors carefully before taking an
investment decision in this offering. For taking an investment decision investors must rely on
their own examination of the issuer and the offer including the risk involved. The securities
have not been recommended or approved by Securities and Exchange Board of India nor
does Securities and Exchange Board of India guarantee the accuracy or adequacy of this
document. The attention of investors is drawn to the statement of Risk Factors on Page (i) of
the Offer Document.

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

LISTING
The equity shares of the Bank are listed on the Bangalore (Regional) Stock Exchange, The
Stock Exchange, Mumbai, and the National Stock Exchange of India Ltd. and the in-
principle approvals for listing for new shares have been received from the Bangalore Stock
Exchange, The Stock Exchange, Mumbai, and the National Stock Exchange of India Ltd on
______ 2003, ____ 2003 and ______ 2003 respectively.
Lead Managers to the Issue

Registrars to the Issue

SBI CAPITAL MARKETS LIMITED
202, Maker Tower E
Cuffe Parade, Mumbai 400 005
Tel.: (022) 2218 9166
Fax: (022) 2218 8332
E-mail: vijaya.cmg@sbicaps.com

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

ISSUE OPENS ON --------------------
ISSUE CLOSES ON --------------------

TABLE OF CONTENTS

RISK FACTORS AND MANAGEMENT PERCEPTIONS THEREON...............................................................................................I
HIGHLIGHTS............................................................................................................................................................................................ X
PART I .......................................................................................................................................................................................................... 1
I. GENERAL INFORMATION.......................................................................................................................................................... 1
II. CAPITAL STRUCTURE................................................................................................................................................................ 13
III. TERMS OF THE PRESENT ISSUE........................................................................................................................................ 17
IV. TAX BENEFITS........................................................................................................................................................................ 24
V. PARTICULARS OF THE ISSUE................................................................................................................................................... 28
VI. MANAGEMENT OF THE BANK......................................................................................................................................... 34
VII. STOCK MARKET DATA....................................................................................................................................................... 72
VIII. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE............................................. 72
IX. BASIS OF ISSUE PRICE.......................................................................................................................................................... 79
X. DETAILS OF OUTSTANDING LITIGATION, DEFAULT AND MATERIAL DEVELOPMENTS.................................. 81
PART II....................................................................................................................................................................................................... 98
XI. GENERAL INFORMATION.................................................................................................................................................. 98
XII. FINANCIAL INFORMATION............................................................................................................................................ 104
XIII. STATUTORY AND OTHER INFORMATION................................................................................................................. 170
XIV. MAIN PROVISIONS OF THE BANK NATIONALISATION ACT .............................................................................. 173
XV. MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION.......................................................................... 178
PART III ................................................................................................................................................................................................... 182
DECLARATION..................................................................................................................................................................................... 182

ABBREVIATIONS

AFS Available for Sale
ALCO Asset- Liability Management Committee
ALM Asset Liability Management
ARC Asset Reconstruction Company
BgSE Bangalore Stock Exchange
BIS Bank of International Settlements
BoD Board of Directors
BSE The Stock Exchange, Mumbai
Bps Basis Points
BRA Banking Regulation Act
CAGR Compounded Annual Growth Rate
CAR Capital Adequacy Ratio
CBDT Central Board of Direct Taxes
CDSL Central Depository Services (India) Ltd.
CF Capital fund
CFL Consolidated Financial Statement
CMD Chairman & Managing Director
CRISIL The Credit Rating Information Services of India Limited
CRR Cash Reserve Ratio
DA Doubt Assets
D/E Debt Equity Ratio
DICGC Deposit Insurance and Credit Guarantee Corporation of India Limited
DP Depository Participant
DRT Debt Recovery tribunal
ECGC Export Credit Guarantee Corporation Of India Limited
ED Executive Director
FCNR Foreign Currency Non-Resident
FEDAI Foreign Exchange Dealers Association of India
FI Financial Institution
FII Foreign Institutional Investor
Forex Foreign exchange
FY Financial Year
GoI Government of India/ Central Government
GM General Manager
G-Sec Government Securities
HFT Held for Trading
HTM Held to Maturity
IT Income Tax or Information Technology
Issue Public Issue of 10 crores equity shares of Rs.10/- each at par aggregating
Rs.100 crores
INFINET Indian Financial Network
MCB Management Committee of the Board
MoF Ministry of Finance
NAV Net Asset Value
NBFC Non Banking Finance Company
NIM Net Interest Margin
NP Net Profit
NPAs Non- Performing Assets
NRE Non Resident External
NRIs Non Resident Indians
NRNR Non Resident Non Repatriable

NSDL National Securities Depository Limited
NSE The National Stock Exchange of India Ltd.
OCBs Overseas Corporate Bodies
p.a. Per annum
PAN Permanent Account Number
PE Prudential Exposure
PE Ratio Price Earning Ratio
PLR Prime Lending Rate
PSB Public Sector bank
PSU Public Sector Unit
QIB Qualified Institutional Buyer
RBI Reserve Bank of India
RFC Repatriable Foreign Currency
RoA Return on Assets
RoNW Return on Net worth
RRB Regional Rural Bank
RTGS Real Time Gross Settlement
RWA Risk Weighted Assets
SA Standard Assets
SCB Scheduled Commercial Bank
SEBI The Securities and Exchange Board of India
SIDBI Small Industries Development Bank of India
SLR Statutory Liquidity Ratio
SRTOs Small Road Transport Operators
SSA Sub Standard Assets
SSI Small Scale Industry
The Bank Vijaya Bank
The Bank
Nationalisation
Act, 1980
The Banking Companies (Acquisition and Transfer of Undertakings) Act,
1970 as amended by the Banking Companies (Acquisition & Transfer of
Undertakings) Act, 1980, the Banking Companies (Acquisition and
Transfer of Undertakings) Amendment Act, 1994; the Banking Companies
(Acquisition and Transfer of Undertakings) Amendment Act, 1995; the
Banking Companies (Acquisition and Transfer of Undertakings)
Amendment Act, 1996
The Board The Board of Directors of the Bank
The BR Act The Banking Regulation Act, 1949 (Amended)
The Companies
Act
Companies Act, 1956
The IT Act Income Tax Act, 1961
VHFL ViBank Housing Finance Ltd.
VRS Voluntary Retirement Scheme

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RISK FACTORS AND MANAGEMENT PERCEPTIONS THEREON

INTERNAL
1. Treasury profits
The Bank made a profit of Rs. 225.08 crores from sale of investments (treasury income) during
FY03. Such profits from treasury may not be maintained in future years and this may impede the
growth in net profits of the Bank going forward.
Management perception
The Bank has exercised prudence in booking profits from sale of investments while maintaining
a reasonable yield on treasury portfolio and the management believes the Bank shall follow
similar strategy going forward. Having said that, the management acknowledges that similar
windfall treasury income may not be sustained in future years since it does not foresee similar
drop in interest rates in the immediate future years.
The treasury income did not contribute much towards the growth in net profits from Rs. 130.9
crores (FY02) to Rs. 196.5 crores (FY03). During the year, the Bank made provisions aggregating
Rs. 235.8 crores as against the treasury profits of Rs. 225.08 crores, thereby using 104.7% of
treasury income for provisioning on a pre-tax basis. During the same period, the net interest
income (NII) earned by the Bank grew from Rs. 485.31 crores (FY02) to Rs. 643.39 crores (FY03),
registering a growth of 32.5% and the net interest margin (NIM) also grew by 30 bps from 3.24%
to 3.54%. The management, therefore, believes that the growth in profits of the Bank would not
be hampered even if the treasury income were not substantial in future years.

2. Non Performing Assets (NPAs)
As on March 31 2003, the net NPAs of the Bank stood at 2.61% of its net advances amounting to
Rs. 205.81 crores in absolute terms. In the event of non-recovery of these assets, the Bank may
have to provide for these NPAs in future, which might affect the profitability of the Bank going
forward. For details, investors are advised to refer to para on Income Recognition, Asset
Classification and Provisioning on page ____ of the offer document.
The Net NPAs of the Bank have consistently been declining in percentage terms, from 6.72% as
on March 31 1999 to 2.61% as on March 31 2003. During the year, the Bank made accelerated
provisions amounting to Rs. 192.60 crores for NPAs and as a result the coverage ratio of the Bank
stands at 57.45% as on March 31 2003. The Bank is taking further steps to reduce the proportion
of non-performing assets through aggressive recovery drives combined with improved risk
management practices. Moreover, there have been substantial changes in the legislative and
operating environment enabling FIs and Banks to pursue recovery of overdues. Besides setting
up Debt Recovery Tribunal (DRT) for faster settlement of recovery litigation, GOI enacted The
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 enabling FIs and Banks to securitise and reconstruct financial assets and enforce security
more effectively. The Bank has also initiated steps under the Act by bringing attachment of the
securities. The Bank has issued notices to 1988 borrowers' till date for recovery of an amount of
Rs. 239.99 crores and has recovered amount aggregating Rs. 26.45 crores. The Bank is thus taking
recourse to the available remedies to control its NPAs.

3. Regional concentration of the Bank
The Bank has a regional concentration in southern parts of the country with southern states
accounting for approximately 70% of all branches in terms of numbers. The regional presence of
the Bank may compromise its competitive position vis--vis its national level competitors.
Management Perception
The Bank has a wide network of 843 branches and has a presence in most of the top 100 deposit
centres as well as in all the states of the country. The deposits of the Bank have grown at a CAGR

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of 15.68% to Rs. 17019.8 crores and the advances have grown at a CAGR of 21.34% to Rs. 7891.3
crores during the past 5 years. Also, the Bank proposes to effectively utilise technology to
increase its reach and presence. The Management, therefore, believes that the present branch
network of the Bank is widespread and does not compromise its competitive position in the
industry. For details of geographical distribution of branches, investors are advised to refer to
para Geographical distribution of branches on page _____ of the offer document.

4. Asset Liability Position
A large portion of the funding of the Bank is in the form of short and medium term deposits. As
a result, there is a cumulative mismatch of Rs. 1427.86 crores up to 1-year category and a
mismatch of Rs. 3474.20 crores in 1-3 year category. The asset liability position of the Bank could
be affected if the depositors do not roll over the deposits.
The Bank has an active Asset Liability Management system in place to monitor and manage the
duration and liquidity mismatches. Using the interest rate expectations as the basis, the Bank
manages the mismatch so that the interest rate risk is minimised, the profitability is optimised
and the liquidity position is not affected. Moreover, as per the normal behavioural pattern and
past experience, a large portion of the deposits gets rolled over. The Bank feels that in the event
of these deposits not being rolled over, the fresh accretion of deposits would take care of the
Asset Liability mismatches. In addition, the Bank has the cushion of investments of Rs. 5855.25
crore in the long-term (over 5 years) category, a part of which can be utilized to correct any
medium term mismatches. For more details on the Asset Liability position refer to the para on
Asset Liability Management on page ____ of the offer document.

5. Credit Risk
The Banks main business of lending carries an inherent credit risk, which involves inability or
unwillingness of a customer or counter party to meet commitments in relation to lending,
trading, hedging, settlement and other financial transactions.
The Bank has put in place an internal credit rating system under which the borrowal accounts of
Rs 3 crores and above are rated on several parameters and the risk is priced with a suitable mark
over PLR based on the credit rating. The Bank also has implemented an active Risk Management
Policy aimed at mitigating various credit related risks. For other details on the credit risk
management process in the Bank, the investors may refer to the para on Risk Management on
page ___ of the offer document and the para Loan Policy on page ___ of the offer document..

6. Asset Concentration
The top 5 industries (non-food) account for 7.68 % of the gross credit exposure of the Bank as on
March 31 2003. Also, the top ten borrowers of the Bank account for about 8.93% of the total
advances of the Bank as on March 31 2003. The borrower specific and industry specific behaviour
may potentially affect the overall asset quality of the Bank.
The Bank has put in place a credit monitoring mechanism to monitor the performance of its
borrowers, regularly perform appraisal and do the requisite follow up. The top ten borrowers of
the Bank as mentioned above are Standard Assets as on March 31 2003. As regards the industry
concentration, its been the policy of the Bank to diversify the assistance over different
industry/promoter groups. In terms of the Banks loan policy, the Bank has laid down overall
exposure norms for medium and large-scale industrial sector and specific exposure norms for
lending to a particular single industry. Investors are advised to refer to para Industry wise
classification on page ___ of the offer document and para Loan Policy on page ___ of the offer
document.

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7. Declining yield and higher cost ratios
The yield on advances of the Bank decreased from 11.93% as on March 31 2002 to 11.34% as on
March 31 2003. The yield on investments declined from 11.35% to 10.36% during the same
period. Further, the operating expenses as a percentage of average working funds increased from
2.73% to 3.21% during FY03.
The decline in yield ratios has to be viewed in backdrop of substantial softening in the interest
rates during the period and as such, the decline has been a sector-wide phenomenon. For
instance, the G-sec yield on the 10-year benchmark paper declined by 115 bps from 7.36% to
6.21% between March 31, 2002 and March 31, 2003. On the liability side, the Bank benefited from
repricing of its deposits, which brought down the average cost of deposits from 7.51% to 6.58%
during last one year i.e. a reduction of 93 bps. Similarly, the cost of borrowings came down from
11.14% to 10.96%. As a result, the net interest margin (NIM) of the Bank displayed a healthy
increase of 30 bps from 3.24% to 3.54% during the same period. As regards operating expenses,
the increase has been mainly due to one-time excess write-offs of VRS expenses amounting to Rs.
107.58 crores. Besides, actuarial valuation accounting of leave encashment liability resulted in an
excess charge aggregating Rs. 20.66 crores in the current year. The business per employee of the
Bank has gone up by 14.31% from Rs. 169.38 lacs to Rs. 193.62 lacs. The management, therefore,
believes that the benefits of right sizing shall accrue to the Bank in future years and the pressure
on operating expenses may not continue going forward.

8. Outstanding Litigations against the Bank
As on June 30 2003, there were 110 cases against the Bank with aggregate claim of Rs. 19 crore for
which no liability has been provided. Out of these, the claim amount was above Rs. 50 lakhs in 4
cases. Further, there is 1 instance, wherein a criminal case has been outstanding against the Bank.
Also, there are 362 cases pertaining to labour laws, winding up petitions or closure. For more
details, investors are advised to refer to para on Outstanding Litigations on page ____ of the
Offer Document.

9. Tax Disputes
As on March 31 2003 certain proceedings related to Income Tax matters are pending before the
Income Tax authorities. The net amount of disputed tax in respect of these proceedings is Rs.
27.91 crore. These claims pertain to the past periods and appeals have been pending before
Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal. Further the
assessment officer (IT) has raised an aggregate demand on the Bank for Rs. 2.13 crore for the
assessment years 1995-96 to 1999-00 in respect of VISA and MasterCard international. For more
Offer Document.

10. Contingent Liabilities of the Bank
As on March 31 2003, the Bank had contingent liabilities aggregating Rs. 5077.47 crores,
comprising Rs. 37.18 crores as claims not acknowledged as debt by the Bank, Rs. 3858.45 crores
as liability on account of outstanding Forward Exchange Contracts, Rs. 731.59 crores as
Guarantees given on behalf of constituents, Rs. 441.20 crores as Acceptance, Endorsements and
other obligations and Rs. 9.03 crores as other items.

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

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11. Accumulated Losses of the Bank in the past
The Bank had accumulated losses aggregating Rs. Rs.297.07 crores, which were adjusted from its
paid-up capital during the financial year 1999-00.
The accumulated losses pertained to previous periods and were duly written off under the
approval of the Govt. of India. The Bank has been making net profits consecutively for the past
seven years and does not have any accumulated loss in its books at present.

12. Utilisation of Funds
The utilisation of the funds proposed to be raised through the public issue is entirely at the
discretion of the Bank and no monitoring agency has been appointed to monitor the deployment
of funds.
The funds raised through the public issue are not meant for any specific project and hence a
monitoring agency may not be required. The Bank is managed by professionals under the
supervision of its Board of Directors. Further, the Bank is subject to a number of regulatory
checks and balances as stipulated in its regulatory environment. Therefore, the management
believes that the funds raised via the public issue would be utilised only towards satisfactory
fulfilment of the objects of the issue as stated on page ___ of the offer document.

13. Export Credit Target
The Bank has not met export credit target (12% of net credit) for the last five years. For more
details, refer to para on Export Credit on page _____ of the offer document.
The non-achievement of this target has no negative impact on the working results of the Bank.
RBI has not taken any punitive action against the Bank for non-achievement of the targets. The
Bank is taking steps to increase its export credit exposure in terms of its loan policy for the year
2003-04. For more details, Investors are advised to refer to para Loan Policy on page ___ of the
offer document.

14. Verma Committee Recommendations
The Verma Committee, which carried out a study of the banking sector in 1998 and 1999, had
suggested seven parameters for assessing a banks strength/weakness covering three major areas
namely, solvency, earning capacity and profitability. Based on the above, Vijaya Bank was
classified in the third category of banks, which complied with the Capital Adequacy requirement
but did not meet five or six of the remaining parameters for the years 1998 and 1999. For an
understanding of what the categorisation signifies, investors may refer to para titled Verma
Committee Recommendations on page ___ of the offer document.
The Bank has taken focused actions to improve its profitability and performance by a multi-
pronged strategy involving reduction in NPAs, increased emphasis on reduction of costs,
introduction of better systems and procedures and improvement in its operational efficiency and
reduction in staff cost.

15. Contingent liabilities of the RRB sponsored by the Bank
As on March 31 2003, contingent liabilities of the RRB sponsored by the Bank aggregated Rs.
32.60 lakh.
The above contingent liabilities have arisen in the normal course of business of the RRBs.

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

v
There are a number of restrictions as per the Bank Nationalisation Act and Banking Regulations
Act, which impede flexibility of the Banks operations and affect/restrict investors right. These
are as under:

1. The Banks can carry on business/activities as specified in the Act. There is no
flexibility to pursue profitable avenues if they arise, in contrast with companies
under the Companies Act, where shareholders can amend the Objects Clause by a
special resolution.
2. In terms of Rule 8 of The Banking Regulation Act, 1949, the Bank is prohibited from
doing trading activity, which may act as an operational constraint.
3. In terms of Rule 17(1) of The Banking Regulation Act, 1949, every banking company
shall create a Reserve Fund and shall, out of the balance of profit of each year as
disclosed in the Profit & Loss a/c prepared under Section 29 and before any dividend is
declared transfer to the Reserve Fund a sum equivalent to not less than twenty five
percent of such profit.
4. In terms of Rule 19 of The Banking Regulation Act, 1949 there are some restrictions on
the banking companies regarding opening of subsidiaries which may deny the Bank
from exploiting emerging business opportunities.
5. In terms of Rule 23 of The Banking Regulation Act, 1949 there are certain restrictions on
the banking companies regarding opening of new place of business and transfer of
existing place of business, which may hamper the operational flexibility of the Bank.
6. In terms of Rule 25 of The Banking Regulation Act, 1949 each banking company has to
maintain assets in India which is not less than 75% of its demand and time liabilities in
India which in turn may prohibit the Bank from creating overseas assets and exploiting
overseas business opportunities.
7. There are restrictions in the Banking Regulation Act regarding,
i) Management of a bank including appointment of directors
ii) Borrowings and creation of floating charge thereby hampering leverage.
iii) Expansion of business as the branches need to be licensed
iv) Disclosures in the profit & loss account and balance sheet
v) Production of documents and availability of records for inspection by
shareholders
vi) Reconstruction of banks through amalgamation
vii) Further issues of capital including issue of bonus shares/rights shares for which
prior MoF approval is required
8. The financial disclosures in the offer document may not be available to the investors
after listing on a continuous basis
9. Various rights/powers of shareholders available under the Companies Act in this
behalf are not available to the shareholders of the banks. These rights include rights
such as calling for general meetings, inspection of minutes and other material
records, application for relief in cases of oppression and mismanagement, voluntary
winding up etc.
10. As per Section 3 (2E) of the Bank Nationalisation Act, no shareholder other than
Central Government shall be entitled to exercise voting rights in respect of any
equity shares held by him/her in excess of one per cent of the total voting rights of
all the shareholders of the Bank.
11. No banking company shall pay dividend on its shares until all its capitalised
expenses (including preliminary, organisational expenses, share selling commission,
brokerage, amounts of losses and any other item represented by tangible assets) have
been completely written off. The Bank has received an exemption from GoI, Ministry
of Finance, Department of Economic Affairs (Banking Division) vide gazette
notification ref. ________ dated _________ from the provisions of the said Section

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15(1) relating to the payment of dividend, for a period of five years from the date of
the notification.

2. Sensitivity to the economy and extraneous factors
The Banks performance is highly correlated to the performance of the economy and the
financial markets. The health of the economy and the financial markets in turn depends on
the domestic economic growth, state of the global economy and business & consumer
confidence, among other factors. Any event disturbing the dynamic balance of these diverse
factors would directly or indirectly affect the performance of the Bank including the quality
and growth of its assets.

3. Competition from existing and new Commercial Banks
Competition in the financial sector has increased with the entry of new players and is likely
to increase further as a result of further deregulation in the financial sector. The Bank may
face competition both in raising resources and in deploying them.
The Bank has an established broad-based presence and has been taking steps to enhance
customer satisfaction by upgrading skills, systems and technology to meet such challenges.
The Bank is attempting to add quality assets on competitive terms. The Bank is also taking
steps to broad base its product bouquet with a special emphasis on enhancement in the non-
fund based income. On the resource-raising front, the Bank is actively endeavouring to
broaden its reach and raise resources through its wide distribution network of 843 branches
and 61 extension counters. For more details on the business environment of the Bank,
investors are advised to refer to the para on Management Discussion and Analysis of
Financial Results on page ___ of the offer document and the para on Banking Sector
Scenario on page ___ of the offer document.

4. Changes in regulatory Policies
Major changes in Government/ RBI policies relating to banking sector may have an impact
on the operations of the Bank.
The Policy changes may provide both opportunities and challenges for the Bank. The Bank
has a long presence in the banking sector for more than 71 years and does not perceive policy
changes to be a major threat. For more details, investors are requested to refer to the para
Management Discussion and Analysis of Financial Results on page ____ of the offer
document.

5. Disintermediation in the financial markets
Development of Capital Markets may result in disintermediation by current and potential
borrowers whereby many companies may access the markets directly, thereby reducing their
dependence on the Banking system.
The Bank has, in recent years, launched several retail lending schemes so as to broaden its
borrower base. Further, disintermediation brings with it the opportunity for the Bank to
expand its fee-based activities. The Bank has been endeavouring to develop a presence in
several financial services to earn fee based income by focussing on businesses such as foreign
exchange, treasury, investments, cash management etc., thus taking advantage of the
disintermediation phenomenon.

6. Forex risk
Exchange Rate fluctuations may have an impact on the Banks financial performance.

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As per RBI guidelines, banks are not allowed to keep open position on their foreign exchange
transactions beyond prescribed limits on a daily basis. Foreign exchange transactions beyond
such limits, if any, must be squared off at the end of each day. Hence, the risk from exchange
rate fluctuations is minimised. The Board of Directors of the Bank has also prescribed limits
for gaps or mismatches in maturities of banks foreign currency assets & liabilities and
forward transactions in foreign exchange. The Bank operates within the limits fixed for gaps
or mismatches in maturities of Banks foreign currency assets and liabilities and forward
transactions in foreign exchange, thus minimising the risks of mismatches in maturities and
interest rates. For more details on the Risk Management procedures, investors are advised to
refer to para on Risk Management on page ____ of the offer document.

7. Interest rate risk
Interest rate volatility exposes the Bank to an interest rate risk or market risk. Such interest
rate risk has a potential impact on net interest income or net interest margin as well as on the
market value of the fixed income securities held by the Bank in its investment portfolio.
These risks are inherent in the banking business. However, the Bank has put in place a
system of regular review of lending and deposit rates in order to minimise the interest rate
risk. The Asset Liability Management Committee of the Bank reviews the risk on a regular
basis. Continuous Risk Management measures are initiated depending upon the movement
in the market interest rates. The movement in the interest rates is closely monitored for
appropriate action. For more details on the Risk Management procedures, investors are
advised to refer to para on Risk Management on page ____ of the offer document.

8. Operational Risk
Operational risk is a result of failure of operating system in a bank due to certain reasons like
computer break-ins, power disruptions, fraudulent activities, natural disaster, human error
or omission or sabotage.
To mitigate these operational risks, the Bank constantly updates its procedures and systems,
trains staff and also subjects all critical areas of operation to concurrent audit. For more
details on the Risk Management procedures, investors are advised to refer to para on Risk
Management on page ____ of the offer document.

9. Financial Statements in the offer document
The financial statements and derived ratios therefrom contained in the offer document are
prepared/computed as per the permissible accounting practices and the adjustment
guidelines prescribed by SEBI. The investors may want to make their own adjustments to the
same before arriving at an investment decision in the offer.
The financial statements and the derived ratios have been prepared in conformity to the
extant guidelines and the same have been certified by the statutory auditors of the Bank. The
Bank is also governed by the prudential norms of RBI for income recognition, NPA
provisioning etc.

NOTES

1. Networth of the Bank as on March 31, 2003 was Rs741.08 crores
2. The present Public Issue of the Bank aggregates Rs. 200 to Rs. 240 crores.
3. The Book Value per share as on March 31, 2003 for Rs. 10/- face value is Rs. 22.46.
4. Cost per share of the Bank to the Government of India is Rs. 10.

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5. The Bank has adjusted its accumulated losses of Rs. 297.07 crores by setting off the same
against the paid-up capital as on March 31, 2000.
6. As per Section 3 (2E) of the Bank Nationalisation Act, no shareholder other than Central
Government shall be entitled to exercise voting rights in respect of any equity shares
held by him/her in excess of one per cent of the total voting rights of all the shareholders
of the Bank.
7. Section 3(2B)(c) of the Bank Nationalisation Act provides that the paid-up capital may,
from time to time, be increased by such amounts as the Board of Directors of the Bank
may, after consultation with the RBI and with the previous sanction of the Central
Government, raise by Public Issue of equity shares as may be prescribed, so however,
that the Central Government, at all times, hold not less than fifty-one per cent of the
paid-up capital of each of the Corresponding New Bank.
8. The shareholders of the Bank do not have a right to receive dividend within 42 days as is
available to companies under the Companies Act.
9. RBI carries out regular inspection of all Banks. The inspection of the Bank by RBI is a
regular exercise and is carried out periodically for all the banks and Financial
Institutions. The reports of RBI are strictly confidential and the Bank has informed RBI
about the actions already taken and measures that are under implementation in respect
of observations made by RBI in its report for the year 2001-02.
10. VHFL, a subsidiary of Vijaya Bank has entered into the following transactions with
Vijaya Bank during the last three years:
(Rs. in lakhs)
Particulars 2000-2001 2001-2002 2002-2003
Term Loan availed during the year Nil 1500.00 2500.00
Term Loan repaid during the year Nil 75.00 406.00
Interest on Term Loan Nil 91.02 153.24
Fixed Deposits made with Vijaya
Bank during the year
5 Nil 1103.25
Fixed Deposits matured/
withdrawn from Vijaya Bank
5 Nil 1100.00
Investments made through Vijaya
Bank
Nil Nil i) GS 2012 for Rs.20.00
lakh.
ii) Karnataka Bond
KSDL 2012 for Rs.
100.00 lakh.

Details of Rent Paid to Vijaya Bank for Premises used by Vibank Housing Finance Ltd.
(in Rupees)
Particulars 2000-2001 2001-2002 2002-2003
Vijaya Bank premises used
by Vibank Housing Finance
Ltd.

Primrose Road,
Infantry Road,
Mangalore &
Mumbai
Infantry Road,
Mangalore &
Mumbai
Mangalore &
Mumbai
Rent paid to Vijaya Bank Rs. 2,74,149.50 Rs. 1,67,331.60 Rs. 1,15,364.60

11. Vijaya Bank had following transactions with Visveshvarya Grameena Bank during last
three years.
(Amount in Rupees)
Sr.
No.
Particulars 2003 2002 2001
1. All loans taken as on Balance

ix
Sheet date
- Overdraft

228,00,000

229,05,000

187,28,000
2. All Deposit with Vijaya Bank on
Balance Sheet date
3,00,00,000 11,05,00,000 9,45,00,000
3. Interest paid on loans for the year
- On Overdraft
17,73,000 14,92,000 13,68,000
4. Interest earned on deposits for the
year
81,07,718 1,01.98,599 92,70,847
5. Dividend paid to Vijaya Bank - - -
6. Dividend received from Vijaya
Bank
32,640 32,640 8,160
7. Current Account maintained with
Vijaya Bank as on Balance Sheet
date
2,69,13,279 2,73,70,673 3,05,72,489
8. Remuneration to Vijaya Bank
Employee on deputation as
Chairman
2,72,117 2,64,939 2,54,961
9. Share Capital held in Vijaya Bank 2,72,000 2,72,000 2,72,000
10. Share Capital held by Vijaya Bank 35,00,000 35,00,000 35,00,000
11. Deposit from Vijaya Bank as Share
Capital Deposit
148,14,000 148,14,000 148,14,000
12. Investments in Bonds of Vijaya
Bank
45,00,000 45,00,000 45,00,000
13. Interest earned on Bonds of Vijaya
Bank
5,55,750 5,55,750 5,55,750

x

Important notes:
1. The financial information as contained in PART II including the notes to accounts,
significant accounting policies as well as auditors qualifications has been duly certified
by the statutory auditors of the Bank. As far as possible, these audited numbers have
been used for computation or derivation of other financial information contained in the
offer document. However, such other financial information contained in the offer
document except as contained in PART II, has been certified by the management of the
Bank.
2. In terms of recommendations of RBI Working Group on Consolidated Accounting and
Other Quantitative Methods to Facilitate Consolidated Supervision (December 2001), all
banks, whether listed or unlisted, should prepare and disclose Consolidated Financial
Statement (CFS) from the financial year commencing from April 1, 2002. Conforming to
the said requirement, the Auditors have provided consolidated financial statements of
the Bank in their report contained in Part II of the offer document.
3. Some sections of the Offer Document such as the Corporate Vision, Mission & Strategy,
Loan Policy etc. may contain some qualitative forward-looking statements, which may
not materialise in future. Investors are requested to exercise due discretion while
perusing such sections.
4. RBI carries out annual inspection of all Banks and Financial Institutions and as such the
inspection is an ongoing exercise. The inspection reports of RBI are strictly confidential.
RBI has issued its report for the financial year 2001-02 to Vijaya Bank and Vijaya Bank
has replied to the report.

HIGHLIGHTS

1. Professionally managed bank with 71 years of existence.
2. Capital Adequacy of 12.66% as on March 31, 2003, as against the minimum requirement of
9% specified by RBI.
3. Net NPA to net advances at 2.61% much lower than the average level for PSU Banks
4. Consistent growth in deposits: The deposits of the Bank have grown at a CAGR of 15.12% to
Rs. 17019.8 crores
5. Consistent growth in advances: The advances have grown at a CAGR of 20.30% to Rs. 7891.3
crores during the past 5 years.
6. Total business crossed Rs. 25,000 crore mark and stood at Rs. 25,204 crore in March 2003.
7. Well spread branch network - 843 branches spread over 28 states and 4 Union territories.
Strong presence in the fast growing Southern states.
8. Diversified business activities encompassing Merchant Banking, Credit Cards, ATMs,
Housing Finance, Fast Collection Services, etc.
9. A well-diversified loan portfolio spread over many industries.
10. As at the end of March 2003, 356 branches were computerised (accounting for 78.26% of the
business)

1

VIJAYA BANK

(A Government of India Undertaking)
Constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1980
Head Office: 41/2, M.G. Road, Bangalore 560001, Karnataka
Telephone no. (080) 558 4066 Fax no. (080) 558 8853 E-mail: vijbank@vsnl.com

Public Issue of 10 crore-equity shares of Rs. 10 each for cash at a premium of Rs. 10 to Rs. 14
(i.e. at a price band of Rs. 20 to Rs. 24) aggregating Rs. 200 crore to Rs. 240 crore

PART I

I. GENERAL INFORMATION

Vijaya Bank (hereinafter referred to as the Bank) was incorporated as a Limited Company under
the Indian Companies Act 1913 on May 1, 1931. Subsequently, it was constituted as a
Corresponding New Bank under the Banking Companies (Acquisition and Transfer of
Undertakings) Act 1980.

The Bank is now offering for subscription 10 crore-equity shares of Rs. 10 each for cash at a price
band of Rs. 20 to Rs. 24 aggregating Rs.200 crores to Rs. 240 crores. This includes 1,00,00,000
equity shares of Rs. 10 each for cash at a price band of Rs. 20 to Rs. 24 aggregating Rs. 20 crores to
Rs. 24 crores reserved for permanent/ regular employees and Wholetime Working Directors of
the Bank.

The final offer price of the issue of equity shares shall be decided by the Committee of Directors
prior to filing the offer document with the Bangalore Stock Exchange (Regional Stock Exchange).

AUTHORITY FOR THE PRESENT ISSUE

The issue of equity shares is being made pursuant to the sanction of Government of India (GoI)
in consultation with the Reserve Bank of India (RBI), vide their letter no. F.No.11/15/2001-BOA
dated 09.06.2003, under Section 3(2B)(c) of the Banking Companies (Acquisition and Transfer of
Undertakings) Act 1980, as amended by the Banking Companies (Acquisition and Transfer of
Undertakings) Act 1994, Banking Companies (Acquisition and Transfer of Undertakings) Act
1995, Banking Companies (Acquisition and Transfer of Undertakings) Act 1996, (herein
collectively referred to as the Bank Nationalisation Act), to increase the paid-up capital, the
resolution passed at the meeting of the Board of Directors of the Bank (the Board), held on March
27 2003 and the resolution passed by shareholders of the Bank in the Annual General Meeting
held on June 19 2003. The Bank has written to RBI vide its letter no. MBD: HO: MM:2266:2003
dated July 3 2003 seeking a permission to enable NRIs, FIIs and OCBs to participate in the public
issue on a repatriable basis.

It is to be distinctly understood that the sanction/ approval of the GoI and RBI should not in any
way be deemed or construed that the Offer Document has been cleared or approved by them nor
do they take any responsibility either for the financial soundness of the Bank or the correctness of
the statements made or opinions expressed in the Offer Document.

The Bank can undertake the activities proposed by it in view of the present approvals, and no
further approvals from any Government authority are required by the Bank to undertake the
proposed activities.

2

DISCLAIMER CLAUSE

IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THE DRAFT
OFFER DOCUMENT TO SEBI SHOULD NOT, IN ANY WAY, BE DEEMED OR
CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI
DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS
OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE
MADE OR FOR THE CORRECTNESS OF STATEMENTS MADE OR OPINIONS
EXPRESSED IN THE OFFER DOCUMENT. LEAD MERCHANT BANKER, SBI CAPITAL
MARKETS LTD., HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE DRAFT
OFFER DOCUMENT ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH
SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES IN FORCE FOR THE
TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN
INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE.

IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER IS
PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE
OF ALL RELEVANT INFORMATION IN THE DRAFT OFFER DOCUMENT, THE LEAD
MERCHANT BANKER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT
THE BANK DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND
TOWARDS THIS PURPOSE, THE LEAD MERCHANT BANKER, SBI CAPITAL MARKETS
LTD., HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED ________,
2003, IN ACCORDANCE WITH SEBI (MERCHANT BANKERS) REGULATIONS,
1992,WHICH READS AS FOLLOWS:

1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO
LITIGATIONS LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH
COLLABORATORS ETC., AND OTHER MATERIALS IN CONNECTION WITH THE
FINALISATION OF THE DRAFT OFFER DOCUMENT PERTAINING TO THE SAID ISSUE,
2. ON THE BASIS OF SUCH EXAMINATIONS AND THE DISCUSSIONS WITH THE BANK,
ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT
VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE,
PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN
THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE BANK,

WE CONFIRM THAT:
a) THE DRAFT OFFER DOCUMENT FORWARDED TO SEBI IS IN CONFORMITY WITH
THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE,
b) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO
THE GUIDELINES, INSTRUCTIONS, ETC. ISSUED BY SEBI, THE GOVERNMENT
AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY
COMPLIED WITH; AND
c) THE DISCLOSURES MADE IN THE DRAFT OFFER DOCUMENT ARE TRUE, FAIR
AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL INFORMED
DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE.
3. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN
THE DRAFT OFFER DOCUMENT ARE REGISTERED WITH SEBI AND THAT TILL DATE
SUCH REGISTRATION IS VALID.

The Lead Manager has issued a fresh due diligence Certificate dated _____________, which
reiterates the statements made in the above referred certificate and states that all observations

3
made by SEBI, vide letters no. _____________________ dated ______________, have been
incorporated in the Offer Document.

Filing of the draft Offer Document with SEBI does not, however, absolve the Bank from any
liabilities under Section 63 or 68 of the Companies Act, 1956 or from the requirement of obtaining
such statutory or other clearances as may be required for the purpose of the proposed issue. SEBI
further reserves the right to take up, at any point of time, with the Lead Merchant Banker (s), any
irregularities or lapses in the Offer Document.

DISCLAIMER IN RESPECT OF JURISDICTION
This offer is made in India to persons resident in India, NRIs/OCBs on a non-repatriation basis
and NRIs/OCBs/FIIs on a repatriable basis subject to approval of RBI. This Offer Document does
not, however, constitute an offer to sell or an invitation to subscribe to shares offered hereby in
any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such
jurisdiction. Any person into whose possession this Offer Document comes is required to inform
himself about and to observe any such restrictions. Disputes arising out of this Issue shall be
subject to the jurisdiction of appropriate Court(s).

DISCLAIMER CLAUSE OF THE BANGALORE STOCK EXCHANGE LTD.
The Stock Exchange, Bangalore (BgSE) has given, vide its letter no. _______ dated ______,
permission to the Bank to use the name of the Exchange in this Offer Document as one of the
stock exchanges on which this Banks securities are proposed to be listed. BgSE has scrutinised
this Offer Document for its limited internal purpose of deciding on the matter of granting the
aforesaid permission to the Bank. BgSE does not in any manner

1. Warrant, certify or endorse the correctness or completeness of any of the contents of this
Offer Document;
2. Warrant that this Banks securities will be listed or will continue to be listed on BgSE; or
3. Take any responsibility for the financial or other soundness of this Bank, promoters,
management or any scheme or project of this Bank;

And it should not be, for any reason be deemed or construed that this Offer Document has been
cleared or approved by BgSE. Every person who desires to apply for or otherwise acquires any
securities of this Bank may do so pursuant to independent inquiry, investigation and analysis
and shall not have any claim against BgSE, whatsoever, by reason of any loss which may be
suffered by such person consequent to or in connection with such subscription/ acquisition
whether by reason of anything stated in the Offer Document or any other reason whatsoever.

DISCLAIMER CLAUSE OF THE STOCK EXCHANGE, MUMBAI
The Stock Exchange, Mumbai (BSE) has given, vide its letter no. ______dated ________
permission to the Bank to use the name of the Exchange in this Offer Document as one of the
stock exchanges on which this Banks securities are proposed to be listed. The Exchange has
scrutinised this Offer Document for its limited internal purpose of deciding on the matter of
granting the aforesaid permission to the Bank. The Exchange does not in any manner

1. warrant, certify or endorse the correctness or completeness of any of the contents of this
Offer Document;
2. warrant that this Banks securities will be listed or will continue to be listed on BSE; or
3. take any responsibility for the financial or other soundness of this Bank, promoters,
management or any scheme or project of this Bank;

4
And it should not be, for any reason be deemed or construed that this Offer Document has been
cleared or approved by the Exchange. Every person who desires to apply for or otherwise
acquires any securities of this Bank may do so pursuant to independent inquiry, investigation
and analysis and shall not have any claim against the Exchange, whatsoever, by reason of any
loss which may be suffered by such person consequent to or in connection with such
subscription/ acquisition whether by reason of anything stated in the Offer Document or any
other reason whatsoever.

DISCLAIMER CLAUSE OF THE NATIONAL STOCK EXCHANGE OF INDIA LIMITED

As required, a copy of this Offer Document has been submitted to National Stock Exchange of
India Limited (hereinafter referred to as NSE). NSE has given vide its letter no. _______dated
_______, permission to the Issuer to use the Exchange's name in this Offer Document as one of
the stock exchanges on which this Issuer's securities are proposed to be listed. The Exchange has
scrutinised this Offer Document for its limited internal purpose of deciding on the matter of
granting the aforesaid permission to this Issuer. It is to be distinctly understood that the aforesaid
permission given by NSE should not in any way be deemed or construed that the Offer
Document has been cleared or approved by NSE; nor does it in any manner warrant, certify or
endorse the correctness or completeness of any of the contents of this Offer Document, nor does
it warrant that this Issuer's securities will be listed or will continue to be listed on the Exchange;
nor does it take any responsibility for the financial or other soundness of this Issuer, its
promoters, its management or any scheme or project of this Issuer.

Every person who desires to apply for or otherwise acquire any securities of this Issuer may do
so pursuant to independent inquiry, investigation and analysis and shall not have any claims
against the Exchange whatsoever by reason of any loss which may be suffered by such person
consequent to or in connection with such subscription/ acquisition whether by reason of
anything stated or omitted to be stated herein or any other reason whatsoever."

GENERAL DISCLAIMER
The Issuer and the Lead Manager accept no responsibility for the statements made otherwise
than in the Offer Document or in the advertisements or any other material issued by or at the
instance of the Issuer and that anyone placing reliance on any other source of information would
be doing so at his/ her own risk.

All information shall be made available by the Lead Managers and the Bank to the public and
investors at large and no selective and additional information would be available for a section of
investors in any manner whatsoever.

FILING
The draft Offer Document was filed with SEBI, Nariman Point, Mumbai and SEBI has given its
observations on the same on __________. A copy of this Offer Document along with the
documents referred under the head Material Contract and Documents in the Offer Document,
has been delivered for registration to the Bangalore Stock Exchange (being the Regional Stock
Exchange). The complete copy of the documents has been kept open for public inspection at the
Head Office of the Bank.

LISTING
Applications have been submitted to the Stock Exchanges at Mumbai, Bangalore and the
National Stock Exchange to list the new equity shares now being offered through this Offer
Document and for permission to deal in such shares.

5
If the permissions to deal in and for an official quotation of the equity shares are not granted by
any of the Stock Exchanges, the Bank shall forthwith repay, without interest, all such moneys
received from the applicants in pursuance of this Offer Document. If such money is not repaid
within eight days after the Bank becomes liable to repay it (i.e. from the date of refusal or within
70 days from the date of closing of the subscription list, whichever is earlier), then the Bank will
be liable to repay the money, with interest, as prescribed under Section 73 of the Companies Act.

ELIGIBILITY OF THE BANK TO COME OUT WITH THE PUBLIC ISSUE
The SEBI (Disclosure and Investor Protection) Guidelines, 2000 prescribe eligibility norms for a
company to list its shares. Clause 2.3 of the Guidelines specify the eligibility requirements for
Public Issue by a listed company. Clause 2.4.1, however, exempts a banking company from these
requirements. Hence in terms of Clause 2.4.1, the Bank is eligible to come out with Public Issue.
The Bank has received necessary approvals for making the Issue through the fixed price route.

PROHIBITION BY SEBI
The Bank, its associates and companies with which the directors of the Bank are associated as
directors or promoters are not prohibited from accessing the capital market under any order or
directions passed by SEBI.

ISSUE OF SHARES IN DEMATERIALISED FORMAT
The Bank has entered into a tripartite agreement with NSDL and CDSL dated 28.07.2000 and
22.08.2000 respectively for dematerialisation of shares for the existing/proposed shareholders.
The Bank has also given an option to the subscribers / shareholders / investors to receive the
share certificates in physical form or in the demat form.

IMPERSONATION
As a matter of abundant caution, the attention of the investor is drawn to the provision of Section
68 (A) of the Companies Act, 1956, reproduced below:

"Any person who
(a) makes in a fictitious name an application to the Bank for acquiring or subscribing for any
shares therein; or
(b) otherwise induces the Bank to allot or register any transfer of shares therein to him or
any other person in a fictitious name

shall be punishable with imprisonment for a term which may extend to five years, as applicable
under the provisions of law.

MINIMUM SUBSCRIPTION
If the Bank does not receive the minimum subscription of 90% of the issue amount, on the date of
closure of the Issue, or if the subscription level falls below 90% after the closure of the Issue on
account of cheques having been returned unpaid or withdrawal of application, the Bank shall
forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after
the Company becomes liable to pay the amount, the Bank shall pay interest as per Section 73 of
the Companies Act, 1956.

LETTERS OF ALLOTMENT/ SHARE CERTIFICATES/ REFUND ORDERS
Letters of Allotment/ Share Certificates or Refund Orders, as the case may be, will be despatched
by Registered Post or as per extant postal rules at the sole risk of the applicant to the sole/ first
applicant within ten weeks from the date of closing of the subscription list. In accordance with

6
the extant postal rules the Bank will ensure dispatch of refund orders of value up to Rs. 1500/-
under Certificate of Posting and refund orders of value above Rs. 1500/- by Registered Post only.

Further,
a) as far as possible allotment of the equity shares shall be made within 30 days of the closure of
the Issue; and
b) the Bank shall pay interest at the rate of 15% per annum (except to the applicants applying
through Stockinvest) if the allotment has not been made and/or the Letters of Allotment/
Refund Orders have not been despatched to the investors within 30 days from the date of the
closure of the Issue, for the delayed period beyond 30 days.

The Bank will provide adequate funds to the Registrars to the Issue, for the purpose of despatch
of Letter(s) of Allotment/ Share Certificate(s)/ Letter(s) of Regret/ Cancelled Stockinvest(s)/
Refund Order(s). Despatch of share certificates/refund orders/cancelled stockinvests and demat
credit would be completed and allotment and listing documents shall be submitted to the Stock
Exchanges within 2 working days of finalisation of the basis of allotment.

DENOMINATION OF SHARES
The Bank undertakes that at any given time, there shall be only one denomination for the shares
of the Bank and that the Bank shall comply with such disclosures and accounting norms
specified by SEBI from time to time.

DISPOSAL OF APPLICATIONS AND APPLICATION MONEY
The Bank reserves, in its own, absolute and uncontrolled discretion and without assigning any
reason, the right to accept in whole or in part or reject any application. If an application is
rejected in full, the entire application money received will be refunded to the applicant. If the
application is rejected in part, excess of the application money received will be refunded to the
applicant within 30 (thirty) days from the date of closure of the Issue. No interest will be payable
on the application money so refunded. Refund will be made by cheques or demand drafts
drawn in favour of the sole / first applicant (including the details of his / her savings/ current
account number and the name of the bank with whom the account is held) to the Issue and will
be despatched by Registered Post for amounts above Rs. 1,500 and by Certificate of Posting
otherwise. Such refund orders will be payable at par at specified centres.

The subscription received in respect of Public Issue will be kept in a separate bank account and
the Bank shall not have access to such funds unless approvals for dealing from all the Stock
Exchanges, where listing has been proposed and approval of the Bangalore Stock Exchange for
utilisation has been obtained.

The Bank has undertaken to make adequate funds available to the Registrars to the Issue for
complying with the requirements of despatch of Allotment Letters/Refund Orders by Registered
Post.

OVERSUBSCRIPTION AND BASIS OF ALLOTMENT
In the event of the present Issue of equity shares being oversubscribed, allotment will be on
proportionate basis and the basis of allotment will be finalised in consultation with the Bangalore
Stock Exchange being the Regional Stock Exchange.

The drawal of lots (where required) to finalise the basis of allotment, shall be done in the
presence of a Public Representative on the governing board of the Regional Stock Exchange. The
Executive Director/Managing Director of the Regional Stock Exchange along with the post-issue

7
Lead Managers and the Registrars to the Issue shall be responsible to ensure that the basis of
allotment is finalised in a fair and proper manner in accordance with the SEBI Guidelines.

The allotment shall be on proportionate basis under the reservation for employees category as
well as under the net public offer category, subject to allotment of Shares in marketable lots, and
the basis of allotment would be arrived at as explained below:

1. Applicants will be categorised according to the number of shares applied for.
2. The total number of shares to be allotted to each category as a whole shall be arrived at
on a proportionate basis i.e. the total number of shares applied for in that category
(number of applicants in the category x number of shares applied for) multiplied by the
inverse of the oversubscription ratio.
3. Number of shares to be allotted to the successful allottees will be arrived at on a
proportionate basis i.e. total number of shares applied for by each applicant in that
category multiplied by the inverse of the oversubscription ratio.
4. In all the applications where the proportionate allotment works out to less than 100
shares per applicant, the allotment shall be made as follows:
a. Each successful applicant shall be allotted a minimum of 100 shares.
b. The successful applicant out of the total applicants for that category shall be
determined by draw of lots in such a manner that the total number of shares
allotted in that category is equal to the number of shares worked out as per 2
above.
5. If the proportionate allotment to an applicant works out to a number that is more than
100 but is not a multiple of 100, it would be rounded off to the higher multiple of 100 if
that number is 50 or higher. If that number is lower than 50, it would be rounded off to
the lower multiple of 100. All applicants in such categories would be allotted shares
arrived at after such rounding off.
6. If the shares allocated on a proportionate basis to any category are more than the shares
allotted to the applicants in that category, the balance available shares for allotment shall
be first adjusted against any other category where the allocated shares are not sufficient
for proportionate allotment to the successful applicants in that category. The balance
shares, if any, remaining after such adjustment will be added to the category comprising
of applicants applying for minimum number of shares.
7. A minimum 50% of the net offer of equity shares to the public will be made available for
allotment in favour of those individual applicants who have applied for such number of
shares the value of which aggregates to Rs. 50,000 or less (i.e. an application for 2083-
2500 shares or less). This percentage may be increased in consultation with the Bangalore
Stock Exchange depending on the extent of response to the Issue from investors in this
category. The balance of the net offer of equity shares to the public shall be made
available for allotment to investors, including Corporate Bodies, Institutions and
individual applicants who have applied for such number of shares the value of which
aggregates to more than Rs. 50,000 (i.e. an application for 2083-2500 shares or more). The
unsubscribed portion of the net offer to any one of the above two categories shall be
made available to the applicants in the other category, if so required and allotment made
on a proportionate basis as per the relevant SEBI guidelines.
In the event of oversubscription, in the process of rounding off to ensure allotment in marketable
lots, the Bank will make adjustments in the basis of allotment as may be necessary in consultation
with the Regional Stock Exchange (Bangalore).

8

INTEREST ON EXCESS APPLICATION MONEY
Payment of interest at the rate of 15% per annum on excess application will be made to the
applicants for the delayed period, if any, where allotment of equity shares and issuance of
Refund Orders takes place beyond 30 days from the date of closure of the Issue

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

UTILISATION OF ISSUE PROCEEDS
The Board of Directors of the Bank undertakes that:

1. all monies received out of issue of shares to public shall be transferred to separate bank
accounts other than the bank account referred to in sub-section (3) of section 73 of the
Companies Act, 1956;
2. details of all monies utilised out of the issue referred to in sub-item (a) shall be disclosed
under an appropriate separate head in the Balance Sheet of the Bank indicating the purpose
for which such monies had been utilised
3. details of all unutilised monies out of the issue of shares, if any, referred to in sub-item (a)
shall be disclosed under an appropriate separate head in the Balance Sheet of the Bank
indicating the form in which such unutilised monies have been invested.
4. the utilization of monies received under reservations shall be disclosed under an appropriate
head in the Balance Sheet of the Bank indicating the purpose for which such monies have
been utilised
5. details of all unutilised monies out of funds received under reservations shall be disclosed
under an appropriate separate head in the Balance Sheet of the Bank indicating the form in
which such unutilised monies have been invested.

ISSUE PROGRAMME
THE SUBSCRIPTION LIST WILL OPEN AT THE COMMENCEMENT OF BANKING HOURS
AND WILL CLOSE AT THE CLOSE OF BANKING HOURS ON THE DATES MENTIONED
BELOW:

ISSUE OPENS ON : -------------------------
ISSUE CLOSES ON : -------------------------

ISSUE MANAGEMENT TEAM


202, Maker Tower E
Cuffe Parade
Mumbai 400 005
Tel: (022) 218 9166
Fax: (022) 218 8332
Email: vijaya.cmg@sbicaps.com

9

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

J M MORGAN STANLEY LTD.
141, Maker Chambers III,
Nariman Point
Mumbai 400 021
Tel: 022-56303030
Fax: 022-56301694
Email: vijayabankipo@jmmorganstanley.com

ALLIANZ SECURITIES LTD
C-2, Green Park Extension,
New Delhi- 110 016
Tel: 011- 26568613/8618
Fax: 011-26969478
Email: _________

A K CAPITAL SERVICES
Flat No N, Sagar Apartments,
6, Tilak Marg,
New Delhi - 110 001
Tel: 011-23385704/8235
Fax: 011-23385189
Email: __________

Co-Managers to the Issue

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

Centrum Finance Ltd.
2
nd
Floor,
Bombay Mutual Building,
Dr. D N. Road,
Fort, Mumbai -400001.
Tel: 022-22662434
Fax: 022-22663458
Email: _________

10
Registrar to the Issue

MCS Limited
Road No.16, M.I.D.C. Area,
Andheri (East) MUMBAI 400 093
Tel: (022) 28201785
Fax: (022) 28201783

Legal Advisor to the Issue

K.S. Hanumantha Rao, Advocate
579, 31
st
Cross Road, 10
th
Main,
4
th
Block, Jayanagar,
Bangalore 560 011
Tel: 080-6631 209
Fax: 080-6650 019
E-mail: _________

AUDITORS OF THE BANK
Statutory Central Auditors of the Bank, as appointed under Section 10(1) of the Bank
Nationalisation Act, are as under:

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

M/s S.P. Marwaha & Co.,
8-A/4 Western Extension Area,
Karolbagh
New Delhi-110 005
Tel: (011)-25746813/25713448
M/s. Prasad Azad & Co
Chartered Accountants
7/7, Desh Bandu Gupta Road,
Paharganj,
New Delhi 110 055
Tel: (011) 23580803/ 23586183
M/s D.V. Ramana Rao & Co.,
Gandhinagar,
Opp. Park II
Hyderabd 500 080
Tel: (040) 7613712/7636975

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

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

Head Office
Vijaya Bank
41/2, M.G. Road

11
Bangalore 560 001
Tel: (080) 558 4066
Fax: (080) 558 8853
Email:vijbank@vsnl.com

Regional Offices
As on March 31, 2003, the Bank had a total of 14 regional offices. These are as follows:

AHMEDABAD
Kamadhenu Complex
Opp Polytechnic, Ambavadi
Ahmedabad 380 015
Tel (079) 6307192,6306893
Fax:079-6307860
Email:vbroahmd@vsnl.net
BANGALORE
Shrutha Complex
No.19, Primrose Road
Off M G Road
Bangalore 560 025
Tel (080) 5582748,5582749
Fax: (080) 5596802
Email:ban.ro9124@vijbank.co.in
KOLKATA
Trimurthy Apartments
5
th
Floor
97/1, Park Street
Calcutta 700 016
Tel (033) 2261182,2269145
Fax (033) 2262163
Email: vbrokol@vsnl.net
KOCHI
1
st
Floor, Jose Annexe
Jose Junction
M.G. Road
Ernakulam
Kochi - 682 016
Tel (0484) 369603,384332
Fax:0484-372919
Email: vbrokochi@sancharnet.in
DELHI
Vijaya Building
17, Barakhamba Road,
New Delhi 110 001
Tel: 011- 3711093,3711098
Fax: 011-3721080
Email:vbrodel@vsnl.net
CHENNAI
Dugar Towers, I Floor
123, Rukmani Lakshmipathi Road
Egmore
Chennai 600 008
Tel:044-8553005,8553935
Fax:044-8555189
Email:vbrochennai@vsnl.net
GUWAHATI
Ispat Bhavan
Maulana Azad Road, Rahabari
Guwahati 781 008
Tel:541123
Fax: 0361-548803
Email:vbroguwahati@hotmail.com

HUBLI
V A Kalburgi Mansion
1
st
Floor, P B No.17
Lamington Road
Hubli 580 020
Tel:0836-363003,361171
Fax:0836-366303
Email: vbrohbl@sancharnet.in
HYDERABAD
P B No.218
306, 307 & 308, III Floor
Babukhan Estate
Basheerbagh
Hyderabad 500 001
Tel: 040-3232993,3232994
Fax: 040-3243307
Email:vbrohyd@hd2.dot.net.in
LUCKNOW
P B No.183
Nehru Bhavan
No.1, B N Road, II Floor
Kaiserbagh
Lucknow 226 001
Tel:0522-216566,221495
Fax:0522-223854
Email: rolucknow@yahoo.co.in
MANGALORE MUMBAI

12
Vijaya Tower
L H H Road
Mangalore 575 003
Tel:0824-442903,442904
Fax:0824-442902
Email: vbromglore@sancharnet.in
Vikas Centre
1
st
Floor, S V Road
Santa Cruz (West)
Mumbai 400 054
Tel:6126584,6126099
Fax:022-6109004
Email:vbromumbai@vsnl.net
MYSORE
P B No.11
Near K R Circle
Santhepet
Mysore 570 001
Tel:0821-423928,431109
Fax:0821-430923
Email: vbromysore@sancharnet.in
VIJAYAWADA
Post Box No.811
31-3-4B, I Floor
Marutinagar, I Street
Vijayawada 520 004
Tel:0866-433341
Fax:0866-430213
Email: vbrovij@sancharnet.in

COMPLIANCE OFFICER
K. Gopalakrishnan Nair
Company Secretary
Vijaya Bank
Head Office
41/2, M G Road
Bangalore 560 001
Tel: (080) 558 4066 Fax: (080) 558 8853
E-mail: vijbank@blg.vsnl.net.in

CREDIT RATING/ TRUSTEES
Since the present issue is of equity shares credit rating and appointment of trustees is not
required.

UNDERWRITING
The present issue of equity shares is not underwritten.

UNDERTAKING BY THE BANK
The Bank undertakes

a) that the complaints received in respect of the Issue shall be attended to by the Bank expeditiously
and satisfactorily;
b) that all steps for completion of the necessary formalities for listing and trading at all stock exchanges
where the securities are to be listed are taken within 7 working days of finalisation of the basis of
allotment.
c) that it shall apply in advance for the listing of equity shares
d) that the funds required for despatch of refund orders/allotment letters/ certificates by registered
post shall be made available to the Registrar to the Issue
e) that the certificates of the securities/refund orders to the Non-Resident Indians shall be despatched
within specified time.
f) that no further issue of securities shall be made till the securities offered through this offer document
are listed or till the application moneys are refunded on account of non-listing, undersubscription,
etc.

13

II. CAPITAL STRUCTURE
As on March 31 2003
(in Rs.)
A. Authorised capital Face Value Total amount
including premium
150,00,00,000 Equity Shares of Rs. 10/- each 15,00,00,00,000 15,00,00,00,000
B. Issued, subscribed and paid up capital*
33,35,17,800 Equity Shares of Rs. 10/- each 333,51,78,000 333,51,78,000

C. Present issue through this Offer Document
At Rs. 20 At Rs. 24
10,00,00,000 Equity Shares of Rs. 10/- each for
cash at a premium of Rs.10 to Rs. 14
100,00,00,000 200,00,00,
000
240,00,00,
000
Out of which
1,00,00,000 Equity Shares of Rs.10/- each for
cash at a premium of Rs.10 to Rs.
14are reserved for allotment to
Permanent Employees/ Wholetime
Working Directors of the Bank
10,00,00,000 20,00,00,0
00
24,00,00,0
00
D. Net offer to Indian public
9,00,00,000 Equity Shares of Rs. 10/- each at
par
90,00,00,000 180,00,00,
000
216,00,00,
000

E. Paid - up capital after the issue
43,35,17,800 Equity Shares of Rs. 10 each 433,51,78,000 433,51,78,000
Share premium account
Before the issue Nil
After the issue 100,00,00,
000
140,00,00,
000

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

Notes to Capital Structure
1. Share Capital history (since nationalisation on April 15, 1980)
(Rs. in crores)
Year ended
March 31,
Increase/ (Decrease) in
capital
Mode Paid-up
capital
1980 NA NA 1.17
1984 0.10 Contribution to Capital by GoI 1.27

14
2000 (297.07) Adjustment of accumulated losses
against capital
259.23
2001 100.00 Public Issue of Equity shares 359.24
2002 (25.72) Return of Capital 333.52

2. Lock-in of shares of Government of India
The details of the lock-in are given in the following table.

Date of
Allotment/
acquisition
Date when
made fully
paid-up
Consideration No. of Shares Issue
Price
(Rs.)
% of Post
Issue Paid
up Capital
Lock in for
a period
March 27
1997
March 27
1997
Recapitalisation
Bonds
8,67,04,000 At par 20% 3 years
from the
date of
allotment in
the Public
Issue.

The Bank has written to GoI vide its letter no. MBD: HO:MM:2224:03 dated June 30 2003
requesting the GoI to provide its consent for the said lock-in of shares. The Government of India
vide its letter no. _______ dated ________ has given its approval to lock-in of 20% of the post
issue capital for 3 years from the date of allotment in the public issue.

3. The Government of India, Ministry of Finance, Department of Economic Affairs (Banking
Division), vide its letter No. F. No. 11/15/2001-BOA dated 09.06.2003, in exercise of the
powers conferred by Section 3(2BB) inserted in the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970 by the Banking Companies (Acquisition and Transfer of
Undertakings) Amendment Act, 1995, and in consultation with the Reserve Bank of India has
permitted the Bank for reducing its paid-up capital by adjusting accumulated losses of
Rs.297.07 crores from its paid-up capital as on March 31, 2000. The present paid-up capital of
the bank is Rs. 333.52 crores.

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

4. Under section 3A of the Bank Nationalisation Act, no notice of any Trust, express, implied or
conservative, shall be entered on the register or be receivable by the Bank. In terms of this
Section, while Trusts could make investments in equity shares of the Bank this could be only
in the name of the Trustee and no details of the Trust would be taken cognisance of by the
Bank on its Register of Shareholders.

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

15
6. Section 3(2B)(c) of the Bank Nationalisation Act provides that the paid-up capital may, from
time to time, be increased by such amounts as the Board of Directors of the Bank may, after
consultation with the RBI and with the previous sanction of the Central Government, raise by
Public Issue of equity shares as may be prescribed, so however, that the Central Government,
at all times, hold not less than fifty-one per cent of the paid-up capital of each of the
Corresponding New Bank.

7. In the event of oversubscription, in the process of rounding off to ensure allotment in
marketable lots, the Bank will make adjustments in the basis of allotment as may be
necessary in consultation with the Bangalore Stock Exchange (Regional), such that the Issue
size does not exceed 10,00,00,000 equity shares.

8. In the event of oversubscription, the allotment shall be made on a proportionate basis as is
outlined elsewhere in this Offer Document.

9. No applicant in the net offer to the public category can make an application for a number of
equity shares, which exceeds the net offer to the public.

10. No applicant in the reserved category for permanent/regular employees can make an
application for a more than 2000 equity shares in that category.

11. Only permanent/regular employees and Wholetime Working Directors of the Bank as on the
notified cut-off date, i.e., 31.03.2003, would be eligible to apply in this Issue under
reservation for employees on competitive basis. The number of permanent/ regular
employees of the Bank as on 31.03.2003 was 11723.

12. The unsubscribed portion, if any, out of the equity shares reserved for Employees of the Bank
on competitive basis, will be added back to the Net Offer to the Public under D above. In case
of under-subscription in the Net Offer to the Public under D above the spill over, if any,
under the reserved category for the Employees would be added to the Net Offer to the Public
to the extent of under subscription.

allotment in favour of those individual applicants who have applied 1,000 shares or less. This
percentage may be increased in consultation with the Bangalore Stock Exchange depending
on the extent of response to the Issue from investors in this category. The balance of the net
offer of equity shares to the public shall be made available for allotment to investors,
including Corporate Bodies, Institutions and individual applicants who apply for more than
1,000 shares. The unsubscribed portion of the net offer to any one of the above two categories
shall be made available to the applicants in the other category, if so required and allotment
made on a proportionate basis as per the relevant SEBI guidelines.

14. The GoI/ Directors of the Bank/ Lead Managers have not entered into any buy-back and/or
standby arrangements for purchase of the equity shares of the Bank with any person.

15. The Bank has not availed any Bridge Loan against the proceeds of this Issue.

16. GoI has not undertaken any transaction in the equity shares of the Bank in the last six
months, save as otherwise stated elsewhere in the Offer Document.

17. The Bank undertakes that it shall not make any further issue of capital whether by way of
issue of bonus shares, preferential allotment, rights issue or public issue or in any other

16
manner, during the period commencing from submission of Offer Document to SEBI for the
Public Issue till the securities referred in the Offer Document have been listed or application
monies refunded on account of failure of the issue. As on date, the Bank does not propose to
alter the capital structure by way of split/ consolidation of the denomination of shares or
issue of shares on preferential basis, or issue of bonus or rights or further public issue of
shares or any other securities within a period of six months from the date of opening of
present issue.

18. The list of top ten shareholders of the Bank as on 30.06.2003 and the shares held by them is as
follows:
Name of Shareholder Shares
held
% Of
Holding
Government of India 233517800 70.02
Birla Sun Life trustee Company
Pvt. Ltd a/t Birla Dividend Yield
Plus
2000000 0.60
Andhra Bank 1870775 0.56
Punjab & Sind Bank 1456390 0.44
Oriental bank of Commerce 1120798 0.34
Central Bank of India 997304 0.30
Gujrat Mineral Development
Corporation
777900 0.23
Indian Overseas Bank 724000 0.22
Bank of Baroda 704733 0.21
Srendra Mercendise Pvt Ltd. 450000 0.13
Total 243619700 73.05

The list of top ten shareholders of the Bank ten days prior to the date of Stock Exchange filing
and the shares held by them are as follows:
held
% Of
Holding

Total

The list of top ten shareholders of the Company two years prior to the date of Stock Exchange
filing and the shares held by them is as follows:
held
% Of
Holding

17

Total

III. TERMS OF THE PRESENT ISSUE
The equity shares are being offered, subject inter alia, to the terms of this Offer Document, the
application forms, the provisions for listing as specified in the guidelines issued by Stock
Exchanges and the GoI from time to time, the provisions of the Bank Nationalisation Act, the
Banking Regulation Act 1949, to the extent applicable, Companies Act 1956, to the extent
applicable, the Government of India, Ministry of Finance, Department of Economic Affairs
(Banking Division), vide their letter no. F.No.11/15/2001-BOA dated 09.06.2003 approving the
issue, terms and conditions in the allotment letter & share certificate, the guidelines for
Disclosure and Investor Protection issued by SEBI and the provisions of the Depositories Act
1996, to the extent applicable.

RIGHTS OF THE EQUITY SHAREHOLDERS
a) Right to receive dividend, if declared
b) Right to attend general meetings and exercise voting powers, unless prohibited by law
c) Right to vote either personally or by proxy, subject to Section 3(2E) of the Bank
Nationalisation Act.

TERMS OF THE ISSUE OF EQUITY SHARES
The Face Value of each Equity Share is Rs.10 and is being offered at a premium of Rs.

RANKING OF EQUITY SHARES
The equity shares now being offered shall rank pari passu with the existing shares of the Bank in
all respects save and except the following:

as provided in Section 3(2E) of the Bank Nationalisation Act, no shareholder other than
Central Government shall be entitled to exercise voting rights in respect of any equity shares
held by him/her in excess of one per cent of the total voting rights of all the shareholders of
the Bank.
The equity shares to be issued shall rank pari-passu with the existing equity shares of the
Bank including dividend.
the investors are requested to refer the section 15(1) of the Banking Regulation Act, 1949. As
per the above section No Banking company shall pay any dividend on its shares until all its
capitalised expenses (including preliminary expenses, organisational expenses, share selling
commission, brokerage, amounts of losses incurred and any other item of expenditure not
represented by tangible assets) have been completely written off. The Government of India,
Ministry of Finance, Dept. of Economic Affairs (Banking Division) vide letter no. F.
No.11/15/2001-BOA dated 09.06.2003 exempted the Bank from provisions of the said Section
15(1) relating to payment of dividend, for a period of five years. The Government has also
notified the same vide its official gazette no. ________ dated _________.

INTEREST IN CASE OF DELAY IN ALLOTMENT/REFUNDS

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

18

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

TERMS OF PAYMENT OF THE EQUITY SHARES
Applications should be for a minimum of 200 equity shares and in multiples of 100 thereafter.
The entire offer price of Rs. 20 to Rs. 24 per share is payable on application.

Where an applicant is allotted lesser number of equity shares than he/ she has applied for, the
balance if any, will be refunded to the applicant. No interest would be payable on application
money pending allotment up to 30 days from the date of closure of the Issue.

TRANSFER OF SHARES
As per Section 3 (2D) of the Bank Nationalisation Act, the shares of every corresponding new
Bank not held by the Central Government shall be freely transferable.

PROCEDURE FOR APPLICATION AND MODE OF PAYMENT

AVAILABILITY OF OFFER DOCUMENT AND APPLICATION FORMS

The Memorandum Form 2 A containing the salient features of the Offer Document together with
Application Forms and copies of the Offer Document may be obtained from the Head Office of
the Bank, all branches of the Bank, Lead Managers to the Issue, Co-Managers to the Issue,
Advisor to the Issue and at the collection centres of the Bankers to the Issue.

APPLICATION MAY BE MADE BY

(a) Indian Nationals resident of India who are Adult Individuals in single name or joint
names (not more than three)
(b) Hindu Undivided Families through the Karta of the Hindu Undivided Family
(c) Companies, Body Corporate and Societies registered under the applicable laws in India
and authorised to invest in the Shares
(d) Scientific and/or Industrial Research Organisations, which are authorised to invest in
the equity shares
(f) Indian Mutual Funds registered with SEBI
(g) Indian Financial Institutions & Banks
(h) Trusts who are registered under the Societies Regulation Act, 1860 or any other trust law
and are authorised under their constitution to hold and invest in shares subject to
provisions of Section 3A of the Bank Nationalisation Act
(i) Commercial Banks and Regional Rural Banks. Co-operative Banks subject to permission
from Reserve Bank of India
(j) Permanent and Regular employees of the Bank
(k) Non Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) on non-
repatriation basis
(l) Non - Resident Indians (NRIs)/ Overseas Corporate Bodies (OCBs)/ Foreign
Institutional Investors (FIIs) on repatriation basis (subject to approval of RBI)

APPLICATIONS NOT TO BE MADE BY

1. Minors
2. Foreign Nationals

19
3. Partnership firms or their nominees
4. Trusts (except as stated above)
5. HUFs (except as stated above)

A. GENERAL INSTRUCTIONS

1. Applications must be made in the prescribed application form and completed in Full in Block
Letters in English as per the instructions contained herein and in the application form and
are liable to be rejected if not so made. The prescribed application forms are of the following
colours:
Category Colour
Public/ NRIs, OCBs on non repatriation basis Printed on a white background form
NRIs, OCBs, FIIs on repatriation basis Printed on a Blue background form
Employees Printed on a pink background form

2. The application for equity shares should be for a minimum of 200 equity shares and in
multiples of 100 shares thereafter. An applicant under the reserved category for permanent/
regular employees can apply for maximum of 2000 equity shares in that category. An
applicant in the public category can make an application only for a maximum of equity
shares that are offered to the public.

3. Thumb impressions and signatures other than in English/ Hindi/ Kannada or any other
language specified in the 8
th
Schedule to the Constitution of India, must be attested by a
Magistrate or a Notary Public or a Special Executive Magistrate under his/ her official seal.

BANK ACCOUNT DETAILS OF APPLICANT
The name of the applicants Bank, Branch, type of account and account number must be filled in
the Application Form. This is required for the applicants own safety and these details will be
printed on the refund orders, if any. Applications without these details would be treated as
incomplete and are liable to be rejected.

APPLICATIONS UNDER POWER OF ATTORNEY
In case of applications under Powers of Attorney, or by Companies, Bodies Corporate, Societies
registered under the applicable laws, trustees of trusts, Provident Funds, Superannuation Funds,
Gratuity Funds and Scientific and/ or Industrial Research Organisations, a certified copy of the
Power of Attorney or the relevant authority, as the case may be, must be lodged separately at the
office of the Registrars to the Issue simultaneously with the submission of the application form,
indicating the serial number of the application form and the name of the Bank and the branch
office where the application is submitted.

PAN/ GIR NUMBER
Where an application is for a total value of Rs. 50,000 or more, i.e., 2083-2500 shares or more, the
applicant, or, in case of applications in joint names, each of the applicants should mention his/
her/ their Permanent Account number (PAN) allotted under Income Tax Act, 1961 or where the
same has not been allotted, the GIR Number and the IT Circle/ Ward/ District. In case where
neither the PAN nor the GIR Number has been allotted, or the applicant is not assessed to
Income Tax, the appropriate box provided for the purpose in the application form must be
ticked. Applications without this will be considered incomplete and are liable to be rejected.

20
NOMINATION FACILITY
As per Section 109A of the Companies Act, 1956, the Sole applicant/ Joint Applicant may
nominate, in the prescribed manner, a person to whom his share in the Bank shall vest in the
event of his death.

JOINT APPLICATIONS IN THE CASE OF INDIVIDUALS
Applications can be in single or joint names (not more than three). In the case of joint application,
all payments will be made out in favour of the first applicant. All communications will be
addressed to the first named applicant whose name appears in the Application form at the
address mentioned therein.

MULTIPLE APPLICATIONS
An applicant should submit only one application form (and not more than one) for the total
number of equity shares applied for. Two or more applications in single or joint names will be
deemed to be multiple applications if the sole and/ or first applicant is one and the same.

In case of applications by Mutual Funds, a separate application must be made in respect of each
scheme of an Indian Mutual Fund registered with SEBI and such applications will not be treated
as multiple applications, provided that the application made by the Asset Management
Company/ Trustees/ Custodian clearly indicate their intention as to the scheme for which the
application has been made.

Separate applications for electronic and physical equity shares by the same applicant shall be
considered as multiple applications. The Bank reserves the right to accept or reject, in its absolute
discretion, any or all-multiple applications.

Applications made by permanent/ regular employees of the Bank both under the reserved
category for employees as well as in the net public offer shall not be treated as multiple
applications.

A separate single cheque/draft/Stockinvest must accompany each application form.

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

Applications by NRIs/OCBs on non-repatriation basis can be made using the Form meant for
Public out of the funds held in Non Resident (Ordinary) Account (NRO)/ NRE Account. The
relevant bank certificate must accompany such forms. Such applications will be treated on par
with the applications made by the public.

For further instructions, please read the Application Form carefully.

B. PAYMENT INSTRUCTIONS

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

21
2. Outstation cheques/demand drafts drawn on Banks not participating in the clearing process
will not be accepted.

3. All cheques/ demand drafts accompanying the Application Form should be marked as
follows: Cheque/ bank draft must be made payable to the bankers to the issue and marked
A/c Vijaya Bank equity and crossed A/C payee only. For e.g. Vijaya Bank A/c
Vijaya Bank equity

4. All Stockinvests should be made payable to the Bank i.e. VIJAYA BANK and crossed
A/C PAYEE ONLY.

5. The applications shall be made only by way of cash/ cheque/ demand draft/ Stockinvest.
However, if the amount payable on application is Rs. 20,000/- or more together with any
earlier outstanding loan or deposit placed with Vijaya Bank by the applicant, such payment
must be effected only by way of an account payee cheque/ Stockinvest or Bank draft in
terms of section 269SS of the Income-Tax Act, 1961. Otherwise the applications may be
rejected and application money refunded without any interest.

PAYMENT BY STOCKINVEST

Applicants, being Individuals and Mutual Funds only, have the option of using the Stockinvest
instrument for payment of application money in lieu of cash/ cheque/ demand draft. Applicants
using Stockinvests should submit them along with the application form to any of the collecting
centres/ Bankers to the Issue mentioned in the application form. Stockinvests should be payable
at par at all the branches of the issuing Bank and as such outstation Stockinvests can be attached
to the application forms. Applicants can approach the Banks concerned for obtaining Stockinvest
and detailed instructions for the same. The stockinvests would be realised through Vijaya Bank.

The applicant has to fill in the following particulars:
1. Title of the Account as mentioned in the Application Form.
2. Number of equity shares applied for.
3. The amount payable on the equity shares applied for:

The instrument should thereafter be signed by the applicant. It should also bear the stamp of the
Bank issuing the instrument and should be crossed A/C Payee Only and made payable only to
VIJAYA BANK. Service charges, if any, for issuing the Stockinvest must be borne by the
applicant. The applicant should not fill in the portion to be filled up by the Registrars to the Issue
(right-hand portion of the instrument). The Registrars to the Issue will fill up the right-hand side
of the Stockinvest indicating the equity shares allotted to the applicants, calculated as follows:

i. In case of full allotment, the number of equity shares on the right-hand side will be the
same as that on the left-hand side of the instrument;
ii. In case of partial allotment, the number filled up by the Registrars to the Issue on the
right-hand side of the instrument will be less than the number filled up by the applicant
on the left-hand side;
iii. In case the allotment is nil, the number filled up by the Registrars to the Issue on the
right-hand side of the instrument will be nil.

The Stockinvest should be used by the Purchaser and the name of the Purchaser/one of the
Purchasers should be indicated as the first applicant in the Application Form. Thus, if the
signature of the purchaser on the Stockinvest and the signature of the first applicant in the

22
application form do not tally, the application would be treated as having been accompanied by a
third party Stockinvest and is liable to be rejected.

The Stockinvest instrument should be used by the Purchaser within 10 days from the date of the
issue of the instrument, failing which such applications are liable to be rejected. For the purpose
of calculating the 10 days, the last date for use of the Stockinvest for submitting the Application
Form to the Bank is indicated on the face of the Stockinvest with a notation to be used before ----
---------------------.

No refund order will be issued to the applicants using Stockinvest for payment of application
money. In case of non-allotment of equity shares, the cancelled Stockinvest instruments will be
returned to the applicant, within 10 weeks of closure of subscription list by Registered
Post/Speed Post. The applicant will have to approach the issuing Bank branch for lifting the lien.

Registrars to the Issue have been authorised by the Bank (through Resolution of the Board of
Directors passed by circulation on July 31, 2000) to sign the Stockinvests on behalf of the Bank, to
realise the proceeds of the Stockinvest from the issuing Bank, or to affix non-allotment advice on
the instrument, or to cancel the Stockinvest(s) of the non-allottee. Such cancelled
Stockinvest(s)shall be sent back by the Registrars directly to the investors. The currency of the
Stockinvest is four months.

Reserve Bank of India, vide its circular DBOD No. FSC.BC.100/ 24.47.001/94 dated September 2,
1994, has restricted the use of Stockinvest(s) to individual investors and Mutual Funds only.
Brokers, Corporate Bodies, Banks and Financial Institutions are not allowed to invest through
Stockinvest(s). A ceiling of Rs. 50,000/- per individual per Stockinvest by Banks has been
imposed. The above ceiling is not applicable to Mutual Funds.

In the interest of the investors, to avoid rejection of applications on technical grounds, it is
suggested that the applicant should ensure that
The date of issue of the Stockinvest by the issuing bank is clearly mentioned on the
instrument
The instrument is duly signed by the authorised officer of the bank giving his code number
The instrument bears the code number and the address of the issuing bank branch
Any correction/ alteration in the date of issue, amount, the name of the issuer (i.e. Vijaya
Bank), etc. should be attested by an authorised officer of the issuing bank
The applicant has clearly written the name of the issuer (i.e. Vijaya Bank), the amount and
signed the instrument
Amount written in the application form to be deposited and the amount of the instrument
accompanying the application form should be the same

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

SUBMISSION OF COMPLETED APPLICATION FORMS

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

Application Forms along with Bank Drafts payable at Mumbai can also be sent by registered
post with acknowledgement due to the Registrars M/s MCS Limited, Sri Padmavathi Bhavan,

23
Plot No.93, Road No.16, M.I.D.C. Andheri (E), Mumbai 400 093 so that the same can be
received before the closure of the subscription list.

No separate receipts will be issued for the application money. However, the Bankers to the Issue
or their approved collecting branches receiving the duly completed application form will
acknowledge receipt of the application by stamping and returning to the applicant the
acknowledgement slip at the bottom of each application form.

Applications shall be deemed to have been received by the Bank only when submitted to the
Bankers to the Issue at their designated branches or on receipt by the Registrars as detailed above
and not otherwise.

The Bank has applied to Reserve Bank of India vide its letter no. MBD: HO: MM: 2266:2003 dated
July 3 2003 to permit the Bank to offer shares offered through the present public issue to
NRIs/FIIs/OCBs on a repatriable basis. Subject to the approval of RBI, NRIs/OCBs/FIIs shall be
able to apply for the shares on a reptatriable basis, subject to the terms and conditions of RBI
approval.

For further instructions, please read the application form carefully.

ACCEPTANCE OF APPLICATIONS

The Bank reserves the right to accept or reject, any application, in whole or in part, without
assigning any reason thereof. If the application is rejected in full, the whole of the application
money received will be refunded by Registered Post to the applicant. If the application is
accepted in part, the excess application money after adjusting for the amount payable on
allotment will be refunded to the applicant. Such refund, if any, will carry interest @ 15% p.a.
after 30 days from the closure of the Issue for the period of delay beyond 30 days.

DEMATERIALISATION

The equity shares of the Bank have been admitted for dematerialisation by National Securities
Depository Limited (NSDL), vide a tripartite agreement dated August 22, 2000 signed between
the Bank, NSDL and MCS Limited, the Registrar and Share Transfer Agent to the Issue, to enable
all shareholders of the Bank to have their shareholding in electronic form.

The Bank has also entered into a tripartite agreement dated 28.07.2000 with Central Depository
Services (India) Ltd. (CDSL) and MCS Ltd. for dematerialisation of its shares, vide a tripartite
agreement dated

An applicant has the option of seeking allotment of Equity Shares in electronic or in physical
mode.
In case of separate applications are made for electronic and physical shares by the same
applicant, application for physical shares would be considered as a multiple application and
would be rejected accordingly.
The applicant seeking allotment of shares in the electronic form must necessarily fill in the
details (including the beneficiary account no. and Depository Participants ID no.) appearing
under the heading request for shares in electronic form
An applicant who wishes to apply for shares in the electronic form must have at least one
beneficiary account with any of the Depository Participants (DPs) of NSDL or of CDSL,
registered with SEBI, prior to making the application

24
Shares allotted to an applicant in the electronic account will be credited directly to the
respective beneficiary accounts (with the DP)
For subscription in electronic form, names in the share application form should be identical
to those appearing in the account details in the depository. In case of joint holders, the names
should necessarily be in the same sequence as they appear in the account details in the
depository
Non-transferable allotment letters/ refund orders will be directly sent to the applicant by the
Registrar to this Issue.
Incomplete/ incorrect details given under the heading Request for shares in electronic form
in the application form will be assumed as an application for shareholding in physical form.
The applicant is responsible for the correctness of the applicants demographic details given
in the application form vis--vis those with his/ her DP.
It may be noted that the electronic shares can be traded only on the Stock Exchanges having
electronic connectivity with NSDL and CDSL.
One time cost of dematerialisation of shares would be borne by the Bank. The one time cost
refers to the demat charges for the shares opted for in this issue by an investor in electronic
form. Subsequent charges for dematerialisation of physical shares held by the investors
would have to be borne by the investor.
In case of partial allotment, allotment will be done in demat option for the shares sought in
demat and balance, if any, will be allotted in physical form.

THE INVESTORS HAVE AN OPTION TO APPLY IN THIS ISSUE BOTH IN
DEMATERIALISED AND PHYSICAL MODE. INVESTORS MAY, HOWEVER NOTE THAT,
AS PER EXTANT SEBI GUIDELINES, TRADING IN THE SECURITIES SHALL BE IN
DEMATERIALISED FORM ONLY.

IV. TAX BENEFITS

M/s Rao & Swami, M/s Prasad Azad & Co., M/s Kishore & Kishore, M/s S.P. Marwaha & Co.,
M/s D.V. Ramana Rao & Co. and M/s Raju & Prasad, Chartered Accountants, have advised,
vide their letter dated 28.06.2003, that under the current tax laws, the following tax benefits will
be available to the Bank and prospective shareholders under direct tax laws:

I. TO THE BANK

1) As per the provisions of Section 10 (23G) of Income Tax Act, 1961 (hereinafter called "the I.T.
Act"), any income from dividend {other than dividends referred to in Section 115(0)} interest or
long term capital gain of the Bank arising from investment made on or after the 1
st
day of June,
1998 by way of shares or Long Term Finance in any enterprise or fund or a Co-operative Bank
wholly engaged in business of (i) developing or (ii) maintaining and operating or (iii)
developing, maintaining and operating any infrastructure facility or a housing project referred to
Sub-section 10 of Section 80-IB or a hotel or hospital project and which has been approved by the
Central Government and which satisfies the prescribed conditions as per Rule 2E of the Income
Tax Rules, 1962, is exempt from tax.

2) Under Section 10 (34) of the Income Tax Act, 1961, income earned by way of dividends from
another domestic company; under section 10 (35), income received in respect of units from the
Administrator of specified undertaking and/or specified company (as defined under Unit Trust
of India (Transfer of Undertaking & Repeal) Act, 2002) and income received in respect of units of
a mutual fund as specified under section 10(23) (D) of the Income Tax Act are exempt from tax in
the hands of the Bank.

25
3) Under Section 36 (1) (vii a) of the I T Act in respect of any provision made for bad and
doubtful debts, the Bank is entitled to deduction;

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

ii) Upto 10% of the aggregate average advances made by the rural branches, if any, of the
Bank computed in the prescribed manner. However, the Bank at its option, instead of
the claim of deductions referred to in item 3(i) and 3(ii) above, can claim in any of
relevant assessment years, a deduction in respect of any provision made for assets
classified as doubtful assets or loss assets in accordance with the RBI guidelines but not
exceeding 10% of the amount of such assets as appearing in the books of account of the
Bank on the last day of the previous year. The option is available upto the Assessment
Year 2004-2005.

iii) Bank at its option will be allowed a further deduction in excess of the limits specified
in the above provisions for an amount not exceeding the income derived from
redemption of securities in accordance with a scheme framed by the Central
Government provided that such income is disclosed in the return of income of the
Bank under the head "Profits & Gains of Business or Profession".

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

5) As per the provisions of Section 43D of the I.T. Act, interest income on certain categories of bad
or doubtful debts as specified in Rule 6EA of the Income Tax Rules 1962 shall be chargeable to
tax only in the year in which it is credited to the Profit and Loss account or actually received,
whichever is earlier.

6) As per second proviso to Section 48 of the Income Tax Act, the long term capital gains arising
out of transfer capital assets other than bonds and debentures (not being capital indexed bonds)
will be computed after indexing the cost of acquisition/ improvement and as per Section 112 of
the Income Tax Act, the same would be chargeable to tax at a concessional rate of 20%. In respect
of long term capital gains arising from the transfer of listed securities or units, tax shall be
chargeable at 10% of the amount of capital gains plus applicable surcharge before giving effect to
the provisions of second proviso to Section 48 i.e. without indexing the cost of acquisition at the
option of the Bank (plus applicable surcharge).

Further, according to Section 10(36) Capital Gains arising on transfer of equity shares of bank is
not chargeable to income tax if, such shares are allotted through a public issue before 1
st
March
2004 and listed on a recognised stock exchange in India, provided such shares are held for a
period of 12 months or more and the transaction of sale of such shares is entered through on a
recognised stock exchange in India.

7) As per Section 54EC of the Income Tax Act and subject to conditions specified therein, the
Bank is eligible to claim exemption from the tax arising on long term capital gains, on investment
of capital gains in certain notified bonds, within six months from the date of transfer of capital

26
asset. If only a portion of the capital gains is invested, then the exemption is proportionately
available.

8) Under Section 54ED of the Income Tax Act, capital gains arising from the transfer of
investments held as long term capital asset, being listed securities or unit is exempt fully from tax
if the Bank invests within a period of six months from the date of such transfer, the whole of the
capital gains in acquiring equity shares forming part of an eligible issue of capital as defined in
clause (i) to explanation in the above section. Where only a part of the capital gains is so invested
then the exemption is proportionately available. The exemption is available subject to other
conditions specified in that Section.

II. TO THE SHAREHOLDERS OF THE BANK

RESIDENT SHAREHOLDER

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

2) According to Section 10(36) Capital Gains arising on transfer of equity shares of bank is not
chargeable to income tax if, such shares are allotted through a public issue before 1
st
March 2004
and listed on a recognised stock exchange in India, provided such shares are held for a period of
12 months or more and the transaction of sale of such shares is entered into on a recognised stock
exchange in India.

3) As per the provisions of Section 54EC of the Income Tax Act, full exemption from capital gains
tax is available in respect of long term capital gains arising on transfer of the shares of the Bank if
the assessee at any time within a period of six months from the date of such transfer, invests the
whole of capital gains in certain notified bonds like bonds of National Bank for Agriculture and
Rural Development (NABARD) and National Highways Authority for a lock in period of 5 years.
If only a portion of the capital gains is invested, then the exemption is proportionately available.

4) As per the provisions of Section 54ED of the Income Tax Act, long term capital gains arising
from transfer of shares of the Bank on its shares being listed, is fully exempt from tax if the
assessee invests within a period of six months from the date of transfer, the whole of the capital
gains in acquiring equity shares forming part of an eligible issue of capital as defined in clause (i)
to explanation in the above section. Where only a part of the capital gains is so invested, then the
exemption is proportionately available. The exemption is available subject to other conditions
specified in that Section.

5) Exemption from capital gains tax is available under Section 54F of the Income Tax Act, to a
shareholder who is an individual or HUF if the net consideration on transfer of shares of the
Bank as long term capital assets is invested within two years in the purchase of a residential
house or invested within three years in the construction of a residential house.

6) As per the provisions of Section 112 of Income Tax Act where the total income of any assessee
includes any long term capital gains on transfer of shares of the Bank, the same is subject to
concessional rate of tax at 20% plus applicable surcharge after indexing the cost as per the second
proviso to Section 48 of the Income Tax Act. Alternatively, at the option of the assessee, where
the tax payable in respect of any such long term capital gains exceeds 10% of the amount of
capital gains arrived at without indexing the cost, the capital gains is charged at 10% only plus
applicable surcharge.

27
7) Investment in shares of the Bank is exempt from levy of wealth tax under the Wealth Tax Act
1957.

B) Non Resident Indian Shareholders


2) According to Section 10(36) Capital Gains arising on transfer of Equity shares of bank is not
st
March
period of 12 months or more and the transaction of sale of such shares is entered into on a

3) As per the provisions of Section 48 of the Income tax Act, capital gains arising on transfer of
shares of the Bank is computed by converting the cost of acquisition etc. and the full value of
the consideration of the transfer of shares into the same foreign currency as was initially
utilised in the purchase of the shares and the capital gains so computed in such foreign
currency shall be reconverted into Indian currency.

Further, the aforesaid manner of computation of Capital Gains shall be applicable in respect
of Capital Gain accruing or arising from every reinvestment thereafter in and sale of, shares
in, or debentures of, an Indian Company.

4) As per the provisions of Section115-I of the Income tax Act, non-resident Indians have an
option to be governed by the Chapter XII-A of the Income Tax Act, according to which:

a) As per the provisions of Section 115E of the Income Tax Act, the long term capital gains
on transfer of shares of the Bank acquired by him out of convertible foreign exchange
(without aggregating any other taxable income earned in India which will be taxed
separately) shall be taxed at the rate of 10% plus applicable surcharge.

b) As per the provisions of Section 115F of the Income Tax Act, the long term capital gain
on sale of shares acquired by the non-resident Indian out of the convertible foreign
exchange shall be exempt from Income Tax entirely/proportionately, if the entire or part
of the net consideration is invested for a period of three years in any savings certificates
specified under Section 10(4B) or specified assets as defined in Section 115C within 6
months from the date of transfer.

c) As per the provisions of Section 115G of the Income Tax Act, a non-resident Indian is not
required to file a return of income under Section 139(1) of the Income Tax Act, if his total
income consisted only of investment income and/or long term capital gains arising from
investment in shares and tax deductible at source has been deducted therefrom.

d) As per provisions of Section 115H of the Income Tax Act, where the non-resident Indian
becomes assessable as a resident in India, along with his return of income for that year,
he may furnish a declaration in writing to the Assessing Officer under Section 139 of the
Income Tax Act, to the effect that the provisions of the Chapter XII-A shall continue to
apply to him in relation to income derived from shares of the Bank for that year and
subsequent years until such assets are converted into money.

28
e) As per the provision of Section 115-I of the Income Tax Act, a non-resident Indian may
elect not to be governed by the provisions of Chapter XIIA for any assessment year by
furnishing his return of income for that assessment year under Section 139 of the Income
Tax Act, declaring therein that the provisions of Chapter XII-A shall not apply to him for
that assessment year and accordingly his total income for that assessment year will be
computed in accordance with the other provisions of the Income Tax Act, .

C) Foreign Companies & Institutional Investors (FIIs)


2) According to Section 10(36) Capital Gains arising on transfer of equity shares of bank is not
st
March
period of 12 months or more and the transaction of sale of such shares is entered into on a

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

4) As per the provisions of Section 54EC of the Income Tax Act, long term capital gains arising
from transfer of shares of the Bank is exempt as set out in para 3 of Part II (A) above, subject to
the extent and conditions mentioned therein.

5) As per the provisions of Section 115AD of the Income Tax Act, where the total income of FIIs
include income by way of short term or long term capital gains arising from transfer of such
shares, income tax will be payable at 30% on short term capital gains and 10% on long term
capital gains plus applicable surcharge.

D. Mutual Funds

As per the provisions of Section 10 (23D) of the Income Tax Act, dividend income from
investments in shares of the Bank or income by way of short term or long term capital gains
arising from transfer of such shares earned by Mutual Funds registered under the Securities and
Exchange Board of India Act, 1992 or Regulations made thereunder, Mutual Funds set up by the
public sector banks or public financial institutions and Mutual Funds authorised by the Reserve
Bank of India would be exempt from income tax subject to the conditions as the Central
Government may by notification in the Official Gazette specify in this behalf.

V. PARTICULARS OF THE ISSUE

OBJECTS OF THE ISSUE

The present issue of equity shares is being made:
1. To augment the capital base of the Bank to meet its future capital adequacy requirements
2. To augment the long-term resources of the Bank
3. To meet the expenses of the Issue

29
CAPITAL ADEQUACY POSITION OF THE BANK
The Capital Adequacy Ratio (CAR) of the Bank as on March 31, 2003 was 12.66 %, as against
the RBI stipulation of 9.0%. Details of capital vis--vis risk weighted assets are as given in the
following table:

(Rs. in crores)
Particulars (As on March 31) 2001 2002 2003
Eligible Tier I Capital 484.90 527.39 562.54
Eligible Tier II Capital 208.56 201.79 397.60
Total Capital fund 693.46 729.18 960.14
Total Risk weighted Assets 6029.80 5951.61 7581.68
Capital Adequacy Ratio (%) 11.50 12.25 12.66

REQUIREMENT OF CAPITAL ENHANCEMENT
The Bank expects to post a growth in business in the years to come. As a result, risk weighted
assets of the Bank are also expected to increase from the present years level of Rs. 7561.68 crores.
Increase in Tier I capital through retained earnings alone may not be sufficient to enable the Bank
to maintain a capital adequacy ratio at a level sufficiently higher than prescribed. Further, at the
current level of Tier I Capital, the maximum permissible Tier II Capital in the form of
subordinated bonds has already been raised. The present issue is, therefore, intended to augment
the Tier I capital of the Bank.

BANK AND MANAGEMENT

BRIEF HISTORY AND BACKGROUND

Vijaya Bank was founded by late Shri A.B. Shetty and other enterprising farmers on October 23,
1931 in Mangalore, Karnataka. The objective of the founding fathers was essentially to promote
banking habit, thrift and entrepreneurship among the farming community in Dakshina Kannada
district in Karnataka state.

The Bank became a Scheduled Bank in 1958 and steadily grew into a larger All India Bank with
nine smaller banks merging with it between 1963 and 1968. Initially, the bank's operations were
confined to the Dakshina Kannada district and were later on extended to other centres in
Karnataka, followed by expansion into other states. The Bank was nationalised on April 15, 1980
in the second phase of nationalisation, alongwith five other banks. At the time of nationalisation,
the Bank had 571 branches with a deposit base of Rs.390.44 crores. By the end of March 2003, the
branch network had grown to 843 with a deposit base of Rs.17019.81 crores. The growth profile
of the bank over the last 71 years is given in the following table:

(Rs. in crores)
Year No. of Branches Total Deposits Total Advances
1932 1 0.0026 0.0026
1940 5 0.03 0.03
1950 13 0.40 0.34
1960 21 1.48 1.00
1970 126 27.52 17.54
1980 578 437.21 244.74
1990 719 2357.13 1492.11
1995 810 5870.01 2356.28
2000 837 11592.88 4958.67

30
2002 828 14680.51 6196.66
2003 843 17019.81 7891.34

Deposits from Rural & Semi-Urban populace
(All figures in %)
As on March 31 1999 2000 2001 2002 2003
Rural 9.89 9.32 9.23 8.09 7.79
Semi-Urban 13.96 13.18 13.53 13.49 13.27
Urban 28.32 27.69 26.49 27.29 27.41
Metropolitan 47.83 49.81 50.75 51.13 51.53
Total 100.00 100.00 100.00 100.00 100.00

Non Resident deposits
(Rs. in crore)
As on March 31 1999 2000 2001 2002 2003
FCNR (B) 168.15 191.23 212.92 220.19 203.62
NRE 221.17 272.33 311.76 354.78 686.77
NRNR 465.20 467.22 492.79 529.03 277.68
Total 854.52 930.78 1017.47 1104.00 1168.07

Region-wise distribution of deposits
(All figures in %)

As at March 31
Region 1999 2000 2001 2002 2003
Northern 18.10 21.64 21.16 18.80 19.88
North-Eastern 4.19 3.91 3.91 3.98 4.22
Eastern 6.64 6.07 6.50 5.79 5.74
Central 9.61 9.50 9.79 10.65 10.57
Western 20.30 17.00 18.22 21.50 20.75
Southern 41.07 41.88 40.42 39.28 38.84
Total 100.00 100.00 100.00 100.00 100.00

OVERVIEW OF THE BANKING SECTOR

Scheduled Banks in India
Scheduled Commercial Banks India Scheduled Co-operative Banks
Public Sector Banks (27) Regional Rural Banks (196) Foreign Banks in India (40) Private Sector Banks (30)
SBI & its Assoc.(8) Nationalised Banks (19)
New Private Banks
(8)
Old Private Banks (22)
Scheduled Urban Co-
operative Banks (52)
Scheduled
Co-operative Banks (16)

31

The formal banking system in India comprises the Reserve Bank of India, commercial banks,
regional rural banks and the co-operative banks. In the recent past, private non-banking finance
companies also have been active in the financial system, and are being regulated by the RBI.

Scheduled Commercial Banks (SCBs)
The scheduled commercial banks (SCBs) comprise of:

Public Sector Banks (PSBs): The banking sector in India has been characterized by the
predominance of PSBs. The PSBs had 46,232 branches (SBI & Associates: 13,569; nationalised
banks: 32,663) as on December 31, 2002. The aggregate assets of all PSBs stood at Rs 11,55,736.77
crores at end FY02 accounting for 75.27% of assets of all SCBs in India. The PSBs large network
of branches enables them to fund themselves out of low-cost deposits. PSBs account for 81% of
deposits, 74.43% of advances, and 77.63% of income, of all scheduled commercial banks at end
FY02, thus clearly demonstrating their dominance of the Indian banking sector.

Private Sector Banks: In July 1993, as part of the banking sector reform process and as a measure
to induce competition in the banking sector, the RBI permitted entry by the private sector into the
banking system. This resulted in the introduction of 9 private sector banks. These banks are
collectively known as the `new private sector banks, and operated through 803 branches at end
FY01. With the merger of Times Bank Limited into HDFC Bank Limited in February 2000, there
are only eight `new private sector banks at present. At end FY02, the total assets of private sector
banks aggregated Rs. 2,67,679 crore and accounted for 17.43% of the total assets of all SCBs.
Although the share of private sector banks in total assets has increased from 12.61% at end FY01,
new private sector banks have accounted for most of the gain. The new private sector banks
share of assets of all private sector banks increased from 27.5% at end-FY97 (2.4% of assets of
SCBs) to 65.17% at end-FY02 (11.36% of assets of SCBs). The share of old private sector banks (in
total assets of SCBs) has decreased marginally (from 6.4% at end FY97 to 6.07% at end FY02), as
well as their share in total assets of private sector banks has declined from 72.5% at end FY97 to
34.82% at end FY02.

Foreign Banks: Presently, there are 40 foreign banks operating in India with 203 branches. While
4 banks have 10 or more branches, 18 banks were operating with only one branch each. Some
foreign banks have also set up representative offices in India. Thus, as on June 30 2002, 63 banks
had their presence in India, including 23 banks from 12 countries, which have only their
representative offices here.

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

The salient features in the evolution of Indian banking are as follows:
The number of banks (including regional rural banks (RRBs) has increased from 89 in 1969 to 293
in 2002. The population per branch has declined significantly, from 75,000 in 1950 to 16,000 in
2002. With the nationalization of banks in 1969, the number of bank branches (including Regional
Rural Banks) increased from 8,262 in 1969 to 66,186 in 2002. Most of the expansion has been in
the rural and semi-urban areas.

32
Since 1950, the credit-deposit ratio of SCBs has declined to reach 62.3% as on March 31,2002, with
a corresponding increase in the investment-deposit ratio. The change has been largely due to the
Governments regulations regarding the statutory liquidity ratio (SLR), and the preference for
Government securities (as a result of the increase in the Government borrowing programme and
the low risk-high return nature of the instrument).
Priority sector lending increased from Rs 14,834 crore in 1984 to Rs.2, 10,308 crore in 2002. (Credit
to the agricultural sector and small-scale sector was one of the key objectives of the
nationalization of banks.)

Performance of Banking Industry
The aggregate deposits of Scheduled Commercial Banks recorded a lower annual growth of
12.2% during 2002-03 as compared to 14.6% in the previous year. However, the year 2002-03 saw
a sustained increase in credit flow to the commercial sector reflecting industrial recovery.
During 2002-03, no-food credit of scheduled Commercial Banks registered an annual increase of
17.8% as against 13.6% of the previous year. The incremental non-food credit deposit ratio during
2002-03 at 79% is the highest recorded over the last five years. The year 2002-03 saw decline in
food credit of Rs. 4499 crore as against an increase of Rs. 13989 crore in the previous year.

The Banking scenario during the year 2002-03 was characterized by easy liquid conditions and
substantial fall in interest rates. The term deposit rates of public sector banks for maturities up to
one year moved down from a range of 4.25% to 7.50% in March 2002 to 4% to 6% by March 2003.
The PLRs of public sector banks declined from a range of 10% to 12.5% in March 2002 to 9% to
12.25% by March 2003. The yield on government securities with 10 year residual maturity
declined by 1.15% from 7.36% in March 2002 to 6.21% in March 2003. The downward trend in
interest rate structure reflected moderation of inflationary expectations and comfortable liquidity
situation.

Recent Trends in Banking Industry
In recent years, the banking industry has been undergoing rapid changes, reflecting number of
underlying developments. The most significant has been enactment of the NPA Act to tackle
high incidence on Non-Performing Assets. The Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest (Bill) 2002 was passed by Lok Sabha in November
2002. It sees to deal with Securitisation of assets, Setting up of asset reconstruction company
(ARCs), and enforcement of security interest. After the ordinance on Securitisation, Banks have
been issuing notice to their defaulters for recovering money. Banks have issued more than 1100
notices, amounting to more than Rs. 10,000 crores (around 9-10% of the estimated gross NPAs of
the scheduled commercial banks and developmental financial institutions).

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

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

Absorption of technology and upgradation of technological infrastructure, which have
accelerated and broadened dissemination of financial information while lowering the costs of
many financial activities. This has also led to transparency in information to the public on
deposits and advances and interest rate structures.

33
The fiscal year 2002-03 for the Commercial Banks was by ad large characterised by soft interest
rates regime with flexible interest rate structures. There has also been a good inflow of foreign
exchange in the country, with taking the forex reserves of the country to all time high. There has
been a comfortable resources growth with higher credit growth. Treasury operation s of Banks
has been offering handsome opportunities of gains.

The stance of the Monetary Policy in recent years has been to maintain adequate liquidity in the
market with a preference for soft interest rates. With a view to having a vibrant and resilient
competitive financial sector for sustenance of the reform process in the real sector of the
economy, the focus has been on the structural and regulatory measures to strengthen the
financial system. These measures have been guided by the objectives of increasing operational
efficacy of the Monetary policy, redefining the regulatory goal of Reserve Bank of India,
strengthening prudential norms.

These developments have manifold consequences for the institutional and systemic structure of
the financial sector in general and banking in particular. The business profile of financial
institutions is also undergoing change. Mergers and take-overs of smaller institutions have led to
the emergence of transnational conglomerates, offering services ranging from traditional
commercial banking to investment banking and insurance.

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

34

MAIN OBJECT AND BUSINESS OF THE BANK

MAIN OBJECTS
The main object of the Bank as laid down in the Bank Nationalisation Act are as under:

The main object of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
under which the undertaking of the Bank was taken over by the Central Government is as under:
An act to provide for the acquisition and transfer of the undertakings of certain banking
companies, having regard to their size, resources, coverage and organisation, in order further to
control the heights of the economy, to meet progressively, and serve better, the needs of the
development of the economy and to promote the welfare of the people, in conformity with the
policy of the State towards securing the principles laid down in clause (b) and (c) of Article 39 of
the Constitution of India and for matters connected therewith or incidental therein.

BUSINESS OF THE BANK

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

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

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

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

i) The Bank shall, if so required by the Reserve Bank of India, act as agent of the Reserve
Bank at all places in India where it has a branch for:
a) Paying, receiving, collecting and remitting money, bullion and securities on behalf of
the Government of India
b) Undertaking and transacting any other business which the Reserve Bank may from
time to time entrust to it
ii) The terms and conditions on which any such agency business shall be carried on by the
corresponding new Bank on behalf of the Reserve Bank shall be such as may be agreed
upon
iii) If no agreement can be reached on any matter referred to in Clause (ii) above, or if a
dispute arises between the corresponding new Bank and the Reserve Bank as to the
interpretation of any agreement between them, the matter shall be referred to the Central
Government and the decision of the Central Government, thereon, shall be final.
iv) The corresponding new Bank may transact any business or perform any function
entrusted to it under Clause (i) by itself or through any agent approved by the Reserve
Bank.

VI. MANAGEMENT OF THE BANK

35
In accordance with the guidelines laid down by the Reserve Bank of India and in conformity
with Section 9 (3) of the Bank Nationalisation Act, the management of Vijaya Bank is vested with
the Board of Directors comprising professionals representing various fields of specialisation.

BOARD OF DIRECTORS

Name, Designation, Address and Occupation Other Directorships
Shri M. S. Kapur,
Chairman & Managing Director
Vijaya Bank
41/2 M.G. Road,
Bangalore 560 001
Director, ViBank Housing Finance Limited
Shri P.A. Sethi,
Executive Director
Vijaya Bank
41/2 M.G. Road,
Bangalore 560 001
Director, ViBank Housing Finance Limited
Shri R Renganath
Director, Insurance Division.
Ministry of Finance,
Dept. of Economic Affairs,
New Delhi.
Nominee of Government of India
Director, Insurance Division.

Shri A. P. Hota, Director
General Manager
Reserve Bank of India
Nrupathunga Road,
Bangalore
Nominee of RBI
None
Shri M. Kiran, Director
Vijaya Bank
41/2 M.G. Road,
Bangalore 560 001
Director representing the workmen
None
Shri Babuseth Tyerwala, Director
Paver Nivas,
Savarkar Marg,
Vasant Tekkady,
Ahemad Nagar
Maharashtra
Part Time Director
None
Smt. Sukhada Mishra, Director
B- 62/72 IFS Flats,
Mayur Vihar Phase-I,
Delhi 110 008.
Part Time Director
None
Shri Pawan Kumar Sharma, Director
P K Sharma & Associates Chartered
Accountants,
M. S. Road, Fancy Bazar,
Guwahati 781 001.
Part Time Non-official Director
J. S. Management & Financial Services (P) Ltd.,
Life Saving Diagnostic & Hospital (P) Ltd.

36
Shri S. Ananathan, Director
10/1, III Floor, III Main,
Hanumanthanagar
Bangalore-560 019
Shareholder Nominee Director
None
Shri R. Ashok Kumar, Director
73, Millers Road
Windsor Court,
Benson Town,
Bangalore-560 046
None
Shri B. K. Jagdish Chandra, Director
458,11
TH
Main Road
RMV Extension
Bangalore
Director, Alpha Agrotech Consultants Pvt. Ltd.
Shri S. P. Krishnaswamy, Director
303, Natasha Golf View Apartments,
Ring Road,
Bangalore-560 071
None

Chairman and Managing Director

Shri M. S. Kapur was appointed as Chairman & Managing Director of the Vijaya Bank and he
took over the charge with effect from 16.08.2002.

He has served about 28 years in the field operations in various capacities. He has worked in
London branches of the Bank as a Chief Executive Officer. He was promoted as General
Manager in 1996. He has worked as Chief Vigilance Officer in Union Bank of India as well as in
Indian Overseas Bank, Chennai.

After being elevated as Executive Director of Punjab and Sind Bank, he has officiated as
Chairman & Managing Director of the Bank for over nine months before he was moved to
Syndicate Bank as Executive Director in May 2000. Further he has served two terms as a Chief
Vigilance Officer and two terms officiated as Chairman & Managing Director of two different
Banks before being posted as a regular Chairman & Managing Director of the third Bank i.e.
Vijaya Bank.

Executive Director

Shri P. A. Sethi is a Commerce Graduate, associate member of the Indian Institute of Banker and
also has Post Graduate Diploma in Costing and Management Account. He joined the Banking
Industry in the year 1962 and started his career with Bank of Baroda. During his career spanning
more than 40 years he has held various positions including six years stint at the Manchester
(U.K.) branch, Deputy General Manager of the Northern Zone (Delhi), General Manager of
International Banking in Bank of Baroda. He has been appointed as Executive Director of Vijaya
Bank with effect from 08.03.2003.

37

Corporate Governance

BANKS PHILOSOPHY

The Bank aims at enhancing the long term Shareholder value while protecting the interest of
Shareholders, customers and others in line with international best practices. The objectives of
Corporate Governance are:
Maximising long-term shareholder value in a legal and ethical manner.
Ensuring fairness, courtesy and dignity in all transactions within and outside the Bank with
customers, investors, employees, competitors, government and the general public.
Open, transparent and merit-based management.

As per the objectives of Corporate governance, the matters relating to Board of Directors and its
composition, Board procedures, Audit Committee and its role, Management Remuneration
Committee and other information that are needed to be placed before the Board are included in the
annual report for the shareholders. The requirements are mandatory, non-mandatory and desirable
recommendations.

Auditors Certificate on Corporate Governance for the year 2002-03 is placed here below

To the Members of Vijaya Bank.
We have examined the compliance of conditions of corporate governance by VIJAYA BANK for
the year ended on 31
st
March, 2003 as stipulated in the relevant Clauses of the Listing
Agreements of the said Bank with the Stock Exchanges.

The compliance of conditions of corporate governance is the responsibility of the Management.
Our examination was limited to procedures and implementation thereof, adopted by the Bank
for ensuring the compliance of conditions of the corporate governance. It is neither an audit nor
an expression of opinion on the financial statements of the Bank.

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

As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we
have to state that no investor grievance is pending for a period exceeding one month against the
Bank as per the records maintained by the Shareholders and Investors Grievance Committee and
as certified by the Registrar & Share Transfer Agents of the Bank.

We further state that such compliance is neither an assurance as to the future viability of the
Bank nor the efficiency or effectiveness with which the Management has conducted the affairs of
the Bank.

Signed by the Auditors
Place: Bangalore
Dated: 30
th
April 2003

38

Key Committees

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

Corporate Policy Committee to review/ consider policy matters in the Bank including
computerisation and organisational matters relating to the Bank.

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

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

Asset Liability Management Committee to review the liquidity position of the Bank relating to
the current position, projected requirements, sources of liquidity and also review and forecast
interest rates risk, credit risk, exchange rate risk, review of periodic GAP report etc.

KEY MANAGERIAL PERSONNEL

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

Name (Age)
Qualification
Date of joining Previous
employment
Designation & functional
responsibility
Shri Ratnakar Hegde K
(57)
B.A., B.L., JAIIB
August 16 1967 ----- General Manager Credit
(Operations)
Shri Amarnath Shetty (59)
M.A., B.L., CAIIB
December 1 1972 Syndicate Bank General Manager Planning &
Credit Card
Shri Kiran Kumar M. (57)
M.A. (Sociology)
November 7 1970 ____ General Manager Review &
Recovery
Shri Jayakar Shetty K. (58)
B. Com, B.L., JAIIB
September 20 1967 ____ General Manager Personnel &
Treasury Management
Shri Ashok Kumar Mandal
(59)
M.A. (English)
September 5 1974 SS College,
State Bank of
Bikaner &
Jaipur, West
Bengal Civil
Service
General Manager General
Administration
Smt. Prabha S Prasad (44)
M.Sc., CAIIB, Diploma in
Management
January 23 2003 RBI General Manager Vigilance,
Inspection and Risk Management
Shri Laxmikantha Hegde
(57)
B. Com., LLB, CAIIB
August 1 1968 ____ General Manager Central
Accounts & Information
Technology
Shri Hariprakash Shetty
(55)
M.A.
December 26 1969 ____ General Manager Delhi Region
Shri Ratnakar Hegde (52)
B. Sc.
December 17 1970 ____ General Manager Mumbai
Region

39
Shri K. Rathnakar Hegde, is presently General Manager heading Credit (Operations) of the
Bank. He is a Graduate in Arts and Law and has worked in various capacities as Manager/
Divisional Manager of Metro branches and departments in Head Office, such as Credit Card &
Marketing, Investment Management, etc. He initiated the launching of Banks Credit Card and
its marketing. He has served as Assistant General Manager of the Merchant Banking, Investment,
as well as Credit Operations. He has also attended trainings in specialised areas of Credit Card
and Merchant Banking both at Australia and Hong Kong. He has also participated in the first
Afro Asian Banking School course held in India during the year 1990. He was promoted as
General Manager during the year 1998 and was in charge of Treasury & Merchant Banking
Operations, International Banking and Department of Information Technology.

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

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

Sri. Jayakar Shetty K has a degree in Commerce and Law. He is presently General Manager in-
charge of Treasury Management and Personnel Department of the Bank. He has headed the
Division at Mumbai and served the Bank in various capacities. He has worked in various
capacities as Branch Manager/ Chief Manager of large branches in Bangalore, Mumbai and
Delhi. He was promoted as General Manager in 2002.

Sri. Ashok Kumar Mandal has a Masters in Literature. He started his career as a lecturer and
also worked with the West Bengal Civil Services as a Gazetted Officer. He joined the Bank in the
year 1974. He was promoted as General Manager in the year 2003 and was in-charge of
Inspection and Information Technology. He is presently the General Manager in-charge of the
General Administration of the Bank.

Smt. Prabha S Prasad is a post Graduate in Science. She Hs also completed CAIIB and holds a
Diploma in Management. She Joined Reserve Bank of India in 1982 as Officer in Grade B(
Manager) and was promoted as General Manager in 2000. She has varied experience in Banking,
having worked in areas of Currency Management, Personnel, Exchange Control and Banking
Supervision. She has also been a faculty member at the Reserve Bank Staff College, Chennai.
Before assuming charge in Vijaya Bank as the Chief Vigilance Officer, she was heading the
Department of Banking Supervision at the Reserve Bank of India.

Sri. Laxmikanth Hegde has a degree in Commerce, Law and is an associate of the Indian
Institute of Bankers. He joined the Bank in the year 1968. He has worked in various capacities as
Branch Manager/Senior Manager/ Divisional Manager heading Metro branches of the Bank at
Bangalore, Mumbai, Chennai, Kolkata and Hyderabad. He has served as the Assistant General
Manager of the Credit Card Division and the Customer Relations Division and was also in-
charge of Credit Policy, Sick Units and the Administration Division. He has worked as Head of
Ahmedabad, Hyderabad and Mumbai Region. He was promoted as General Manager in the year

40
2003. He is presently, the General Manager, Central Accounts and Information Technology
Departments of the Bank.

Shri Hariprakash Shetty is presently General Manager in charge of the Delhi Region of the Bank
He started his career in Bank in the year 1969. He has rich experience in administrative offices
having worked in Head Office in different capacities as Chief Manager Assistant General
Manager & Deputy General Manager of Credit, Vigilance and Board Secretariat. He has also
headed the Regional Office of Chennai and was promoted as General Manager in the year 2003.

Sri. Ratnakar Hegde H is presently the General Manager of Regional Office, Mumbai. He has
varied experience having worked as Manager / Chief Manager of large Metro branches. He has
headed Region in Hubli, Bangalore and Delhi. He was promoted as General Manager in the year
2003.

CHANGES IN KEY MANAGEMENT PERSONNEL IN THE LAST YEAR
Change in Key Management Personnel from the level of General Manager and above during the
last three years (from 2000 onwards) are as follows:

Name Designation Reasons for change
Shri. K. Amarnath Shetty General Manager Promoted as GM w.e.f. 06.06.01
Shri. O. S. Ramamurthy General Manager Retired from the service of the Bank
w.e.f. from 30.06.01
Dr. K. Shanker Shetty General Manager Retired from the service of the Bank
w.e.f. 31.12.01
Shri. M. Kiran Kumar General Manager Promoted as GM w.e.f. 1.1.02
Shri S. Gopalakrishnan Chairman & Managing
Director
Retired from the services of the Bank
w.e.f. 31.01.02
Shri B. Sridhar Shetty General Manager Retired from the Service of the Bank
w.e.f. 31.3.02
Shri. M. S. Kapur Chairman & Managing
Director
Assumed charge of the Bank as
Chairman & Managing Director w.e.f.
16.08.02
Shri Michael Bastian Executive Director Demitted Office on 23.08.02 to join
Syndicate Bank as C&MD
Shri K. Bhoja Shetty General Manager Retired from the service of the Bank on
30.9.02
Shri. A.K. Mandal General Manager Promoted as GM w.e.f 5.10.02
Shri. K. Jayakar Shetty General Manager Promoted as GM w.e.f. 5.10.02
Smt. Prabha S Prasad General Manager Assumed charge of the Bank as Chief
Vigilance Officer w.e.f. 23.01.03
Shri. P. A. Sethi Executive Director Assumed charge of the Bank as ED
w.e.f 8.3.03
Shri S. Laxmikanth Hegde General Manager Promoted as GM w.e.f. 3.5.03
Shri Hariprakash Shetty General Manager Promoted as GM w.e.f. 3.5.03
Shri. H. Ratnakar Hegde General Manager Promoted as GM w.e.f. 3.5.03

Human Resources
The total manpower of the bank as on March 31 2003 was 11,723 comprising 3,592 officers, 5,547
clerks and 2,584 sub staff.
The manpower position of the Bank for the last five years is as under:

41
As on March 31 Officer Award
Staff
Sub-Staff Total no. of Employees
1999 4309 7179 2652 14140
2000 4318 7219 2787 14324
2001 3675 6962 2834 13471
2002 3045 6159 2623 11827
2003 3592 5547 2584 11723

The business per employee of the bank has been on the increasing trend. The position as on 31st
March during the last five years is depicted in the table below:
Year 1999 2000 2001 2002 2003
Business per
employee (Rs. lacs)
98.80 117.27 122.83 169.38 193.62

Human Resources Development

The total staff strength of the Bank stood at 11723 in March 2003 as compared to 11827 in March
2002. Of the total staff, 3592 are Officers, 5547 Clerical Staff, 1945 Sub-Staff and 639 Part-Time
Employees in Subordinate cadre. The number of women employees as at the end of March 2003
stood at 1962 consisting of 337 officers and 1625 Award Staff constituting 16.74% of total
employees in the Bank. As at the end of March 2003 there were 183 employees belonging to
Handicapped Category and 487 employees belonging to Ex-servicemen Category.

With the increase in Bank's business, the staff productivity measured in terms of average
business per employee, improved from Rs.1.69 crore in 2001-02 to Rs.1.94 crore in 2002-03
registering an increase of 14.8%. During the year, the Bank, with a view to consolidate its gains
in post VRS era, did not go for any major recruitment of staff.

The Bank is endeavouring to update and upgrade the skills of its employees to face the
challenges of present day banking. 4254 employees were trained during the year. Out of this,
3229 underwent training in the Bank's own establishments 748 officers were trained at the
reputed external training institutions.

BUSINESS AND ACTIVITIES OF THE BANK

CORPORATE MISSION
The Corporate Mission of the Bank is
to emerge as a prime National Bank backed by modern technology
to meet customers aspirations with professional banking services
to achieve sustained growth contributing to national development

CORPORATE STRATEGY
The continuing deregulation of Indias financial sector has resulted in increased competition for
the Bank. In order to maximise profitability in this competitive environment, the bank has set
itself the following goals:

To give greater thrust on mobilising low cost deposits and disbursing retail credit, with a
view to broaden the customer base.
To create niche markets by developing new products and services and also to improve the
delivery system to match the changing needs and expectations of various customer groups.

42
To improve employee productivity through a combination of training and technology
To strengthen the risk management systems and practices

COMPETITIVE STRENGTHS
The Bank has been recording consistent growth in its business despite increased competition in
the banking industry since the introduction of financial sector reforms in the early nineties,
mainly due to the following inherent strengths:

The Banks branch network is spread over all the 28 states and in 4 union territories.
The Bank has its branches in most of the top 100 deposit centres of the country.
The Bank has introduced a large number of deposit and credit schemes meeting the
requirements of different classes of population.
The Bank has broad based its inspection and vigilance machinery.
The Bank has upgraded technology and communication facilities for enhancing its
operational efficiencies.
The Bank has built up expertise in diversified areas such as foreign exchange, credit card,
merchant banking, etc.

PRESENT BANKING ACTIVITIES
In tune with the corporate mission and business goal, the Bank aims at achieving quality of assets
in addition to a growth in volume. The tenets of lending laid down by the Bank, enable it to
achieve this goal. The Bank endeavours to maintain a healthy credit portfolio by selection of
borrowers, credit/ risk appraisal techniques, credit supervision and monitoring, credit audit and
using information technology for reporting system. The Bank has a system of pre-sanction
monitoring and a significant improvement has been seen in the selection of borrowers. The Bank
adopts a committee approach, which takes joint decision on large proposals. For post sanction
monitoring, the Bank ensures continuous supervision and control at all levels In addition to this,
the Bank has appropriate control mechanism systems in the area of Credit Administration such
as internal inspection, stock audit, concurrent audit, legal audit etc. to ensure that deficiencies
brought out through these reports are attended to and appropriate actions taken.

Greater autonomy granted by the Government of India
Government of India have granted greater autonomy in the matter of recruitment, promotion,
creation of posts, etc. to Public Sector Banks (PSBs), which fulfil the following conditions:
Positive net profits for the last three years
Capital adequacy ratio of more than 8 per cent
Net NPA level below 9 per cent of the net advances and
Minimum owned funds of Rs.100 crore

The areas in which PSBs have been given autonomy are:
Delegation of powers to Boards for personnel placement in overseas branches of PSBs.
Promotion to Senior and Top Executives Grades
Deputation of Officers/lateral induction of Officers on contract basis/lateral mobility of
Officers within the banks.
Requirements of Rural/Semi-urban posting for bank Officers

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

43
Branch Network
At present, the Bank has 843 branches spread all over the country with Karnataka accounting for
the highest number of branches viz. 390. In recent years, the Bank has opened 43 specialised
branches. The statewise break-up of the spread of branches is as under:

State/Union Territories No. of Branches
Karnataka 390
Andhra Pradesh 76
Kerala 68
Maharashtra 65
Tamil Nadu 46
Uttar Pradesh 35
All other States 163
Total 843

The population groupwise break-up of branches as under:

Population group No. of Branches
Rural 257
Semi- Urban 190
Urban 220
Metropolitan 176
Total 843

Specialised branches

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

Nature of specialised branch No. of branches
Capital Market Services 7
Commercial and Personal Banking 16
Asset Recovery Management 6
SSI Finance 6
Overseas Business 3
Corporate Banking 1
Industrial Finance 3
Specialised Womens Branch 1
Total 43

PRODUCTS AND SERVICES
Vijaya Bank has many pioneering achievements to its credit. It was one of the first few Public
Sector Banks to offer ATM-cum-Credit Card facility. The Bank also opened its first fully
computerized Capital Market Services branch in 1993-94. It has introduced several customer
friendly deposit schemes viz., Vijaya Shree Units Scheme, Vijaya Cash Certificate Scheme and V-
Star Savings Bank Scheme etc. Coming as it does from a Bank, which was founded mainly to
promote agriculture, agriculture credit is one of the banks priority areas of lending. The Bank
has launched an innovative Kisan Card Scheme for the benefit of farmers. The Bank has also
launched several retail lending schemes viz., Trade Finance scheme, Housing Loan Scheme, V-
Cash, V-Equip, V-Rent, Loans against Motor vehicles and Liquidity Finance to SSI, Jewel loan, V-
Mangala, V-Kanyadan. The Bank has built up relationship with 167 international banks. In tune

44
with the modern Banking, the Bank also proposes to commence insurance business in
participation with other leading players in the field. The Bank has recently issued Global Card,
which is valid both domestically and internationally.

Some of the deposit schemes offered by the Bank are as under:

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

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

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

FOREIGN EXCHANGE & INTERNATIONAL BANKING
The Bank has been improving its forex and foreign trade related business over the years. The
Forex turnover has been increasing consistently and the level of turnover has increased from Rs.
4057 crores in the year ended March 31 2002 to Rs. 4909 crores during the year ended March 31,
2003.

CONSUMER FINANCE

V-KANYADAN- For the first time in India , Vijaya Bank has introduced a unique loan scheme to
meet the marriage expenses of daughter / dependent sister / any dependent female relative or to
meet the marriage expenses of any working women. Applicant is eligible for loan equivalent to
12 months' gross income with a ceiling of Rs.5.00 lakhs and the entire loan is repayable with
interest in not more than 5 years.

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

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

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

V-Rent - Owners of the property who have let out the same to reputed companies,
commercial/industrial firms, software, multinational companies, banks, reputed institutions, etc.
are eligible for this scheme. The beneficiary can avail of the loan to the extent of 80% of the Rent

45
expected during the unexpired period of tenancy or upto a maximum of not more than 60
months rent whichever is less.

The Bank has other schemes like Vijaya Home Loan where one can avail the loan at the lowest
interest in the Banking Industry, V-Trade which is an instant Bank finance against business
assets, Vijaya Wheels for purchase of two and four wheelers, Educational Loan, Jewel Loan,
Loans to Small Road Transport Operators.

DETAILS OF SOURCES OF FUNDS
DEPOSITS
The total deposits grew by 15.9% from Rs.14680.51 crores as on March 31 2002 to Rs.17019.81
crores in as on March 31 2003. Despite increased competition on account of financial sector
reforms such as entry of new private sector banks, deregulation of interest rates, the Bank has
been able to record consistent deposit growth. The break up of total deposits during the last five
years is as follows:

As on March 31 1999 2000 2001 2002 2003
Current Deposits 1662.91 1929.77 1743.71 1866.07 1969.09
SB deposits 1988.33 2294.34 2548.01 2894.62 3511.13
Term deposits 6038.99 7368.77 8340.52 9919.82 11539.59
Total deposits 9690.23 11592.88 12632.24 14680.51 17019.81
Annual growth (%) 17.90 19.60 8.90 16.20 15.90

The maturity residual profile of Total Deposits in the last 3 years is as under:
(Rs. in crores)
Year ended March 31, 2001 2002 2003

Amount % Amount % Amount %
Up to 1 year
6004.69 47.53 7322.95 49.88 7756.35 45.57
1 year to 3years
5766.32 45.65 6556.38 44.66 8288.09 48.70
3 years to 5 years
594.80 4.71 526.59 3.59 692.16 4.07
Over 5 years
266.44 2.11 274.59 1.87 283.21 1.66
Total 12632.25 100.00 14680.51 100.00 17019.81 100.00

Borrowings
Unsecured Borrowings of the bank as March 31, 2003

Details of Unsecured Loans as on 31.03.2003 *
(Rs in lakh)
Sr.No Name of the Lender Amount Repayment Schedule
Due Date of Repayment Amount
1 SIDBI (Short Term Loan) 25000.00 8-Aug-03 25000.00
2 SIDBI (Refinance) 208.11 1-Jun-03 38.41
1-Sep-03 28.89
1-Dec-03 31.06
1-Mar-04 20.24
1-Jun-04 19.03
1-Sep-04 13.57
1-Dec-04 15.95
1-Mar-05 8.17

46
1-Jun-05 10.20
1-Sep-05 4.66
1-Dec-05 3.41
1-Mar-06 2.63
1-Jun-06 1.53
1-Sep-06 1.52
1-Dec-06 1.08
1-Mar-07 1.52
1-Jun-07 1.08
1-Sep-07 1.52
1-Dec-07 0.81
1-Mar-08 0.81
1-Jun-08 0.81
1-Sep-08 0.26
1-Dec-08 0.26
1-Mar-09 0.17
1-Jun-09 0.13
1-Sep-09 0.13
1-Dec-09 0.13
1-Mar-10 0.13
3 Borrowings outside India 5700.00
a CITIBank Bahrain@
1.7400%
30-Sep-03 1187.50
b CITIBank Bahrain
@1.6675%
22-Sep-03 1187.50
c Union Bank of
California@1.6400%
19-Jun-03 950.00
d Union Bank of
California@1.6400%
30-Jun-03 2375.00
4 Tier II Bonds Series I
@14.20%
12000.00 4-Apr-04 12000.00
5 Tier II Bonds Series II
@12.35%
6000.00 6-Dec-06 6000.00
6 Tier II Bonds Series III
@7.50%
15000.00 8-May-10 15000.00
7 VRS Bonds@11% 1009.00
30-Apr-06 451.50
2-Jun-06 25.10
30-Aug-06 256.10
30-Sep-06 147.30
30-Oct-06 48.10
30-Dec-06 14.40
15-Jan-07 3.40
30-Apr-07 16.10
2-Jun-07 31.70
Pending Issue of Bonds 15.30

47
TOTAL 64917.11 TOTAL 64917.11
* Excluding Deposits, adverse clearing balances and Nostro Mirror Balances as on 31.03.2003

The above borrowings are all unsecured. No promoters / directors have given any personal
guarantee for collaterally securing the borrowings. None of the lenders is an affiliate / associate
of the Bank. The Bank has not defaulted in repayment / redemption of any of the borrowings.
RBIs nominee director is on the Board of the Bank, the details of which are shown under the
section Board of Directors.

Important covenants governing the major borrowings
SIDBI Short Term Loan and Refinance facility
1. SIDBI may at any time during the currency of the loan, call upon the Bank to pay interest on
the balance outstanding and other monies payable in respect of the loan at such higher rates
as may be fixed by SIDBI and intimated to the Bank. Provided that in the event of the Bank
called upon to pay interest at the enhanced rate, the Bank shall have an option on receipt of
such intimation, to prepay forthwith the entire outstanding loan together with all
outstanding interest and other monies thereof.
2. A s security for the said loan, the Bank shall hold in trust for SIDBI, all the securities
including movable and immovable assets, book debts, receivables, actionable claims,
guarantees, assignments, bills of exchange and proceeds thereof as also all other securities as
maybe directly or indirectly obtained or to be obtained by the Bank from its borrowers to
secure its financial assistance made available to its borrowers for which the loan has been
sanctioned by SIDBI to the Bank.

DETAILS OF DEPLOYMENT OF FUNDS
Advances
The total advances of the Bank amounted to Rs.7891.34 crores in March 2003 compared to
Rs.6196.66 crores in March 2002, recording an increase of 27.3 %. The Bank has launched several
retail lending schemes viz., I) Trade finance ii) Housing Finance to individuals iii) Liquidity
Finance to SSIs (iv) Liberalised Credit to SRTOs v) Jewel Loan vi) Planters Cards vii) V-Cash viii)
V-Equip ix) Loans against Shares including Demat Shares x) Loan against Motor vehicles xi) V-
Rent xii) V-Kanyadan xiii) V-Mangala, to increase its clientele base. The growth of credit during
the past five years is as follows:

(Rs. in crores)
As on March 31, Total Credit Annual increase (%)
1999 3767.20 25.61
2000 4958.67 31.60
2001 5720.01 15.40
2002 6196.66 8.30
2003 7891.34 27.30

Population group wise classification of advances
The population groupwise classification of the Banks advances is as under:
(Rs. in crores)
As on last reporting
Friday of March
1999 2000 2001 2002 2003
Rural 439 510 518 563 643
Semi-urban 438 536 552 610 787

48
Urban 770 955 984 1149 1522
Metropolitan 2596 3182 3627 4093 5177
Total 4243 5184 5681 6414 8176

Region wise credit exposure
The region wise credit exposure of the Banks credit portfolio as on as on reporting Friday March
2003 is given below.
(Rs. in crore)
Region Amount % of gross credit
East 346.38 4.20
West 2434.61 29.8
North 1097.91 13.40
North-east 126.69 1.50
South 3832.40 46.90
Central 338.66 4.20
Total 8176.65 100.00

Sector wise credit portfolio
The sector-wise credit portfolio of the Bank as on last reporting Friday of March 2003 is as under:
(Rs. in crore)
Industry Amount Exposure to gross bank credit
Gross Bank Credit 8176.65 100.00%
1 Food Credit 744.12 9.10
2 Non Food Credit: 7432.53 90.90
2 a Medium & Large Scale Industry 981.00 12.00
2 b Wholesale Trade 234.00 2.87
2 c Priority Sector 2960.00 36.20
2 d Export Credit* 592.70 7.24
2 d Other Sectors 3258.00 39.83
*included in different sectors

The details of industry-wise exposure, classified in terms of the top 5 industries, where the bank
has an exposure, as on 31.03.2003 is as follows:

Industry wise outstanding as on 31
st
March 2003
(Rs. in crore)
Industry Outstanding to
the industry
Outstanding to the
industry as % of
total outstanding
Total Outstanding
to top 5
Companies
Total O/S of top 5
companies in the
industry as % of
total outstanding
to the industry
Electricity / Power 281 17.95 247.31 88.01
Textiles (Cotton,
Jute &Others)
147 9.39 30.27 20.50
Iron & steel 124 7.92 124 100
Petrochemicals 69 4.41 69 100
Drugs &
Pharmaceuticals
67 4.28 57.59 86.00

49
Fertilizers 64 4.09 56.92 88.93
Engineering 57 3.64 19.32 33.8
Metal & Metal
Products
48 3.07 7.48 15.58
Petroleum 45 2.88 45 100
Marine food
processing
44 2.81 35.63 80.98

EXPOSURE TO TOP TEN COMPANIES AND TOP FIVE BUSINESS GROUPS

Companies

Borrower Industry Amount
Outstanding
(Rs. in crores)
% to
total
advances
Borrower-A Power Distribution 207.95 2.54
Borrower-B Govt.
Undertaking (Public Financial Institutions)
63.79 0.78
Borrower-C Power Distribution 99.00 1.21
Borrower-D Diversified 75.34 0.92
Borrower-E Power Distribution 62.17 0.76
Borrower-F Housing Finance 35.69 0.44
Borrower-G Fertilisers (PSU) 56.92 0.69
Borrower-H Electrical 20.22 0.25
Borrower-I Financial Services 71.83 0.88
Borrower-J Metals Trading 38.03 0.46
Total 730.94 8.93%

Business Groups

Borrower Amount outstanding (Rs. in crores) % to total advances
Group A 103.85 1.32
Group B 120.00 1.52
Group C 93.71 1.19
Group D 86.20 1.09
Group E 54.84 0.70
Total 458.60 5.82

Sanctions & Disbursements
The following table provides a summary of the total sanctions and disbursements for the last five
years:
(Rs. in crores)
Year ended March 31 1999 2000 2001 2002 2003
Sanctioned
Out of which

50
-Loans
-Bank guarantees
_Letter of credit
-Deferred payment guarantee
-others (if any)
1603
179
315
76
-
1434
290
271
52
-
1240
340
353
-
-
1776
397
431
109
-
2745
598
695
58
5
Disbursed
Out of which
-Loans
-Bank guarantees
_Letter of credit
-Deferred payment guarantee
-Others (if any)

1462
143
296
76
-

1319
266
257
52
-

1178
313
335
-
-

1683
357
379
109
-

2570
568
515
58
-

EXPORT CREDIT
As per the current Reserve Bank of India norms, lending to export should be 12% of total credit,
against which the exposure of the Bank is 7.51% constituting Rs 592.70 crores during the year
ended 31
st
March 2003. The Bank continues to encourage export credit with particular emphasis
on small and medium sized exporters.

As against the export target of 12% of the net credit, Vijaya Bank could not meet the targets in the
last five years. The details of the past five years is given as under:
(Rs. in crores)
Year ended March 31, 1999 2000 2001 2002 2003
Target 478.59 588.00 780.00 852.00 1030.00
Achieved 442.64 432.59 468.57 420.50 592.70
% of Export Credit to Net Credit 11.10 8.80 8.19 6.79 7.51

PRIORITY SECTOR LENDING
Details of Sector-wise distribution of Priority Sector Credit for the last five years is given below:
(Rs. in crores)
Year ended March 31, 1999 2000 2001 2002 2003
Agriculture 616.78 743.14 750.95 843.54 1181.25
Small Scale Industries 510.74 573.61 571.81 555.82 582.24
Other Priority Sector Advances 502.96 689.28 723.82 950.38 1348.50
Total 1630.48 2006.03 2046.58 2349.74 3111.99

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

Lead Districts
As required by the GoI/RBI, the Bank has been assigned the role of lead bank in three districts in
Karnataka State, which are Mandya, Dharwar and Haveri. The assigned lead bank
responsibilities are discharged by maintaining Inter-institutional coordination in the preparation
and implementation of various development programmes in each district. Details of branch
network, resources mobilised and advances made in the lead districts are as under:

(Rs. in crores)
State No. of lead
districts
No. of
branches
Total
deposits

Total
advances
(A)
Advances
to priority
sector (B)
Percentage
to total
advances
(B/A)*

51
Karnataka 3 59 285.32 202.74 130.15 2.48%
Total 3 59 285.32 202.74 130.15 2.48%

Lending policy
The Bank has put in place a comprehensive lending policy and the same has been covered in this section in
brief. While the budgeted (projected) figures are an integral part of such loan policy, the same have not
been reproduced in the offer document to comply with the disclosure norms of SEBI. To conform to this
requirement of non-disclosure, the write-up has been suitably amended at appropriate places. However, the
policy write-up may contain certain qualitative forward-looking statements about events, which may or
may not fructify in future. Also, wherever deemed appropriate, the sections have been summarised and/or
omitted. The policy has been approved by the Board of Directors in their meeting held on July 23 2003 and
has become effective from the said date.

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

OBJECTIVES
As on last reporting Friday of March 2003, the Bank has attained a Gross Credit level of Rs.8130
crores, Net Credit level of Rs.7383 crores, CD Ratio 48.34% and Gross Profit of Rs.427 crores. The
Bank has budgeted for each of these performance parameters for the next fiscal year i.e. FY 2004.
FOCAL POINTS
The policy lays emphasis on volume increase in credit simultaneously ensuring consistent and
visible improvement in the portfolio quality. Improvement in credit appraisal standards is to be
achieved through continuous training process/refresher courses to the Credit officers,
monitoring teams and the branch managers/executives as well, fully utilizing in-house and
specialized agencies/training colleges. Similarly adherence to standards of quick and prompt
decision making and grant of adequate and need based financial assistance on attractive, but on
safe terms, and in time, in compliance with Fair Practice Code on Lenders Liability are expected
to give the necessary boost to the credit-deposit ratio. The Bank has various unique Retail
lending and other schemes like V-Rent, which have all been accepted by the regular income
earners, trading community, landlords, etc. It is Banks endeavour to develop proper marketing
strategies and creation of marketing network by outsourcing services of Direct Selling Agents,
Tie-up with dealers, Credit Investigating Agents, Recovery Agents, etc.

OPERATIONAL ASPECTS
1. Thrust areas: While the Bank would put in all efforts to seize opportunities in all sectors, in
line with the national policies, endeavour would be made to expand credit under agriculture, SSI
and export. The Bank has also its own schemes that have earned popularity among the trader
communities, and to the retail segment including Housing. These would continue to be thrust
areas. With the industry sector coming out of recession, the bank would attempt to join working
capital consortium lending arrangement of progressive industrial units. The Bank is also not
averse to take over term loans at competitive rates (on fulfilment of certain conditions) provided
a share in the working capital financing is also provided either immediately or where there is
firm commitment that it would be made available in due course. The Bank would also attempt to
attract high rated customers by extending Foreign currency loans at competitive rates.

52
2. Sectoral Exposure Ceiling: While expanding credit and identifying new borrowers, the Bank
shall keep in mind the share of present outstanding advances and deployment of incremental
credit required under priority sector, export, retail lending, service sector, infrastructure and
other preferred sectors and segments, in conformity with the guidelines stipulated by the
Government and Reserve Bank of India from time to time.
a) Priority Sector:
In compliance with the directions issued by the RBI, the Bank shall concentrate in achieving
and maintaining the following minimum exposure levels in respect of lending to the Priority
Sector:

Category As % to Net Credit
Total Priority sector 40%
Agriculture 18%
Weaker Section 10%
Women beneficiaries 5%
DRI Advances 1%

The Banks aim would be to achieve the same by correspondingly setting the target,
reviewing progress vis--vis target set to the Regions/branches on a quarterly basis.
Regional Offices and the HO department, both Credit and Planning, shall follow up in this
regard based on the prescribed reporting returns.

b) Small Scale Industries:
At present, RBI has not stipulated any specific level (as % to banks total advance) of credit
outflow to SSI sector. However, there is a stipulation that out of the total credit extended by
a bank to SSI sector, 60% thereof should go to tiny units (where the investment cost on plant
and machinery is up to Rs.25 lakhs). Therefore, the Bank shall endeavour to achieve credit
allocation as below, in compliance with the guidelines issued by the RBI:

Category Investment in Plant &
Machinery
%-Age to total direct
SSI advances.
Total to SSI Sector - -
Cottage Industries Up to Rs.5 lakhs 40%
Khadi & Village Industries, Artisans
and Tiny Sector
Between Rs.5 lakhs and Rs.25
lakhs.
20%
Other SSI units. Between Rs.25 lakhs and
Rs.100 lakhs
40%

c) Export Credit:
In respect of export credit, the Banks endeavour would be to reach a minimum credit
deployment level equal to 12% of its Gross Credit and for this purpose, credit extended to
merchant as well as manufacturing exporters and also deemed export transactions shall be
reckoned, covering both pre and post shipment exposures.

d) Retail Lending
As retail lending continues to be one of the major thrust areas of the Bank, credit
dispensation through our various retail lending schemes such as: Trade Finance/V-Trade,
Housing Finance (Direct and Indirect), Loans to Small Road Transport Operators, Jewel

53
Loans, Educational Loans, Loans against Motor Vehicles (other than SRTOs), V-Cash, V-
Equip, V-Rent, V-Wheels, V-Kanyadan, V-Mangala, etc shall receive focused attention. The
Bank has budgeted for overall quantum of retail lending in FY 2004 with well-specified
budgets for housing finance and other retail sectors.

e) Infrastructure
The coverage under infrastructure would be the same as defined under Section 10 (23 G) of
Income Tax Act, 1961. Accordingly, infrastructure would include sectors such as power,
roads, highways, bridges, ports, airports, rail system, water supply, irrigation, sanitation and
sewerage system, telecommunication, housing, industrial park or any other public facility of
similar nature as may be notified by CBDT from time to time. Although the current
Monetary Policy has placed emphasis on financing infrastructure projects and permitted 5%
relaxation in the Prudential Exposure Ceiling (20% of banks Capital Funds instead of 15% as
applicable to other individual borrowers), considering the inherent strengths and
weaknesses attached to the activity of infrastructure financing, the Bank shall exercise
selectivity in taking up infrastructure projects for funding. While the general industry
scenario would be the backdrop for evaluation of cases, the Banks own experience in having
financed such / similar projects in the past would be the deciding factor. Wherever possible,
financing by the Bank will be under consortium arrangement with others. Within this broad
framework, the Bank has specified industry wise exposure levels for financing infrastructure
projects.

f) Medium and Large Scale Industries:
The overall exposure of the Bank to medium and large-scale industrial sector is expected to
be around 25% of its Gross Credit level and advance to any particular single industry shall be
generally restricted to 10% of the Gross Bank Credit. In respect of certain select industries,
like Iron & Steel, Metals, Petroleum Products, Chemicals, Paints, Engineering, Drugs &
Pharmaceuticals, Textiles, Paper, Sugar, Cement, Food/Meat Processing units, Timber,
Fertilizers, this internal exposure ceiling is more relevant, taking in to account the present
economic scenario, demand-supply conditions, past experience, etc. However, these caps
would not be a deterrent for the Bank to accept viable, bankable proposal from any of these
sectors and deviations can be permitted by the ED/CMD on a case to case basis depending
on the delegated powers under which such sanction falls.

g) Service Sector:

Loans and advances to Information Technology sector, Non-Banking Finance Companies,
Housing Finance and other finance intermediaries, Educational Institutions, Hospitals,
Tourism & Hotel and such other service-emphatic enterprises shall come under this category.
While no separate exposure level ceilings are prescribed with regard to lending to each of
these sectors, the Banks endeavour shall be to ensure that the overall exposure to the service
sector is kept around 20% of Gross Credit.

h) Information Technology Sector:

The advances to IT units up to Rs.1 crore could be classified under Priority Sector. The Bank
shall endeavour to encourage and lend to this sector in all viable cases irrespective of any
cut-off level as such. Hence no separate sub-target is made.

i) Non-Banking Finance Companies:

54
The restrictive approach already put in place by the Bank with regard to financing of NBFCs
shall continue to remain in force. No fresh sanction or enhancement in the existing limit
shall be considered without prior approval of the CMD.

j) Educational Institutions:
In recent times, there has been a visible proliferation of educational institutions imparting
knowledge in various disciplines, especially in professional courses. These provide ample
employment opportunities. These are desirable ventures especially if developmental needs
(normally for construction/acquisition of infrastructure) are well established, Institution has
proven profitability records; enjoy good reputation as prominent institution in the
educational field. The criteria for entertaining such proposals shall be the reputation,
developmental needs and ability to service the bank loan based on the expected cash flows.

k) Hospitals:

Rural dispensaries, Nursing Homes and small hospitals run by the physicians themselves are
usually well conducted and the bank shall entertain their working capital requirements,
equipment purchase requirements and small expansion projects based on proper
assessments/ viability fulfillments. New units established in centers where no
hospitals/Nursing Home exists can be potential proposals for financing.

As regards Super/multi specialty Hospitals, such exposure can be taken up based on the
viability/feasibility established through study report of competent/acceptable agencies,
independent study by the bank/branch as to its scope in the area, promoters involved,
medical team of expertise available, equipments/other state-of- art technology
proposed/available, etc., and also the performance reports of such other hospitals in the
area/district/state.

l) Hotels/Hospitality Industry

Small Hotels without lodging facilities, Restaurants, etc can be considered for financing both
for working capital as well as through term loans for procuring equipments, furniture and
fixture, etc. While financing fresh hotel projects/extending assistance for enlargement of
existing hotels, enquiries needs to be undertaken to evaluate the current trend in the
industry, past activity levels of such hotels (wherever applicable) in the particular area of
tourist interest and the viability and ability of the particular project to service the debt even
in adverse circumstances, by carrying out detailed sensitivity analysis on cash flows,
Profitability projections/DSCR/IRR.

m) Film Production:

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

n) Sensitive Sectors:

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

55

CATEGORY PERCENTAGE OF GROSS
Bank Credit
Advances to capital Market Sector 2%
Real estate Sector 5%
Commodity Sector 5%

PRUDENTIAL EXPOSURE LEVELS

The prudential exposure (PE) norms for Individual and Group Borrower as prescribed by the RBI
are linked to the Capital Funds (CF) of the Bank. The CF of the Bank as per the last published
balance sheet as on 31.3.2003 is Rs.960.14 crore. Credit exposure (both fund based and non-
funded) and other items to be added to reckon the exposure level are: facility extended by way of
equipment leasing, hire purchase finance, factoring services, investment in commercial papers,
forward contract in foreign exchange and other derivative products like currency swaps and
options (at their replacement cost value), investments of various nature and under-writing and
similar commitments. (However, advance against Banks own deposits, financial assistance
sanctioned to sick / weak industrial units under rehabilitation scheme and Food credit as
allocated by the RBI shall be exempted for calculation of PE level exposure).

Based on the Capital Funds of the Bank as indicated above, the Prudential Exposure norms as per
RBI guidelines shall be as below.
(Rs. in crore)
TYPE OF BORROWER % Of capital funds PRUDENTIAL CEILING BASED ON
AFS AS ON 31.3.03
Individual
Individual (Infrastructure)
15%
20%
144.02
192.03
Group 40% 384.06
Group (infrastructure) 50% 480.07

As a policy, it is not expected of the Bank to undertake exposure on account of a borrower, in
excess of the Prudential Exposure Ceiling level permitted by the RBI. There may, however arise
cases where for business compulsions, the Bank may find it prudent to accommodate an entity
beyond the PE Ceiling. In such cases, not only due sanction of the Board (MCB) is to be obtained,
but also the written permission of the Reserve Bank of India before release of such credit limits,
by submitting the full particulars of the case, in the format prescribed by the RBI. This has to
noted and taken care by the Credit Department at HO.

A. INTERNAL CEILING
While the Prudential Exposure Ceiling as above shall be treated as the outer most limit (except in
respect of such cases where an exemption to exceed the level has been permitted by the RBI), to
undertake exposures (credit, Investments, underwriting, etc put together) on behalf of the Banks
clients, for all practical purposes Internal Ceiling levels as given below shall be observed for new
exposures, based on the Risk ratings made:

[Rs. in crore]
Risk Rating of the borrower Ceiling as % to
CF of the Bank
Ceiling in
monetary terms
(ROUNDED
OFF)
Low (with AA+ rating) 15 144.00

56
Low (with AA rating) 14 134.00
Moderate (with A rating) 12 115.00
Average (with B rating) 10 95.00
Caution (with C rating) As per note below
Away (with D rating) As per note below

Note: In respect of Borrowers securing Caution (with C rating) and Away (with D
rating), the Banks endeavour normally shall be to contain further exposure. However,
we being a medium sized bank, each individual case shall be decided strictly on its
merits such as availability sufficient cash flows, collaterals, guarantee of promoters
(Personal/corporate), besides prescription of stringent loan covenants and intensification
of surveillance mechanism. Also, relaxation may be allowed in respect of Public Sector
and Joint Sector Undertakings of repute, Government/semi-government bodies who are
profit making entities with progressive financials and also in cases of corporate entities
and autonomous bodies where Escrow mechanism, Government guarantee/comfort
letters, etc are available and where the past dealings especially with regard to debt
servicing have been found satisfactory. The authority for giving such exemptions to all
categories, as above, shall be the CMD/MCB.

Consultation and exchange of exposures, reports on conduct of account, etc should
be made between Credit and Treasury Department before undertaking exposure
beyond a level of Rs. 50 crore.

B. SUBSTANTIAL EXPOSURE
The following levels of exposure shall be treated as Substantial exposures:

Individual borrowers In excess of 10% of Banks Capital Funds (i.e. above 10% of Rs. 960.14
crore)

Group of borrowers In excess of 20% of Banks Capital Funds)

Aggregate substantial exposure to individual and group of borrowers are to be restricted to 600%
of the Capital funds, i.e. Rs.5860.84 crore (six times of the CF of the Bank as on 31.3.2003). All
substantial exposures are to be closely monitored by the Credit Department and appraised on a
half-yearly basis to the Top Management/MCB.

C. MATURITY NORMS
With a view to avoiding asset-liability mismatches, as regards sanction of Term Loans, the
directions issued in this regard by the Asset Liability Management Committee (ALCO) shall be
adhered to. While prior clearance of ALCO is not required where the proposals are cleared by
the New Business Group / Central Credit Committee, in respect of other Term Loans above Rs. 5
crore where the repayment exceeds 5 years (excluding Housing Loans, agricultural development
loans, educational loans and loan under Govt. Sponsored Schemes), the ALCO shall be kept
informed with repayment details. In general, the following maturity norms, with preference to
quicker recycling shall be followed:

Short-term Finance
Inland and export bills discounting

Up to 180 days.

57

Demand Loans

Up to 12 months.
Medium-term loans
Medium-term loans

Up to 3 years.
Long-term Loans
Long-term loans

p to 10 years, or 15 years subject to ALCO clearance.

As a matter of policy, it shall also be ensured that the aggregate long-term loans portfolio of the
Bank (excluding Housing Loans, agricultural development loans, educational loans and loan
under Govt. Sponsored Schemes) does not exceed 30% of the Gross Credit of the Bank.

In addition, the loan policy covers in detail the following related areas.

FLOW OF CREDIT, APPROACH TO LENDING, BORROWER STANDARD, SCREENING OF
PROPOSALS, CREDIT ASSESSMENT, NON-FUND BASED BUSINESS, DEFAULTERS LIST,
CREDIT RISK MANAGEMENT, LOAN PRICING, SECURITY STANDARDS, GUARANTEE
STANDARDS, DOCUMENTATION STANDARDS, REVIEW / RENEWAL STANDARDS,
SUPERVISION AND MONITORING, DELEGATION OF POWERS AND OTHER RELATED
ISSUES.

(Loan policy write-up ends here)

Credit Approval Authority
The Bank has a 3-tier organisational set up i.e. branch, Regional office and Head office.
Accordingly, various credit approving authorities in the field are vested with delegated powers
on the basis of security and type of facility. These powers are revised from time to time, keeping
pace with the fast changing banking scenario. The Management committee of the Board of
Directors is the Apex level credit approving authority of the Bank. The Bank has a system where
in sanction accorded at each level is subject to scrutiny by the immediate next higher authority.

Procedures
The Bank has put in place a system to assess and analyze the exposure level to different
borrowers and the group, in accordance with the Prudential Exposure Norms prescribed by the
Reserve Bank of India as well as the Bank's lending policy. Credit Risk assessment is an integral
part of Credit dispensation. All credit proposals with exposures Of Rs. 3 crore and above are
being subjected to risk rating before taking credit decision. Exposures beyond Rs. 2 lakh but
below Rs. 3 crore are being subjected to Gradation Exercise. The Bank has set up an independent
Risk Management Department consisting of personnel trained in and conversant with the credit
risk assessment, project finance, corporate finance, retail lending etc.

INVESTMENTS

The gross investments of the Bank stood at Rs. 8913.88 crores as on March 31 2003 and the net
investments stood at Rs.8861.61 crores. The average yield on investments (excluding special
securities) stands at 10.56% as on March 31 2003. The Bank continued to remain active in trading
of securities and earned a profit of Rs.225.08 crores during the year from sale of investments.

The position of the Banks investments is furnished below:
(Rs. in crores)
As on March 31, 1999 2000 2001 2002 2003

58
Gross Investments 4466.75 5110.84 5917.82 7418.63 8913.88
SLR Investments 2515.08 2987.70 3747.39 5193.04 6624.84
Investments-Held to Maturity
(HM)
2438.60 1396.14 1682.63 1642.24 2375.25
Investments-Available for Sale
(AS)
NA NA 3712.49 5654.87 6538.64
Investments-Held for Trading
(HT)
NA NA 522.70 121.52 -
Current Investments 2028.15 3714.70 NA NA NA
Current Investments or (AS+HT)
to total SLR Investments (%)
54.59 27.32 113.02 111.23 98.70

As on March 31, 2003, the 98.70%of the Banks SLR investments were classified under the AFS
category and hence marked to market.

The aggregate book value of investments in shares as on March 31, 2003 is Rs. 47.22 crores, as
against the market value of Rs. 32.02 crores. The Bank has fully provided for the decline in the
value of these investments.

Investment portfolio as on March 31 2003
(Rs. in crores)
Government Securities 7012.32
Other Approved Securities 141.71
Shares 32.02
Debentures & Bonds 1447.09
Subsidiaries & Joint Ventures 10.63
Others
-Initial Capital/Units of UTI - 114.22
-Mutual Funds - 103.62
217.84
Total Net Investments 8861.61

Investment strategy
The Bank would adopt an investment strategy which would help in achieving the basic objective
laid in the Investment Policy of the Bank like maintenance of CRR / SLR, maintenance of
adequate liquidity, increase of IFR to stipulated level and maximisation of income by encashing
opportunities of price movement in the market and at the same time strive to maintain / protect
the yield on Investment Portfolio at the reasonable level.

Yield on investments
The yield on investments (%) for the last five years is given below:
As on March 31. 1999 2000 2001 2002 2003
The yield on investments (%) 12.00 12.21 11.87 11.35 10.49

ASSET CLASSIFICATION, INCOME RECOGNITION & PROVISIONING

In compliance with the RBI guidelines from time to time, the Bank has adopted the system of
income recognition, asset classification and provisioning. In terms of the said guidelines, the
Bank has classified all advances into two categories viz.,

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

59

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

1. Sub-Standard Assets,
2. Doubtful Assets and
3. Loss Assets

A loan asset is treated as a non-performing asset when it ceases to generate income for the Bank
in the normal course. A borrowal account is classified as a NPA when the interest and or
principal dues remain unpaid for 2 quarters in a financial year. Borrowal accounts treated as
NPA for a period not exceeding two years are classified as Sub Standard Assets and borrowal
accounts treated as NPA for more than 18 months are treated as Doubtful Assets. NPAs, where
no security is available and which are considered as irrecoverable, are treated as Loss Assets. An
NPA if it is a sub standard asset can remain a substandard asset for a maximum period of 18
months. Thereafter, it has to be classified into a worse category. However, the time factor is not
the only consideration. If an advance is a NPA, if there is no security, if there are no grounds to
believe that the advance can be recovered under a short foreseeable future, it should be treated as
a Loss asset straightaway.

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

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

i) Effective March 31, 2000 a general provision of 0.25% is made on the aggregate
outstanding of all Standard Assets
ii) On Sub Standard Assets at 10% of the outstanding amount
iii) On Doubtful assets at 20%, 30% and 50% of the secured portion based on the number of
years the account has remained as Doubtful (i.e., upto one year, one to three years and
above three years respectively) and at 100% of the unsecured portion of the outstanding
amount after netting retainable or realisable amount, if any of the guarantee claims
already received/lodged with the Deposit Insurance Credit Guarantee Corporation of
India and the Export Credit Guarantee Corporation of India Ltd.
iv) On Loss assets at 100% of the outstanding after netting retainable amount of the
guarantee claims already received/lodged with the DICGC/ECGC Ltd.

The asset quality of the bank has improved considerably during the last 5 years. Between 1999
and 2003 the gross NPAs to Gross Credit Ratio has dropped from 13.65% to 6.18%, while the net
NPAs to net credit ratio fell from 6.72% to 2.61%.

The details of Non-Performing Assets of the Bank are furnished below:
(Rs. in crores)
As on March 31, 1999 2000 2001 2002 2003
No. of cases 129307 100379 107963 124185 103757
Gross Advances 4025.61 4923.71 5942.35 6417.10 8183.99
Gross NPAs 549.37 567.19 594.32 602.69 505.54
% of Gross NPAs to Gross Advances 13.65 11.52 10.01 9.39 6.18
Net Advances 3726.66 4666.49 5702.04 6196.66 7891.34
Net NPAs 250.42 310.16 354.61 373.23 205.81
% of Net NPA to Net Advances 6.72 6.65 6.22 6.02 2.61

60

Movement of NPAs during the last three years
PARTICULARS (As on March 31) 2001 2002 2003
Gross NPA at the beginning of the year 567.19 594.92 602.69
Addition during the year 204.66 190.17 149.12
Reduction during the year 176.93 182.40 246.27
a) Upgradation
b) Cash Recovery
c) Compromise
d) Write-off
11.19
80.87
10.25
74.62
5.88
65.20
3.59
107.73
31.85
90.19
1.64
122.59
Gross NPA at the end of the year 594.92 602.69 505.54
Provision 230.56 220.44 290.45
Interest Suspense 0.01 0.01 2.20
DICGC & ECGC Balance 9.74 9.01 7.08
Net NPA at the end of the year 354.61 373.23 205.81

Asset classification of performing and non-performing assets for the last 5 years is given below:
(Rs. in crores)
As on March 31, 1999 2000 2001 2002 2003
Standard Assets 3476.24 4356.52 5347.43 5814.41 7678.45
Sub standard 162.37 246.52 228.32 228.67 176.22
Doubtful 339.55 263.72 293.74 314.85 257.60
Loss 47.45 56.95 72.86 59.17 71.72
Total 4025.61 4923.71 5942.35 6417.10 8183.99
(as a % of total assets)
As on March 31, 1999 2000 2001 2002 2003
Standard Assets 86.35 88.48 90.02 90.61 93.82
Sub standard 4.03 5.10 3.83 3.56 2.16
Doubtful 8.44 5.41 4.93 4.90 3.14
Loss 1.18 1.01 1.22 0.93 0.88
Total 100.00 100.00 100.00 100.00 100.00

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

Particular No. of
accounts
Gross NPA amount
(Rs. in crores)
Interest derecognised (Rs. in
crores)
Rs.25000/- &
above
27479 433.05 1220.22

Below Rs.25000/- 76278 72.49 204.26
Total 103757 505.54 1424.48

Industry wise classification of non-performing assets

Sector wise analysis of Gross Non- Performing Assets
(Rs. in crores)
Industry March 31,
1999
March 31,
2000
March 31,
2001
March 31,
2002
March 31, 2003
Amt % Amt % Amt % Amt % Amt %
Large and
Medium
137.9 25.1 109.7 19.3 118.9 19.9 163.5 27.1 47.6 9.4

61
Industries
Small Scale
Industries
81.6 14.9 84.2 14.8 135.8 22.8 95.1 15.8 77.6 15.3
Priority Sector
(Agriculture)
74.8 13.6 75.7 13.4 105.4 17.7 102.2 16.9 83.9 16.6
Other Priority 143.5 26.1 180.1 31.8 101.5 17.1 115.3 19.1 179.7 35.6
Non Priority
sector
255.0 46.4 297.6 52.5 133.4 22.4 126.6 21.0 116.7 23.1
Total 549.4 100 567.2 100 595.0 100 602.7 100 505.6 100

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

Borrower Industry Amount
(Rs. in
crores)
% to the
gross
advances
Asset
quality as
on March 31,
2003 (sub-
standard/do
ubtful/loss)
1. Borrower A Metal products 25.92 0.31 DA
2. Borrower B Cement 15.74 0.19 DA
3. Borrower C Petro Chemicals 9.71 0.11 DA
4. Borrower D Jute Textiles 8.99 0.10 SSA
5. Borrower E Cotton Textiles 8.29 0.10 DA
6. Borrower F Engineering 5.95 0.07 DA
7. Borrower G Iron & Steel 5.21 0.06 DA
8. Borrower H Petroleum & Refineries 4.85 0.05 DA
9. Borrower I Vegetable Oil 4.46 0.05 DA
10. Borrower J Rubber & Rubber products 3.51 0.04 SSA

The top 10 industries that account for high level of NPA s are as given in the following table.
(Rs. in crores)
Sr. No. Industry Amount % of Gross Advance
1 Metal Products 25.92 0.31
2 Cement 15.74 0.19
3 Petrochemicals 9.71 0.11
4 Jute Textile 8.99 0.10
5 Cotton Textile 8.29 0.10
6 Engineering 5.95 0.07
7 Iron & Steel 5.21 0.06
8 Petroleum & Refinery 4.85 0.05
9 Vegetable Oil 4.46 0.05
10 Rubber & Rubber Products 3.51 0.04

The details of top 10 NPAs in different industry sectors as on March 31 2003 are as under.
(Rs. in crores)

Industry Total Advance to
the industry (A)
Top ten NPA Amount
in the industry (B)
Top 10 NPAs as a % of
Advance given to industry
(B/A)
Metal & Metal 43.52 25.92 59.56

62
Products
Cement 47.27 15.74 33.30
Petro-chemicals 12.39 9.71 78.37
Jute Textiles 27.52 8.99 32.67
Cotton Textiles 31.98 8.29 25.93
Engineering 42.19 5.95 14.11
Iron & Steel 100.13 5.21 5.21
Petroleum &
refineries
49.28 4.85 9.85
Vegetable Oil 9.69 4.46 46.03
Rubber & Rubber
Products
33.59 3.51 10.45
Other Industries 1056.52 52.39 4.96
TOTAL 1454.08 145.02 9.98

NPA management strategy

In order to ensure that there is no let up on the recovery and up-gradation of the non performing
assets the Bank has put in place detailed operational guidelines covering all vital areas of
functioning:

a) to assess and evaluate the newly added NPAs into (i) cases where there are temporary
liquidity problems in which cases the borrowers will be allowed need based time to repay
the interest and installment through proper rephasement (ii) cases where there is a need to
induct further funds because of genuine requirements and if such cases are found to be
technically, financially and commercially viable, extension of further loans is considered (iii)
where units are not viable or the borrowers are wilful defaulters, legal action is initiated
immediately as delay would cause further erosion of security cover available.
b) The Bank has a comprehensive Compromise Settlement Policy approved by the Board of
Directors. The Policy is revised/updated from time to time to provide an in built flexibility
for the easy implementation by the field functionaries. The guidelines also cover writing off
the debts (outside negotiated settlements and waiver of filing of suits/execution petitions)
c) Effective pursuit of legal action and follow up of suits filed and decreed account including
cases filed before the Debt Recovery Tribunals to ensure the recovery of Banks dues.
d) The Bank has also initiated steps under the Securitisation Act 2002, by bringing attachment of
the securities. The Bank has issued notices to 1988 borrowers till date for recovery of an
amount of Rs. 239.99 crore and has recovered amount aggregating Rs. 26.45 crores.
e) The Bank has evolved a novel idea for recovery of NPAs. Recovery brigades are formed in
every regional office and branches comprising all section of its employees to conduct Road
Shows at the office premises/ residence of the defaulters to put pressure for recovery.

ASSET LIABILITY MANAGEMENT

Maturity profile of the Asset and Liability as on the last reporting Friday of March 2001
(Rs. in crores)
Maturity 1-14
days
15-28
days
29
days- 3
mths
3 - 6
mths
6 - 12
mths
1 - 3 yrs. 3 - 5 yrs. Over 5
yrs.
Total
1. Outflows
Capital 359.24 359.24

63
Reserve & Surplus 154.74 154.74
Deposits 795.92 121.54 482.81 529.37 2270.64 5786.70 1156.27 1020.21 12163.4
6
Borrowings 231.62 1.89 8.07 10.27 18.36 6.29 2.16 278.71
Other Liability and
Provision
188.02 95.20 24.22 120.00 312.59 740.03
A: Total Outflows 1215.6
1
121.54 484.70 632.64 2280.91 5829.28 1282.56 1848.94 13696.1
8
B: Cumulative Outflows 732.72 854.26 1338.9
6
1971.6
0
4252.51 10081.7
9
11364.3
5
13213.2
9

2. Inflows
Cash 72.42 72.42
Balance with RBI - 7.83 31.39 32.91 152.75 378.58 85.32 88.39 777.17
Balance with other
Banks
95.56 95.00 70.00 260.56
Investments 54.09 14.66 44.74 80.10 67.19 680.40 869.82 4104.06 5915.06
Advances performing 145.79 90.08 165.20 125.37 621.39 3124.07 300.13 234.90 4806.93
NPAs 148.08 160.94 309.02
Fixed Assets 165.39 165.39
Other Assets 187.71 1.99 10.25 18.19 36.86 59.96 46.58 613.49 975.03
C: Total Inflows 555.57 209.56 321.58 256.57 878.19 4243.01 1449.93 5367.17 13281.5
8

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

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

MATURITY 1 to 15 to 29
days
Over 3 Over 6 Over 1 Over 3 Over Total
14
days
28
days
and
upto
Months months year
and
years 5 years
3
months
and
upto
and upto upto 3 and
upto

6
months
1 year years 5 years

1. OUTFLOWS

Capital 359.24 359.24
Reserve &
Surplus
154.32 154.32

64
Deposits 457.12 91.96 329.54 1222.38 1905.95 7148 1506.21 1238 13899.16
Borrowings 85.45 1.08 6.37 5.62 12.07 4.39 1.43 116.41
Other Liability &
Prov.
191.38 117.62 149.42 60 484.6 1003.02

A..Total
Outflows
733.95 91.96 330.62 1228.75 2029.19 7309.49 1570.6 2237.59 15532.15
B. Cumulative
Outflows
732.72 824.68 1155.3 2384.05 4413.24 11722.73 13293.33 15530.92

2. INFLOWS

Cash 80.92 80.92
Balance with RBI 4.35 14.97 57.29 83.67 325.05 70.37 57.48 613.18
Balance with
other banks
141.83 30 171.83
Investments 35.42 17.55 92.77 13.28 66.46 561.84 1119.87 5505.26 7412.45
Advances
performing
323.05 63.24 224.52 134.73 591.89 3527.88 476.65 352.59 5694.55
NPAs 190.23 169.62 359.85
Other Assets 215.29 0.08 0.5 776.04 991.91

C. Total Inflows 796.51 85.14 362.34 205.8 742.02 4414.77 1857.12 7029.16 15492.86

3.
MISMATCHES

D. Mismatch (C-
A)
62.56 -6.82 31.72 -1022.95 -1287.17 -2894.72 286.52 4791.57 -39.29
E. % Mismatch 8.52 -7.42 9.59 -83.25 -63.43 -39.6 18.24 214.14 56.8
(D as % of A)

F.
Cum.Mismatch
-19.11 -25.93 5.79 -1017.16 -2304.33 -5199.05 -4912.53 -120.96

G. %
Cum.Mismatch
-2.61 -3.14 0.5 -42.67 -52.21 -44.35 -36.95 -0.78
(F as % of B)

Maturity profile of the Asset and Liability as on the last reporting Friday of March
2003
MATURITY 1 to 15 to 29 days Over 3 Over 6 Over 1 Over 3 Over Total
14
days
28 days and
upto
Months months year and years 5 years
3
months
and
upto
and upto upto 3 and
upto

65
6
months
1 year years 5 years

1. OUTFLOWS

Capital 333.52 333.52
Reserve &
Surplus
211.8 211.8
Deposits 558.44 240.97 411.58 1175.26 2052.08 8284.23 1746.26 1341.55 15810.37
Borrowings 0.44 0.38 250.28 0.5 0.73 0.06 0.13 252.52
Other Liability &
Prov.
173.84 110.52 159.22 60 1196.33 1699.91

A..Total
Outflows
732.72 240.97 411.96 1425.54 2163.1 8444.18 1806.32 3083.33 18308.12
B. Cumulative
Outflows
732.72 973.69 1385.65 2811.19 4974.29 13418.47 15224.79 18308.12

2. INFLOWS

Cash 80.05 80.05
Balance with RBI 230.99 11.09 19.43 55.77 95 387.4 85.61 84.18 969.47
Balance with
other banks
67.46 200 50 317.46
Investments 119.35 25.21 40.44 105.04 103.44 461.72 1151.48 6881.78 8888.46
Advances
performing
215.76 89.82 156.15 166.59 666.7 4120.86 553.63 639.97 6609.48
NPAs 174.39 162.35 336.74
Other Assets 0.56 832.82 833.38

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

3.
MISMATCHES

D. Mismatch (C-
A)
-19.11 85.15 -195.94 -
1047.58
-1297.96 -3474.2 158.79 5689.35 -101.5
E. % Mismatch -2.61 35.34 -47.56 -73.49 -60 -41.14 8.79 184.52 3.84
(D as % of A)

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

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

66
(F as % of B)

STRUCTURAL LIQUIDITY AS ON MARCH 31
ST
, 2001

(Rs. in crores)
Maturity Total Inflows Total Outflows Mismatch
1-14 days 1033.69 1325.43 (-) 291.74
15-28 days 157.23 240.49 (-) 83.26
29 days and upto 3 months 529.92 1127.91 (-) 597.99
Over 3 months and upto 6
months
849.52 1390.93 (-) 541.41
year
1015.16 3656.72 (-) 2641.56
Over 1 year and upto 3 years 5201.68 5828.44 (-) 626.76
Over 3 years and upto 5
years
1600.43 721.46 (+) 878.97
Over 5 years 4325.04 1031.90 (+) 3293.14
TOTAL 14712.67 15323.28 (-) 610.61

ST
, 2002

1-14 days 1088.23 820.53 (+) 267.70
15-28 days 101.64 121.19 (-) 19.55
29 days and upto 3 months 783.53 780.29 (+) 3.24
months
1008.32 1824.46 (-) 816.14
year
845.30 2323.17 (-) 1477.87
years
2155.45 1561.85 (+) 593.60
Over 5 years 4955.21 1997.97 (+) 2957.24
TOTAL 16728.46 17110.59 (-) 382.13

ST
, 2003

1-14 days 1145.21 1159.92 (-) 14.71
15-28 days 571.94 329.11 (+) 242.83
29 days and upto 3 months 690.89 882.39 (-) 191.50
months
1478.73 2150.91 (-) 672.18
year
1920.15 3100.45 (-) 1180.30
years
1828.44 2010.86 (-) 182.42
Over 5 years 7894.05 2402.10 (+) 5491.95

67
TOTAL 20996.48 21292.95 (-) 296.47

ALM strategy of the Bank
The ALM strategy of the Bank is to ensure adequate liquidity by properly matching maturing
assets and liabilities without any undue strain on profitability, keeping interest rate risk at
manageable level, ensuring that net interest margin is either enhanced or maintained at the same
level or also ensuring that Bank is adequately protected from exchange rate risk.

Financial Ratios and Other Financial Information of the Bank for the Last Five Years

Average balances and Interest rates

The following table shows average balances and interest rates of interest earning assets and
interest bearing liabilities for the last three financial years
(Rs. in crores)
Year
ended
March 31, 2001 March 31, 2002 March 31, 2003
Avg.
bal.
Interest Avg.
rate
Avg.
bal.
Interest Avg.
rate
Avg.
bal.
Interest Avg.
rate
Average
interest
earning
assets
11803.4
1
1356.18 11.49
%
14198.1
1
1538.50 10.8
4
16170.7
1
1670.81 10.33
Average
interest
earning
liabilities
11451.7
1
895.83 7.82 13539.9
4
1053.19 7.78 15179.1
1
1027.42 6.77

Financial Ratios*
(Rs. in crores except %)
Year ended March 31, 1999 2000 2001 2002 2003
Average Interest Earning Assets 8901.08 10600.39 11803.41 14198.44 16170.71
Interest income 999.98 1197.53 1356.18 1538.5 1670.81
Average Interest Bearing Liabilities 8542.41 10221.52 11451.71 13539.94 15179.10
Total Interest expenses 682.71 809.37 895.83 1053.19 1027.42
Ratio of average interest earning assets
to average interest bearing liabilities
104.20 103.71 103.07 104.86 106.53
Interest expenses apportioned to
interest earning assets
711.38 839.40 923.33 1104.38 1094.51
Net interest income 317.27 388.16 460.35 485.31 643.39
Net interest margin (%) 3.20 3.40 3.58 3.24 3.54
Gross yield (%) 11.20 11.30 11.50 10.80 10.30
Average cost of loan funds (%) 8.00 7.90 7.80 7.80 6.80
Yield spread (%) 3.20 3.40 3.70 3.00 3.50
Return on average assets (%) 0.32 0.46 0.54 0.85 1.13
Average share capital and reserves to
average total assets
5.75 6.19 3.30 3.30 3.07

* The above ratios are computed on the basis of Audited annual reports of the Bank.

68
NOTES
1. Interest earning assets consist of loans, investments in approved and unapproved securities,
cash with Reserve Bank of India, call money/ term money lent, deposits kept abroad.
2. Interest bearing liabilities consist of deposits, borrowings and call money borrowings,
refinances/rediscounted subordinate bonds.
3. Interest expenses apportioned to interest earning assets are calculated by multiplying total
interest expenses by the ratio of average interest earning assets to average interest bearing
liabilities.
4. Gross yield equals interest income divided by average interest earning assets.
5. Average cost of loan funds equals interest expenses divided by average interest bearing
liabilities.
6. Yield spread represents the difference between gross yield and average cost of loan funds.
7. Return on average assets is the net profit for the year divided by average total assets.

CAPITAL ADEQUACY RATIO
The RBI guidelines on Capital Adequacy Ratios (CAR) generally conform to the guidelines
adopted by the Committee on Banking Regulations and Supervisory Practices of the Bank of
International Settlements (BIS). The RBI requires that assets, non-funded items and other off-
balance sheet exposures be assigned the prescribed risk weights and that each Bank must
maintain capital levels equivalent to a prescribed ratio to such risk weighted assets.

Capital
For the purpose of calculating CAR, capital of a Bank is divided into two classes namely Tier I
capital and Tier II capital. Tier I capital, also known as core capital, represents amounts readily
available to support the Bank against unexpected losses while Tier-II capital comprises elements
that are less permanent in nature and thus less readily available. Tier-I capital consists of paid up
capital , statutory reserves and other disclosed free reserves. Tier II capital consists of
undisclosed reserves cumulative perpetual preference shares, revaluation reserves, general
provisions and hybrid capital. For the purposes of calculation of capital adequacy ratio, Tier-II
capital is restricted to 100% of Tier-I capital. Further, RBI in its Credit Policy announced on
December 30, 1998, has prescribed that Banks should achieve a minimum capital adequacy ratio
of 9% with effect from the year ended March 31, 2000.

Risk weighted assets
Risk adjusted assets means the weighted aggregate of various items of assets and of balance
sheet items. Weights have been prescribed for each item of assets and of balance sheet exposures.
In respect of on balance sheet assets, the value of each asset is to be multiplied by the prescribed
weight percentage to arrive at the risk weighted value of assets. In respect of off balance sheet
items, the risk exposure is first calculated by multiplying the face value of each off balance sheet
item by the prescribed credit conversion factor and thereafter multiplied by the weights
attributable to each item.

Capital adequacy position of the bank
The Banks capital adequacy ratio was 12.66% as on March 31, 2003 as against the stipulated
norm of 9%. Details of capital vis--vis risk weighted assets for the last three financial years are
as under:

Eligible Tier I Capital 484.90 527.39 562.54
Eligible Tier II Capital 208.56 201.79 397.60
Total Capital fund 693.46 729.18 960.14
Total Risk weighted Assets 6029.80 5951.61 7581.68

69
Capital Adequacy Ratio (%) 11.50 12.25 12.66

Requirement of enhancement of capital
In line with the expected growth in business of the Bank in the years to come, risk weighted
assets are expected to increase from the present years level of Rs. 7581.68 crores. Increase in Tier-
I capital through retained earnings alone may not be sufficient to enable the Bank to maintain the
capital adequacy at the level sufficiently higher than that prescribed. Based on the present level
of the Banks Tier-I capital, the maximum permissible amount of Tier-II capital in the form of
subordinated bonds has already been raised by the Bank. The present issue is, therefore,
intended to augment the Tier-I capital of the Bank.

RISK MANAGEMENT

The Bank recognises that management of risk is fundamental to the business of banking. The
Banks approach to risk management is proactive. The primary goal of risk management is not to
avoid or minimise risks inherent in business but to steer them consciously and actively. The basic
objective is to strike a balance between risk and rewards. The main risks that the Bank is exposed
to are:
Credit Risk
Market Risk
Operations Risk
Forex Risk

Credit risk
The Bank has a lending policy, which among other things seeks to avoid concentration of risk in
terms of counter parties, industries and geographical regions. Credit appraisal skills of the
functionaries, at various levels, are constantly upgraded through specialised training
programmes. The management of credit risk is based on clearly defined responsibilities and
procedures.

Country Risk
The Bank has not incurred any loss on account of country risk.

Market risk
Domestic interest rates have been gradually deregulated increasing market risk both in
commercial business as well as trading activities. Bank has formally introduced Asset Liability
Management (ALM) System to address the market risk. An Asset Liability Management
Committee (ALCO) has been constituted so as to formulate, among other things, Balance Sheet
management, Interest Rate and Liquidity Risk Management, pricing of products, both assets and
liabilities, and also to evolve a transfer price mechanism.

Operations Risk
Operational risk is a potential risk of financial losses arising from the performance of operational
business process and activities. To mitigate these operational risks, the Bank constantly updates
its procedures and systems, trains staff and also subjects all critical areas of operation to
concurrent audit.

Forex Risk
In terms of the guidelines of the Reserve Bank of India, open positions are permitted to be
maintained within the levels stipulated by the Management. The Bank is maintaining such open
positions within the limits so prescribed by the Banks Board of Directors. Further, the Board of
Directors of the Bank has also prescribed limits for gaps or mismatches in maturities of Banks

70
Foreign Currency assets and liabilities and Forward Transactions in Foreign Exchange. The Bank
is operating within the limits so fixed, thus minimising the risks of mismatches in maturities and
interest rates. The Value at Risk model prescribed by the FEDAI has been adopted and is being
monitored so as to minimise the risks. Counter-party limits have also been fixed for dealings
with the other banks with whom the Bank has day-to-day dealings so as to limit the risk on
individual counter-party banks.

INTERNAL CONTROL SYSTEM OF THE BANK: AUDIT, INSPECTION & VIGILANCE

Inspection of branches is one of the tools for internal control in the Bank. Based on the finding of
the Inspection, every branch is rated on a prescribed rating scale. The rating of branches also
enables the Bank to ensure that sufficient attention is paid to the performance of those branches
that have been awarded unsatisfactory ratings. As on March 31, 2003, 39 branches out of the
total of 843 branches were rated Unsatisfactory. In addition to Internal Inspection 157
branches / offices covering 61.08% of the total business are subjected to concurrent audit by
external auditing firms. The Bank also has a separate Computer Audit of its 356 computerised
branches.

The Reserve Bank of India conducts Annual Financial Inspection of the Bank based on the
Audited Balance Sheet. Simultaneously, Inspection of branches / Regional Offices are conducted
on a selective basis.

The Bank has separate Vigilance Department Headed by a Chief Vigilance Officer appointed by
the Government of India, Ministry of Finance. The focus of the Vigilance Department has been to
constantly intervene and upgrade the Systems & Procedures of the Bank and prevent intrusions
that spread the malaise of permissiveness. The core strength of Vigilance is two fold creating
awareness and deterrence. Policy interventions are frequently resorted by issuance of
communications/ circulars, duly implementing the guidelines issued by the Government of
India as well as Regulatory Agencies such as Central Vigilance Commission. The
recommendations of various committees formed by the Government are implemented to
strengthen the internal systems and procedures.

The Department also endeavours to ensure that preventive Vigilance percolates to all levels. In
this direction most training programme organised by the Bank include a session on preventive
vigilance.

One area that has been pursued with total commitment is in ensuring expeditious completion of
Departmental enquiries classified as cases having vigilance angle. To reiterate the objective has
been to infuse confidence in taking bonafide decision and instil deterrence for malafide actions.

INFORMATION TECHNOLOGY
The Bank has created a Department of Information Technology at its Head Office. The primary
objective of this department is to promote computer literacy among employees, to upgrade
communication and information technology and to develop electronic banking capabilities. As at
the end of March 2003, 356 branches were fully computerised (accounting for 78.26% of the
business). Besides, the Bank has also installed ATMs in 18 branches. All the 14 Regional Offices
and 10 Service branches of the Bank have been computerised. The Bank has become a member of
the RBI Closed User Group VSAT Network with two VSATs installed at Bangalore and Delhi
and the Bank plans to cover one more centre at Mumbai in the current year. The Bank has set up
its own Website, www.vijayabank.com where detailed information about the Banks products
and services is made available for the benefit of their customers and other viewers.

71
For further improvement in customer services, single window concept was introduced at 311
computerised branches, so that the customer can avail service from any of the counters at these
branches. Back Office Software System (BOSS), an in house developed software package, to
address the needs of rural and semi-urban branches, has been implemented at 177 branches
during the year. Ten more Automated Teller Machines (ATMs) have been installed during the
year, taking the total number of ATMs to 18 as at March 2003. All the ten service branches of
the Bank are fully computerised and steps have been initiated for connecting the service branches
at Reserve Bank of India centres with the Regional Offices of the Reserve Bank of India. To
strengthen the messaging network, the Bank has implemented the corporate e-mail solution
using INFINET infrastructural of Institute for Development and Research in Banking
Technology. Head Office, Regional Offices and 565 branches and other offices are connected to
this facility as at the end of March 2003. At the Bank's Forex & Treasury Management Division,
Mumbai, a Payment Gateway has been set up. The Bank has implemented Public Debt Office -
Negotiated Dealing System (PDO-NDS) and Centralised Funds Management System (CFMS).
The structured Financial Messaging System (SFMS) will be implemented on pilot basis shortly.
The Bank has initiated action for implementing Core Banking solution, Integrated Risk
Management System and Networking of ATMs with addition of 100 ATMs.

SIGNIFICANT REGULATORY MATTERS RELATED TO THE BANK

VERMA COMMITTEE RECOMMENDATIONS

The Verma Committee was set up to identify weak and potentially weak banks in the country
and for making recommendations for strengthening these banks and reducing systemic risk

The Verma Committee has suggested seven parameters for assessing a banks
strength/weakness covering three major areas namely
1. Solvency
2. Earning Capacity
3. Profitability

These parameters are as follows:

Solvency Capital Adequacy Ratio
Coverage Ratio
Earning Capacity Return on Assets
Net Interest Margin
Profitability Ratio Ratio of operating profit to average working funds
Ratio of cost to income
Ratio of staff cost to net interest income (NII) + all other income.

The above ratios are well known parameters on which banks performance and sustainability are
judged. A study of these ratios in respect of a bank, historically or in comparison with its peers,
gives a view of its growing strength or weakness over a period as also its ability to complete
against others in the market. The working group observed that based on the above analysis,
public sector banks could be classified in terms of their strengths or weakness under three broad
categories.

1. Banks where none of the seven parameters are met.
2. Banks where all the parameters are met.
3. Banks where some of the seven parameters are not met.

72
Vijaya Bank has been placed amongst six banks in the third category for compliance with Capital
Adequacy Ratio (CAR) but non-compliance with five or six of the remaining efficiency
parameters for the financial year 1997-98 and financial year 1998-99. The Working Group of the
Committee observed that banks classified in this category functioned below the required levels of
efficiency in both the years, typifying the persistence of causes that would eventually manifest in
weakness. In the opinion of the Group, these banks showed strong signs of distress and ran a
high risk of slipping into the category of weak banks. These banks were vulnerable to sudden
changes that could arise in the external environment.

REGULATORY SUPERVISION BY RBI
RBI conducts an annual inspection of the Bank based on the audited accounts. Simultaneously,
RBI carries out branch/ regional office inspection on a selective basis. RBI also conducts offsite
surveillance of the Bank on a quarterly basis. Discussions with the management of the Bank also
form a part of the inspection and surveillance process.

VII. STOCK MARKET DATA
While the Regional Stock Exchange for the Bank is at Bangalore, the shares are not frequently
traded on stock exchanges at Bangalore. Movement of share prices of the Bank at the Stock
Exchange, Mumbai (BSE) are given below. The shares were listed on BSE w.e.f. 04.01 2001.
Period High
(Rs.)
Date of
High
No. of
shares
traded
on date
of High
Low
(Rs.)
Date of
Low
No. of
shares
traded
on date
of Low
Average
Price
(Rs.)
Total No.
of shares
traded
during
the
period
2001-02 10.05 18.2.2002 94833 6.30 25.9.2001 5500 7.49 1926972
2002-03 17.95 21.1.2003 762198 8.65 2.4.2002 6500 12.39 23184143
Jan 2003 17.95 21.1.2003 762198 13.80 6.1.2003 57828 15.52 5123633
Feb 2003 16.50 3.2.2003 133519 14.65 14.2.2003 65330 15.76 1676932
March 2003 15.75 3.3.2003 161111 14.25 17.3.2003 31766 14.81 1076718
April 2003 17.70 7.4.2003 340581 15.00 1.4.2003 15250 16.74 3216384
May 2003 26.00 29.5.2003 2702778 17.55 8.5.2003 64493 19.89 11984505
June 2003 23.90 4.6.2003 267885 18.85 24.6.2003 117677 20.33 5080785

The market price of the shares one day after the day on which the Board of Directors approved
the Public Issue viz. on 28.03.2003 was Rs. 15.15.

VIII. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE

FINANCIAL HIGHLIGHTS OF THE BANK
(Rs. in crores)
Year ended March 31, 1999 2000 2001 2002 2003
Interest Income 999.98 1197.54 1356.18 1538.50 1670.81
Other Income 109.07 116.81 156.26 188.82 346.02
Interest Expenditure 682.71 809.37 895.83 1053.19 1027.42
Other Expenditure 310.20 379.53 438.13 421.63 557.05
Gross Profit 116.14 125.44 178.48 252.51 432.36
Provisions 85.91 72.60 107.75 121.61 235.80
Net Profit 30.23 52.84 70.73 130.90 196.56
Capital 556.30 259.24 359.24 333.52 333.52
EPS (Rs.) 0.54 2.04 2.48 3.65 5.89

73
Book Value (Rs.) 5.17 13.74 14.65 17.86 22.46
Dividend (Rs. crores) - 5.00 11.88 40.02 40.02
% of Net NPAs to net advances 6.72 6.65 6.23 6.02 2.61
Deposits 9690.23 11592.88 12632.24 14680.51 17019.81
Advances (Net) 3767.20 4958.67. 5720.01 6196.66 7891.34
Number of Employees 14140 14324 13471 11827 11723
Number of branches 831 837 842 828 843

*the other income of the Bank comprises mainly fee-based income in the normal course of
banking activity and is recurring in nature. The break-up of other income is given elsewhere in
the Offer Document.

The above statement is based on the Audited annual reports of the Bank for last five years. For
details of significant accounting policies and notes to accounts, please refer to page __ of the
Offer Document.

Significant items of income and expenditure for the last five years

Net Profits: The net profits of the Bank rose from Rs.30.23 crores in 1998-99 to Rs.196.56 crores in
March 2003.

Interest Income: Income from advances improved from Rs.476.19 crores in 1998-99 to Rs.755.83
crores in 2002-03. The advances rose from Rs.3767.20 crores in March 1999 to Rs.7891.34 crores in
March 2003. The average yield on advances worked out to 11.34% in 2002-03 as compared to
12.68% in 1998-99. Investments increased from Rs.4441.15 crores in March 1999 to Rs. 8861.61
crores in March 2003. The interest on investments increased from Rs. 471.44 crores in March 1999
to Rs.863.02 crores in March, 2003. The yield on average investments worked to 10.49% in March,
2003 as compared to 12.07% in March 1999. The Asset Liability Management Committee of the
Bank keeps a close watch on interest rate movements and takes corrective measures. The net
interest income of the Bank has improved from Rs. 317.27 crores in March, 1999 to Rs.643.39
crores in March 2003.

Other Income: The Bank has laid thrust on improvement of non-interest income as a means of
improving profitability. The non-interest income of the Bank grew from Rs.109.07 crores in 1998-
99 to Rs346.02 crores in 2002-03. The other income of the Bank comprises mainly of fee-based
income in the normal course of banking activity.

Interest Expenses: As a result of growth of deposits from Rs.9690.23 crores in 1998-99 to
Rs17019.81 crores in 2002-03, interest on deposits also rose from Rs. 667.28 crores to Rs.990.11
crores during the same period. However, inspite of increasing rates the Bank succeeded in
keeping the cost of deposits down at 6.58%.

Operating Expenses: The non-interest expenses of the Bank increased from Rs.310.20 crores in
1998-99 to Rs.557.05 crores in 2002-03.

Provision for Non-Performing Assets: The Bank has been taking prudent measures in terms of
RBI guidelines on provisioning and income recognition. The Banks net NPAs as a percentage to
net advances has also dropped from 6.70% in 1998-99-to 2.61% in 2002-03.

Significant items of Income and Expenditure during the year 2002-03
(Comparison of Financials for the year ended March 31, 2003 with the Financials for the year
ended March 31, 2002)

74

Net Profit The Banks Net Profit has been steadily increasing over the years. The Net Profit
amounts to Rs.196.56 crore in March 2003 as compared to Rs.130.90 crore recorded in March
2002.

Interest Income The Bank was able to improve its advances by 27.3% from Rs. 6196.66 crores in
2001-02 to Rs. 7891.34 crores in 2002-03. This resulted in growth of interest income from advances
by 5.82%. The average yield on advances declined 11.93% to 11.34%.

Interest on Investments increased from Rs. 765.14 crores in 2002-02 to Rs 863.02 crores in 2002-03
recording an increase of 12.8%. The Banks overall yield on investments has increased due to the
increase in average non-SLR securities as well as yield from them.

Other Income The non-interest income recorded a higher growth rate of 83.25% in 2002-03 as
compared to 20.8% in 2001-02. The increased income in the year 2002-036 by way of profit on sale
of investment, over the previous year was the main contributing factor for the high growth in
non-interest income during the year 2002-03.

Interest Expenses The interest on deposits came down from Rs 1001.34 crores to Rs 990.11 crore
during 2002-03. Due to decline in the interest expenditure on deposits, the average cost of
deposits has decreased from 7.51% to 6.58%.

Operating Expenses The non-interest expenses of the Bank rose from Rs.421.63 crore in 2001-02
to Rs.557.05 crore in 2002-03.

Significant items of Income and Expenditure during the year 2001-02
(Comparison of Financials for the year ended March 31, 2002 with the Financials for the year
ended March 31, 2001)

Net Profits The net profit of the Bank rose from Rs. 70.73 crores in the previous year to Rs.
130.90 crores during 2001-02.

Interest Income The interest/ discount on advances/bills as on March 31,2002 showed an
increase of Rs 62.52 crores. Interest Income on investments has gone up by Rs 119.31 crores.

Other Income Non Interest income of the Bank increased from Rs.156.26 crores in 2000-01 to
Rs.188.82 crores in 2001-02 representing a rise of 20.83%.

Interest Expenses Interest on deposits rose from Rs. 859.83 crores to Rs. 1001.34 crores in 2001-
02. Though the interest expenditure on deposits had increased in absolute terms, the average cost
of deposits declined from 7.61% to 7.51%.

Comparison of Financials for the year ended March 31, 2001 with the Financials for the year
ended March 31, 2000
Net Profits The net profit of the Bank rose from Rs. 52.84 crores in the previous year to Rs.
70.73 crores during 2000-01.

Interest Income The interest/ discount on advances/bills as on March 31,2001 showed an
increase of Rs 94.74 crores due to the increase in advances. Interest Income on investments has
gone up by Rs 60.74 crores on account of the increase in the quantum of investments by the bank
during the year.

75
Other Income Non Interest income of the Bank increased from Rs.116.81 crores in 1999-00 to
Rs.156.26 crores in 2000-01 representing a rise of 33.77%.

Interest Expenses Interest on deposits rose from Rs. 778.41 crores to Rs. 859.83 crores in 2000-
01. Though the interest expenditure on deposits had increased in absolute terms, the average cost
of deposits declined from 7.8% in 1999-00 to 7.6% in 2000-01.

Other matters relating to the operations of the Bank

i) Unusual or infrequent events or transactions
ii) Significant economic changes that materially affected or are likely to affect Income from
operations
iii) Known trends or uncertainties that have had or are expected to have a material adverse
impact on Income from operations

The introduction of Asset classification, Income Recognition and Provisioning norms by Reserve
Bank of India in 1992 affected all the Public Sector Banks and Vijaya Bank was no exception. But
the inherent strength of the Bank enabled the Bank to turn the corner and the bank has been
recording Net Profits from 1996-97 onwards.

Some of the important events for the Banking industry during the last few years have been the
introduction of Prudential & Income Recognition Norms, liberalisation of the economy,
introduction of Basle Committee recommendations on Capital Adequacy and deregulation of
interest rates. These events have placed the Banks under greater financial strain and increasing
competition. The Bank has been prompt in responding to the changes in economic and monetary
policies. In spite of the recession faced by the country and reduced demand for funds, the Banks
credit expanded by over 20% during each of the past 3 years. The bank also fine tuned its Asset
Liability Management and ensured that there is improvement in its interest spread. Thrust was
given for mobilising low cost deposits as well as expanding retain credit. This also enabled the
Bank to overcome the adverse effects of interest rate fluctuations.

The deregulation of interest rates on deposits as well as advances has resulted in increased
competition in the area of deposit mobilisation as well as credit expansion. Consequently, the
depositors with bulk resources at their disposal as well as prime borrowers seek the best rates.
Consequently, the interest spread is now under pressure. The entry of new private sector banks
and more number of foreign banks, who mostly concentrate on non-fund based business has also
resulted in fierce competition in the areas such as foreign exchange business, remittances
business, etc., and has resulted in thinner margins. Inspite of the stiff competition posed by the
other banks, the Bank has succeeded in maintaining its hold on its customers and registering
improved performance over the past few years. This has become possible due to greater thrust
on technological upgradation as well as human resources development.

Future changes in relationship between costs and revenues
The globalisation of economy and liberalisation of the financial sector have resulted in thinner
margins and increasing operational expenses. The Banking Industry is characterised by periodic
industry-wide wage settlement. The Bank has plans to improve profitability by a multi pronged
strategy thrust on mobilising low cost deposits, recovery of NPAs, retail lending, non-interest
income and control on operating expenses. The Bank has introduced new services towards
improving fee-based income. The Banks staff expansion is contained despite sizeable increase in
its business.

Non-Dependence on a few customers

76
As on March 31, 2003, the operations of the Bank were well spread out. The maximum exposure
of credit to any one industry is less than 5%. The Bank has a diversified credit portfolio, any
possible adverse conditions affecting any particular industry segment is unlikely to adversely
affect the performance of the Bank.

Competitive Conditions
Following the liberalisation of the financial sector with the entry of new private sector banks and
more number of foreign banks as well as the deregulation of interest rates on deposits as well as
advances, the competitive conditions in the banking industry have increased in recent years.
Despite this Vijaya Bank has been able to increase its market share in deposits. The Banks
market share in total deposits of scheduled commercial banks has increased from 1.17% in March
1992 to 1.30% in March 2003. The total deposits of Vijaya Bank and scheduled commercial banks
in March 1992 and March 2003 were as under:
(Rs. in crores)
March 1992 March 2003
Vijaya Bank 2734.76 17019.81
Scheduled Commercial Banks 234640 1304347
Market Share 1.17 1.30

The addition of 121 new branches since 1992, with greater thrust on computerisation of the
banks operations has contributed towards meeting the competitive conditions prevailing in the
banking industry effectively.

In the opinion of the Board of Directors, no circumstances have arisen since the date of the last
financial statements, as disclosed in the draft Offer Document, which would materially affect or
are likely to affect the profitability of the Bank or the value of its assets or its ability to pay its
liabilities within the next twelve months.

PARTICULARS REGARDING LISTED COMPANIES

There are no listed companies under the same management.

SUBSIDIARY COMPANY
The Bank has one subsidiary named ViBank Housing Finance Ltd.

VIBANK HOUSING FINANCE LTD.
ViBank Housing Finance Ltd. (VHFL) was incorporated on October 20, 1995 under the
Companies Act. The main objects of the Company are to extend long-term housing finance to
individuals, to offer line of credit to Corporate Bodies, provide short term loans to developers to
increase the availability of housing stock and make available need based long-term finance to co-
operative societies to enable employees of Government and Public sector undertakings to set up
housing accommodation at a reasonable cost.

The authorised and paid up capital of VHFL comprises 1,00,00,000 equity shares of face value of
Rs. 10 each. The shareholding pattern of the Company is as given in the following table:

Name of the shareholder Number of equity shares held % shareholding
Vijaya Bank 88,00,000 88
National Housing Bank 12,00,000 12
Total 100,00,000 100

77
VHFL is managed by a Whole-time Managing Director on deputation from the Bank, who is an
officer in SMG-Scale V under the overall supervision and control of the Board of Directors. The
Chairman and Managing Director besides one General Manager and one Deputy General
Manager of the Bank are on the board of VHFL.

The main financial indicators for the last three years upto March 2003 are as given below:
(Rs. in
crores)
For the year ended/as on
March 31
2001 2002 2003
Total Income 12.76 17.39 20.40
PBIDT 11.17 15.67 18.49
PBT 2.77 3.29 3.26
PAT 2.11 2.57 2.39
Share Capital 10.00 10.00 10.00
Reserves & Surplus 4.17 5.97 7.32
Net Worth 14.09 15.95 17.32
EPS (Rs.) 2.12 2.57 2.39
Book Value per share (Rs.) 14.09 15.95 17.32
Debt Equity Ratio 5.33 7.23 8.26
Dividend (%) 8.00 9.00 9.00

The Company is being faced with strong competition from Banks and other HFCs with regard to
housing loan lending rates and has been forced to reduce its lending rate, which is not
commensurate with its borrowing rate. This is affecting the profitability of the Company. The
Company has decided to merge itself with Vijaya Bank. The proposal of merger was approved
by the Board of Directors of the Company vide board resolution dated March 24 2003. Vijaya
Bank and National Housing Bank, who are the shareholders of the Company, have also given
their consent to the said merger, subject to approval of RBI, MoF and Company Law Board's
approval.

VHFL has entered into the following transactions with Vijaya Bank during the last three years:
(Rs. in lakhs)
Particulars 2000-2001 2001-2002 2002-2003
Fixed Deposits made with Vijaya
5 Nil 1103.25
5 Nil 1100.00
Bank
lakh.
ii) Karnataka Bond
KSDL 2012 for Rs.
100.00 lakh.

(in Rupees)
Particulars 2000-2001 2001-2002 2002-2003
Vijaya Bank premises used Primrose Road, Infantry Road, Mangalore &

78
Ltd.

Infantry Road,
Mangalore &
Mumbai
Mangalore &
Mumbai
Mumbai

SPONSORED GRAMIN BANKS (RRBS)

The Bank has sponsored one Regional Rural Bank (RRB) viz. Visveshvarya Grameena Bank in
the district of Mandya, state of Karnataka in the year 1985 to provide banking services in rural
areas in pursuance of GoI policies. The RRB has 25 branches, deposits of Rs. 54.72 crores and
advances of Rs. 43.82 crores as on March 31, 2003. During the financial year 2002-2003, the
growth of deposits and advances was 13.88% and 19.80% respectively. For the year ended March
31, 2003, the RRB posted a profit of Rs. 1.62 crores. The accumulated losses have been wiped out
in the financial year 2001-02.

The audited financial position of Visveshvarya Grameena Bank for the last five years is as under:

(Rs. in crores)
As at March 31/ For the year ended
March 31
1999

2000 2001

2002

2003
Capital 1.00 1.00 1.00 1.00 1.00
Share Capital Deposit 3.59 4.23 4.23 4.23 4.23
Reserves & Surplus None None None 1.03 2.65
Deposits 28.96 36.42 42.84 48.05 54.72
Advances 20.20 26.22 32.38 36.58 43.82
Total Income 4.59 5.76 7.08 8.03 8.81
Total expenses 2.25 1.43 6.07 6.57 7.18
Profit/ (Loss) 2.24 4.33 1.00 1.45 1.62

As per the RRB Act, RRBs are exempted from payment of Income Tax. The RRB has made
adequate provisions required as per the directions of RBI and has complied with the CRR and
SLR requirements.

Transaction between Visveshvarya Grameena Bank and Vijaya Bank in the past three years
(Rs. in crores)
Overdraft taken by the RRB 1.87 2.29 2.28
Deposit kept with Vijaya Bank 9.45 11.05 3.00
Interest earned on overdraft 0.14 0.15 0.17
Interest earned on deposits 0.93 1.02 0.81
Dividend received from Vijaya Bank 0.0008 0.0032 0.0032
Current account maintained with Vijaya Bank 3.05 2.73 2.69
Remuneration to Vijaya Bank employee on
deputation to RRB as chairman
0.02 0.02 0.02
Share capital held in Vijaya Bank 0.027 0.027 0.027
Share capital held by Vijaya Bank 0.35 0.35 0.35
Deposit from Vijaya Bank as share capital deposit 1.48 1.48 1.48
Investment in Bonds of Vijaya Bank 0.45 0.45 0.45
Interest earned on bonds of Vijaya Bank 0.055 0.055 0.055

79

The contingent liability of the Regional Rural Bank is Rs. 32.60 lakh as on March 31 2003.

IX. BASIS OF ISSUE PRICE

Qualitative factors
1. Professionally managed bank with 71 years of existence.
2. Capital Adequacy of 12.66% as on March 31, 2003, as against the minimum requirement of
9% specified by RBI.
3. Net NPA to net advances at 2.61% much lower than the average level for PSU Banks
4. Consistent growth in deposits: The deposits of the Bank have grown at a CAGR of 15.12% to
Rs. 17019.8 crores
5. Consistent growth in advances: The advances have grown at a CAGR of 20.30% to Rs. 7891.3
crores during the past 5 years.
6. Total business crossed Rs. 25,000 crore mark and stood at Rs. 25,204 crore in March 2003.
7. Well spread branch network - 843 branches spread over 28 states and 4 Union territories.
Strong presence in the fast growing Southern states.
8. Diversified business activities encompassing Merchant Banking, Credit Cards, ATMs,
Housing Finance, Fast Collection Services, etc.
9. A well-diversified loan portfolio spread over many industries.
10. As at the end of March 2003, 356 branches were computerised (accounting for 78.26% of the
business)

Quantitative factors
The ratios used in the quantitative analysis for the purpose of justification of issue price are based on the
Auditors Report as set out in the Part II of the Offer Document. The statement of profit and loss account
as well as that of Assets and Liabilities as contained in the Auditors report have been arrived at after
adjusting the accounting numbers to conform to SEBI stipulations. Such adjustments result in profit or
net assets, which may be different from those disclosed in the annual reports of the Bank. Consequently, the
key ratios such as earnings per share (EPS), book value (BV/NAV) and return on net worth (RONW) are
also affected, being the derived ratios out of profits and net assets. On the other hand, the industry-based
ratios used for comparison may not have been adjusted as they are based on publicly available sources of
information. The investors, while comparing the key ratios of the Bank with broad industry based
multiples, are therefore requested to keep such differences in mind. The investors are also informed that the
adjusted accounts as contained in the auditors report shall not be available to the investors on an ongoing
basis since such accounts have been prepared primarily for the purpose of the present public issue.

1. Earning per Share (EPS)

Financial Year EPS (Rs.) Weight used
2000-01 4.75 1
2001-02 4.87 2
2002-03 11.24 3
Weighted Average 8.035

Weighted Average for last three years: Rs. 8.035

2. Price Earnings Ratio (P/E Ratio) in relation to Offer price of Rs. 20 to Rs.24 per share

At Rs. 20 At Rs. 24
On Equity as at 31
st
March 2002 based on FY 2003 earnings 2.49 2.99

80
On fully diluted equity base post issue on FY 2003 earnings 3.24 3.89

3. Industry P/E Ratio

Highest 8.9
Lowest 2.5
Average (Industry Composite) 5.7
(Source: Dalal Street Vol. XVII No. 14 dated July 13, 2003 (Banks Public Sector))

4. Return on Networth
Financial Year RoNW (%) Weight used
2000-01 25.66% 1
2001-02 29.80% 2
2002-03 50.86% 3
Weighted Average 39.64%
Weighted average for the last three years: 39.64%

5. Minimum return on post issue networth required to maintain pre- issue EPS of Rs. 11.24 is
as under.
At issue price of Rs. 20 51.71%
At issue price of Rs. 24 49.60%

6. Net Asset Value (NAV) per share
Offer Price At Rs. 20/- Per Share (Rs.) At Rs. 24/- Per Share (Rs.)
As on March 31
st
2003 22.22 22.22
After the Issue based on FY
2003 Profits
21.72 22.64
P/NAV on capital base as at
March 31, 2003
0.90 1.08
P/NAV on fully diluted
capital base (post Issue) as at
March 31, 2003
0.92 1.06

The following table shows the comparison of key ratios of Vijaya Bank with those of its peer
Banks. The peer group contains listed Public Sector Banks chosen on the basis of factors such as
geographical concentration and relevant financial parameters.

Bank EPS BV or NAV RONW
(%)
Price (Rs.) P/E P/BV or (P/NAV)
Indian Overseas
Bank
9.35 29.24 36.74 27.70 2.96 0.95
Andhra Bank 9.77 27.89 40.31 35.20 3.60 1.26
Syndicate Bank 7.10 29.16 26.67 28.20 3.97 0.97
Allahabad Bank 4.66 27.06 19.70 19.05 4.09 0.70
Simple Average NA NA NA NA 3.66 0.97

1) All the ratios rounded to nearest 2 decimals.
2) The figures for other banks are based on accounting numbers whereas figures for Vijaya
Bank are based on the adjusted accounting numbers.
3) Prices P/E and P/BV ratios computed as on July 22 2003 as per Bloomberg.

81

The Lead Managers believe that the issue price band of Rs. 20 to Rs. 24 is justified on the basis of
above qualitative and quantitative factors. The investors may want to peruse the risk factors,
Auditors Reports and Business Profile of the Bank given at various places in the offer document
to carry out a more informed evaluation of the investment proposition.

X. DETAILS OF OUTSTANDING LITIGATION, DEFAULT AND MATERIAL
DEVELOPMENTS

AGAINST THE BANK
Contingent Liabilities not provided for:
Claim against the Bank not acknowledged as debt as on 30.06.2003 is as shown in the following
table.

No. of claims made against
the bank
Amount Involved Provisions made
110 Rs.19, 00,68,508/- Since the claims are not
acknowledged as debts, no
provision is required to be made.

Outstanding Litigations where claims amount exceeds Rs. 50 Lakh

Suit
No./Forum/
Date of filing
of suit
Complainant
/ Branch
Name
Claim Amount Subject Matter Remarks
i) Civil Suit
No. 1154/93

High Court,
Delhi

22/4/1993

Mohan
Murthy &
Renu Murthy

Defence
Colony, New
Delhi
Rs. 2,70,00,000 The party had
remitted Rs. 2
crore from his
A/c to the A/c
of Asian Wire
Ropes Ltd. and
has claimed
the amount
from the Bank.
The party, as a Director
of the Company,
remitted the amount
towards payment of
certain dues to the
Bank by Asian Wire
Ropes Ltd. and the
Bank has taken the
stand that the amount
is paid towards the
dues of Asian Wire
Ropes Ltd. and hence
they are not entitled to
claim back the amount.
The case is pending for
hearing.

82
ii) Civil Suit
No. 2380/93

High Court
Mumbai
2/7/1993

M/s Vaz
Forwarding

Fort Branch,
Mumbai

Rs.7,10,00,000

The party has
filed suit
against the
Bank to vacate
the premises
and to pay rent
from the date
of suit till the
date of
vacation.

The party had
borrowed money from
the Bank to purchase
and then to lease
out/sell the premises
to the Bank. The party
did not conclude the
transaction and the
Bank took possession
of the premises with
effect from October 5,
1984. Subsequently, the
Bank also filed a suit
against the party in
1993 for specific
performance of the sale
contract. The partys
suit is for countering
the Banks suit .The
present position is, the
Bank has approved
compromise proposal
for payment of Bank
dues subject to the
condition of
withdrawal of the suit
filed by the party
against the bank. The
matter is yet to be
settled.
iii) Civil Suit
No. 4287/1996

High Court
Mumbai

M/s Vaz
Forwarding
Worli branch,
Mumbai
Rs.91,26,213/- Claim filed by
Landlord
claiming
mesne profit
----Do---
iv) Civil Suit Mumbai
Mahanagara
Palike Brihan

Fort Branch,
Mumbai
Rs.1,19,08,790/ The
Corporation
has demanded
on 26.12.02 the
difference in
property tax
for the period
01.04.02 to
31.03.03 being
the difference
between half
yearly tax
demand at
Rs.30,00,665/
The Bank has paid
Rs.12,19,040/- under
protest and the appeal
filed by the Bank
before Small Causes
Court against demand
of higher property tax
w.e.f. 1.4.2000 is
pending.

83

Litigation involving Criminal Offences

Mr. Mohan Murthy Shandilya has filed a criminal complaint 42/1 of 1996 and 43/93 before the
Additional Chief Metropolitan Magistrate, New Delhi against the Bank and other officials of the
bank for the transfer of Rs. 2 crore from his account to the borrower account of Asian wire Ropes.
Details of the same are mentioned in 2(i) above. The Bank has filed the case before the High
Court of Delhi to quash the complaint filed by the petitioner and the same is pending for hearing

Litigations including Labor laws, winding up petitions or closure

No. of Writ Petitions on Service Matters 172
No. of Writ Petitions on Disciplinary Matters 61
No. of Industrial Disputes before ALC/RLC 37
No. of Industrial Disputes/claims before CGIT 70
No. of Civil suits/Appeal suits/criminal
proceedings
22

The Bank has not made any provisions in this regard. These cases have been classified as claims
against the Bank not acknowledged as debt.

There are no material litigations filed by any of the key personnel in the top executive grade.

Income Tax Matters
There are disputed Income Tax demands pertaining to past periods, involving a disputed
amount of Rs. 336.90 crores and a disputed tax amount thereon Rs. 41.94 crores (gross). The
claims are contested in appeals before various appellate authorities. Except the provisions as
mentioned above, no other provisions have been made by the Bank and any adverse ruling may
affect the financials of the Bank. The details of the cases are as given under:
(Rs. in crores)
Assess
ment year
Major grounds of appeal Total disputed
amount
Tax on
disputed
amount
includin
g interest
APPEALS BEFORE CIT (APPEALS)

2002-03 Grounds of appeal under regular computation
a) Disallowance u/s 36(1)(viia) 52.44
b) Disallowance u/s 36(1)(vii) 2.65
c) Disallowance for estimated expenditure
incurred for earning tax free income
27.00
d) Other Disallowance 0.22 82.32
Grounds of appeal under MAT
a) Provision for 90 days norms 3.15
b) Disallowance for estimated expenditure
27.00
c) Provision for sundry assets 0.50
30.65
30.16

84
b) Disallowance of write back of provisions 2.82
2.07
a) Notional Profit on Revaluation of Investments 34.08
b) Write back of earlier provisions 2.81
36.90
70.09
c) Disallowance u/s 36(1)(vii) 7.54
d) Disallowance for estimated expenditure
2.64
a) Write back of provisions 11.90
b) Bad Debts written off out of the provisions 10.53 22.43 0
c) Disallowance u/s 36(1)(vii) 2.67
d) Disallowance for estimated expenditure
0.26
d) Other Disallowance 0.57 36.44 0
a) Disallowance u/s 40(a) 1.10
b) Disallowance u/s 36(1)(vii) 1.30
0.04
a) Provision for NPA 42.45 42.45 44.57
APPEALS BEFORE ITAT
1997-98 Against the order u/s 143(3)
a) Payment to Visa & Master Card 0.60
b) Dep. On assets leased to M/s Rajinder Steels 0.93
c) Guest House expenses 0.02 1.55
Against the order u/s 143(1)(a)
a) Provision for NPA 18.74 18.74 0.21
a) Payment to Visa & Master Card 0.54
b) Dep. On assets leased to M/s Rajinder Steels 1.24
c) Guest House expenses 0.06 1.84
a) Dep. On properties in respect of which
registration has not taken place
0.22

85
b) Guest House expenses 0.07 0.29
1981-82 to
1991-92
Various miscellaneous Issues 0.09
TOTAL TAX ON DISPUTED AMOUNT 389.48 41.94
Less: Provision held for the above mentioned
assessment years
14.03
TAX ON DISPUTED AMOUNT (NET) 27.91

Interest Tax Matters
There are disputed Interest Tax demands pertaining to past periods, involving a disputed
amount of Rs. 20.84 crores. The claims are contested in appeals before various appellate
authorities. Except the provisions as mentioned above, no other provisions have been made by
the Bank and any adverse ruling may affect the financials of the Bank. The details of the cases are
as given under:

Assessmen
t year
Major grounds of appeal Disputed amount Tax amount
including
interest
APPEALS BEFORE CIT (APPEALS)

2000-01 a) Interest portion in the lease rentals 1.39
b) Excess interest collected for meeting
the interest tax liability
9.52 10.91 0.22

1999-2000 a) Interest portion in the lease rentals 1.28
b) Excess interest collected for meeting
the interest tax liability
7.90 9.19 0.23

APPEALS BEFORE ITAT

1998-1999 a) Interest portion in the lease rentals 0.74 0.74 0.015
TOTAL TAX ON DISPUTED
AMOUNT
0.46
Less: Provision held for the above
mentioned assessment years
0.96
TAX ON DISPUTED AMOUNT
(NET)
20.84 -0.50

The assessment officer has raised demands on the Bank for deduction of tax at source, interest
and penalty year wise for the assessment years 1995-96 to 1999-00 amounting to Rs. 80,13,606 and
Rs. 13352414 of VISA and MasterCard International respectively. The Total amount of tax and
interest demanded by assessing officer in respect of fees and charges paid to VISA and
MasterCard international for assessment year 1995-96 to 1999-00 works out to Rs. 2,13,66,020

Except as mentioned above:

No proceedings have been launched against the Bank for any of the offences under any
enactment, irrespective of whether specified in Paragraph 1 of Part I of Schedule XIII to the
Companies Act. No such litigation or disputes are pending as on today and there are no defaults
or outstanding statutory dues.

86
There are no pending proceedings initiated for economic offences.

No disciplinary action/ investigation has been taken by the Securities and Exchange Board of
India/ Stock Exchange against the Bank and its Directors

The Bank has not defaulted in meeting statutory dues, Institutional dues and has made all
payments/refunds on debentures/fixed deposits. It has not defaulted on dues to holders of other
Debt Instruments and Preference Shareholders.

No penalty has been imposed by SEBI against the Bank & its branches

There are no Small-scale undertakings/ creditors to which the Bank owes a sum exceeding one
lakh where payment is outstanding for a period of more than 30 days.

Servicing Behaviour
There has been no default in meeting statutory dues, institutional dues and dues towards
payment of interest or principal on due dates to holders of Bonds and Fixed Deposits.

AGAINST THE DIRECTORS OF THE BANK
There are no outstanding litigations, disputes or penalties against the Directors of the Bank,
including tax liabilities, economic offences, criminal or civil prosecution for any offence,
irrespective of whether specified under any enactment in Paragraph 1 of Part I of Schedule XIII,
of the Companies Act, 1956 or any other liability in their personal capacities or as Director/
Partner/ Sole Proprietor in the Company or any other company/firm.

There are no litigations against the Directors involving violation of statutory regulations or
criminal offences. No disciplinary action has ever been taken by the Securities and Exchange
Board of India or Stock Exchanges and no penalty has been imposed by any authority. There is
no suit pending against the Directors in capacity as director or partner or sole proprietor in any
other company/firm.

Other than the as stated above, there are no disputes/ litigations towards tax liabilities or any
criminal or civil prosecutions against the Bank for any offence economic or otherwise. No
criminal proceedings have been launched against the Bank under any of the enactment
irrespective of whether specified in paragraph 1 of part I of Schedule XIII of the Companies Act.

AGAINST THE SUBSIDIARY
As on 31
st
March 2003, there are no outstanding litigations filed against VHFL. Further, no
Income Tax disputes, sales and interest tax disputes are pending in appellate courts against
VHFL.

No proceedings have been launched against VHFL for any of the offences under any enactment,
irrespective of whether specified in Paragraph 1 of Part I of Schedule XIII to the Companies Act.
No such litigation or disputes are pending as on and there are no defaults or outstanding
statutory dues. In the past, no penalties have been imposed by any regulatory authority.

VHFL has/has not defaulted in meeting statutory dues, Institutional dues and has made all
payments/refunds on debentures/fixed deposits. It has not defaulted on dues to holders of other
Debt Instruments and Preference Shareholders. There are no pending proceedings initiated for
economic offences.

87
AGAINST THE DIRECTORS OF THE SUBSIDIARY

There are no outstanding litigations, disputes or penalties against the Directors of the VHFL,
including tax liabilities, economic offences, criminal or civil prosecution for any offence,
irrespective of whether specified under any enactment in Paragraph 1 of Part I of Schedule XIII,
of the Companies Act, 1956 or any other liability in their personal capacities or as Director/
Partner/ Sole Proprietor in the Company or any other company/firm.

There are no litigations against the Directors involving violation of statutory regulations or
criminal offences. No disciplinary action has ever been taken by the Securities and Exchange
Board of India or Stock Exchanges and no penalty has been imposed by any authority. There is
no suit pending against the Directors in capacity as director or partner or sole proprietor in any
other company/firm.

Other than the as stated above, there are no disputes/ litigations towards tax liabilities or any
criminal or civil prosecutions against the Bank for any offence economic or otherwise. No
criminal proceedings have been launched against the Bank under any of the enactment
irrespective of whether specified in paragraph 1 of part I of Schedule XIII of the Companies Act.

RISK FACTORS AND MANAGEMENT PERCEPTIONS THEREON AND NOTES TO RISK
FACTORS

INTERNAL
1. Treasury profits
The Bank made a profit of Rs. 225.08 crores from sale of investments (treasury income) during
FY03. Such profits from treasury may not be maintained in future years and this may impede the
growth in net profits of the Bank going forward.
The Bank has exercised prudence in booking profits from sale of investments while maintaining
a reasonable yield on treasury portfolio and the management believes the Bank shall follow
similar strategy going forward. Having said that, the management acknowledges that similar
windfall treasury income may not be sustained in future years since it does not foresee similar
drop in interest rates in the immediate future years.
The treasury income did not contribute much towards the growth in net profits from Rs. 130.9
crores (FY02) to Rs. 196.5 crores (FY03). During the year, the Bank made provisions aggregating
Rs. 235.8 crores as against the treasury profits of Rs. 225.08 crores, thereby using 104.7% of
treasury income for provisioning on a pre-tax basis. During the same period, the net interest
income (NII) earned by the Bank grew from Rs. 485.31 crores (FY02) to Rs. 643.39 crores (FY03),
registering a growth of 32.5% and the net interest margin (NIM) also grew by 30 bps from 3.24%
to 3.54%. The management, therefore, believes that the growth in profits of the Bank would not
be hampered even if the treasury income were not substantial in future years.

2. Non Performing Assets (NPAs)
As on March 31 2003, the net NPAs of the Bank stood at 2.61% of its net advances amounting to
Rs. 205.81 crores in absolute terms. In the event of non-recovery of these assets, the Bank may
have to provide for these NPAs in future, which might affect the profitability of the Bank going
forward. For details, investors are advised to refer to para on Income Recognition, Asset
Classification and Provisioning on page ____ of the offer document.
The Net NPAs of the Bank have consistently been declining in percentage terms, from 6.72% as
on March 31 1999 to 2.61% as on March 31 2003. During the year, the Bank made accelerated

88
provisions amounting to Rs. 192.60 crores for NPAs and as a result the coverage ratio of the Bank
stands at 57.45% as on March 31 2003. The Bank is taking further steps to reduce the proportion
of non-performing assets through aggressive recovery drives combined with improved risk
management practices. Moreover, there have been substantial changes in the legislative and
operating environment enabling FIs and Banks to pursue recovery of overdues. Besides setting
up Debt Recovery Tribunal (DRT) for faster settlement of recovery litigation, GOI enacted The
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 enabling FIs and Banks to securitise and reconstruct financial assets and enforce security
more effectively. The Bank has also initiated steps under the Act by bringing attachment of the
securities. The Bank has issued notices to 1988 borrowers' till date for recovery of an amount of
Rs. 239.99 crores and has recovered amount aggregating Rs. 26.45 crores. The Bank is thus taking
recourse to the available remedies to control its NPAs.

3. Regional concentration of the Bank
The Bank has a regional concentration in southern parts of the country with southern states
accounting for approximately 70% of all branches in terms of numbers. The regional presence of
the Bank may compromise its competitive position vis--vis its national level competitors.
The Bank has a wide network of 843 branches and has a presence in most of the top 100 deposit
centres as well as in all the states of the country. The deposits of the Bank have grown at a CAGR
of 15.68% to Rs. 17019.8 crores and the advances have grown at a CAGR of 21.34% to Rs. 7891.3
crores during the past 5 years. Also, the Bank proposes to effectively utilise technology to
increase its reach and presence. The Management, therefore, believes that the present branch
network of the Bank is widespread and does not compromise its competitive position in the
industry. For details of geographical distribution of branches, investors are advised to refer to
para Geographical distribution of branches on page _____ of the offer document.

4. Asset Liability Position
A large portion of the funding of the Bank is in the form of short and medium term deposits. As
a result, there is a cumulative mismatch of Rs. 1427.86 crores up to 1-year category and a
mismatch of Rs. 3474.20 crores in 1-3 year category. The asset liability position of the Bank could
be affected if the depositors do not roll over the deposits.
The Bank has an active Asset Liability Management system in place to monitor and manage the
duration and liquidity mismatches. Using the interest rate expectations as the basis, the Bank
manages the mismatch so that the interest rate risk is minimised, the profitability is optimised
and the liquidity position is not affected. Moreover, as per the normal behavioural pattern and
past experience, a large portion of the deposits gets rolled over. The Bank feels that in the event
of these deposits not being rolled over, the fresh accretion of deposits would take care of the
Asset Liability mismatches. In addition, the Bank has the cushion of investments of Rs. 5855.25
crore in the long-term (over 5 years) category, a part of which can be utilized to correct any
medium term mismatches. For more details on the Asset Liability position refer to the para on
Asset Liability Management on page ____ of the offer document.

5. Credit Risk
The Banks main business of lending carries an inherent credit risk, which involves inability or
unwillingness of a customer or counter party to meet commitments in relation to lending,
trading, hedging, settlement and other financial transactions.
The Bank has put in place an internal credit rating system under which the borrowal accounts of
Rs 3 crores and above are rated on several parameters and the risk is priced with a suitable mark
over PLR based on the credit rating. The Bank also has implemented an active Risk Management

89
Policy aimed at mitigating various credit related risks. For other details on the credit risk
management process in the Bank, the investors may refer to the para on Risk Management on
page ___ of the offer document and the para Loan Policy on page ___ of the offer document..

6. Asset Concentration
The top 5 industries (non-food) account for 7.68 % of the gross credit exposure of the Bank as on
March 31 2003. Also, the top ten borrowers of the Bank account for about 8.93% of the total
advances of the Bank as on March 31 2003. The borrower specific and industry specific behaviour
may potentially affect the overall asset quality of the Bank.
The Bank has put in place a credit monitoring mechanism to monitor the performance of its
borrowers, regularly perform appraisal and do the requisite follow up. The top ten borrowers of
the Bank as mentioned above are Standard Assets as on March 31 2003. As regards the industry
concentration, its been the policy of the Bank to diversify the assistance over different
industry/promoter groups. In terms of the Banks loan policy, the Bank has laid down overall
exposure norms for medium and large-scale industrial sector and specific exposure norms for
lending to a particular single industry. Investors are advised to refer to para Industry wise
classification on page ___ of the offer document and para Loan Policy on page ___ of the offer
document.

7. Declining yield and higher cost ratios
The yield on advances of the Bank decreased from 11.93% as on March 31 2002 to 11.34% as on
March 31 2003. The yield on investments declined from 11.35% to 10.36% during the same
period. Further, the operating expenses as a percentage of average working funds increased from
2.73% to 3.21% during FY03.
The decline in yield ratios has to be viewed in backdrop of substantial softening in the interest
rates during the period and as such, the decline has been a sector-wide phenomenon. For
instance, the G-sec yield on the 10-year benchmark paper declined by 115 bps from 7.36% to
6.21% between March 31, 2002 and March 31, 2003. On the liability side, the Bank benefited from
repricing of its deposits, which brought down the average cost of deposits from 7.51% to 6.58%
during last one year i.e. a reduction of 93 bps. Similarly, the cost of borrowings came down from
11.14% to 10.96%. As a result, the net interest margin (NIM) of the Bank displayed a healthy
increase of 30 bps from 3.24% to 3.54% during the same period. As regards operating expenses,
the increase has been mainly due to one-time excess write-offs of VRS expenses amounting to Rs.
107.58 crores. Besides, actuarial valuation accounting of leave encashment liability resulted in an
excess charge aggregating Rs. 20.66 crores in the current year. The business per employee of the
Bank has gone up by 14.31% from Rs. 169.38 lacs to Rs. 193.62 lacs. The management, therefore,
believes that the benefits of right sizing shall accrue to the Bank in future years and the pressure
on operating expenses may not continue going forward.

8. Outstanding Litigations against the Bank
As on June 30 2003, there were 110 cases against the Bank with aggregate claim of Rs. 19 crore for
which no liability has been provided. Out of these, the claim amount was above Rs. 50 lakhs in 4
cases. Further, there is 1 instance, wherein a criminal case has been outstanding against the Bank.
Also, there are 362 cases pertaining to labour laws, winding up petitions or closure. For more
Offer Document.

9. Tax Disputes

90
As on March 31 2003 certain proceedings related to Income Tax matters are pending before the
Income Tax authorities. The net amount of disputed tax in respect of these proceedings is Rs.
27.91 crore. These claims pertain to the past periods and appeals have been pending before
Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal. Further the
assessment officer (IT) has raised an aggregate demand on the Bank for Rs. 2.13 crore for the
assessment years 1995-96 to 1999-00 in respect of VISA and MasterCard international. For more
Offer Document.

10. Contingent Liabilities of the Bank
As on March 31 2003, the Bank had contingent liabilities aggregating Rs. 5077.47 crores,
comprising Rs. 37.18 crores as claims not acknowledged as debt by the Bank, Rs. 3858.45 crores
as liability on account of outstanding Forward Exchange Contracts, Rs. 731.59 crores as
Guarantees given on behalf of constituents, Rs. 441.20 crores as Acceptance, Endorsements and
other obligations and Rs. 9.03 crores as other items.

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

11. Accumulated Losses of the Bank in the past
The Bank had accumulated losses aggregating Rs. Rs.297.07 crores, which were adjusted from its
paid-up capital during the financial year 1999-00.
The accumulated losses pertained to previous periods and were duly written off under the
approval of the Govt. of India. The Bank has been making net profits consecutively for the past
seven years and does not have any accumulated loss in its books at present.

12. Utilisation of Funds
The utilisation of the funds proposed to be raised through the public issue is entirely at the
discretion of the Bank and no monitoring agency has been appointed to monitor the deployment
of funds.
The funds raised through the public issue are not meant for any specific project and hence a
monitoring agency may not be required. The Bank is managed by professionals under the
supervision of its Board of Directors. Further, the Bank is subject to a number of regulatory
checks and balances as stipulated in its regulatory environment. Therefore, the management
believes that the funds raised via the public issue would be utilised only towards satisfactory
fulfilment of the objects of the issue as stated on page ___ of the offer document.

13. Export Credit Target
The Bank has not met export credit target (12% of net credit) for the last five years. For more
details, refer to para on Export Credit on page _____ of the offer document.
The non-achievement of this target has no negative impact on the working results of the Bank.
RBI has not taken any punitive action against the Bank for non-achievement of the targets. The
Bank is taking steps to increase its export credit exposure in terms of its loan policy for the year
2003-04. For more details, Investors are advised to refer to para Loan Policy on page ___ of the
offer document.

14. Verma Committee Recommendations

91
The Verma Committee, which carried out a study of the banking sector in 1998 and 1999, had
suggested seven parameters for assessing a banks strength/weakness covering three major areas
namely, solvency, earning capacity and profitability. Based on the above, Vijaya Bank was
classified in the third category of banks, which complied with the Capital Adequacy requirement
but did not meet five or six of the remaining parameters for the years 1998 and 1999. For an
understanding of what the categorisation signifies, investors may refer to para titled Verma
Committee Recommendations on page ___ of the offer document.
The Bank has taken focused actions to improve its profitability and performance by a multi-
pronged strategy involving reduction in NPAs, increased emphasis on reduction of costs,
introduction of better systems and procedures and improvement in its operational efficiency and
reduction in staff cost.

15. Contingent liabilities of the RRB sponsored by the Bank
As on March 31 2003, contingent liabilities of the RRB sponsored by the Bank aggregated Rs.
32.60 lakh.
The above contingent liabilities have arisen in the normal course of business of the RRBs.

EXTERNAL RISK FACTORS
1. Regulatory restrictions on the Bank and limitations of the powers of shareholders of the Bank
There are a number of restrictions as per the Bank Nationalisation Act and Banking Regulations
Act, which impede flexibility of the Banks operations and affect/restrict investors right. These
are as under:

1. The Banks can carry on business/activities as specified in the Act. There is no
flexibility to pursue profitable avenues if they arise, in contrast with companies
under the Companies Act, where shareholders can amend the Objects Clause by a
special resolution.
2. In terms of Rule 8 of The Banking Regulation Act, 1949, the Bank is prohibited from
doing trading activity, which may act as an operational constraint.
3. In terms of Rule 17(1) of The Banking Regulation Act, 1949, every banking company
shall create a Reserve Fund and shall, out of the balance of profit of each year as
disclosed in the Profit & Loss a/c prepared under Section 29 and before any dividend is
declared transfer to the Reserve Fund a sum equivalent to not less than twenty five
percent of such profit.
4. In terms of Rule 19 of The Banking Regulation Act, 1949 there are some restrictions on
the banking companies regarding opening of subsidiaries which may deny the Bank
from exploiting emerging business opportunities.
5. In terms of Rule 23 of The Banking Regulation Act, 1949 there are certain restrictions on
the banking companies regarding opening of new place of business and transfer of
existing place of business, which may hamper the operational flexibility of the Bank.
6. In terms of Rule 25 of The Banking Regulation Act, 1949 each banking company has to
maintain assets in India which is not less than 75% of its demand and time liabilities in
India which in turn may prohibit the Bank from creating overseas assets and exploiting
overseas business opportunities.
7. There are restrictions in the Banking Regulation Act regarding,
i) Management of a bank including appointment of directors
ii) Borrowings and creation of floating charge thereby hampering leverage.
iii) Expansion of business as the branches need to be licensed
iv) Disclosures in the profit & loss account and balance sheet

92
v) Production of documents and availability of records for inspection by
shareholders
vi) Reconstruction of banks through amalgamation
vii) Further issues of capital including issue of bonus shares/rights shares for which
prior MoF approval is required
8. The financial disclosures in the offer document may not be available to the investors
after listing on a continuous basis
9. Various rights/powers of shareholders available under the Companies Act in this
behalf are not available to the shareholders of the banks. These rights include rights
such as calling for general meetings, inspection of minutes and other material
records, application for relief in cases of oppression and mismanagement, voluntary
winding up etc.
10. As per Section 3 (2E) of the Bank Nationalisation Act, no shareholder other than
Central Government shall be entitled to exercise voting rights in respect of any
equity shares held by him/her in excess of one per cent of the total voting rights of
all the shareholders of the Bank.
11. No banking company shall pay dividend on its shares until all its capitalised
expenses (including preliminary, organisational expenses, share selling commission,
brokerage, amounts of losses and any other item represented by tangible assets) have
been completely written off. The Bank has received an exemption from GoI, Ministry
of Finance, Department of Economic Affairs (Banking Division) vide gazette
notification ref. ________ dated _________ from the provisions of the said Section
15(1) relating to the payment of dividend, for a period of five years from the date of
the notification.

2. Sensitivity to the economy and extraneous factors
The Banks performance is highly correlated to the performance of the economy and the
financial markets. The health of the economy and the financial markets in turn depends on
the domestic economic growth, state of the global economy and business & consumer
confidence, among other factors. Any event disturbing the dynamic balance of these diverse
factors would directly or indirectly affect the performance of the Bank including the quality
and growth of its assets.

3. Competition from existing and new Commercial Banks
Competition in the financial sector has increased with the entry of new players and is likely
to increase further as a result of further deregulation in the financial sector. The Bank may
face competition both in raising resources and in deploying them.
The Bank has an established broad-based presence and has been taking steps to enhance
customer satisfaction by upgrading skills, systems and technology to meet such challenges.
The Bank is attempting to add quality assets on competitive terms. The Bank is also taking
steps to broad base its product bouquet with a special emphasis on enhancement in the non-
fund based income. On the resource-raising front, the Bank is actively endeavouring to
broaden its reach and raise resources through its wide distribution network of 843 branches
and 61 extension counters. For more details on the business environment of the Bank,
investors are advised to refer to the para on Management Discussion and Analysis of
Financial Results on page ___ of the offer document and the para on Banking Sector
Scenario on page ___ of the offer document.

4. Changes in regulatory Policies
Major changes in Government/ RBI policies relating to banking sector may have an impact
on the operations of the Bank.

93
The Policy changes may provide both opportunities and challenges for the Bank. The Bank
has a long presence in the banking sector for more than 71 years and does not perceive policy
changes to be a major threat. For more details, investors are requested to refer to the para
Management Discussion and Analysis of Financial Results on page ____ of the offer
document.

5. Disintermediation in the financial markets
Development of Capital Markets may result in disintermediation by current and potential
borrowers whereby many companies may access the markets directly, thereby reducing their
dependence on the Banking system.
The Bank has, in recent years, launched several retail lending schemes so as to broaden its
borrower base. Further, disintermediation brings with it the opportunity for the Bank to
expand its fee-based activities. The Bank has been endeavouring to develop a presence in
several financial services to earn fee based income by focussing on businesses such as foreign
exchange, treasury, investments, cash management etc., thus taking advantage of the
disintermediation phenomenon.

6. Forex risk
Exchange Rate fluctuations may have an impact on the Banks financial performance.
As per RBI guidelines, banks are not allowed to keep open position on their foreign exchange
transactions beyond prescribed limits on a daily basis. Foreign exchange transactions beyond
such limits, if any, must be squared off at the end of each day. Hence, the risk from exchange
rate fluctuations is minimised. The Board of Directors of the Bank has also prescribed limits
for gaps or mismatches in maturities of banks foreign currency assets & liabilities and
forward transactions in foreign exchange. The Bank operates within the limits fixed for gaps
or mismatches in maturities of Banks foreign currency assets and liabilities and forward
transactions in foreign exchange, thus minimising the risks of mismatches in maturities and
interest rates. For more details on the Risk Management procedures, investors are advised to
refer to para on Risk Management on page ____ of the offer document.

7. Interest rate risk
Interest rate volatility exposes the Bank to an interest rate risk or market risk. Such interest
rate risk has a potential impact on net interest income or net interest margin as well as on the
market value of the fixed income securities held by the Bank in its investment portfolio.
These risks are inherent in the banking business. However, the Bank has put in place a
system of regular review of lending and deposit rates in order to minimise the interest rate
risk. The Asset Liability Management Committee of the Bank reviews the risk on a regular
basis. Continuous Risk Management measures are initiated depending upon the movement
in the market interest rates. The movement in the interest rates is closely monitored for
appropriate action. For more details on the Risk Management procedures, investors are
advised to refer to para on Risk Management on page ____ of the offer document.

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

94
To mitigate these operational risks, the Bank constantly updates its procedures and systems,
trains staff and also subjects all critical areas of operation to concurrent audit. For more
details on the Risk Management procedures, investors are advised to refer to para on Risk
Management on page ____ of the offer document.

9. Financial Statements in the offer document
The financial statements and derived ratios therefrom contained in the offer document are
prepared/computed as per the permissible accounting practices and the adjustment
guidelines prescribed by SEBI. The investors may want to make their own adjustments to the
same before arriving at an investment decision in the offer.
The financial statements and the derived ratios have been prepared in conformity to the
extant guidelines and the same have been certified by the statutory auditors of the Bank. The
Bank is also governed by the prudential norms of RBI for income recognition, NPA
provisioning etc.

NOTES

1. Networth of the Bank as on March 31, 2003 was Rs741.08 crores
2. The present Public Issue of the Bank aggregates Rs. 200 to Rs. 240 crores.
3. The Book Value per share as on March 31, 2003 for Rs. 10/- face value is Rs.
22.46.
4. Cost per share of the Bank to the Government of India is Rs. 10.
5. The Bank has adjusted its accumulated losses of Rs. 297.07 crores by setting
off the same against the paid-up capital as on March 31, 2000.
6. As per Section 3 (2E) of the Bank Nationalisation Act, no shareholder other
than Central Government shall be entitled to exercise voting rights in respect
of any equity shares held by him/her in excess of one per cent of the total
voting rights of all the shareholders of the Bank.
7. Section 3(2B)(c) of the Bank Nationalisation Act provides that the paid-up
capital may, from time to time, be increased by such amounts as the Board of
Directors of the Bank may, after consultation with the RBI and with the
previous sanction of the Central Government, raise by Public Issue of equity
shares as may be prescribed, so however, that the Central Government, at all
times, hold not less than fifty-one per cent of the paid-up capital of each of
the Corresponding New Bank.
8. The shareholders of the Bank do not have a right to receive dividend within
42 days as is available to companies under the Companies Act.
9. RBI carries out regular inspection of all Banks. The inspection of the Bank by
RBI is a regular exercise and is carried out periodically for all the banks and
Financial Institutions. The reports of RBI are strictly confidential and the
Bank has informed RBI about the actions already taken and measures that
are under implementation in respect of observations made by RBI in its
report for the year 2001-02.
10. VHFL, a subsidiary of Vijaya Bank has entered into the following
transactions with Vijaya Bank during the last three years:
(Rs. in lakhs)
Particulars 2000-2001 2001-2002 2002-2003
Fixed Deposits made with Vijaya 5 Nil 1103.25

95
5 Nil 1100.00
Bank
lakh.
ii) Karnataka Bond
KSDL 2012 for Rs.
100.00 lakh.

(in Rupees)
Particulars 2000-2001 2001-2002 2002-2003
Vijaya Bank premises used
Ltd.

Primrose Road,
Infantry Road,
Mangalore &
Mumbai
Infantry Road,
Mangalore &
Mumbai
Mangalore &
Mumbai

11. Vijaya Bank had following transactions with Visveshvarya Grameena Bank
during last three years.
(Amount in Rupees)
Sr.
No.
Particulars 2003 2002 2001
1. All loans taken as on Balance
Sheet date
- Overdraft

228,00,000

229,05,000

187,28,000
2. All Deposit with Vijaya Bank on
Balance Sheet date
3,00,00,000 11,05,00,000 9,45,00,000
3. Interest paid on loans for the year
- On Overdraft
17,73,000 14,92,000 13,68,000
4. Interest earned on deposits for the
year
81,07,718 1,01.98,599 92,70,847
5. Dividend paid to Vijaya Bank - - -
6. Dividend received from Vijaya
Bank
32,640 32,640 8,160
7. Current Account maintained with
Vijaya Bank as on Balance Sheet
date
2,69,13,279 2,73,70,673 3,05,72,489
8. Remuneration to Vijaya Bank
Employee on deputation as
Chairman
2,72,117 2,64,939 2,54,961
9. Share Capital held in Vijaya Bank 2,72,000 2,72,000 2,72,000
10. Share Capital held by Vijaya Bank 35,00,000 35,00,000 35,00,000
11. Deposit from Vijaya Bank as Share
Capital Deposit
148,14,000 148,14,000 148,14,000
12. Investments in Bonds of Vijaya
Bank
45,00,000 45,00,000 45,00,000
13. Interest earned on Bonds of Vijaya
Bank
5,55,750 5,55,750 5,55,750

96

Important notes:
1. The financial information as contained in PART II including the notes to accounts,
significant accounting policies as well as auditors qualifications has been duly certified
by the statutory auditors of the Bank. As far as possible, these audited numbers have
been used for computation or derivation of other financial information contained in the
offer document. However, such other financial information contained in the offer
document except as contained in PART II, has been certified by the management of the
Bank.
2. In terms of recommendations of RBI Working Group on Consolidated Accounting and
Other Quantitative Methods to Facilitate Consolidated Supervision (December 2001), all
banks, whether listed or unlisted, should prepare and disclose Consolidated Financial
Statement (CFS) from the financial year commencing from April 1, 2002. Conforming to
the said requirement, the Auditors have provided consolidated financial statements of
the Bank in their report contained in Part II of the offer document.
3. Some sections of the Offer Document such as the Corporate Vision, Mission & Strategy,
Loan Policy etc. may contain some qualitative forward-looking statements, which may
not materialise in future. Investors are requested to exercise due discretion while
perusing such sections.
4. RBI carries out annual inspection of all Banks and Financial Institutions and as such the
inspection is an ongoing exercise. The inspection reports of RBI are strictly confidential.
RBI has issued its report for the financial year 2001-02 to Vijaya Bank and Vijaya Bank
has replied to the report.

INVESTOR GRIEVANCE AND REDRESSAL SYSTEM

To ensure that investor grievances are redressed expeditiously and satisfactorily, the Bank has set
up a Committee headed by the Banks Compliance Officer to handle all investor grievances. The
Bank has set up a share department at Bangalore and appointed a Registrar and Transfer Agent
to effectively deal with investor grievances. The agreement between the Bank and the Registrars
to the Issue provides for the retention of Issue records with the Registrars for a period of at least
six months from the last date of despatch of Letters of Allotment/Share Certificates/ Refund
Orders to enable the investors to approach the Registrars for redressal of their complaints.

Shri. K. Gopalkrishnan Nair has been designated as the Compliance Officer for the Issue. In case
of any pre-issue/ post-issue related problems such as non- receipt of letters of allotment/ share
certificates/ refund orders/ cancelled stockinvests, etc. the investors are requested to contact the
Compliance Officer at:

Vijaya Bank
Head Office
41/2, M G Road
Bangalore 560 001
Tel: (080) 559 4737
Fax: (080) 558 8853
E-mail: vijbank@blg.vsnl.net.in

97

The Shareholders/Investors Grievances Committee
In accordance with Clause 49 of the Listing agreement, the Shareholders/Investors Grievances
Committee has been constituted by the Board with the following Directors as the members of the
Committee:

Sri A P Hota, Director, RBI nominee Chairman of the Committee
Sri P A Sethi, Executive Director Member
Sri M Kiran ,Director- Workmen Member
Sri S Ananthan, Shareholder Nominee Director Member
Sri R Ashok Kumar, Shareholder Nominee Director Member

Sri Michael Bastian was appointed as the C&MD of Syndicate Bank and was relieved on 23
rd

august, 2002. Sri R Achar retired as the Director of the Bank on 31
st
May 2002. Sri A P Hota
Joined as Director of the Board (RBI Nominee) on 11.06.2002 and Sri S Ananthan and Sri R Asok
Kumar (both shareholder nominee directors) were nominated to the Committee on 23
rd
October
2002.

The committees approves and monitors the Shareholders grievances with respect to transfers,
transmission, splitting and consolidation of shares issued by the Bank and allotment of shares to
the Employees and any other grievances of the shareholders. The Committee monitors the
redressal of the shareholders/investors grievances like transfer of shares, non-receipt of Balance
Sheet, non-receipt of dividends, etc. During the year four meetings of the Shareholders
Grievances Committee were held on 27.04.2002, 13.07.2002, 23.10.2002 and 19.02.2003.The
attendance of Directors at the above meetings are furnished below:

Directors No. of Meetings
Attended
Sri P A Sethi (joined on 08.03.2003) -
Sri Michael Bastian (relieved on 23.08.2002) 2
Sri R Achar (retired on 31.05.2002) 1
Sri A P Hota (joined on 11.06.2003) 3
Sri M Kiran 4
Sri S Ananthan (appointed on 23.10.2002) 1
Sri R Ashok Kumar (appointed on 23.10.2002) 1

Number of Complaints received, resolved and pending
All the complaints from shareholders are received directly by M/s. MCS Ltd., Mumbai, our Share
Transfer agents and those received by the Bank directly are forwarded to them to be resolved by
M/s.MCS Ltd. The details of requests/ complaints received and resolved during 2002-2003 and
pending as on 31.03.2003 are as follows:

Pending as
31.03.2002
Received Resolved Pending as
31.03.2003
No. of Requests 3 4445 4448 --
No. of complaints -- 1756 1756 --

None of the above complaints were pending for more than one month. As on 31.03.2003, no share
transfer requests were pending at our end.

98

PART II

XI. GENERAL INFORMATION

CONSENTS

Consents in writing of the Lead Managers to the Issue, Directors, Auditors, Legal Advisor,
Compliance Officer, Co- Managers to the Issue, Advisor to the Issue, Bankers, and Registrars to
the Issue to act in their respective capacities have been obtained and filed, along with a copy of
the Offer Document with the Regional Stock Exchange (Bangalore), and such consents have not
been withdrawn up to the time of delivery of the Offer Document with the said Stock Exchange.
The Auditors of the Bank have given their written consent to the inclusion of their Report in the
form and content in which they appear in the Offer Document, and also the tax benefits available
to the Bank and its Shareholders, and such consents and reports have not been withdrawn up to
the time of delivery of the Offer Document.

EXPERT OPINION

Save as stated elsewhere in the Offer Document, the Bank has not obtained any other expert
opinion.

CHANGES IN DIRECTORS

The following changes in the Board of Directors of Vijaya Bank have taken place in the last 3
years:

Name of Director Reasons for change Date of change
Shri R. Achar Superannuation May 31 2002
Shri Michael Bastian Elevated as CMD of Syndicated
Bank
August 23, 2002
Shri S. Gopalakrishnan Superannuation January 31 2002
Shri B.S. Meena Ceased March 20 2001
Shri V.P. Bharadwaj Ceased April 19 2001
Shri S.K. Thakur Ceased March 19 2002
Shri M. Kiran Inducted July 3 2000
Shri M. S. Kapur Inducted August 14 2002
Shri P.A. Sethi Inducted March 7 2003
Shri R Renganath Inducted March 20 2002
Shri A. P. Hota Inducted June 11 2002
Shri Babuseth Tyerwala Inducted May 8 2001
Smt. Sukhada Mishra Inducted May 8 2001
Shri Pawan Kumar Sharma Inducted December 20 2001
Shri S. Ananathan Inducted August 3 2002
Shri R. Ashok Kumar Inducted August 3 2002
Shri B. K. Jagdish Chandra Inducted August 3 2002
Shri S. P. Krishnaswamy Inducted August 3 2002

99

CHANGES IN AUDITORS

Given below are the changes in the Banks Auditors during the past three years. Since the RBI
recommends appointments of Auditors each year, these changes have been effected as per RBIs
approval.

Name of Auditor Reasons for change Year of change
M/s B. Purushotham &
Co.
Ceased to be statutory auditors as per RBI norms 2002
M/s B. K. Khare & Co. Ceased to be statutory auditors as per RBI norms 2002
M/s. Nawn & Co. Ceased to be statutory auditors as per RBI norms 2003
M/s S.P. Marwaha & Co. Appointed as statutory auditors as per RBI norms 2003
M/s Raju & Prasad Appointed as statutory auditors as per RBI norms 2003
M/s D. V. Ramana Rao Appointed as statutory auditors as per RBI norms 2003

AUTHORITY FOR THE PRESENT ISSUE

The issue of equity shares is being made pursuant to the sanction of Government of India (GoI)
in consultation with the Reserve Bank of India (RBI), vide their letter no. F.No.11/15/2001-BOA
dated 09.06.2003, under Section 3(2B)(c) of the Banking Companies (Acquisition and Transfer of
Undertakings) Act 1980, as amended by the Banking Companies (Acquisition and Transfer of
Undertakings) Act 1994, Banking Companies (Acquisition and Transfer of Undertakings) Act
1995, Banking Companies (Acquisition and Transfer of Undertakings) Act 1996, (herein
collectively referred to as the Bank Nationalisation Act), to increase the paid-up capital, the
resolution passed at the meeting of the Board of Directors of the Bank (the Board), held on March
27 2003 and the resolution passed by shareholders of the Bank in the Annual General Meeting
held on 19.06.2003.

DISPOSAL OF APPLICATIONS AND APPLICATION MONEY

The Board of Directors reserves in its full, unqualified and absolute discretion without giving any
reason, the right to accept or reject any application in whole or in part. If any application is
rejected in full, the whole of the application money received will be refunded to the applicant
and where an application is rejected in part, the excess application money received would be
refunded to the applicants by registered post/speed post (Refund orders up to Rs.1500/- will be
sent under certificate of posting) as far as possible within 30 days from the date of closing of the
subscription list. Any delay beyond 30 days will entail payment of interest at 15% per annum.

The subscription received in respect of Public Issue will be kept in a separate bank account and
the Bank shall not have access to such funds unless approvals from all the Stock Exchanges,
where listing has been proposed and approval of the Bangalore Stock Exchange for allotment has
been obtained.

No separate receipt will be issued for the application money. However, the nominated branches
of the Bankers to the Issue at the collection centres receiving the application form will
acknowledge receipt of application by stamping and returning the acknowledgement slip given
at the foot of each application form.

PROCEDURE AND TIME SCHEDULE FOR ALLOTMENT / REFUND
In the event of oversubscription, allotment will be on a proportionate basis and in consultation
with the Bangalore (Regional) Stock Exchange.

100

The Bank shall as far as possible complete allotment of shares offered to the public within 30
days of the closure of the Issue. If allotment is not made and/or the refund orders have not been
despatched to the investors within 30 days from the date of closure of the Issue, the Bank will
pay interest @ 15% per annum for any delay beyond 30 days till the date of allotment/despatch
of refund orders. The Bank will despatch refund orders in excess of Rs.1500/-, by Registered
Post/Speed Post at the applicants sole risk. Refund orders up to Rs.1500/- will be sent under
certificate of posting. The Bank will provide adequate funds to the Registrars to the Issue for this
purpose. The Bank shall despatch the share certificates/refund orders /cancelled stockinvests
and demat credit is completed and the allotment and listing documents are submitted to the
Stock Exchange within 2 working days of finalisation of the basis of allotment.

In case of joint applications, refund/pay orders, if any, will be made out in the first name and all
communications will be addressed to the person whose name appears first in the application
form.

ALLOTMENT/REFUND IN CASE OF APPLICATIONS MADE BY STOCKINVEST
The procedure for disposal of Applications made in cash/cheques/Stockinvests/Bank drafts will
apply, mutatis mutandis, except the following:

1. In case of non-allotment, the Registrars to the Issue shall return the Stockinvest directly to the
investors.

2. On allotment/partial allotment, Registrars to the Issue shall fill in the amount, which would
be less than or equal to the amount filled in by the investor before presenting the Stockinvest
to the respective issuing Bank for payment to the extent of allotment.

3. The Registrars to the Issue, pursuant to a resolution of the Board of the Bank have been
authorised to sign on behalf of the Bank for realising the proceeds of Stockinvest of the
allottees from the issuing Bank or to cancel the Stockinvests of the non/partial allottees. The
Registrars shall return the cancelled instruments with non-allotment advice to the investors
directly by registered post within 10 weeks of the date of closing of the subscription lists.

4. Multiple applications received with a single Stockinvest are liable to be rejected.

OVERSUBSCRIPTION AND BASIS OF ALLOTMENT
In the event of the present Issue of equity shares being oversubscribed, allotment will be on
proportionate basis and the basis of allotment will be finalised in consultation with the Bangalore
Stock Exchange being the Regional Stock Exchange.

The drawal of lots (where required) to finalise the basis of allotment, shall be done in the
presence of a Public Representative on the governing board of the Regional Stock Exchange. The
Executive Director/Managing Director of the Regional Stock Exchange along with the post-issue
Lead Managers and the Registrars to the Issue shall be responsible to ensure that the basis of
allotment is finalised in a fair and proper manner in accordance with the SEBI Guidelines.

The allotment shall be on proportionate basis under the reservation for employees category as
well as under the net public offer category, subject to allotment of Shares in marketable lots, and
the basis of allotment would be arrived at as explained below:

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

101
2. The total number of shares to be allotted to each category as a whole shall be arrived at
on a proportionate basis i.e. the total number of shares applied for in that category
(number of applicants in the category x number of shares applied for) multiplied by the
inverse of the oversubscription ratio.
3. Number of shares to be allotted to the successful allottees will be arrived at on a
proportionate basis i.e. total number of shares applied for by each applicant in that
category multiplied by the inverse of the oversubscription ratio.
4. In all the applications where the proportionate allotment works out to less than 100
shares per applicant, the allotment shall be made as follows:
c. Each successful applicant shall be allotted a minimum of 100 shares.
d. The successful applicant out of the total applicants for that category shall be
determined by draw of lots in such a manner that the total number of shares
allotted in that category is equal to the number of shares worked out as per 2
above.
5. If the proportionate allotment to an applicant works out to a number that is more than
100 but is not a multiple of 100, it would be rounded off to the higher multiple of 100 if
that number is 50 or higher. If that number is lower than 50, it would be rounded off to
the lower multiple of 100. All applicants in such categories would be allotted shares
arrived at after such rounding off.
6. If the shares allocated on a proportionate basis to any category are more than the shares
allotted to the applicants in that category, the balance available shares for allotment shall
be first adjusted against any other category where the allocated shares are not sufficient
for proportionate allotment to the successful applicants in that category. The balance
shares, if any, remaining after such adjustment will be added to the category comprising
of applicants applying for minimum number of shares.
allotment in favour of those individual applicants who have applied for such number of
shares the value of which aggregates to Rs. 50,000 or less (i.e. an application for 2083-
2500 shares or less). This percentage may be increased in consultation with the Bangalore
Stock Exchange depending on the extent of response to the Issue from investors in this
category. The balance of the net offer of equity shares to the public shall be made
available for allotment to investors, including Corporate Bodies, Institutions and
individual applicants who have applied for such number of shares the value of which
aggregates to more than Rs. 50,000 (i.e. an application for 2083-2500 shares or more). The
unsubscribed portion of the net offer to any one of the above two categories shall be
made available to the applicants in the other category, if so required and allotment made
on a proportionate basis as per the relevant SEBI guidelines.

In the event of oversubscription, in the process of rounding off to ensure allotment in marketable
lots, the Bank will make adjustments in the basis of allotment as may be necessary in consultation
with the Regional Stock Exchange (Bangalore), such that the Issue size does not exceed
10,00,00,000 equity shares.

The Bangalore Stock Exchange reserves the right to modify the above stated Basis of Allotment within the
overall conformity to the extant regulations in this regard.

ISSUE MANAGEMENT TEAM


202, Maker Tower E

102
Cuffe Parade
Mumbai 400 005
Tel: (022) 218 9166
Fax: (022) 218 8332
Email: vijaya.cmg@sbicaps.com

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

J M MORGAN STANLEY LTD.
141, Maker Chambers III,
Nariman Point
Mumbai 400 021
Tel: 022-56303030
Fax: 022-56301694
Email: vijayabankipo@jmmorganstanley.com

ALLIANZ SECURITIES LTD
C-2, Green Park Extension,
New Delhi- 110 016
Tel: 011- 26568613/8618
Fax: 011-26969478
Email: _________

A K CAPITAL SERVICES
Flat No N, Sagar Apartments,
6, Tilak Marg,
New Delhi - 110 001
Tel: 011-23385704/8235
Fax: 011-23385189
Email: __________

Co-Managers to the Issue

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

Centrum Finance Ltd.
2
nd
Floor,
Bombay Mutual Building,
Dr. D N. Road,

103
Fort, Mumbai -400001.
Tel: 022-22662434
Fax: 022-22663458
Email: _________

Registrar to the Issue

MCS Limited
Road No.16, M.I.D.C. Area,
Andheri (East) MUMBAI 400 093
Tel: (022) 28201785
Fax: (022) 28201783

Legal Advisor to the Issue

K.S. Hanumantha Rao, Advocate
579, 31
st
Cross Road, 10
th
Main,
4
th
Block, Jayanagar,
Bangalore 560 011
Tel: 080-6631 209
Fax: 080-6650 019
E-mail: _________

104

XII. FINANCIAL INFORMATION

Auditors Report

To,

The Board of Directors
Vijaya Bank
Head Office
41/2, M.G. Road
BANGALORE - 560 001

In terms of the appointment for the purpose of certification of the statement of accounts to be
incorporated in the offer document proposed to be issued by the Bank in connection with the
Public Offer of Equity Shares, we state as follows:

1. We have relied upon the audited financial statements of Vijaya Bank for the five
consecutive financial years ended on March 31, 2003 being the last date upto which
accounts for the Bank have been made and audited by the auditors of the Bank for those
respective years.

2. The aforesaid financial statements have been prepared in accordance with the guidelines
issued by the Reserve Bank of India from time to time and are subject to the limitation of
disclosures required under the Banking Companies (Acquisitions and Transfer of
Undertakings) Act, 1980.

3. We have also relied upon the audited financial statements of Vibank Housing Finance
Limited, a subsidiary of Vijaya Bank for the five consecutive financial years ended on
March 31, 2003 being the last date up to which accounts for the Company have been
made and audited by the auditors of the Company for those respective years .

4. In accordance with the requirements of Clause B of Part II to Schedule II of the
Companies Act, 1956 and SEBI (Disclosure and Investors Protection) Guidelines, 2000,
we report as under:

A. The Statement of Profit and Loss of Vijaya Bank for the five consecutive financial
years ended on 31
st
March 2003 (Part I of Annexure-A), the statement of Assets
and Liabilities of Vijaya Bank as at the end of the respective years (Part II of
Annexure-A), the Significant Accounting Policies (Part III of Annexure-A), Notes
on Accounts (Part IV of Annexure-A), Auditors Report (Part V of Annexure-A),
Significant changes in Accounting Policies (Part VI of Annexure-A) and subject
to Auditors qualifications in respect of which no adjustment could be carried
out as consequential affects could not be ascertained (Part VII of Annexure-A),
are prepared from the aforesaid accounts after making such adjustments and
regroupings as were feasible and in our opinion, considered appropriate.

B. The Statement of Profit and Loss of Vibank Housing Finance Limited for the five
financial years ended 31
st
March 2003 (Part I of Annexure-B), the statement of
Assets and Liabilities of Vibank Housing Finance Limited at the end of the
respective years (Part II of Annexure-B), the significant Accounting Policies (Part
III of Annexure-B), Notes on Accounts (Part IV of Annexure-B), Auditors Report

105
(Part V of Annexure-B), significant changes in Accounting Policies (Part VI of
Annexure-B) are prepared from the aforesaid accounts after considering various
qualifications made in the Auditors Reports and making such adjustments and
regroupings as were feasible and in our opinion, considered appropriate.

C. We further report that the dividends declared by Vijaya Bank in respect of five
consecutive financial years ended on 31
st
March 2003 are set out in Annexure-C
enclosed.

D. We have also examined the accompanying statements of Key Accounting Ratios
for the five consecutive financial years ended on 31
st
March, 2003 ( Annexure
D1 ), Details of Unsecured Loans ( Annexure D2), Details of Other income(
Annexure D3), Details of Investments ( Annexure D 4), Statement of
Capitalisation ( Annexure D5), Tax Shelter statement ( Annexure D6), Contingent
Liabilities Statement ( Annexure D 7) , consolidated audited accounts of Vijaya
Bank and its subsidiary for the year ended on March 31, 2003( Annexure D 8)
and report that in our opinion these have been correctly computed subject to
consequential effect for non adjustment of qualifications as detailed in Part VII of
Annexure A .

RAO & SWAMI

N.Ramesh
Partner
D.V.RAMANA RAO & Co

B.Sridhar Joshi
Partner
PRASAD AZAD & Co.

Deepak Azad
Partner
KISHORE & KISHORE

Munish K.Gaur
Partner
RAJU & PRASAD

S.Srinivasa Rao
Partner
S.P.MARWAHA & Co.

M.L.Jotwani
Partner

Place: Bangalore
Date: 28.06.2003

106

Vijaya Bank ANNEXURE A PART I

Five Years Profit & Loss account

1. Statement of Profit & Loss for last five years

Rupees in Lakhs

Particulars 1998-99 1999-2000 2000-01 2001-02 2002-03

1 Income
Interest Earned

1.1
Interest and discount on
advances/bills

47,618.73

55,699.45

65,173.09

71,425.24

75,582.75

1.2
Income on investment
47,144.49

58,527.02

64,601.01

76,513.95

86,301.92

1.3
Interest on balances with RBI
and other inter -bank
lendings

4,672.41

4,064.45

4,775.70

5,453.66

4,309.06

1.4
Interest on Income Tax
27.40

169.21

474.63

330.50

420.93

1.5
Others
535.07

1,293.44

594.00

127.08

465.94

2
Other Income

2.1
Commission, Exchange and
brokerage

4,345.59

5,070.97

5,152.78

4,722.94

4,556.35

2.2
Profit on exchange
transactions (net)

1,815.50

1,550.80

2,350.11

3,691.29

2,166.53

2.3
Profit on sale of investments
(net)

1,306.22

1,250.14

267.20

9,016.65

22,508.87

2.4
Profit on sale of Land,
building & other assets (net)

14.13

11.03

19.50

14.65

5.49

2.5
Income from Dividends
195.59

613.97

534.24

754.29

1,056.84

2.6
Income from Bullion Trading

2.7
Profit /(Loss) on revaluation of
Investments ( Net)
-
3,908.08

(2,933.15)
-

2.8
Miscellaneous Income (net)
3,230.05

3,183.74

3,394.19

3,615.75

4,307.95

Total
110,905.18

131,434.22

151,244.53

172,732.85

201,682.63

1.0
Expenses
Interest Expended

107

1.1
On Deposits
66,728.47

77,840.99

85,983.26

100,133.70

99,010.80

1.2
On RBI/ inter bank
borrowings

313.81

416.72

434.50

217.47

192.18

1.3
On Others
1,228.52

2,679.08

3,165.73

4,968.11

3,538.66

2
Payments to and provisions
for employees

22,034.98

27,264.95

27,781.77

25,091.92

26,762.55

3
Amortisation of VRS
Expenditure

-

-

5,260.00

5,500.00

16,138.00

4
Rent, taxes and lighting
2,558.94

2,898.21

3,075.00

3,882.09

4,430.75

5
Insurance
543.55

641.60

677.80

786.89

960.80

6
Printing and stationery
361.21

376.04

639.10

355.23

420.99

7
Advertisement and publicity
41.37

46.30

60.51

35.76

138.85

8
Postage, Telegrams,
Telephones, etc

183.82

181.03

211.30

255.62

157.37

9
Repairs and Maintenance
130.67

129.14

105.58

135.83

107.75

10
Law charges
39.86

37.03

60.27

37.43

77.92

11
Directors' Fees, allowances &
expenses

20.88

12.29

2.29

10.75

21.84

12
Auditors' Fees & Expenses
200.00

172.00

233.00

294.93

334.42

13
Other Expenditure
3,169.73

4,381.00

4,103.56

3,882.56

4,179.92

14
Depreciation on bank's
property

1,735.09

1,813.87

1,603.01

1,893.77

1,973.44
Total
99,290.90

118,890.25

133,396.68

147,482.06

158,446.24

Gross Profit before Tax and
extraordinary items

11,614.28

12,543.97

17,847.85

25,250.79

43,236.39
Less
Extra ordinary items
-

-

-

-

-
Gross Profit before provision
for tax

11,614.28

12,543.97

17,847.85

25,250.79

43,236.39
Less
Provisions and contingencies
* *

8,591.36

7,259.97

10,775.02

12,160.42

23,580.38
Net Profit / (Loss)
3,022.92

5,284.00

7,072.83

13,090.37

19,656.01
Balance of Profit /( Loss)
brought forward

(32,409.70)

(29,706.78)

3,309.51

9,190.10

11,770.79

108
Less Adjusted against Bank's Capital ( in
terms of Govt of India Approval)

29,706.78

Deferred Tax Liability
475.18

Prior Period Adjustment
(Loss)/Profit Available for
appropriation

(29,386.78)

5,284.00

10,382.34

21,805.29

31,426.80
APPROPRIATIONS

Transfer to Statutory
Reserves

-

1,057.00

1,768.20

3,274.51

4,916.50
Transfer to Capital Reserves
-

-

-

-

-
Transfer to/(from
Investment Fluctuation
Reserve)

320.00

362.49

(1,763.60)

2,757.77

7,272.00
Redemption Reserve for
Bonds

-

-

-

-

-
Transfer to Staff Welfare
Fund

-

-

-

-

200.00
Central Govt./Proposed
dividend(Including Tax)

-

555.00

1,187.64

4,002.22

4,002.22
Balance carried to Balance
Sheet

(29,706.78)

3,309.51

9,190.10

11,770.79

15,036.08

Adjustments resulting from audit qualifications , material amounts relating to
Adjustments for previous years and changes in accounting policies:
1998-99 1999-2000 2000-01 2001-02 2002-03
Net Profit /(Loss) as per
Audited Accounts

3,022.92

5,284.00

7,072.83

13,090.37

19,656.01
Adjustments for
ADD /( LESS)
Accounting for initial
contribution to Pension Fund

(2,222.00)

1,111.00

1,111.00

-

-

Estimated liability for wage
revision

(1,020.00)

1,020.00

-

-

Depreciation on investments
appropriated from
Reserve as permitted by RBI

(1,234.00)

-

-

VRS Expenses
(21,039.00)

4,901.00

16,138.00

Initial Public Offer
Expenditure

-

-

(225.00)

56.00

169.00

109

Leave Encashment
(1,728.00)

1,728.00

Adjusted Profit / (Loss)
(1,453.08)

7,415.00

(13,080.17)

16,319.37

37,691.01

Extraordinary Items
Add/( Less)
VRS Expenses
26,299.00

Initial Public Offer Expenditure
281.00

Interest on Return of Capital
-

-

-

1,159.96

-

Adjusted Profit / (Loss) after
excluding extraordinary
items

(1,453.08)

7,415.00

13,499.83

17,479.33

37,691.01

Impact on
Reserve & Surplus
(3,242.00)

2,131.00

(20,153.00)

4,388.96

18,035.00
Provision & Contingencies
-

-

-

-

-
Total
(3,242.00)

2,131.00

(20,153.00)

4,388.96

18,035.00

Increase /( Decrease) in Assets / Liabilities ( Cumulative) *
1998-99 1999-2000 2000-01 2001-02 2002-03
Nature of Adjustments

Assets
-

-

(21,264.00)

(16,307.00)

-

Total Increase/( Decrease) in
Assets

-

-

(21,264.00)

(16,307.00)

-

Liabilities
3,242.00

1,111.00

-

568.04

(1,159.96)

Reserve & Surplus
(3,242.00)

(1,111.00)

(21,264.00)

(16,875.04)

1,159.96

Total Increase/( Decrease) in
Liabilities

-

-

(21,264.00)

(16,307.00)

-

110

* Impact of extraordinary item of VRS Expenditure in the year 2000-01 has not been taken
in consideration.

Notes:

1) Adjustments to Profit / (Loss) have been done in respect of the following as required to be
done as per the SEBI guidelines, in respect of those items which are disclosed in the audited
financial statements of the five financial years wherever ascertainable and material:
- amounts relating to previous years although events triggering off profit / loss
accrued in the subsequent year
- extraordinary items
- changes in accounting policies and
- prior period items.
2) For the years ended March 31,1999 to March 31,2003 Reserve Bank of India has issued
various directives on income Recognition, Asset Classification, Provisioning in respect of
Non-performing assets, valuation of depreciation on investments and on fixed assets to be
followed by banks. The Bank has amended its accounting policies in the relevant years so as
to be in consonance with Reserve Bank of India directives. Adjustment to Profit/Loss, assets
and liabilities of the Bank arising from the compliance with the aforesaid directives have not
been carried out, as it is not practicable.

* * Details of provisions and contingencies debited to profit and loss account during the
said years :
(Rs. in
Lakhs)
Financial year ended March
31,
1998-99 1999-2000 2000-2001 2001-02 2002-03

1
Bad & Doubtful Debts
4,167.39

-

(281.73)

9,663.60

19,259.83

2
Depreciation on
Investments/(written back)

(362.25)

(362.49)

796.09

11.51

1,627.65

3
Gratuity
-

-

-

-

-

4
Legal Expenses
-

-

-

-

-

5
Stationary wastage
-

-

-

-

-

6
Fraud & Forgery
459.88

24.00

243.00

30.00

13.00

7
Wealth Tax
-

10.00

11.00

11.18

11.30

8
Intangible Assets(Deferred
Tax)

-

-

-

-

913.24

9
Debit Note receivable
-

-

-

-

-
Pension

111
10 - - - - -

11
Interest Tax
850.00

961.00

-

-

-

12
Income Tax
475.00

382.00

625.00

1,000.00

2,900.00

13
Revenue Suspense
-

-

-

-

-

14
Standard Advances
195.00

1,090.00

249.00

115.00

470.00

15
Others
2,806.34

5,155.46

9,132.66

1,550.17

2,559.41

16
Deferred tax written back
-

-

-

(221.04)

(4,174.05)
Total
8,591.36

7,259.97

10,775.02

12,160.42

23,580.38

VIJAYA BANK ANNEXURE A PART
II

Statement of Assets and Liabilities
(Rs. in Lakhs)
Financial Year Ended as on
March 31,

1,999.00

2,000.00

2,001.00

2,002.00

2,003.00

A ASSETS

1
Cash in hand
8,198.19

8,899.94

7,514.91

9,384.46

9,751.60

2
Balances with RBI
107,159.04

114,759.71

77,593.26

93,233.84

98,875.02

3
Balances with Banks
In India
10,020.39

14,281.52

27,841.50

36,186.89

38,491.86
Outside India
18,159.91

21,420.87

23,492.50

9,718.47

3,229.13

4
Money at Call & Short
Notice

12,500.00

10,000.00

8,232.40

17,000.00

10,000.00

5
Investments in India
444,115.12

508,887.25

587,014.68

736,072.90

886,161.37

6
Advances in India
376,720.00

468,760.99

572,000.98

619,666.05

789,134.23

7
Fixed Assets( Net of
Revaluation Reserve)

8,335.56

7,467.30

7,672.46

9,812.20

9,721.25
Other Assets

112
8 115,663.80 116,753.03 106,968.32 75,727.16 55,554.13
*Includes unadjusted Balance of loss
** Net of Deferred Tax Reserve
A Total (A)
1,100,872.0
1

1,271,230.6
1

1,418,331.0
1

1,606,801.97

1,900,918.5
9

B LIABILITIES

1
Demand Deposits
From Banks
7,036.60

10,348.10

6,602.32

6,581.88

4,995.35
From Others
159,254.55

182,629.21

167,769.10

180,024.78

191,914.03

2
Savings Deposits
198,832.52

229,434.35

254,800.70

289,461.51

351,113.12

3
Term Deposits
From Banks
1,278.88

2,318.73

7,795.68

7,864.36

13,871.83
from Others
602,620.46

734,557.89

826,256.37

984,118.45

1,140,086.7
6

4
Borrowings
In India
13,283.60

6,128.01

11,575.19

6,394.01

25,216.10

Outside India
1,342.11

1,890.00

2,651.52

2,413.08

6,865.68

5
Other Liabilities &
Provisions

43,516.70

49,195.51

70,266.13

53,288.93

59,746.96

6
Subordinated Debts
12,000.00

18,000.00

18,000.00

18,000.00

33,000.00
B Total (B)
1,039,165.4
2

1,234,501.8
0

1,365,717.0
1

1,548,147.00

1,826,809.8
3

C NET ASSETS (C = A - B)
61,706.59

36,728.81

52,614.00

58,654.97

74,108.76

Represented by:
D Share Capital
55,630.56

25,923.78

35,923.78

33,351.78

33,351.78
E Reserve & Surplus

1
Statutory Reserve
1,656.29

2,713.29

4,481.49

7,756.00

12,672.50

2
Capital Reserve
-

-

-

-

-

113
3 Reserve 4,419.74 4,782.23 3,018.63 5,776.40 13,048.40

4
Revenue and other Reserve
-

-

-

-

-

5
Balance of Profit and Loss
Account

-

3,309.51

9,190.10

11,770.79

15,036.08
Total (E)
6,076.03

10,805.03

16,690.22

25,303.19

40,756.98

F Total (D+E)
61,706.59

36,728.81

52,614.00

58,654.97

74,108.76

Rs in Lakhs
Financial year 1998-99 1999-2000 2000-01 2001-02 2002-03
CONTINGENT LIABILITIES
Claims against the Bank not
acknowledged as debts

1,831.94

1,156.31

2,328.69

1,642.48

3,718.34
Disputed Income Tax
demand under
appeal/references etc.
-
300.53
- - -
Liability for partly paid
Investment

-

-

-

-

-
Liability on account of
outstanding forward
exchange contracts

100,171.73

114,886.00

139,428.70

141,989.66

385,845.50
Guarantees given on behalf
of constituents( Net of
Margin)

47,587.06

55,082.83

59,484.53

60,769.88

73,159.97
Acceptances, endorsements
and other obligations( Net of
Margin)

28,673.84

31,270.94

33,148.97

45,376.40

44,120.73
Other items for which the
Bank is contingently liable

254.65

1,709.01

30.52

321.47

903.21

Total (G)
178,519.22

204,405.62

234,421.41

250,099.89

507,747.75

BILLS FOR COLLECTION
41,244.99

43,184.63

48,233.80

40,033.89

42,554.51

ANNEXURE-A PART-III

PRINCIPAL ACCOUNTING POLICIES OF VIJAYA BANK

1. ACCOUNTING CONVENTION: The financial statements have been prepared by
following the going concern concept on historical cost basis except as otherwise stated
and conform to the statutory provisions and practices prevailing in the country.

2. FOREIGN EXCHANGE TRANSACTIONS:

(I) Transactions other than FCNR/EEFC/RFC Accounts

114
i) Foreign Currency balances both under assets and liabilities and outstanding forward
exchange contracts and swaps are evaluated at the year end rates as quoted by Foreign
Exchange Dealers' Association of India. (FEDAI). The resultant profit/loss is shown as
income/loss.
ii) Income and expenditure items have been translated at the exchange rates ruling on the
dates of the transactions.
iii) Contingent liabilities on account of acceptances, endorsements and other obligations
including guarantees and Letters of Credit issued in Foreign Currencies, shown in the
Balance Sheet are valued at the exchange rates prevailing at the year end.

(II) Transactions relating to FCNR/EEFC/RFC accounts

Foreign Currency Deposits in FCNR/ EEFC/RFC accounts including interest accrued and also
the corresponding assets are recorded at market related notional rates, which are periodically
reviewed. Assets and Liabilities at the year end are revalued at rates quoted by FEDAI.

3. INVESTMENTS

(I) Investments are grouped and shown in Balance Sheet under the following six groups:

i) Government Securities
ii) Other Approved Securities
iii) Shares
iv) Debentures and Bonds
v) Investments in Subsidiaries/Joint Ventures
Others (Commercial Paper, Units of Mutual Fund etc.,)

(II) The Investment portfolio of the Bank is classified into the following three categories:

i) Held to Maturity
ii) Available for Sale
iii) Held for Trading

Bank decides the category of each investment at the time of acquisition and classifies the same
accordingly. Transfer of securities from one category to another is done at the least of the
acquisition cost/book value/ market value on the date of transfer. The depreciation, if any, on
such transfer is provided for and the book value of the security is changed.

(III) Valuation

(a) Held to Maturity:

i) Investments classified under this category are valued at the year end at the acquisition cost,
except where the acquisition cost is more than the face value, in which case the premium is
amortised over the remaining maturity period.

ii)In the case of investments in subsidiaries/joint ventures, any diminution in value, other than
temporary, is recognised and provided for each investment individually. Investment in RRB is
valued at carrying cost.

115
(iii) Profit on sale of investments in this category is first taken to Profit and Loss Account and
thereafter appropriated to the Capital Reserve Account. Loss on sale is recognised in the Profit
and Loss Account..

(b) Available for Sale:

(i) The individual scrips in this category are valued at the market rates available on the Balance
Sheet date from trades/quotes on the Stock Exchanges, SGL account transactions, price list of
Reserve Bank of India, prices declared by Primary Dealers Association of India (PDAI) jointly
with the Fixed Income Money Market and Derivatives Association of India (FIMMDA).
Unquoted securities are valued as per the Reserve Bank of India guidelines

(ii)The net depreciation under each group referred to in item 3(I) above is recognised and fully
provided for. The net appreciation under each group is ignored. The net depreciation required to
be provided for in any one group is not reduced on account of net appreciation in any other
group.

(iii) The book value of the securities is not changed after revaluation, except as required by the
Reserve Bank of India guidelines.

(iv) Profit or loss on sale of investments in this category is accounted for in the Profit and Loss
account.

c) Held for Trading

(i) The individual scrips are valued and the appreciation if any is ignored and depreciation is
recognised in the Profit & Loss account. For valuation, the market rates available on the Balance
sheet date from trades/quotes on the Stock Exchanges, SGL account transactions, price list of the
Reserve Bank of India, prices declared by Primary Dealers Association of India (PDAI) jointly
with the Fixed Income Money Market and Derivatives Association of India (FIMMDA) are
adopted. Unquoted securities are valued as per the Reserve Bank of India guidelines.

(ii) The book value of the individual scrip is not changed after each revaluation, wherever
depreciation is effected, except as required by the Reserve Bank of India guidelines.

(iii) Profit or loss on sale of investments in this category is accounted in the Profit and Loss
account.

IV. Prudential Norms

(i)Securities with guarantees of the Central Government/State Governments (where State
Government Guarantees are not invoked) are treated as performing investments,
notwithstanding arrears of principal/interest payments. However, interest if not realised for
more than 180 days is recognised as income only on cash basis. In case, the State Government
guarantee is invoked and not honoured within 180 days, such investments will be treated as Non
Performing Investments.

(ii)Securities not guaranteed by the Central Government/State Governments: Where the
Principal/Interest is due but not paid for a period of more than 180 days the items are treated as
Non Performing Investments and provided for as per the Reserve Bank of India guidelines.

116
(iii) In the case of debentures/bonds when principal/ interest is in arrears, provision is made as
in the case of advances.

(iv)The depreciation/provision requirement in respect of non-performing investments is not set
off against the appreciation in respect of other performing investments.

4. FIXED ASSETS/DEPRECIATION

I) Fixed Assets:

(i) Premises of the bank include free hold as well as lease hold properties. Land and buildings
purchased or allotted have been capitalised based on agreements/ letters of allotment and
physical possession. Premises and other Fixed Assets are stated at their historical cost except
those which were revalued. Such Fixed Assets are stated on the revalued amount.

(ii) Advance payments made for acquisition of capital assets and deposits made in respect of
properties taken on lease/rent are included under Other Assets.

II) Depreciation:

(i) Fixed Assets other than Computers are depreciated at the rates prescribed under the Income
Tax Rules on reducing balance method including on the composite cost of certain properties
where it is not possible to segregate the land cost. Computers are depreciated on Straight Line
Method at the rate of 33.33% per annum.
Depreciation on additions to Fixed Asset during the financial year is provided at 100% of the rate
of depreciation prescribed, if the asset is put to use for 180 days and above during the year and at
50% of the rate of depreciation prescribed, if the asset is put to use for less than 180 days during
the year.
No depreciation is provided in the year of sale/disposal on all fixed assets

(ii) Incremental depreciation on revalued amount in respect of premises is adjusted from
Revaluation Reserve account.

5. LEASED OUT ASSETS:

Accounting is done as per the Guidance Note of the Institute of Chartered Accountants of India.
Provision in respect of non-performing assets is made by applying the asset classification norms
prescribed by the Reserve Bank of India for advances.

6.NON BANKING ASSETS:

Non-Banking assets are shown at cost.

7. NON PERFORMING ADVANCES

(i) In terms of guidelines of Reserve Bank of India, advances are classified as performing and
non-performing assets based on recovery of principal/ interest. Advances with guarantees of
the Central Government and State Governments are treated as Performing advances,
notwithstanding arrears of principal/interest payments. However in such cases interest, if not
realised for more than 180 days, is recognised as income only on cash basis.
In case the State Government Guarantee is invoked and not honoured within 180 days, the
advance will be treated as a Non Performing Advance.

117
Non Performing Advances (NPAs) are categorised as sub-standard, doubtful and loss assets for
the purpose of provision.

(ii) Advances shown in the Balance Sheet are net of provisions [including floating provisions] in
respect of non-performing advances.

(iii) Provision on Standard Advances and for recognition of loan impairments on 90 days norms
are shown under "Other Liabilities and Provisions".

iv) Provision on advances is made as per Reserve Bank of India guidelines as under.

(a) Standard Assets 0.25% of the outstanding advances.

(b) Sub standard assets 10% of the outstanding advances.

(c) Doubtful assets

(1) 20% to 50% of the secured portion of advances, depending upon the period for
which the asset has remained doubtful and
(2) 100% of the unsecured portion of the outstanding advance after netting realized
amount in respect of DICGC scheme and realized/realisable amount of guarantee
cover under the ECGC/CGSTI Schemes.
(d) Loss Assets 100% of the outstanding advances.

(e) Recognition of loan impairment on 90 days norms on adhoc basis.

8. REVENUE RECOGNITION:

Income/Expenditure is accounted on accrual basis except in the following cases:

(i) In the case of Non Performing Assets, income is recognised on cash basis, in terms of
guidelines of the Reserve Bank of India. Where recovery is not adequate to upgrade the
Non Performing Assets accounts by way of regularisation, such recovery is being
appropriated towards the principal/book balance in the first instance and towards
interest dues thereafter.

In respect of Non Performing Investments, the same accounting treatment as above is
followed except other wise agreed.

(ii) In the case of advances guaranteed by the Central/State Governments, income is
recognised on cash basis if the interest is not realised for more than 180 days, though the
same are treated as Performing Assets.

(iii) Interest on securities which is due and not paid for a period of more than 180 days is
recognised on realisation basis as per R.B.I guidelines.

(iv) Dividend on investment in shares, units of Mutual Funds, income from Merchant
Banking transactions, locker rent, commission on Government business, etc., are
accounted on cash/realisation basis.

(v) Income relating to credit card is accounted on the basis of bills raised.

118
(vi) In the case of matured Term Deposits, interest is provided as and when such deposits are
renewed.

Expenses arising out of claims in respect of employee matters under dispute/ negotiation are
accounted during the year of final settlement/ determination.

9. STAFF BENEFITS:

(i) In respect of employees who have opted for Provident Fund scheme, matching contribution is
made. For others who have opted for pension scheme, contribution to Pension Fund is made
based on actuarial valuation at the year-end.

(ii) Contribution to Gratuity Fund is made based on actuarial valuation at the year end.

(iii) Liability towards leave encashment is provided based on actuarial valuation at the year end.

10. PROVISION FOR TAXATION:

Provision for taxation is made on the basis of the estimated tax liability with adjustment for
deferred tax, in terms of the Accounting Standard 22 formulated by the Institute of Chartered
Accountants of India.

11. NET PROFIT:

The net profit is arrived at after -

i) Provisions for Income Tax & Wealth Tax in accordance with statutory requirements.

ii) Provision on advances/investments

iii) Adjustments to the value of investments

iv) Transfers to provisions and contingencies

v) Other usual and necessary provisions

*****************************

119
ANNEXURE A PART-IV

NOTES ON ACCOUNTS OF VIJAYA BANK

1. Reconciliation of entries outstanding as on 31.03.2003 in the inter-branch and other accounts has
been drawn. Elimination of entries outstanding in inter-branch and inter-bank accounts including
balances with foreign banks and Reserve Bank of India, drafts accounts, suspense accounts, branch
adjustment accounts, clearing transactions, funds transfers, telegraphic transfers, balances pertaining
to dividends/interest/refund orders paid/payable accounts, advances paid for acquisition of assets,
etc., is under progress.

In the opinion of the Bank, consequential effect of the above on the revenue/ assets/liabilities is not
material.

2. In respect of certain premises acquired by the Bank costing Rs.20.54 crore, (previous year Rs.24.28
crore) documentation/registration formalities are yet to be completed.

3. In the case of un-audited branches, the returns/classification of advances as reported by the
concerned branches have been adopted.

4. Premises were re-valued during the year 1994-95 on the basis of approved valuer's reports. The
incremental portion amounting to Rs.124.88 crore was credited to Revaluation Reserve in that year.

5. Claims pending and to be preferred with ECGCI Limited amounting to Rs.27.28 crore (Rs.28.14
crore as on 31.03.2002) have been considered as realisable for the purpose of computing provisions.

6. Changes made during the year in the Accounting Policies and the impact thereof on the Profit
& Loss Account are as under: -

i) Leave Encashment: Accrued liability towards leave encashment amounting to Rs.20.66 crore as
on 31.03.2003 (inclusive of Rs.17.28 crore upto 31.03.2002) has been provided during the year
based on actuarial valuation as against the 'pay as you go' basis followed hitherto. As a result,
the profit for the year is lower by Rs.20.66 crore.

ii) The balance deferred expenditure of Rs.1.69 crore in respect of Public Issue has been charged
to Profit & Loss account for the current year as against the policy of amortising it over the
remaining period of 3 years. As a result, the profit for the year is lower by Rs.1.13 crore with
corresponding decrease in deferred revenue expenditure.

iii) The balance deferred expenditure of Rs.161.38 crore relating to expenditure on Voluntary
Retirement Scheme has been charged to Profit & Loss Account for the current year as against
previous policy of amortising it over the remaining period of 3 years. As a result, the profit of
the Bank is lower by Rs.107.58 crore with corresponding decrease in deferred revenue
expenditure.

7. Investment Fluctuation Reserve

The bank has transferred Rs.72.72 crore to Investment Fluctuation Reserve during the year and
the amount in Investment Fluctuation Reserve of Rs.130.48 crore as on 31.03.2003 is 2% of book
value of investment other than investments held to maturity as at the end of the year as per RBI
directive.

120

8. VRS Bonds

Out of balance of Rs.10.40 crore as on 31.03.2002, a sum of Rs.0.37 crore has been refunded
during the year to VRS Optees exercising the option before 31.01.2002 for payment in cash in lieu
of bonds.

9. There are no material prior period items included in Profit and Loss account required to be
disclosed as per AS 5 read with RBI guidelines except those disclosed elsewhere in the notes.

10. In terms of AS-17 of the ICAI (segment information) is given for the consolidated financial
statement.

11. In compliance with Accounting Standard 18 issued by the ICAI and the RBI guidelines, details
pertaining to Related Party Transactions are disclosed as under:

i) Key Management Personnel

Sl.
No.
Name Designation Item Period Amount
(in rupees)
01 Shri M.S. Kapur Chairman & Managing
Director
Salary and
emoluments
From
16.08.2002
2,76,564
02 Shri Michael
Bastian
Executive Director Salary and
emoluments
Till
30.08.2002
1,67,873
03 Shri P.A. Sethi Executive Director Salary and
emoluments
From
08.03.2003
*

* In the absence of instructions in this regard from the Government of India.

ii) Subsidiary & Associate

The subsidiary of the Bank - Vibank Housing Finance Limited and the associate viz. Visvesvaraya
Grameena Bank are only the entities in their respective categories.

121

12. The Bank has accounted for Income Tax in compliance with Accounting Standard 22 -
Accounting for taxes on Income issued by the ICAI. Accordingly, deferred tax assets and liabilities
are recognised.

i) The major components of deferred tax are as under:

Amount rupees in lakh
Timing Difference Deferred Tax Asset Deferred tax liability
1. Expenses in connection with Tier II Bonds 2.36 -
2. V R S Ex gratia 2812.59 -
3. Provision for wage revision 367.50 -
4. Provision for leave encashment 759.39 -
5. Depreciation on computers - 15.68

ii) In the opinion of the Management, there is no timing difference arising in connection with
NPA provisions, so no deferred tax asset has been recognised.

13. In view of the favourable judgements by the ITAT Bangalore for some other bank, no provision is
considered necessary by the management in respect of disputed tax liabilities and provision for tax
for the year has been made accordingly.

14. In terms of the guidelines issued by the Reserve Bank of India, the following additional disclosures
are made:
(a) Capital Adequacy Ratio as at 31
st
March 2003 is 12.66%* [previous year 12.25%].
* The calculation of the ratio for the current year has been made considering the eligible amount of
Investment Fluctuation Reserve based on the RBI Credit Policy for the year 2003-2004.
(Amount rupees in 000s)
ii) As at
31.03.2003
As at
31.03.2002
a) Percentage of shareholding of the Government of India 70.02% 70.02%
b) Percentage of net non-performing advances to net advances 2.61% 6.02%
c) Details of Provisions & Contingencies debited to Profit and
Loss Account during the year

Provision for Depreciation in investments 16,28,59 7,78,18
Provision for Non Performing Investments 2,10,00 9,34,70
Bad Debts Written off (net) Nil 1,27,62
Provision for Income Tax and Wealth Tax
(including dividend tax)
29,11,30 10,11,18
Provision for Deferred Tax 9,13,24 (2,21,04)
Provision for Standard Assets 4,70,00 1,15,00
Provision for recognition of loan impairment on 90 days
norms
6,75,00 3,15,00
Provision for NPA 192,59,83 96,63,60
Other Provision and Contingencies 16,95,89 2,31,15
277,63,85 129,55,39

122

41,83,47
235,80,38

7,94,97
121,60,42
d) Equity Capital repaid/raised as Tier-I Capital - (-)25,72,00
e) Sub-ordinated debt raised as Tier - II Capital 150,00,00 -
f)

Capital Adequacy Ratio - [i] Tier - I Capital
[ii] Tier II Capital
7.42%
5.24%
8.86%
3.39%
g) Interest Income as a percentage to Working Funds 9.63% 9.97%
h) Non-interest income as a percentage to Working Funds 1.98% 1.22%
i) Operating Profit as percentage to Working Funds 2.50% 1.63%
j) Return on Assets 1.13% 0.86%
k) Average Business [Deposits + Advances] per employee
(Rs. in lakh)
193.62 169.38
l) Profit per employee (Rs. in lakh) 1.76 1.16

iii) Maturity pattern of Assets and Liabilities: [Rupees in crore]

1 14
days
15
28
days
29 days
-
3
months
Over 3
months
to 6
months
Over 6
months
to 12
months
Over 1
year to
3
years
Over 3
years
to
5 years
Over 5
years
Total
Loans and
Advances *
326.91 103.48 269.47 199.09 996.43 4627.41 590.64 777.91 7891.34
Investment
in
Securities *
14.98 1.00 40.30 100.62 321.71 924.44 1603.31 5855.25 8861.61
Deposits 964.64 305.75 935.19 1696.20 3854.57 8288.09 692.16 283.21 17019.81
Borrowings
**
0.08 0.00 0.38 250.29 0.51 0.78 0.10 0.02 252.16
Foreign
Currency
Assets
125.79 0.00 84.73 67.08 58.47 0.00 0.00 0.00 336.07
Foreign
Currency
Liabilities
61.06 5.80 53.60 55.18 46.39 63.68 0.00 4.58 290.29

Assets and Liabilities are classified as per the guidelines issued by the Reserve Bank of India
Figures are broadly net of provision, reckoned of performing assets
** Borrowings in India.

iv) Movements in NPA (funded) Advances (Rupees in crore)
31.03.2003 31.03.2002
Gross NPAs as at the commencement of the year 602.69 594.92
Additions during the year 149.12 751.81 190.17 785.09
Less: Reduction during the year
Less: excess provision
written back
As at 31.3.2003 As at 31.3.2002
Depreciation in
investments
94 7,66,67
Provision for NPA 8,48 28,30
Deferred Tax 41,74,05 -

123
Amounts recovered 90.19 65.20
ECGC adjusted 1.64 3.59
Amounts written off 122.59 107.73
Upgradation 31.85 246.27 5.88 182.40
Gross NPAs as at the close of the year 505.54 602.69
Less: Provisions 290.45 220.44
Interest Suspense 2.20 Nil
DICGC/ECGC settled unadjusted 7.08 299.73 9.01 229.45
Net NPA as at the close of the year 205.81 373.24

v) Movement in provision for Non Performing Advances (Rs. in crore)
31.03.2003 31.03.2002
Opening balance (excluding provisions on standard assets) 220.44 229.01
Add: Provision made during the year 192.60 99.16
413.04 328.17
Less: Write off/write back of excess provisions 122.59 107.73
Closing balance 290.45 220.44

vi) Movement in provision for Non Performing Investments (Rs in lakh)
31.03.2003 31.03.2002
Opening balance 2679.52 1773.12
Add: Provision made during the year 210.00 934.70

vii) Depreciation on investments (Rs. in lakh)
31.03.2003 31.03.2002
Opening balance 3005.26 2993.75
Add: i) Provision made during the year 140.40 778.18
ii) Diminution shifting 1488.19 -
4633.85 3771.93

viii) Lending to Sensitive Sectors (Rs .in lakh)
31.03.2003 31.03.2002
i) Capital Market Sector 2214.28 815.71
ii) Real Estate Sector 36308.57 17983.17
iii) Commodities Sector 21074.06 13260.61

ix) Financing of equities and investments in shares (Rs. in lakh)
31.03.2003 31.03.2002
(a) Investments in equity shares 4722.16 4668.90
(b) Convertible debentures - -
(c) Units of equity oriented mutual funds 6182.29 4982.19
Total 10904.45 9651.09
Net of Provisions
(d) Advances against security/collateral of shares 2214.28 815.71

x) Information in respect of loan assets subjected to restructuring etc., during the year -

124

b) Loans to Industrial Units (in terms of RBI Circular DBOD.No.BP.BC.98.21.04.048. 2000.01 dated 30.03.2001)
(Rs. in lakh)
31.03.03 31.03.02
01 Total amount of loan assets subjected to restructuring etc. 13301.07 7018.84
02 Amount of standard assets subjected to restructuring, etc. 8831.20 6697.24
03 Amount of sub standard/doubtful assets subjected to
restructuring,
4469.87 321.60

b) Corporate Debts (in terms of RBI Circular No.BP.BC.15/21.01.114/2000-01 dated 23.08.2001, read with
Circular No.BP.BC:68:21.04.132:2002-2003 dated 05.02.2003).
(Rs. in lakh)
31.03.03 31.03.02
01 Total amount of loan assets subjected to C D R 1540.64 -
02 Amount of standard assets subjected to CDR - -
03 Amount of sub standard assets subjected to CDR 1540.64 -
04 Amount of doubtful assets subjected to CDR - -

c) Loans to Coffee growers (in terms of RBI letter no.DO.IECD.No.4984/04.02. 02/2000/2001 dated 04.05.2001).
(Rs. in lakh)
31.03.03 31.03.02
01 Total amount of loan assets subjected to restructuring 9385.95 -
02 Amount of standard assets subjected to restructuring 9362.52 -
03 Amount of sub standard assets subjected to restructuring 23.43 -

xi) The net funded exposure of the bank in respect of foreign exchange transactions with each country is
within 2% of the total assets of the Bank and hence no provision and disclosure is required to be made as
per the RBI Circular DBOD.BP.BC.71/21.04.103/2002-03 dated 19.02.2003.

xii) The Bank has not made any financing for margin trading during the year.

The additional disclosures made herein above with regard to Maturity Pattern of Assets and Liabilities,
movement of NPA advances and lending to sensitive sectors as on 31.03.2003 and restructured accounts
are based on the records/information compiled by the Bank and relied upon by the Auditors.

15. Previous years figures have been re-grouped/re-classified wherever necessary to confirm current year's
classification.

125

ANNEXURE-A PART V

AUDITORS' REPORT TO THE PRESIDENT OF INDIA

1) We have audited the attached Balance Sheet of Vijaya Bank as at 31
st
March 2003, the Profit
and Loss Account and the Cash Flow Statement for the year ended on that date annexed
thereto in which are incorporated the returns of 20 branches audited by us and 792 branches
audited by other auditors. The branches audited by us and those audited by other auditors
have been selected by the Bank in accordance with the guidelines issued to the Bank by the
Reserve Bank of India. Also incorporated in the Balance Sheet, the Profit and Loss Account
and the Cash Flow Statement are the returns from 31 branches, which have not been
subjected to audit. These un-audited branches account for 0.21 percent of advances, 0.65
percent of deposits, 0.09 percent of interest income and 0.01 percent of interest expenses.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express our opinion based on our audit.

2) We have conducted our audit in accordance with the auditing standards generally accepted
in India. These Standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material mis-statements. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our
opinion.

3) Subject to the limitations of the audit indicated in paragraph 1 above and as required by the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, and subject also
to the limitations of disclosure required therein, and further subject to

I.Note-1, Schedule-17, regarding reconciliation of balances and clearance of outstanding
entries in inter-branch and inter-bank accounts including balances with foreign banks and
Reserve Bank of India, drafts accounts, suspense accounts, branch adjustment accounts,
clearing transactions, funds transfers, telegraphic transfers, balances pertaining to
dividends/interest/refund orders paid/payable accounts, advances paid for acquisition of
assets, etc. The consequential effect of the above on Revenue/Assets/Liabilities of the Bank
is not ascertainable.

II.Note-2, Schedule-17, in respect of certain premises where registration formalities are yet
to be completed.

III.Non disclosure of prior period items separately in the Profit and Loss Account as required
by the Accounting Standard (AS) 5 on Net Profit or Loss for the Period, Prior Period
items and Changes in Accounting Policies issued by the Institute of Chartered
Accountants of India. Such amounts have been charged/accounted for to their natural

126
heads of account and not separately disclosed in a manner that their impact on the profit
for the year can be perceived.

The effect of our observations in the foregoing paragraphs on the accounts, as also on the
Capital Adequacy Ratio and other ratios/disclosures set out in Note 14, Schedule 17 could
not be determined.

We report that

(a) The Balance Sheet and the Profit and Loss Account have been drawn up in forms "A" and "B"
respectively of the Third Schedule to the Banking Regulation Act, 1949.

(b) In our opinion and to the best of our information and according to the explanations given to
us and as shown by the books of the bank:

I. The Balance Sheet read with the notes thereon is a full and fair Balance Sheet
containing the necessary particulars and is properly drawn up so as to exhibit a true
and fair view of the affairs of the Bank as at 31
st
March 2003.

II. The Profit and Loss Account read with the notes thereon shows a true balance of
Profit for the year covered by the account.

III. The Cash Flow Statement gives a true and fair view of the cash flows for the period
covered by the Statement.

(c) We have obtained all the information and explanations, which to the best of our knowledge
and belief were necessary for the purposes of our audit and have found them to be
satisfactory.

(d) The transactions of the Bank, which have come to our notice, have been within the powers of
the Bank.

(e) Read with Note 3, Schedule-17, the returns received from the offices and the branches of the
Bank have been found adequate for the purposes of our audit.

ANNEXURE-A PART-VI

VIJAYA BANK

SIGNIFICANT CHANGES IN ACCOUNTING POLICIES:

1. During the five consecutive financial years ended 31
st
March2003, various guidelines
were issued by the Reserve Bank of India on Income Recognition, Assets Classification,
Provisioning in respect of Standard Assets /Non-Performing Advances, Other Assets,
Classification of Investments, Valuation thereof, Treatment of Depreciation on
Investments /Fixed /Leased Assets and amortisation of Voluntary Retirement Scheme
expenditure. Necessary amendments in the accounting policies have been carried out by
the Bank in the relevant years, to be in conformity with the Reserve Bank of India
guidelines. Adjustment to Profit/Loss, Assets and Liabilities of the Bank arising from the
compliance with the aforesaid directives have not been carried out, as it is not
practicable.

127

2. During the year 2000-2001, printing and stationery at the branches was charged off to the
Profit & Loss Account as against the earlier practice of valuing such stock. This has
resulted in profit for the year being lower by Rs. 2.08 crore.

3. Acceptances, endorsements and other obligations including guarantees in transactions
involving foreign exchange were stated at the exchange rates prevailing on the
commitment dates up to 31
st
March2000 and in the year ended on 31
st
March2001, the
same are treated at the year-end rates as advised by FEDAI. Consequential affect, if any ,
was not ascertained.

4. During the year 2001-2002, the Bank accounted for Income Tax on the basis of income tax
liability with adjustment for deferred tax assets and liabilities as per the AS-22 issued by
the Institute of Chartered Accountants of India. As a result, Provisions & Contingencies
was lower by Rs 221.04 lakh, other assets were higher by Rs 772.04 lakh and Revenue &
other reserves were higher by Rs 907.39 lakh.

5. During the year 2001-2002, the DICGC claims were considered on realised basis instead
of on realisable basis for the purpose of provisioning against advances, in the opinion of
the Bank, impact thereof on accounts was not material.

6. During the year 2002-2003, accrued liability for leave encashment amounting to Rs. 20.66
crore (inclusive of Rs. 17.28 crore relating to the period up to 31.03.2002) has been
provided based on actuarial valuation as against the `pay as you go basis hitherto
followed, as a result, the profit is lower by Rs. 20.66 crore.

7. During the year 2002-2003, balance of Deferred Expenditures of Rs. 1.69 crore in respect
of public issue has been charged to Profit & Loss Account as against the earlier policy of
amortising it over the remaining period of 3 years, as a result, the profit for the year is
lower by Rs. 1.13 crore.

8. During the year 2002-2003, balance of Deferred Expenditure of Rs. 161.38 crore relating
to Voluntary Retirement Scheme has been charged to Profit & Loss Account as against
previous policy of amortising it over the remaining period of 3 years, as a result, the
profit for the year is lower by Rs. 107.58 crore.

VIJAYA BANK

ANNEXURE-A PART-VII

AUDITORS' QUALIFICATIONS IN RESPECT OF WHICH ADJUSTMENTS COULD NOT
BE CARRIED OUT AS CONSEQUENTIAL EFFECT COULD NOT BE ASCERTAINED

The effect of following audit observations on the accounts of the year 1999 to 2003, as also on
capital adequacy ratio and other ratios/disclosures could not be determined.

(1) 1998-99 UPTO 2002-2003

a) Impact of pending reconciliation of balances and clearance of outstanding entries in
inter-branch and inter-bank accounts including balances with foreign banks and Reserve
Bank of India, drafts accounts, suspense accounts, branch adjustment accounts, clearing

128
transactions, funds transfers, telegraphic transfers, balances pertaining to
dividends/interest/refund orders paid/payable accounts, advances paid for acquisition
of assets, etc. The consequential effect of the above on Revenue/Assets/Liabilities of the
Bank is not ascertainable.

b) In respect of certain premises where registration formalities are yet to be completed.

(2) 2000-01 UPTO 2002-2003

Non disclosure of prior period items separately in the Profit and Loss Account as required by the
Accounting Standard (AS) 5 on Net Profit or Loss for the Period, Prior Period items and
Changes in Accounting Policies issued by the Institute of Chartered Accountants of India, such
amounts have been charged/ accounted for to their natural heads of account and not separately
disclosed in a manner that their impact on the profit for the year can be perceived.

(3) 1998-99 UPTO 2000-2001

Non-provision for unutilised leave encashment, which is contrary to the Accounting Standard
(AS) 15 on Accounting for Retirement Benefits issued by the Institute of Chartered Accountants
of India, the effect thereof is not ascertained.

(4) 1998-99 UPTO 2000-2001

Pending DICGC and/or ECGCI claims outstanding and considered realisable by the Bank in
respective years, the realisability of which is not ascertainable and provision, if any, required in
respect thereof has not been made.

(5) 1998 - 1999

The reconstruction of records at two branches in the wake of a fire/theft and basis of Provision
in respect of non-performing advances, the effect thereof is not ascertainable.

129

Annexure B - Part
I

Vibank Housing Finance Limited

The audited statements of the subsidiary of the bank, Vibank Housing Finance Limited,
are as under:

Statement of profit Rs. in
lakh

Financial years ended on 31st March 1999 2000 2001 2002 2003

A. Income
INTEREST EARNED
Interest on Housing Loans 459.18 839.22 1134.07 1555.66 1790.71
Other Interest income 56.79 41.68 9.13 15.34 47.26
OTHER INCOME
Fees and other charges 55.65 80.09 91.99 124.93 122.10
Other income 0.48 4.32 40.67 43.29 80.26
Total 572.11 965.30 1275.86 1739.23 2040.33
B. Expenditure
INTEREST EXPENDED
Interest and other charges 335.56 625.69 833.13 1228.42 1514.55
OPERATING EXPENSES
Staff Expenses 60.27 73.40 76.31 56.30 58.77
Establishment Expenses 14.32 24.61 38.26 38.66 41.70
Other Expenses 16.88 26.91 29.64 34.46 40.65
Depreciation 4.32 5.47 6.50 9.33 9.00
Deferred Revenue expenditure written off 1.53 4.99 5.25 4.42 0.83
Preliminary Expenses written off 0.53 0.53 0.53 1.07 1.07
Provision for doubtful debts 0.00 4.48 9.11 37.39 48.19
Total 433.41 766.09 998.73 1410.06 1714.75
Profit before provisions for Tax and
extraordinary items
138.70 199.21 277.13 329.17 325.58
Previous year adjustments 1.44 1.01 -0.23 9.61 0.02
Provision for Income-Tax 30.00 45.20 65.57 71.68 86.55
Excess provision withdrawn 0.10 0.41 0.00 3.01 -2.35
Net Profit 110.24 155.42 211.33 270.11 236.70

Vibank Housing Finance Limited

Adjustments resulting from audit qualification and changes in accounting policies
Statement of profit
Financial years ended on 31st March 1999 2000 2001 2002 2003
Net Profit
110.24

155.42

211.33

270.11

236.70

ADD / (LESS)
Previous year adjustment -1.44 -1.01 0.23 -9.61 -0.02

130
Adjustments made in the subsequent
years
1.01 -0.23 9.61 0.02 0.00
Adjusted profit / (loss) after tax 109.81 154.18 221.17 260.52 236.68
Extent of interest so far as it concerns members of
Vijaya Bank, the holding bank in the capital of the
subsidiary 80% 80% 88% 88% 88%
The above statement of accounts does not include
the following
TRANSFER TO :
Special Reserves 50.34 76.45 107.32 128.39 125.44
General Reserves 5.00 0.00 0.00 0.00 0.00
Proposed dividend (including Tax) 33.30 53.28 85.84 90.00 101.25

Annexure B - Part II
VIBANK HOUSING FINANCE LIMITED

Statement of Assets and Liabilities
Rs. in
Lakh

Financial Year Ended March 31, 1999 2000 2001 2002 2003

A. ASSETS
FIXED ASSETS (net) 28.66 42.18 39.97 37.22 38.65
Plant and Machinery in Transit 0.00 2.64 0.00 0.00 0.00
Capital Work in progress 2.50 2.50 2.50 0.00 0.00
INVESTMENTS 264.01 264.01 264.01 364.01 348.59
HOUSING LOANS 4146.59 6845.74 9253.06 12864.21 15338.32
SITE LOAN, V-RENT, CONSUMER 0.00 0.00 0.00 0.00 182.77
DURABLE LOAN
CURRENT ASSETS
Cash-in-hand 0.40 1.34 1.12 2.19 10.05
Balances with Banks
Current Accounts 22.72 23.83 73.80 74.08 283.79
Deposit Accounts 0.00 0.00 0.00 0.00 3.25
Interest accrued on deposits &
investments
8.40 8.40 8.41 8.86 10.18
LOANS & ADVANCES
Loans against deposits (secured) 33.13 26.72 29.30 51.47 76.55
Instalment and interest due from
customers
16.95 25.83 59.41 183.03 395.87
Advances (Unsecured, considered
good)
9.18 17.89 17.90 17.36 18.69
Taxes paid in advance and TDS 85.58 79.60 116.33 158.58 227.67
Deferred Tax Asset 0.00 0.00 0.00 10.59 8.18
Miscellaneous expenditure to the
extent

not written off 6.34 10.74 7.55 2.03 1.11
Total (A) 4624.46 7351.42 9873.36 13773.62 16943.67
B. LIABILITIES

131
SECURED LOANS
NHB refinance 1838.52 3828.94 5702.80 7532.88 8236.65
OD from Vijaya Bank 466.25 511.91 537.45 148.78 36.62
Term Loan from Vijaya Bank 0.00 0.00 0.00 1425.00 3519.30
UNSECURED LOANS
Fixed Deposits 542.67 719.24 710.87 1099.17 1117.03
Cumulative Deposits 764.91 1073.83 1078.99 1452.32 1411.87
NRNR Deposits 10.50 17.32 14.32 14.32 17.32
CURRENT LIABILITIES AND
PROVISIONS
212.51 308.93 412.19 504.31 872.57
Total (B) 3835.35 6460.17 8456.62 12176.77 15211.37
C. NET WORTH (C = A - B) 789.11 891.25 1416.74 1596.85 1732.30
Represented by :
D. SHARE CAPITAL (D) 600.00 600.00 1000.00 1000.00 1000.00
E. RESERVES & SURPLUS (E)
Special Reserve u/s. 36(1) (viii) 97.87 174.32 281.64 410.02 535.46
General Reserve 5.00 5.00 5.00 5.00 5.00
Balance of Profit and Loss Account 86.24 111.93 130.11 181.83 191.84
Total (E) 189.11 291.25 416.74 596.85 732.30
F. Total (D + E) 789.11 891.25 1416.74 1596.85 1732.30

VIBANK HOUSING FINANCE LIMITED

Details of Unsecured Loans other than deposits

The following table represents the break-up of outstanding unsecured loan in respect
of

The Vibank Housing Finance Limited as on March 31, 2003

(Rs. in
lacs)

Sr.
No.
Name of the Lender Amount Repayment Schedule
Date Amount

NIL NIL

Agewise analysis of Sundry Debtors
Agewise analysis of Sundry Debtors

Agewise break-up Amount (Rs. in lacs)

Less than six months - Not Applicable -
More than six months
Total 0

132
Certificate regarding investments as on 31.03.2003

Sr.
No.
Details of Investment Book value Market Diminution in the
(Rs. in lakh) value / quoted value value (Rs.)

1 - 13.50% NHB Bonds 105.00
2 - 13.75% NHB Bonds 10.00
3 - KBJNL 17.50% Series IV Bonds 12.00 Not Applicable Nil
4 - MSRDCL 11.50% SLR Bonds 100.00
5 - Karnataka 8.00% Tax free SLR
Bonds
100.00
6 - GS 2012 7.40% Tax free SLR
Bonds
21.58 23.37 Nil
Others
7 - NSC 0.01 NA Nil

Contingent Liabilities as on 31.03.2003

Sr.
No.
Particulars Amount (Rs. in lacs)

NIL NIL

ANNEXURE-B PART -III

Vibank Housing Finance Limited Accounting policies for the year 2002-2003

1.METHOD OF ACCOUNTING:

The Company adopts the accrual method and historical cost concept in preparation of its
accounts. However other income like processing charges and fee are accounted on cash basis.

2. REVENUE RECOGNITION:

The Company follows National Housing Banks guidelines on Prudential norms for income
recognition and provisioning.

i) Repayment of housing loans is by way of Equated Monthly Instalments (EMIs)
comprising principal and interest. Interest is calculated each year on the outstanding
balance at the beginning of each year. EMIs commence once the entire loan is disbursed.
Pending commencement of EMIs, pre-EMI interest is payable every month.
ii) Interest income on loans / investments is accounted for on accrual basis.
iii) Delayed payment charges on housing loans are accounted for on accrual basis.

133
iv) Income from Non-Performing Assets (NPA) is recognised in accordance with the
guidelines on the prudential norms of National Housing Bank. Further, provision for
NPA is made in accordance with such guidelines.

3. INTEREST ON HOUSING LOANS:

Repayment of loans is by way of Equated Monthly Installments (EMIs) comprising of principal
and interest. Interest is calculated on the last day of the year on outstanding balance as at the
beginning of the year. EMIs commence once the loan is disbursed in full. Pending
commencement of EMIs, Pre EMI interest is payable every month.

4.INVESTMENTS:

Investments are accounted for at cost or market value whichever is less.

5. FIXED ASSETS:

Fixed assets are capitalised at cost. Cost includes installation charges, levy, duty, cess etc and
financing cost relating to borrowed funds attributable to the acquisition of fixed assets up to the
date the asset is ready for use. Certain expenditure like flooring, false ceiling etc., at the
Corporate Office and at branches, which are not represented by specific assets are classified as
Deferred Revenue expenditure. Deferred Revenue expenditure will be written off over a period
of 3 years. Assets less than Rs.5,000/- are charged off in the year of purchase. Amount incurred
on software will be written off over a period of 5 years considering the useful life of the software.
However, payment made towards license fees for using software, be charged off to revenue
account.

6. DEPRECIATION:

Depreciation is calculated on the Straight Line Method at the rates prescribed in schedule XIV of
the Companies Act, 1956. The depreciation is calculated on prorata basis for the assets acquired
during the year.

7. RETIREMENT BENEFITS:

The Vijaya Bank deputed officials of the Company are governed by service regulations of Vijaya
Bank and provision for gratuity and pension are made on actuarial basis. The Company has
prescribed and adopted the policy on retirement benefits for the directly recruited employees by
contributing to Group Gratuity policy of LIC. Provision for leave encashment and provident
fund facility is made on accrual basis.

ANNEXURE-B PART-IV

NOTES ON ACCOUNTS FOR THE YEAR 2002-2003

1. Housing loans and instalments due from borrowers are secured by:

(a) Equitable mortgage of property and/or
(b) Personal guarantees/ Company Guarantees and/or
(c) Undertaking to create a security and/or

134
(d) Assignment of Life Insurance Policies, deposits and other government securities.

2. Guidelines on Prudential norms relating to Income recognition, Asset classification, and
provision thereon issued by National Housing Bank have been followed. A provision of
Rs.86, 38,777/- (previous year Rs.37,39,282/-) is made in respect of NPAs and the total
advances (including instalments due from borrowers) are classified as under:

No. of A/cs Amount (Rs. in lacs)
Standard Assets 5693 15171.56
Sub-standard Assets 228 650.04
Doubtful Assets 17 95.37
TOTAL 5938 15,916.97

3. Previous years figures were regrouped / rearranged wherever necessary.

4. Deferred tax asset represents tax on timing difference on account of depreciation, provision
for doubtful assets, gratuity, pension fund and leave salary.

5. Company has adopted an accounting policy of writing off of software in 5 annual
instalments. The amount of Rs.2,50,000/- written off during the year 2001-2002 pertaining to
part payment made to M/s. Canbank Computer Services Limited towards the IHFS package
is written back and full value of the consideration paid for IHFS package is capitalised
during the year.

6. In view of the excess payment made in the earlier years towards gratuity and pension in
respect of deputed officials of Vijaya Bank, no provision has been made during the year.

7. Remuneration to Managing Director on deputation from Vijaya Bank included in Profit &
Loss account is as under:
Salaries, allowances, P.F. etc Rs.3,10,409/- (Previous year Rs.2,86,413.60)

8. Expenditure / Income in Foreign Currency - Nil.

9. The reserve required as per NHB guidelines is 20% on profit before tax which is at
Rs.65,11,598/-. This is adequately covered by the special reserve created in terms of Sec.36 (1)
(viii) of IT Act.

10.The figure in the Balance Sheet and Profit & Loss Account have been rounded off to the
nearest rupee.

11.Loans includes instalments of long term loans falling due within next 12 months to the extent
of Rs.860.47 lakhs towards NHB refinance and Rs.770.32 lakhs towards deposits accepted by the
company.

12.There are no dues outstanding for more than 30 days over Rs.1,00,000/- in respect of SSI units
under Current Liabilities.

13.The Balance Sheet and Profit & Loss Account approved by the Board of Directors in their
meeting held on 17.04.2003 and certified by the Statutory Auditors on 17.04.2003 were revised in
the light of observations of the Comptroller & Auditor General of India under Sec.619(4) of the
Companies Act, 1956. This has resulted in

135

(Rs. in lakhs)
Net Decrease in Income 0.25
Increase in provision for Income Tax 2.33
Decrease in amount available for appropriation 2.58

14. PRIOR PERIOD ITEMS:
Prior period Adjustments represent the following items of the previous year.
Debit (Rs.) Credit (Rs.)
TA paid to Sri. R.
Rajagopalan for March
2002
1383.00
Payment towards
surcharge
for 2001-2002
6148.00
Internal Audit Fees for
Dec 2001 & Mar 2002
(Jayanagar)
2625.00
Internal Audit Fees for
Dec 2001 & Mar 2002 (R T
Nagar)
2625.00
Provision for Statutory
Auditors for the year 2001-
2002 (Trinity Circle)
8000.00
TDS of Deposits for the year
2001-2002 (Trinity Circle)
19243.00
Provision for Deferred
Revenue Expenditure for the
year 2000-2001
15742.00
Total 26870.00 28626.00
Net (Rs.) 1756.00

136

ANNEXURE B PART-V

AUDITORS REPORT

TO THE MEMBERS OF VIBANK HOUSING FINANCE LIMITED, BANGALORE

We have audited the attached Balance Sheet of VIBANK HOUSING FINANCE LIMITED,
BANGALORE as at 31.03.2003 and the Profit and Loss Account of the Company for the year
ended on that date annexed thereto and have to report thereon as follows:

1. We had earlier given our report on 17
th
April 2003 on above referred accounts.
Subsequent to our report, the accounts of the Company have been revised in the
light of observations of the Comptroller and Auditors General of India and the
effect of such revision is as reflected in Note No.13 of Notes on Accounts
forming part of the accounts for the year ended 31.03.2003. This report
supersedes our report dated 17
th
April 2003.

2. We have obtained all the information and explanations, which to the best of our
knowledge and belief, were necessary for the purpose of our audit.

3. In our opinion, proper books of accounts, as required by law have been kept by
the company so far as appears from the examination of the books.

4. The Balance Sheet and Profit and Loss Account dealt with by this report are in
agreement with the Books of Accounts.

5. In our opinion the Profit and Loss Account and the Balance Sheet dealt with by
this report comply with the accounting standards referred to in sub-section (3C)
of the Section 211 of the Companies Act, 1956 to the extent such standards have
been made applicable by the Institute of Chartered Accountants of India.

6. On the basis of written representations received from the Directors and taken on
record by the Board of Directors, we report that none of the Directors is
disqualified as on 31.03.2003 from being appointed as a Director in terms of
clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

7. Vibank Housing Finance Limited is incorporated before 12
th
June, 2000 and has
obtained registration as provided in Paragraph 3A of the Directions vide NHB
letter No.NHB(ND)/HFC (RC)/3244/99 dt.15.10.1999.

8. The company has complied with the liquidity requirements as specified under
Section 29B of the National Housing Bank Act, 1987 and kept the securities with
Vijaya Bank.

9. The company has complied with Section 29C of the National Housing Bank Act,
1987

137
10. The company has complied with the provisions of Directions of National
Housing Bank

11. The capital adequacy ratio as disclosed in the return submitted to National
Housing Bank has been correctly determined and the ratio is in compliance with
the minimum capital to risk weighted asset ratio as prescribed by the National
Housing Bank in these Directions.

12. Public deposits accepted by the company are within admissible limits

13. Total borrowings of the company i.e. deposits inclusive of public deposits
together with the amounts referred to in sub-clauses (iii) to (vii) of sub-section
(bb) of Section 45 I of the Reserve Bank of India Act, 1934 and loans or other
assistance from the NHB are within the limit prescribed in these Directions

14. The Credit Rating for deposits i.e. FAA assigned by the Credit Rating Agency
viz., CRISIL on 05.02.2003 is in force and the aggregate amount of deposits
outstanding as at any point during the year has not exceeded the limit specified
by the Rating Agency.

15. The company has not opened any new branch during the financial year 2002-
2003 or offices for acceptance of public deposits or closure of branches or offices,
the company has complied with the relative provisions of these directions.

16. The company has not defaulted in paying to its depositors the interest and / or
principal amounts of deposits after such interest and / or principal became due

17. In our opinion, and to the best of our information and explanations given to us,
the said accounts, together with notes annexed there to, give the information
required by the Companies Act, 1956, in the manner so required and give a true
and fair view:

i) In the case of Balance Sheet of the state of affairs of the Company as
at 31.03.2003 and

ii) In the case of the P & L Account of the profit of the Company for the
year ended on that date.

18. As required by the Manufacturing and Other Companies (Auditors Report)
Order, 1988 issued by the Company Law Board, in terms of Section 227(4A) of
the Companies Act, 1956,on the basis of such checks of Books of Accounts and
records as considered appropriate and according to the information and
explanations given to us during the course of our audit, we report that:

i) The Company has maintained proper records to show full particulars
including quantitative details and situation of fixed assets. The fixed
assets of the company have been physically verified by the management
during the year and no discrepancies were noticed on such verification.
The verification of fixed assets is being done once in a year.

ii) The fixed assets of the Company have not been revalued during the
year.

138

iii) The Company has not taken any loans secured or unsecured from
companies, firms or other parties listed in the register maintained under
Sec 301 of the Companies Act 1956 and / or from the companies under
the same management as defined under Sub-section (1 B) of Section 370
of the Companies Act, 1956.

iv) The Company has not granted any loan, secured or unsecured to
companies, firms or other parties listed in the register maintained under
Section 301 of the Companies Act, 1956 and / or to companies under the
same management as defined under Section 370(1-B) of the Companies
Act, 1956.

v) The parties to whom loans or advances in the nature of loans have been
given by the Company are generally regular in repaying the principal
amounts as stipulated and also regular in payment of interest.

vi) The Internal control procedures for purchase of assets and loans given
by the Company are adequate and commensurate with size of the
company and its nature of business.

vii) The Company has complied with the provisions of Section 58A of the
Companies Act, 1956 and the rules framed thereunder to the extent
applicable and the Housing Finance Companies (NHB) Directions 2001,
with regard to the Deposits accepted from the public.

viii) The Company has an Internal Audit system, which is commensurate
with the size and nature of business.

ix) The Companys contribution towards Provident Fund, Gratuity and
Pension with respect to the Officers/Executives of the Company who are
on deputation from Vijaya Bank, have not been transferred to the said
bank and provision made for 2001-2002 has been withdrawn, in view of
the excess payment made in the earlier years and Vijaya Bank agreed to
adjust the excess amount in the next year based on Consultants
certificate, with respect to the financial years 2001-2002 and 2002-2003.
The employees who have been recruited are covered by the Provident
Fund scheme. The Company has registered under the Employees State
Insurance Act. No delays were noticed on remittances of PF and ESI.

x) According to records of the Company examined by us, there were no
undisputed amounts payable in respect of Income Tax, Wealth Tax or
Sales Tax, outstanding as at 31.03.2003 for a period of more than six
months from the date they became payable.

xi) During the course of our examination of the Books of Accounts carried
out in accordance with generally accepted auditing practices, no
personal expenses of employees or directors have been charged to
revenue account other than those payable under contractual obligations
or in accordance with generally accepted business practices.

139
xii) The Company has granted Housing Loans on security of equitable
mortgage of properties and other securities, for which adequate
documents and records have been maintained.

xiii) The provisions of any special statute applicable to a Chit Fund, Nidhi or
Mutual Benefit Society are not applicable to the Company.

xiv) As per the information and explanations given to us and taking into
consideration the nature of business of the Company, the other
provisions of Manufacturing and Other Companies (Auditors' Report)
Order 1988, are not applicable to this Company for the period covered
by the aforesaid accounts.

Place: Bangalore For M/s. Radhika & Co.
Chartered
Accountants
Date: 07.05.2003

(KRISHNAN)
Partner

140

ANNEXURE-B PART-VI

VIBANK HOUSING FINANCE LIMITED, BANGALORE

SIGNIFICANT CHANGES IN ACCOUNTING POLICIES:

1. The Company follows National Housing Banks guidelines on prudential norms for
income recognition, Asset Classification and provisioning. Necessary amendments in the
accounting policies have been carried out by the Company in the relevant years to be in
conformity with the National Housing Banks guidelines. Adjustment to Profit/Loss,
Assets and Liabilities of the Company arising from the compliance with the aforesaid
directives have not been carried out, as it is not practicable.

2. During the year 1998-1999, interest on Investments was accounted for on accrual basis,
which was hitherto accounted only on the date of payment. Resulting profit is higher by
Rs. 0.08 crore.

3. During the year 2002-03, the amount incurred on software, which was charged off to
revenue upto 2001-2002, has been capitalised to be written off over a period of five years.
Due to the above the profit of the Company for the year has been increased by Rs
4,00,000/-

141

ANNEXURE - C

VIJAYA BANK

DIVIDENDS DECLARED IN RESPECT OF FIVE
FINANCIAL YEARS

(Rs. In lakh)
FINANCIAL YEAR ENDED MARCH 31, 1999 2000 2001 2002 2003

EQUITY CAPITAL 55631 25924 35924 33352 33352
AMOUNT OF DIVIDEND NIL 500 1078 4002 4002
PERCENTAGE NA 1.93% 3.00% 12.00% 12.00%

142

ANNEXURE - D 1
VIJAYA BANK
MANDATORY ACCOUNTING RATIOS
ACCOUNTING RATIOS
1998-1999 1999-2000 2000-2001 2001-2002 2002-2003
Earnings per share(EPS) (Rs.) -0.26 1.33 4.75 4.87 11.30
Cash Earnings per share (RS.) 1.84 2.99 -0.25 8.79 18.97
Return on Networth (%) -2.35 20.19 25.66 29.80 50.86
Net Asset value per share (Rs.) 11.09 6.60 18.51 16.33 22.22
Other Ratios
Net NPA to Net Advances ratio(%) 6.65 6.62 6.23 6.02 2.61
Interest Income /Average working fund (%) 10.03 10.28 10.41 9.98 9.62
Non-interest income/Average working fund (%) 1.09 1.00 1.20 1.22 1.99
Return on Assets (%) -0.15 0.64 1.04 1.13 2.17
Business per employee (Rs. In lacs) 98.80 117.27 137.94 178.39 215.00
Net Profit per employee (Rs. In lacs) -0.10 0.52 1.00 1.48 3.22
Capital Adequacy Ratio
Tier I 5.70 6.01 8.04 8.86 7.42
Tier II 4.30 4.60 3.46 3.39 5.24
Credit/Deposit Ratio(%) (net) 38.88 40.44 45.28 42.21 46.37
Interest Spread/Average working fund (%) 3.33 3.41 3.53 3.15 3.70
Gross Profit / Average working fund (%) 0.72 1.26 1.86 1.92 3.53
Return on Average networth -2.34 15.07 30.22 31.42 56.78
Yield on advances (%) 12.70 12.40 12.84 11.93 11.34
Yield on investments (%) 12.00 12.20 11.87 11.35 10.49
Cost of deposits(%) 7.90 7.80 7.61 7.51 6.58
Cost of borrowings (%) 11.30 12.20 12.28 11.14 10.96
Gross profit per employee (Rs. In lacs) 0.50 1.02 1.80 2.51 5.23
Business per branch (Rs. In lacs) 1681.14 2006.88 2206.81 2548.02 2989.77
Gross profit per branch (Rs. In lacs) 8.59 17.53 28.83 35.80 72.68

Definitions of key ratios:

Earnings per share (EPS) (Rs.) Net Profit after tax(adjusted ) after excluding extra-ordinary items
divided by weighted average of shares at the end of
each fiscal year

Cash EPS (Rs.) PAT(adjusted) after excluding extra-ordinary items plus non-cash
charges divided by weighted average of equity shares at the
end of each fiscal year.

Return on Networth(%) PAT(adjusted) after excluding extra-ordinary items divided by total
networth (capital plus reserves excluding revaluation and deferred
tax reserve at the end of the year

Net NPA to Net Advances (%) Net NPA / net advances for each year

143

Interest income /AWF % Total interest income divided by average working funds for
each year

DEFINITION OF KEY RATIOS (Contd..)

Non-interest income/AWF% Other income divided by average working funds for each year

Net Aset Value per share (Rs) Equity net worth arrived at the end of the year divided by the
weighted average number of equity shares at the end of
each fiscal year

Return on assets (%) PAT (adjusted) (after excluding extra-ordinary items) divided
by the average assets of each year

Business per employee (Rs. In lac) Year end deposits plus Gross advances /No: of employees

Net profit per employee (Rs. In lac) Adjusted net profit(after excluding extea-ordinary items) /No: of
employees

Credit /Deposit ratio (net) (%) Total net advances/total deposits

Interest spread/AWF(%) (Interest income -interest expenditure) Net interest spread/AWF

Gross profit/AWF(%) Adjusted net profit(after excluding extra-ordinary items) prior to
provisions and contingencies divided by AWF

Return on average networth(%) Adjusted net profit(after excluding extra-ordinary items divided by
the average of opening + closing networth for each year

Yield on advances(%) Interest earned on advances /Average of fortnightly advances

Yield on Investments(%) Interest on investments/Daily average of investments

Cost of deposits (%) Interest on deposits/Average of fortnightly deposits

Cost of borrowings (%) Interest on borrowings/Average of fortnightly borrowings

Gross profit per employee(Rs. In lac) Gross Profit /No: of employees

Business per branch(Rs. In lac) Year end deposit plus gross advances /No: of branches

Gross profit per branch (Rs. In lac) Gross Profit /No: of branches

Average Working Funds (AWF) Average of monthly assets as reported to RBI in Form No. X

144

Annexure-D 2
VIJAYA BANK

Details of Unsecured Loans as on
31.03.2003 *

(Rs in lakh)
Sr.No Name of the Lender Amount Repayment Schedule
Date of Repayment Amount
1 SIDBI (Short Term Loan) 25000.00 8-Aug-03 25000.00
2 SIDBI (Refinance) 208.11 1-Jun-03 38.41
1-Sep-03 28.89
1-Dec-03 31.06
1-Mar-04 20.24
1-Jun-04 19.03
1-Sep-04 13.57
1-Dec-04 15.95
1-Mar-05 8.17
1-Jun-05 10.20
1-Sep-05 4.66
1-Dec-05 3.41
1-Mar-06 2.63
1-Jun-06 1.53
1-Sep-06 1.52
1-Dec-06 1.08
1-Mar-07 1.52
1-Jun-07 1.08
1-Sep-07 1.52
1-Dec-07 0.81
1-Mar-08 0.81
1-Jun-08 0.81
1-Sep-08 0.26
1-Dec-08 0.26
1-Mar-09 0.17
1-Jun-09 0.13
1-Sep-09 0.13
1-Dec-09 0.13
1-Mar-10 0.13
3 Borrowings outside India 5700.00
a CITIBank Bahrain@
1.7400%
30-Sep-03 1187.50
b CITIBank Bahrain
@1.6675%
22-Sep-03 1187.50
c Union Bank of
California@1.6400%
19-Jun-03 950.00
d Union Bank of
California@1.6400%
30-Jun-03 2375.00
4 Tier II Bonds Series I
@14.20%
12000.00 4-Apr-04 12000.00

145
5 Tier II Bonds Series II
@12.35%
6000.00 6-Dec-06 6000.00
6 Tier II Bonds Series III
@7.50%
15000.00 8-May-10 15000.00
7 VRS Bonds@11% 1009.00
30-Apr-06 451.50
2-Jun-06 25.10
30-Aug-06 256.10
30-Sep-06 147.30
30-Oct-06 48.10
30-Dec-06 14.40
15-Jan-07 3.40
30-Apr-07 16.10
2-Jun-07 31.70
Pending Issue of Bonds 15.30
TOTAL 64917.11 TOTAL 64917.11
* Excluding Deposits, adverse clearing balances and Nostro Mirror Balances as on 31.03.2003

146

Annexure-D 3
VIJAYA BANK
Rs in Lakh
Details of Other Income of the Bank for the
last Five years

Financial Year ended March 31, 1999 2000 2001 2002 2003
Commission, Exchange and
brokerage
4345.59 5070.97 5152.78 4722.94 4556.35
Profit on sale of investments (net) 1306.22 1250.14 267.20 9016.65 22508.87
Profit(Loss) on revaluation of
investments(Net)
0 0 3908.08 -2933.15 0
Profit on sale of Land, building &
other assets (net)
14.13 11.03 19.50 14.65 5.49
Profit on exchange transactions
(net)
1815.50 1550.80 2350.11 3691.29 2166.53
Miscellaneous Income 3425.64 3797.71 3928.43 4370.04 5364.79

Total 10907.08 11680.65 15626.10 18882.42 34602.03
*Includes lease rental income & lease equalisation account

147

VIJAYA BANK
ANNEXURE D4
Certificate regarding Investments
(Rs. In lakh)
Sr.No Details of the investment Book Value Market Value Diminution in
(Gross) the value
1 Government Securities 701243.77 743350.72
2 Other approved Securities 14171.17 14171.17 0.00
3 Shares 4722.15 3202.11 -1520.04
4 Debentures & Bonds 147590.45 150756.81
5 Subsidiaries and or 1063.14 1063.14 0.00
other Ventures
6 Others 22598.34 21783.66 -814.68
Total 891389.02 934327.61 -2334.72

Note : Above particulars are as per RBI guidelines on valuation of investment

148

ANNEXURE D 5

VIJAYA BANK

Capitalisation Statement as at 31.03.2003

(Rs. in lakh)
Pre-issue

Adjusted for the Public
Issue

Borrowing
Short-term debt 30826 30826
Long-term debt 34091 34091
Total Debt 64917 64917

Shareholders' funds
Share Capital
- Equity 33352 43352
Less : Calls-in-arrears
- Preference
Share premium *
Reserves & Surplus (Excluding
Revaluation &Deferred Tax
Reserve)
40757 40757
Less : Miscellaneous Expenditure
not written off
-
Total Shareholders Funds 74109 84109
Long term Debt / Equity Ratio 46% 40.53%

Note:

1. Long Term Debts are loans repayable beyond a period of one year and do not include
deposits with the Banks, adverse clearing balances and Nostro Mirror balances as on
31.03.2003.

2. *Share premium on current issue is yet to be decided and has not been considered for the
purpose of this certificate.

149

VIJAYA BANK :
HEAD OFFICE:
BANGALORE
TAX SHELTER
STATEMENT

ANNEXURE-
D6

TAX SHELTER STATEMENT
(Rs. In lacs )
FINANCIAL YEAR
ENDED MARCH, 31
1999 2000 2001 2002 2003
Income Tax Rate 35.00% 38.50% 39.55% 35.70% 36.75%
Tax at actual rate on
profit

1,224.27
2,185.26
3,048.84

4,955.34

8,629.11
ADJUSTMENTS
Permanent Differences
1) INCOME FROM
TAX FREE BONDS

(135.97)

(137.28)

(158.07)

(161.86)

(218.95)
2) DIVIDEND
INCOME

(129.52)

(613.97)

(534.24)

(754.29)

(1,056.84)
3) INTEREST
EXEMPT U/S 10(23G)

-

(685.78)

(1,152.16)

(2,995.79)

(3,883.90)
4) INTEREST ON
ZERO COUPON
BONDS

(309.06)

(136.43)

1,620.32

-

-
5) NPA PROVISION
(4,926.41)
(4,280.16)
(2,326.02)

(5,778.29)

(2,665.48)
6) PROFIT / LOSS /
AMORTISATION /
INTEREST
ADJUSTMENTS
RELATING TO
INVESTMENTS

(108.78)
1,273.19
(1,958.85)

5,168.04

(9,531.46)
7) OTHERS
1,106.62

198.29

622.35

(178.17)

(2,409.87)

Total
A

(4,503.11)
(4,382.14)
(3,886.67)

(4,700.37)

(19,766.49)

Timing Differences
1) INTEREST
ACCRUED BUT NOT
DUE ON SECURITIES

(4,489.35)
(2,850.44)
16,225.11

-

-
2) DIFFERENCE
BETWEEN IT
DEPRECIATION &
BOOK
DEPRECIATION ON
FIXED ASSETS

(94.85)

171.05

(96.84)

32.67

-
3) VRS
EXPENDITURE

-

-

-

-

7,653.30
4) PROVISION FOR
WAGE REVISION

-

-

-

-

-
5) TIER II BONDS
EXPENSES

-

-

-

(25.41)

(25.41)
6) PROVISION FOR
LEAVE
ENCASHMENT

-

-

-

-

2,066.37

150
7) OTHERS
(1,406.82)

(9.71)

(6,207.48)

1,560.52

4,658.66
8) CURRENT LOSS /
(CARRY FORWARD
LOSS SET OFF)

6,996.20
1,395.24
(11,940.19)

(10,747.62)

(11,622.25)

Total
B

1,005.18
(1,293.86)
(2,019.40)

(9,179.84)

2,730.66
Net Adjustments (A
and B)

(3,497.93)
(5,676.00)
(5,906.07)

(13,880.21)

(17,035.83)
Tax Saving thereon
(1,224.27)
(2,185.26)
(2,335.85)

(4,955.23)

(6,260.67)
Tax saving on Capital
gains & MAT Credit

572.07

Total Taxation
-

-

140.92

0.11

2,368.44

The figures for the four financial years ended 31.03.2002 have been computed as per
Income Tax Returns of the respective years only. For the Financial year ended
31.03.2003, pending finalisation of return

of Income figures are calculated on estimated basis. In respect of Financial Year ended
31.03.1999, 31.03.2000 & 31.03.2002 the bank paid tax as per the provisions of Minimum
Alternate Tax.

151

ANNEXURE- D7
VIJAYA BANK

CONTINGENT LIABILITIES

1. The Bank has following contingent liabilities outstanding as per Audited accounts for the
year ended as at 31.03.2003 for which no provision was considered necessary in the books of
accounts of the Bank for that year.

Sr.No
.
Particulars Amount
(Rs. in Lakh)
I Claims against the Bank not acknowledged as debts 3718
II Liability for Partly Paid Investments Nil
III Liability on account of Outstanding Forward Exchange Contracts 385846
IV Guarantees given on behalf of Constituents in India 73160
V Acceptances, Endorsements and Other Obligations 44121
VI Other items 903
TOTAL 507748

2. We have examined the contracts, claims and litigations against the Bank as provided for our
verification and have analysed the likely impact of the same as indicated above. We certify
that apart from the contingent liabilities indicated above and based upon the information &
explanations provided by the Management, the Bank does not have any other contingent
liabilities as on the Balance Sheet date.

152

VIJAYA BANK
[A Government of India Undertaking]

RELEVANT PRINCIPAL ACCOUNTING POLICIES ON THE CONSOLIDATED
ACCOUNTS

1. BASIS OF PREPARATION OF ACCOUNTS

The accompanying financial statements have been prepared to comply, in all material
aspects with applicable statutory/regulatory provisions. Accounting standards and
generally accepted accounting principles and practices prevailing in India except
otherwise stated.

2. CONSOLIDATION PROCEDURE

2.1. Consolidated financial statements have been prepared on the basis of audited financial
statements of Vijaya Bank (Parent) and one non-banking subsidiary (referred to as non
banking entity) and after eliminating inter-group transactions, unrealised profit/loss and
making necessary adjustments wherever required. The financial statements of the
subsidiary is drawn upto the same reporting date as that of the parent i.e 31
st
March
2003.

2.2. The difference between cost to the bank of its investment in the sponsored bank (RRB)
and the banks portion of the equity of the RRB is recognised in the financial statements
as Goodwill/Capital reserve.

2.3. Minority interest in the net assets of the consolidated financial statements consists of:

a. The amount of equity attributable to the Minority at the date on which the
investment in subsidiary is made and

b. The minority share of movements in equity since the date the parent-subsidiary
relationship came into existence.

3. Investments: Non-Banking Entity

Investments are accounted for at cost or market value whichever is less.

4. FIXED ASSETS/DEPRECIATION Non-Banking entity

4.1. FIXED ASSETS

Fixed assets are capitalized at cost. Cost includes installation charges, levy duty cess etc
and financing cost relating to borrowed funds attributable to the acquisition of fixed cost
upto the date the asset is ready for use. Certain expenditure like flooring, false ceiling etc
which are not represented by specific asset classified as Deferred Revenue Expenditure.
Assets less than Rs.5000/- are charged off in the year of purchase.

153
4.2. Depreciation

Depreciation is calculated on the Straight Line Method at the rates prescribed in
Schedule XIV of the Companies Act 1956. The depreciation is calculated on pro-rata basis
for the assets acquired during the year.

5. NON PERFORMING ASSETS

National Housing Banks guidelines on prudential norms are being followed for income
recognition and provisioning.

REVENUE RECOGNITION:

6. NON BANKING ENTITY

6.1. Interest on Housing Loans: Repayment of loans is by way of Equated Monthly
Instalments (EMIs) comprising of principal and interest. Interest is calculated on the last
day of the year on outstanding balance as at the beginning of the year. EMIs commence
once the loan is disbursed in full. Pending commencement of EMIs, Pre EMI interest is
payable every month.

6.2. Processing fee received in respect of housing loan is accounted for in the year in which
the loan is sanctioned.

6.3. Income from Non performing asset is recognised in accordance with the guidelines on the
prudential norms of national housing Bank. Provision for NPA is made in accordance with
such guidelines.

6.4. Administrative fee received in respect of a housing loan is accounted for in the year in which
first disbursement of the loan is made.

6.5. Interest in come on loans / investments is accounted for on accrual basis.

6.6. Delayed payment charges on housing loans are accounted for on accrual basis.

7. DEFERRED REVENUE EXPENDITURE: Non banking entity

Certain expenditures like flooring, false ceiling which do not represent specific assets are
classified as Deferred Revenue Expenditure and will be written off over a period of 3 years.

8. SEGMENT REPORTING ON CONSOLIDATED ACCOUNTS:

For the purpose of segment reporting as per Accounting Standard 17, the following
segments have been identified as Primary segments.

a. Treasury

b. Banking operations

Other than above no other reportable segments to be shown as residual operations.

154

CONSOLIDATED BALANCE SHEET OF VIJAYA BANK AS ON MARCH 31, 2003
[Rupees 000s
omitted] PARTICULARS

Schedule
As on 31.03.2003 As on 31.03.2002

CAPITAL AND LIABILITIES
Capital 1 333,51,78 333,51,78
Reserves and Surplus 2 484,97,61 335,11,63
Minorities Interest 2A 2,47,57 2,28,62
Deposits 3 17042,95,71 14705,58,43
Borrowings 4 403,18,43 163,39,98
Other Liabilities and Provisions 5 931,52,44 718,92,56
TOTAL 19198,63,54 16258,83,00

ASSETS

Cash and Balances with Reserve Bank of
India
6 1086,37,72 1026,20,49
Balance with Banks and Money at Call and
Short Notice

7
516,50,11 628,39,51
Investments 8 8857,22,97 7355,92,99
Loans and Advances 9 8014,88,52 6311,53,59
Fixed Assets 10 159,77,10 165,89,60
Other Assets 11 563,87,12 770,71,96
Goodwill on consolidation - 14,86
Debit Balance of Profit & Loss Account - -
TOTAL 19198,63,54 16258,83,00
Contingent Liabilities 12 5051,69,05 2500,99,89
Bills for Collection 425,54,51 400,33,89

Relevant Accounting Policies, Notes and Schedules referred to above form an integral part of the
Consolidated Accounts.

155

CONSOLIDATED PROFIT & LOSS ACCOUNT OF VIJAYA BANK FOR THE YEAR ENDED 31
ST
MARCH, 2003

[Rupees 000s omitted]
PARTICULARS
Schedule
For the year
ended
31.03.2003
For the year
ended
31.03.2002
I. INCOME
Interest Earned 13 1688,37,51 1553,75,21
Other Income 14 346,27,22 188,89,90
TOTAL 2034,64,73 1742,65,11
II. EXPENDITURE
Interest Expended 15 1040,44,49 1063,82,45
Operating Expenses 16 558,92,13 423,33,62
Provisions and Contingencies 237,09,71 122,69,50
TOTAL 1836,46,33 1609,85,57
Share of earnings/(loss) in Associates 17 56,93 50,94
Consolidated Net Profit/(loss) for the year
before deducting Minorities interest

198,75,33

133,30,48
LESS : Minorities' Interest 28,71 32,41
Consolidated profit/(loss) for the year
attributable to the group

198,46,62

132,98,07

119,50,29

88,57,65
TOTAL 317,96,91 221,55,72
III. APPROPRIATIONS
Transfer to statutory reserves 49,16,50 32,74,51
Transfer to special reserve 1,25,69 1,28,39
Transfer to Investment Fluctuation Reserve 72,72,00 27,57,77
Transfer to Government/Proposed dividend 40,14,37 40,13,02
Transfer to Staff Welfare Fund 2,00,00 -
Balance carried over to consolidated Balance
Sheet
152,68,35 119,82,03
TOTAL 317,96,91 221,55,72
EARNINGS PER SHARE Rs.5.95 Rs.3.85

31.03.2003 31.03.2002
ADD: Brought for-ward
consolidated profit/
(loss)
119,52,62 93,20,21
LESS: Deferred Tax
Liability

-

4,75,18
ADD: Write back of tax
provision and previous
year adjustments

(2,33)

12,62
TOTAL

156
Relevant Accounting Policies, Notes and the Schedules form an integral part of the consolidated accounts.

VIJAYA BANK
[A Govt. of India Undertaking]

CONSOLIDATED SCHEDULES OF VIJAYA BANK FOR THE YEAR ENDED MARCH 2003

SCHEDULE - 1: CAPITAL

PARTICULARS As on 31.03.2003 As on
31.03.2002

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

1500,00,00

1500,00,00
ISSUED, SUBSCRIBED AND CALLED UP CAPITAL
33,35,17,800 Equity Shares of Rs.10/- each (previous year
33,35,17,800 Equity Shares of Rs.10/- each)

333,51,78

333,51,78
PAID UP CAPITAL
(a) Held by Central Government 23,35,17,800 Equity
shares of Rs.10/- each (previous year 23,35,17,800 Equity
Shares of Rs.10/- each)

233,51,78

233,51,78
(b) Held by the Public and Others 10,00,00,000 Equity
Shares of Rs.10/- each (previous year 10,00,00,000 Equity
Shares of Rs.10/- each)

100,00,00

100,00,00
Less: Calls unpaid - -
Add: Forefeited Shares - -
TOTAL 333,51,78 333,51,78

SCHEDULE - 2: RESERVES and SURPLUS

PARTICULARS As on
31.03.2003
As on 31.03.2002
i. Statutory Reserves
a) Opening balance 77,56,00 44,81,49
b) Additions during the year 49,16,50 32,74,51
TOTAL 126,72,50 77,56,00
ii. Capital Reserves Nil Nil
iii. Capital Reserve on consolidation of accounts 36,08 Nil
iv. Share Premium Nil Nil
v. Other Reserves (Revaluation Reserve)
Opening Balance 67,40,19 73,29,82
Less: Deduction on account of depreciation
adjusted from P&L a/c
5,22,63 5,89,63
TOTAL 62,17,56 67,40,19
vi. Revenue and other Reserves
a) Investment Fluctuation Reserve

157
Additions during the year 72,72,00 27,57,77
TOTAL 130,48,40 57,76,40
b) Deferred Tax Reserve
Opening Balance 9,07,39 -
Additions (deductions) during the year (1,06,70) 9,07,39
TOTAL 8,00,69 9,07,39
c) Special Reserve under section 36(1) (viii)
Less: Transferred to Minority Interest 15,09 49,20
TOTAL 4,71,42 3,60,82
d) General Reserve
Opening Balance 4,40 5,00
Less: Transferred to minority interest - 60
TOTAL 4,40 4,40

vii. Balance in Profit & Loss Account 152,68,35 119,82,03
Less : Transferred to Minority interest 21,79 15,60
TOTAL 152,46,56 119,66,43
GRAND TOTAL 484,97,61 335,11,63

SCHEDULE - 2A: MINORITIES INTEREST

PARTICULARS As on
31.03.2003
As on
31.03.2002
Minority interest at the date on which the parent subsidiary
relationship came into existence
1,20,00 1,20,00
Subsequent increase/(decrease) 1,27,57 1,08,62
Minority interest on the date of Balance Sheet 2,47,57 2,28,62

SCHEDULE - 3: DEPOSITS
PARTICULARS As on 31.03.2003 As on
31.03.2002
A. I Demand Deposits
i) From Banks
ii) From Others
49,95,35
1916,85,68
65,81,88

1799,66,43
II Savings Bank Deposits 3511,13,12 2894,61,51
III Term Deposits
i) From Banks
ii) From Others
138,71,83
11426,29,73
78,64,36
9866,84,25
Total (I, II and III) 17042,95,71 14705,58,43
B. i) Deposits of branches in India 17042,95,71 14705,58,43

158
ii) Deposits of branches outside India - -
Total (i and ii) 17042,95,71 14705,58,43

SCHEDULE - 4 : BORROWINGS
PARTICULARS As on 31.03.2003 As on 31.03.2002
i) BORROWINGS IN INDIA
a) Reserve Bank of India
b) Other Banks
c) Other Institutions & Agencies
-
7,99
334,44,76
32,62,00
30,80
106,34,10
ii) BORROWINGS OUTSIDE INDIA (includes
pipeline and unadjusted items in NOSTRO
Mirror balance in case of the parent bank only)
68,65,68 24,13,08
TOTAL (I & II above) 403,18,43 163,39,98
Secured Borrowings included in I and II above - 5,81,43

SCHEDULE - 5: OTHER LIABILITIES AND PROVISIONS
PARTICULARS As on
31.03.2003
As on
31.03.2002
(i) Bills Payable 307,63,15 305,74,81
(ii) Interest accrued 44,96,18 43,19,69
(iii) Sub-ordinated debts - Bonds raised as Tier II capital
(a) 5 year Bonds 2004 @ 14.20% 120,00,00 120,00,00
(b) 7 year Bonds 2006 @ 12.35% 60,00,00 60,00,00
(c) 7.5 year Bonds 2010 @ 7.50% 150,00,00 -
(iv) VRS Bonds @ 11% 10,09,00 10,40,40
(v) Provision against Standard Assets 19,24,00 14,54,00
(vi) Provision for recognition of loan impairment on 90 days
norms
9,90,00 3,15,00
(vii) Others (including provisions) 209,54,43 158,31,27
(viii) Deferred Tax Liabilities 15,68 3,57,39
TOTAL 931,52,44 718,92,56

SCHEDULE - 6: CASH AND BALANCES WITH RESERVE BANK OF INDIA
PARTICULARS As on
31.03.2003
As on
31.03.2002
I. Cash in hand [including foreign currency notes] 97,62,70 93,86,65
II. Balances with Reserve Bank of India
(i) In Current Account 988,75,02 932,33,84
(ii) In other accounts - -
TOTAL (I & II) 1086,37,72 1026,20,49

SCHEDULE - 7: BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE

PARTICULARS As on
31.03.2003
As on
31.03.2002
I. IN INDIA

159
(i) Balances with Banks
(a) in Current Accounts 69,20,98 140,58,99
(b) in Other Deposit Accounts 315,00,00 220,62,05
(ii) Money at Call and Short Notice
(a) with Banks 75,00,00 70,00,00
(b) with other Institutions 25,00,00 100,00,00
TOTAL (i + ii) 484,20,98 531,21,04
II. OUTSIDE INDIA
(i) In Current Accounts (includes pipeline transactions and
unadjusted items in Nostro
Mirror Balances of Parent Bank)
9,71,23 6,00,53
(ii) In Other Deposit Accounts 22,57,90 91,17,94
(iii) Money at call and short notice - -
TOTAL (i + ii + iii) 32,29,13 97,18,47
GRAND TOTAL {I + II} 516,50,11 628,39,51

SCHEDULE - 8: INVESTMENTS
[Rupees 000s omitted] PARTICULARS
As on 31.03.2003 As on 31.03.2002
I. INVESTMENTS IN INDIA
i) Government Securities 7013,31,88 5568,07,13
ii) Other Approved Securities 144,19,76 156,86,97
iii) Shares 32,02,11 31,47,92
iv) Debentures and Bonds 1447,09,41 1494,83,14
v) Investment in Associates
{(Visvesvaraya Grameena Bank (RRB)}
2,76,15 2,19,22
vi) Others (to be specified) 217,83,66 102,48,61
TOTAL 8857,22,97 7355,92,99
II. INVESTMENTS OUTSIDE INDIA IN
i) Government securities (including local
authorities)
- -
ii) Investment in Associates - -
iii) Other investments (to be specified) - -
TOTAL - -
Grand Total (I & II) 8857,22,97 7355,92,99
III. INVESTMENTS IN INDIA
i) Gross value of Investments 8932,36,92 7382,72,51
ii) Aggregate of provisions for
depreciation
75,13,95 26,79,52
iii) Net investment 8857,22,97 7355,92,99
IV INVESTMENTS OUTSIDE INDIA
i) Gross value of investments - -
ii) Aggregate of provisions for
depreciation
- -
iii) Other investments (to be specified) - -

SCHEDULE - 9: ADVANCES

160
A. i) Bills purchased and discounted 361,29,13 319,01,55
ii) Cash Credits, Overdrafts & Loans
Repayable on Demand
4009,65,30 3385,36,50
iii) Term Loans 3643,94,09 2607,15,54
TOTAL 8014,88,52 6311,53,59
B. i) Secured by Tangible Assets [includes
advance against book debts]
6679,44,98 4554,49,93
ii) Covered by Bank/Government
Guarantees
849,71,45 1161,93,49
iii) Unsecured 485,72,09 595,10,17
TOTAL 8014,88,52 6311,53,59
[C] I. ADVANCES IN INDIA -
i) Priority Sector
ii) Public Sector
iii) Banks
iv) Others

2830,37,70
1459,04,81
34,53,46
3690,92,55

2223,06,60
1842,10,42
2,30,22
2244,06,35
[C] II. ADVANCES OUTSIDE INDIA -
i] Due from banks - -
ii] Due from others - -
a) Bills purchased and discounted - -
b) Syndicated loans - -
c) Others - -
TOTAL 8014,88,52 6311,53,59

SCHEDULE - 10: FIXED ASSETS
[Rupees 000s
omitted]
PARTICULARS
As on
31.03.200
3
As on
31.03.200
2
I. PREMISES 31.03.03 31.03.02
At cost as on 31
st
March of the preceding
year
198,20,30 173,64,62
Additions during the year 32,11 24,55,68
Deductions during the year - -
Depreciation to date 85,88,60 77,17,61 112,63,81 121,02,69
I.A Premises under construction
II. Other Fixed Assets (including furniture and
fixtures)

At cost (as on 31
st
March of the preceding
year)
153,14,69 138,39,15
Deductions during the year 3,60,92 2,09,16
Depreciation to date 124,69,96 108,84,86 47,13,29 44,29,83
II A. Leased Assets
At cost as on 31 March of the preceding year 11,02,45 11,02,45
Additions during the year (including
adjustments)
(91,65) (1,09,82)
Deductions during the year including
provisions
36,72 -

161
Depreciation to date 9,74,08 9,35,55 - 57,08
Total (I, II and IIA) 159,77,10 165,89,60
III. Capital work in progress (Leased Assets)
net of provisions

-

-
TOTAL (I, IA, II, IIA and III) 159,77,10 165,89,60

162
SCHEDULE 11: OTHER ASSETS

i) Inter-Office Adjustments [net] 54,99,56 118,22,89
ii) Interest accrued 290,44,92 322,69,39
iii) Tax paid in Advance/Tax Deducted at
Source [net of provision]
100,94,24 21,72,22
iv) Stationery and Stamps 59,37 81,48
v) Non-banking assets acquired in
satisfaction of claims
27,09 27,09
vi) Deferred Tax Assets 39,50,61 11,40,02
vii) Others (Net of provision) 77,11,33 295,58,87
TOTAL 563,87,12 770,71,96

SCHEDULE - 12: CONTINGENT LIABILITIES

i) Claims against the Bank not acknowledged
as debts
37,18,34 16,42,48
ii) Liability for Partly Paid Investments - -
iii) Liability on account of outstanding
forward exchange contracts
3832,66,80 1419,89,66
iv) Guarantees given on behalf of Constituents

a) In India 731,59,97 607,69,88
b) Outside India - -
v) Acceptances, Endorsements and Other
Obligations
441,20,73 453,76,40
vi) Other items for which the Bank is
contingently liable
9,03,21 3,21,47
TOTAL 5051,69,05 2500,99,89

SCHEDULE - 13: INTEREST AND DIVIDENDS EARNED

PARTICULARS For the year ended
on 31.03.2003
For the year
ended on
31.03.2002
i) Interest/Discount on Advances/Bills 772,07,14 728,42,23
ii) Income on Investments 863,44,28 765,49,77
iii) Interest on Balances with RBI & other Inter-
Bank Funds
43,09,06 54,53,66
iv) Others 9,77,03 5,29,55
TOTAL 1688,37,51 1553,75,21

163

SCHEDULE 14: OTHER INCOME

PARTICULARS For the year
ended on
31.03.2003
For the year
ended on
31.03.2002
31.03.2003 31.03.2002
i) Commission,
Exchange &
Brokerage
45,56,35 47,22,94
ii) Profit on sale of
land, buildings &
other assets
20,09 32,46
Less: Loss on sale of
land, buildings and
other assets

14,60

17,81

5,49

14,65
iii) Profit on
exchange
transactions
21,66,53 36,91,30
Less: Loss on
exchange transactions
- 1 21,66,53 36,91,29
iv) Profit on sale of
investments
225,26,04 90,42,96
Less: Loss on sale of
investments
17,17 26,31 225,08,87 90,16,65
v) Profit /(loss)
Net on Revaluation
of Investments
- (29,33,15)
vi) Miscellaneous
income
53,89,98 43,77,52
TOTAL 346,27,22 188,89,90

SCHEDULE - 15: INTEREST EXPENDED

PARTICULARS For the year
ended on
31.03.2003
For the year ended on 31.03.2002
i) Interest on Deposits 993,25,99 1003,76,81
ii) Interest on Reserve Bank of
India/Inter-Bank borrowings
1,92,18 2,17,47
iii) Others 45,26,32 57,88,17
TOTAL 1040,44,49 1063,82,45

SCHEDULE 16: OPERATING EXPENSES


164
on 31.03.2003
For the year
ended on
31.03.2002

i) Payments to and provisions for employees 429,59,32 306,48,22
ii) Rent, Taxes and Lighting 44,58,56 39,10,67
iii) Printing & Stationery 4,27,94 3,59,34
iv) Advertisement and Publicity 1,47,27 40,69
v) a) Depreciation on bank's property other than
Leased Assets
19,41,77 18,15,55
b) Depreciation on Leased Assets 38,53 87,55
vi) Directors' Fees, Allowances & Expenses 21,97 10,87
vii) Auditors' Fees & Expenses [inclusive of Branch
Auditors' fees & expenses]

3,35,56

2,95,61
viii) Law Charges 80,74 43,87
ix) Postage, Telegrams, Telephones, etc 1,64,11 2,61,51
x) Repairs and Maintenance 1,14,43 1,39,47
xi) Insurance 9,61,04 7,87,13
xii) Other expenditure 42,40,89 39,33,14
TOTAL 558,92,13 423,33,62

SCHEDULE 17: SHARE OF EARNINGS IN ASSOCIATES

on 31.03.2003
For the year ended
on 31.03.2002
SHARE OF CURRENT YEAR'S PROFIT 56,93 50,94
TOTAL 56,93 50,94

165

RELEVANT NOTES ON ACCOUNTS TO THE CONSOLIDATED ACCOUNTS

1) The individual audited financial statements of the bank (Vijaya Bank) and its subsidiary (Vi Bank
Housing Finance Limited) have been considered in the preparation of the consolidated financial
statements. Vi Bank Housing Finance Limited has been incorporated in India and Vijaya Bank holds
88% interest in the subsidiary company.

2) Advances:

(a) ViBank Housing Finance Limited has followed the guidelines issued by National Housing Bank on
prudential norms relating to Income Recognition, Asset Classification and provision thereon.

(b) In the case of ViBank Housing Finance Limited, housing loans and instalments due from borrowers
are secured by:

Equitable mortgage of property and/or
Personal guarantees/Company guarantees and/or
Undertaking to create a security and/or
Assignment of Life Insurance Policies, deposits and other Government securities.

(c) In the case of Vibank Housing Finance Limited, the loans includes instalments of long term loans
falling due within next 12 months to the extent of Rs.860.47 lakh towards NHB refinance and
Rs.770.32 lakh towards deposits accepted by the Company.

(d) In the case of Vibank Housing Finance Limited, there are no dues outstanding for more than 30
days over Rs.1,00,000/- in respect of SSI units under Current Liabilities.

3) (i) The Bank and its subsidiary are operating in different circumstances and due to the impracticability in
using uniform accounting policies in preparing the consolidated financial statements, current year's
figures of the subsidiary have not been re-arranged/re-cast/re-grouped.

(ii) The effect on profit as a result of uniform accounting policies not followed by Vijaya Bank and its
subsidiary - ViBank Housing finance Limited are as under:

a) ViBank Housing finance Limited has followed the guidelines issued by National Housing Bank on
prudential norms relating to Income Recognition, Asset Classification and provision thereon. If the
policies followed by Vijaya Bank had been followed, additional provision required would be
Rs.48,78,928 and to this extent profit and advances are higher.

b) Depreciation is calculated by ViBank Housing Finance Limited on the Straight Line Method at the rates
prescribed in Schedule XIV to the Companies Act, 1956 and the depreciation is calculated on pro-rata
basis for the assets acquired during the year. If the policy followed by Vijaya Bank (at rates under the
Income Tax rules and Written Down Value Method) is followed, depreciation excess provided is
Rs.21,268/- and to this extent profit is affected.

c) Deferred revenue expenditure in respect of amounts not represented by specific assets are written off
over a period of 3 years. As a result, the profit for the year is overstated by Rs.1,10,798.00.

166

4) Additional statutory information disclosed in separate financial statements of the parent and the
subsidiary having no bearing on the true and fair view of the Consolidated Financial Statements and also
the information pertaining to the items which are not material, have not been disclosed in the
Consolidated Financial Statement in view of the general clarification issued by the Institute of Chartered
Accountants of India (ICAI).

5) In the case of ViBank Housing Finance Limited, Prior Period Adjustments represent the following items
of the previous year:

(Amount in rupees)
Debit Credit
a) TA paid to Shri R Rajagopalan for March 2002 - 1,383.00
b) Payment towards surcharge for 2001-02 6,148.00 -
c) Internal Audit fees for Dec 01 and Mar 02 (Jayanagar) 2,625.00 -
d) Internal Audit fees for Dec 01 and Mar 02 (R T Nagar) 2,625.00 -
e) Provision for Statutory Auditors for 2001-02 (Trinity Circle) - 8,000.00
f) TDS of deposits for 2001-02 (Trinity Circle) - 19,243.00
g) Provision for Deferred Revenue Expenditure for 2000-01 15,472.00 -
T O T A L 26,870.00 28,626.00

6) SEGMENT REPORT:

In the matter of disclosure of segment details in compliance with AS 17, the following details are given
pursuant to the Reserve Bank of India guidelines in this regard.

SEGMENT REPORT ON CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED
31.03.2003

(Rs. in 000s)
BUSINESS SEGMENTS TREASURY OTHER BANKING
OPERATIONS
TOTAL
REVENUE 5748303 14598170 20346473
RESULTS 1505358 2431789 3937147
UNALLOCATED EXPENSES - - 1952485
OPERATING PROFIT - - 4355633
INCOME TAX - - 390876
EXTRA ORDINARY PROFIT/LOSS
NET PROFIT - - 1984662
OTHER INFORMATION
SEGMENT ASSETS 52369489 136614670 188984159
UNALLOCATED ASSETS - - 3002195
TOTAL ASSETS - - 191986354
SEGMENT LIABILITIES 49132791 134643867 183776658

167
UNALLOCATED LIABILITIES - - -
TOTAL LIABILITIES - - 183776658

Note:

1) For the purposes of Segment reporting in terms of AS 17 of the ICAI, the business of the
bank has been broadly classified under two business segments:

a) Relating to Domestic Treasury Operations

b) Relating to Other Banking Operations

2) Expenses, assets and liabilities wherever directly related to segments have been accordingly
allocated to segments and wherever not directly related have been allocated on the basis of
average operating assets.

7) In the books of ViBank Housing Finance Limited, remuneration paid to the Managing Director on
deputation from Vijaya Bank included in Profit and Loss Account is as under:
Salaries, allowances, P.F. etc Rs.3,10,409.00 (previous year Rs.2,86,413.00)

8) In the case of ViBank Housing finance Limited, Deferred tax represents tax on timing difference on
account of Depreciation, provision for doubtful assets, gratuity, pension fund and leave salary.

9) Vijaya Bank has sponsored Visvesvaraya Grameena Bank (VGB), a Regional Rural Bank with Vijaya
Bank holding 35% of VGBs share capital.

Vijaya Bank's share of current year's earnings in the associate (VGB) has been aggregated into its Profit &
Loss account of the current year.
The investment of Vijaya Bank in its associate (VGB) has been valued at carrying cost in accordance with
AS 23 (Accounting for investments in associates in consolidated financial statements) and this has
resulted in Capital Reserve which is shown as Capital Reserve on Consolidation in the Consolidated
Balance Sheet of Vijaya Bank. (Goodwill in respect of previous year ended 31.03.2002).

10) The accounts of ViBank Housing Finance Limited are subject to the comments of C & AG of India under
section 619 (4) of the Companies Act 1956.

11) Previous year's figures have been re-grouped/re-classified wherever necessary in conformity with
presentation of accounts of this year.

168

AUDITORS' REPORT TO THE PRESIDENT OF INDIA ON THE CONSOLIDATED
FINANCIAL STATEMENTS OF VIJAYA BANK

1. We have examined the attached consolidated Balance Sheet of Vijaya Bank and its
subsidiary Vibank Housing Finance Limited as on 31
st
March 2003, the consolidated
Profit and Loss Account and consolidated Cash Flow Statement for the year ended on
that date.

2. These financial statements are the responsibility of Vijaya Bank's Management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted Auditing Standards in
India. These Standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are prepared, in all material
respects, in accordance with an identified financial reporting framework and are free
of material mis-statements. An audit includes, examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statements. We believe that
our audit provides a reasonable basis for our opinion.

3. We have not audited the financial statements of the subsidiary Vibank Housing
Finance Limited, whose financial statements reflect total assets of Rs.160.74 crore as at
31
st
March 2003 and total revenues of Rs.20.38 crore for the year then ended. These
financial statements have been audited by other auditor whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included in
respect of the subsidiaries, is based solely on the report of the other auditor. The
individual financial statements of Vijaya Bank and Vibank Housing Finance Limited
along with the respective audit reports thereon are enclosed.

4. We report that the

Consolidated financial statements have been prepared by the Bank in accordance
with the requirements of Accounting Standard (AS) 21, 'Consolidated Financial
Statements', issued by the Institute of Chartered Accountants of India and the
requirements of the Reserve Bank of India and on the basis of the separate audited
financial statements of Vijaya Bank and its subsidiary included in the consolidated
financial statements.

5. We invite attention to:

As explained, the Bank and its subsidiary are operating in different
circumstances and it is not practicable to use uniform accounting policies in
preparing the consolidated financial statements and to make appropriate
adjustments if any for the variation in preparing the said statements. Refer
Note No.3,

169
Prior period items have been identified for the Vibank Housing Finance
Limited only. No such details have been identified for the parent bank
pursuant to AS -5 issued by the ICAI,

Limited disclosure pursuant to AS - 17 of ICAI, refer Note No.6 on Segment
Reporting.

6. On the basis of the information and explanation given to us and on the
consideration of the separate audit reports on individual audited financial
statements of Vijaya Bank and its aforesaid subsidiary, read with paragraph 5
given above and with the Notes on Accounts, Statement of Principal Accounting
Policies and relevant notes and policies to the consolidated accounts, we are of the
opinion that:

(a) The consolidated Balance Sheet gives a true and fair view of the consolidated
state of affairs of Vijaya Bank and its Subsidiary Vibank Housing Finance
Limited as at 31
st
March 2003 ;

(b) The consolidated Profit and Loss account gives a true and fair view of the
consolidated results of operations of Vijaya Bank and its Subsidiary Vibank
Housing Finance Limited for the year ended on that date; and

(c) The consolidated Cash Flow statement of Vijaya Bank and its subsidiary
Vibank Housing Finance Limited for the year ended on that date.

170

XIII. STATUTORY AND OTHER INFORMATION

MINIMUM SUBSCRIPTION
If the Bank does not receive the minimum subscription of 90% of the issue amount, till the date of
closure of the Issue, or if the subscription level falls below 90% after the closure of the Issue on
account of cheques having been returned unpaid or withdrawals of applications, the Bank shall
forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after
the Company becomes liable to pay the amount, the Bank shall pay interest as per Section 73 of
the Companies Act, 1956.

EXPENSES OF THE ISSUE
The expenses of the Issue payable by the Bank inclusive of brokerage, fees payable to the Lead
Managers to the Issue, Co-Managers to the Issue, Advisor to the Issue, Legal Advisor, Auditors,
reimbursement of expenses to the Registrars, stamp duty, printing, advertising and distribution
expenses, listing fees and other expenses are estimated to be approximately 5% of the Issue size
(depending on the premium decided) and will be met out of the proceeds of the Issue. The
estimated break-up for the expenses is as given in the following table.

Particulars Rs. in lacs
Lead Managers fees, Out of Pocket Expenses
and Brokerage

Advertisement budget
Printing & Stationery
Registrar fees
Travelling for conference and other expenses
Contingencies
Total expenses

Fees payable to the Lead Managers to the issue
The fee payable to the Lead Managers to the Issue are as set out in the relevant documents,
copies of which are kept open for inspection at the Head Office of the Bank.

Fees payable to the Co-Managers to the issue
The fee payable to the Co-Managers to the Issue are as set out in the relevant document, a copy of
which is open for inspection at the Head Office of the Bank.

Fees payable to the Advisor to the issue
The fee payable to the Advisor to the Issue are as set out in the relevant document, a copy of
which is open for inspection at the Head Office of the Bank.

Fees payable to the Registrars to the issue
The fee payable to the Registrars to the Issue are as set out in the relevant documents, copies of
which are kept open for inspection at the Head Office of the Bank.

Brokerage
As per Section 13 of the Banking Regulation Act 1949, no Banking company can directly or
indirectly pay by way of commission, brokerage, discount in any form in respect of any shares
issued by it, any amount exceeding in the aggregate 2.5% of the paid up value of the said shares.

171

The Bank has obtained an exemption from the above requirement vide Gazette notification
issued by Government of India no. ______________dated _____________ for a period of ___ years
from the date of the notification. The brokerage for the present issue shall be decided by the Bank
closer to the launch of the issue.

In case of tampering or overstamping of broker codes on the Application Form, the Banks
decision to pay brokerage in this respect will be final and no further correspondence will be
entertained in the matter.

Since the Issue is not being underwritten, no underwriting commission is payable.

PREVIOUS ISSUES BY THE BANK
The Bank came out with a public issue of equity shares in November 2000. The details of the
same are as given in the following table.

Year Size
(Rs. in
crores)
Times
oversubscribe
d
Share
s
Listed
on
Date of
despatc
h of
refund
orders*
Date of
allotment*
Date of
despatch of
share
certificates
*
Date of
demat credit
to
shareholders
*
Date of
listing*
November
2000
100 1.83 BSE,
NSE
and
BgSE
January
1 2001
January 3
2003
January 2
2001
January 3
2001
January
4 2001

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

Serie
s
Year of
Placement
Size (Rs.
in crores)
Tenor
(in
months)
Coupo
n
(% p.a.)
Redemption Due
on
Outstanding
amount as on
31.03.2003 (Rs.
in crores)
I FY 1999 120 63 14.2 04.4.2004 120
II FY 2000 60 84 12.35 06.12.2006 60
III FY 2002 150 90 7.50 08.05.2010 150

ISSUES FOR CONSIDERATION OTHER THAN FOR CASH
There have not been any issues for consideration other than cash.

PREVIOUS COMMISSION AND BROKERAGE
The amounts paid by the Bank as commission and brokerage for subscribing to or agreeing to
subscribe to or procuring or agreeing to procure subscription for any of the shares of the Bank in
its last public issue was Rs. 48.87 lacs.

OPTION TO SUBSCRIBE
Save as otherwise stated in this Offer Document, the Bank has not given any person nor does it
propose to give any person any option to subscribe to the shares of the Bank. The investor shall
have the option either to receive the share certificates or to hold the securities in dematerialised
form with a depository.

172
TERMS OF APPOINTMENT OF CHAIRMAN AND MANAGING DIRECTOR
In exercise of the powers conferred by clause (a) of sub-section (3) of section 9 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1980, read with sub-clause (1) of
clause 3, clause 5, clause 6, clause 7 and sub-clause (1) of clause 8 of the Nationalised Banks
(Management and Miscellaneous Provisions) Scheme 1980, the Central Government, after
consultation with RBI, has appointed Shri M. S. Kapur as Chairman and Managing Director of
the Bank and he has assumed charge of the Bank on August 14 2002. His appointment is valid
upto March 31 2006.

His compensation details are as follows:

Salary: Rs.37, 517.50 per month in the scale of Rs. 24050-650-26000 with effect from16.08.2002.

Other benefits: As per the rules.

TERMS OF APPOINTMENT OF EXECUTIVE DIRECTOR
In exercise of the powers conferred by clause (a) of sub-section (3) of section 9 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1980, read with sub-clause (1) of
clause 3 and sub-clause (1) of clause 8 of the Nationalised Banks (Management and
Miscellaneous Provisions) Scheme 1980, the Central Government, after consultation with RBI,
has appointed Shri P.A. Sethi as a Whole Time Director (designated as Executive Director) of the
Bank for the period from March 7 2003 or from the date of taking charge, whichever is later and
upto October 31, 2004.
His compensation details are as follows:

Salary: Rs. 34,417.50 per month in the scale of Rs. 22050-500-24050 with effect from 07.03.2002.

Other benefits: As per the rules.

PAYMENT OR BENEFIT TO THE DIRECTORS AND OFFICERS OF THE BANK
No amount or benefit has been paid or given or is intended to be paid or given to any Director or
Officer of the Bank except their normal remuneration and/or reimbursement for the services
rendered to the Bank to which they are entitled or may become entitled to under the provisions
of the Bank Nationalisation Act or otherwise in accordance with the Law.

NATURE AND INTEREST OF DIRECTORS
The Directors of the Bank are interested to the extent of shares held by them and/ or by their
friends and relatives or which may be subscribed by them and/ or allotted to them by the Bank.

The Directors of the Bank are interested to the extent of fees, if any, payable to them for attending
meetings of the Board or Committee and reimbursement of travelling and other incidental
expenses, if any, for such attendance as per the Articles of Association of the Bank.

The Directors of the Bank are not interested in the appointment of or acting as Underwriters,
Registrars and Bankers to the Issue or any such intermediary registered with SEBI.

Save as stated above, no amount or benefit has been paid or given to the Banks Directors or
Officers since its incorporation nor is intended to be paid or given to any Directors or Officers of
the Bank except the normal remuneration and/or disbursement for services as Directors, Officers
or Employees of the Bank.

173
No Director of the Bank is interested in the appointment of any of the Managers, Registrars and
Bankers to the Issue. No Director of the Bank is interested in any property acquired by the Bank
within two years of the date of the Offer Document or proposed to be acquired by it.

The Directors are not interested in any loan or advance given by the Bank to any person(s)/
Company (ies) nor is any beneficiary of such loan or advance related to any of the Directors of
the Bank.

PURCHASE OF PROPERTY
There is no property which the Bank has purchased or acquired or proposes to purchase or
acquire, which is to be paid for, wholly or partly, out of the proceeds of the present Issue or the
purchase or acquisition of which has not been completed on the date of issue of this Offer
Document, other than:

a) the contracts for the purchase or acquisition whereof were entered into, or may be
entered into, in the ordinary course of the Bank's business, such contracts not being made
in contemplation of the Issue or in consequence of the contract; or
b) property in respect of which the amount of the purchase consideration is not material.

The Bank has not purchased any property in which any of its Directors had or have any direct or
indirect interest or in respect of any payment thereof.

The Bank has no plans, at present, to acquire any running business out of the proceeds of the
Issue.

CAPITALISATION OF RESERVES OR PROFITS

The Bank has not capitalised the reserves or profits since its nationalisation.

REVALUATION OF ASSETS
The Premises of the Bank were revalued during the year 1994-95 on the basis of approved
valuers reports. The incremental portion amounting to Rs. 142.86 crores was credited to the
Revaluation Reserve in that year.

XIV. MAIN PROVISIONS OF THE BANK NATIONALISATION ACT
Relevant provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act,
1970/ 1980 as amended by the Banking Companies (Acquisition and Transfer of Undertakings)
Amendment Act, 1994 & Banking Companies (Acquisition and Transfer of Undertakings)
Amendment Act, 1995 hereinafter collectively referred to as the Bank Nationalisation Act are:

Authorised Capital

As per the provisions of Section 3 (Sub-Section 2A) of the Banking Companies (Acquisition) Act,
1970 the Authorised Capital of the Bank shall be Rupees One Thousand and Five Hundred crores
to be divided into One Hundred and Fifty crores of fully paid-up equity shares of Rs.10/- each.

Provided that the Central Government may, after consultation with the Reserve Bank of India
and by notification in the Official Gazette, increase or reduce the authorised capital as it thinks
fit, so however that after such increase or reduction, the authorised capital shall not exceed Rs.
Three Thousand crores, or be less than Rs. One Thousand and Five Hundred Crores.

174
Issued Capital

Section 3 (Sub-Section 2B) of the Banking Companies (Acquisition) Act, 1970 provides that the
paid-up capital may from time to time be increased by

(a) Such amounts as the Board of Directors of the corresponding new Bank may, after
consultation with the Reserve Bank of India and with the previous sanction of the Central
Government transfer from the reserve fund established by such Bank to such paid-up capital;

(b) Such amounts as the Central Government may, after consultation with the Reserve Bank,
contribute to such paid-up capital;

(c) Such amounts as the Board of Directors of the corresponding new Bank may, after
consultation with the Reserve Bank and with the previous sanction of the Central
Government, raise by Public Issue of shares as may be prescribed, so however, that the
Central Government shall at all times hold not less than 51% of the paid-up capital of each
corresponding new Bank.

The entire paid-up capital of the corresponding new Bank, except the paid-up capital raised by
public Issue under clause (c) of Sub-Section 2B shall stand vested in, and allotted to, the Central
Government.

Sec 3 (2BB) of Banking Companies (Acquisition) Act, 1970 provides that notwithstanding
anything contained in subsection (2), the paid capital of a corresponding new Bank constituted
under subsection (1) may from time to time and before any paid up capital is raised by Public
Issue under clause (c) of sub section (2B) be reduced by

(a) the Central Government after consultation with the Reserve Bank by cancelling any paid up
capital which is lost, or is unrepresented by available assets;
(b) the Board of Directors, after consultation with Reserve Bank and with the previous sanction
of the Central Government, by paying off any paid up capital which is in excess of the wants
of the corresponding new Bank.......

(2BBB) Notwithstanding anything contained in sub section (2BB) or sub-sub section (2BBA), the
paid up capital of a corresponding new Bank shall not be reduced at any time so as to render it
below twenty five percent of the paid up capital of that Bank as on date of commencement of the
Banking Companies (Acquisition and Transfer of Undertakings) Amendment Act, 1995.

Rights of Equity Shareholders

As to Dividend
Section 10(7): After making provision for bad and doubtful debts, depreciation in assets,
contributions to staff and Superannuation funds and all other matters for which provision is
necessary under any law, or which are usually provided for by Banking companies, a
corresponding new Bank may, out of its net profits, declare a dividend and retain the surplus, if
any.

Voting Rights

Section 3(2E): No shareholder of the corresponding new Bank, other than the Central
Government, shall be entitled to exercise voting rights in respect of any shares held by him in

175
excess of one per cent of the total voting rights of all the shareholders of the corresponding new
Bank.

Meeting of Shareholders

Section 10A: A General Meeting (in this Act referred to as an Annual General Meeting) of every
corresponding new Bank which has issued capital under clause (c) of sub-section (2B) of Section
3 shall be held at the place of the Head Office of the Bank in each year at such time as shall from
time to time be specified by the Board of Directors:

- Provided that such Annual General Meeting shall be held before the expiry of six weeks from
the date on which the Balance- Sheet together with the Profit and Loss account and Auditors'
Report is under sub-section (7A) of section 10, forwarded to the Central Government or to
the Reserve Bank, whichever date is earlier.

- The shareholders present at an Annual General Meeting shall be entitled to discuss the
Balance Sheet and the Profit and Loss Account of the corresponding new Bank made up to
the previous 31st day of March, the report of the Board of Directors on the working and
activities of the corresponding new Bank for the period covered by the accounts and the
Auditor's Report on the Balance Sheet and Profit and Loss Account.

Transfer of Shares and Share Registers

Section 3 (2D): The shares of every corresponding new Bank not held by the Central Government
shall be freely transferable.

Section 3 (2F): Every corresponding new Bank shall keep at its Head Office a Register, in one or
more Books, of the shareholders (in this Act referred to as the Register) and shall enter therein
the following particulars:

(i) the names, addresses and occupations, if any, of the shareholders and a statement of the
shares held by each shareholder, distinguishing each share by its denoting number;
(ii) the date on which each person is so entered as a shareholder;
(iii) the date on which any person ceases to be a shareholder and
(iv) such other particulars as may be prescribed

Section 3(2G): Notwithstanding anything contained in sub-section (2F), it shall be lawful for
every, corresponding new Bank to keep the Register in computer floppies or diskettes subject to
such safeguards as may be prescribed.

Section 3 (3): Notwithstanding anything contained in the Indian Evidence Act, 1872, a copy of, or
extract from, the Register, certified to be a true copy under the hands of an officer of the
corresponding new Bank authorised in this behalf by it, shall in all legal proceedings, be
admissible in evidence.

Section 3A: Notwithstanding anything contained in sub-section (2F) of Section 3, no notice of any
trust, express, implied or constructive, shall be entered on the Register, or be receivable, by the
corresponding new Bank.

Board of Directors and its Powers

Constitution of the Board of Directors:

176
Section 9 (3): Every Board of Directors of a corresponding new Bank, constituted under any
scheme made under Section (1), shall include:

(i) not more than two whole-time directors to be appointed by the Central Government after
consultation with the Reserve Bank;
(ii) one director who is an official of the Central Government to be nominated by the Central
Government provided that no such Director will be a Director of any other
corresponding new Bank as in terms of the Banking Companies (Acquisition) Act, 1970;
(iii) one director who is an officer of the Reserve Bank to be nominated by the Central
Government on the recommendations of the Reserve Bank.
Explanation: For the purpose of this clause "an officer of the Reserve Bank" includes an
officer of the Reserve Bank who is deputed by the Bank under Section 54AA of the
Reserve Bank of India Act, 1934 to any institution referred to therein.
(iv) Not more than 2 directors to be nominated by the Central Government from amongst
SEBI established under Section (3) of SEBI Act 1992 (15 of 1992), the National Bank for
Agriculture & Rural Development established under section (3) NABARD Act 1981 (61
of 1981) , Public financial institutions as specified in subsection (1) or notified from time
to time under Sub-Section (2) of Section (4A) of Companies Act 1956 (1 of 1956) and other
institutions established or constituted by or under any Central Act or incorporated under
the Companies Act 1956 and having not less than 51% of the paid-up share capital held
or controlled by the Central Government.
(v) one director, from among such of the employees of the corresponding new Bank who are
workmen under clause(s) of Section 2 of the Industrial Disputes Act, 1947 to be
nominated by the Central Government in such manner as may be specified in a scheme
made under this section;
(vi) one director, from among the employees of the corresponding new Bank, who are not
workmen under clause (S) of Section 2 of the Industrial Disputes Act, 1947, to be
nominated by the Central Government after consultation with Reserve Bank;
(vii) one director who has been a Chartered Accountant for not less than 15 years to be
nominated by the Central Government after consultation with the Reserve Bank;
(viii) subject to the provisions of clause (i), not more than six directors, to be nominated by the
Central Government;
(ix) where the capital issued under clause (c) of sub-section (2B) of Section 3 is -
not more than twenty per cent, of the total paid up capital, not more than two
directors.
more than twenty per cent but not more than forty per cent, of the total paid-up
capital, not more than four directors.
more than forty per cent, of the total paid-up capital, not more than six directors
to be elected by the shareholders other than the Central Government, from amongst
themselves.

Provided that on the assumption of charge after election of any such directors under this clause,
equal number of directors nominated under clause (h) shall retire in such manner as may be
specified in the scheme.

(3A): The directors to be nominated under clause (h) or to be elected under clause (i) of Sub-
Section 3 shall -

(A) have special knowledge or practical experience in respect of one or more of the following
matters, namely:
(i) agricultural and rural economy
(ii) Banking

177
(iii) co-operation
(iv) economics
(v) finance
(vi) law
(vii) small scale industry
(viii) any other matter the special knowledge of, and practical experience in which would
in the opinion of the Reserve Bank, be useful to the corresponding new Bank;
(B) represent the interest of depositors; or
(C) represent the interests of farmers, workers and artisans.

Removal of Directors

Section 9 (3B): Where the Reserve Bank is of the opinion that any director of a corresponding
new Bank elected under clause (i) of Sub-section (3) does not fulfil the requirements of the Sub-
Section (3A), it may, after giving to such director and the Bank a reasonable opportunity of being
heard, by an order remove such director and on such removal, the Board of Directors shall co-opt
any other person fulfilling the requirements of sub-section 3(A) in place of the person so
removed till a Director is duly elected by the shareholders of the corresponding new Bank in the
next Annual General Meeting and the person so co-opted shall be deemed to have been duly
elected by the shareholders of the corresponding new Bank as a director.

Powers of Board of Directors

Section 19:
(1) The Board of Directors of a corresponding new Bank may, after consultation with the
Reserve Bank and with the previous sanction of the Central Government by notification in
the Official Gazette make the regulations, not inconsistent with the provisions of this Act or
any scheme made thereunder, to provide for all matters for which provision is expedient for
the purpose of giving effect to the provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, the regulations
may provide for all or any of the following matters, namely:
(a) the powers, functions and duties of local boards and restrictions, conditions or
limitations, if any, subject to which they may be exercised or performed, the formation
and constitution of local committees and committees of local boards (including the
number of members of any such committee) the powers, functions and duties of such
committees, the holding of meetings of local committees and committees of local boards
and the conduct of business there at;

(b) the manner in which the business of the local boards shall be transacted and the
procedure in connection therewith.;
b(a) the nature of shares of the corresponding new Bank, the manner in which and the
conditions subject to which shares may be held and transferred and generally all matters
relating to the rights and duties of shareholders.
b(b) the maintenance of register, and the particulars to be entered in the register in
addition to those specified in sub-section (2F) of Section 3, the safeguards to be observed
in the maintenance of register on computer, floppies or diskettes, inspection and closure
of the register and all other matters connected therewith.
b(c) the manner in which general meetings shall be convened, the procedure to be
followed thereat and the manner in which voting rights may be exercised.
b(d) the holding of meetings of shareholders and the business to be transacted thereat.

178
b(e) the manner in which notices may be served on behalf of the corresponding new
Bank upon shareholders or other persons.
b(f) the manner in which the directors nominated under clause (g) of sub-section (3) of
Section 9 shall retire.

(c) the delegation of powers and functions of the Board of Directors of a corresponding new
Bank to the general managers, directors, or other employees of that Bank.

(d) the conditions or limitations subject to which the corresponding new Bank may appoint
advisors, officers or other employees and fix their remuneration and other terms and
conditions of service.

(e) the duties and conduct of advisors, officers or other employees of the corresponding new
Bank.

(f) the establishment and maintenance of Superannuation, pension, provident or other
funds for the benefit of officers or other employees of the corresponding new Bank or of
the dependants of such officers or other employees and the granting of Superannuation
allowances, annuities and pensions payable out of such funds.

(g) the conduct and defence of legal proceedings by or against the corresponding new Bank
and the manner of signing and pleadings.

(h) the provision of a seal for the corresponding new Bank and the manner and effect of its
use.

(i) the form and manner in which contracts binding on the corresponding new Bank may be
executed.

(j) the conditions and the requirements subject to which loans or advances may be made or
bills may be discounted or purchased by the corresponding new Bank.

(k) the persons or authorities who shall administer any pension, provident or other fund
constituted for the benefit of officers or other employees of the corresponding new Bank
or their dependants.

(l) the preparation and submission of statements of programmes of activities and financial
statements of the corresponding new Bank and the period for which and the time within
which such statements and estimates are to be prepared and submitted; and

(m) generally for the efficient conduct of the affairs of the corresponding new Bank.

XV. MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The contracts referred to below (not being contracts entered into in the ordinary course of
business carried on by the Bank or entered into more than two years prior to the date of the Offer
Document) which are or may be deemed to be material have been entered into by the Bank.
Copies of these contracts, together with the copies of the documents referred to below, all of
which have been attached to a copy of the Offer Document, which has been delivered to the
Bangalore Stock Exchange, may be inspected at the Head Office of the Bank between 10.00 A.M.
and 12.00 Noon on any working day of the Bank from the date of the Offer Document until the
date of closing of the subscription list.

179

A. Material Contracts

1. Letter dated 10.06.2003 from the Bank appointing SBI Capital Markets Ltd. as Lead Managers
to the Issue.

2. Letter dated 10.06.2003 from the Bank appointing DSP Merill Lynch Ltd.. as Lead Managers
to the Issue.

3. Letter dated 10.06.2003 from the Bank appointing J M Morgan Stanley Ltd. as Lead Managers
to the Issue.

4. Letter dated 10.06.2003 from the Bank appointing Allianz Securities Ltd. as Lead Managers
to the Issue.

5. Letter dated 10.06.2003 from the Bank appointing A K Capital Services Ltd. as Lead
Managers to the Issue.

6. Memorandum of Understanding dated 04.07.2003 between the Bank and SBI Capital Markets
Ltd. the Lead Managers to the Issue along with the Inter-se Allocation of Responsibilities
between the Lead Managers.

7. Memorandum of Understanding dated 04.07.2003 between the Bank and DSP Merill Lynch
Ltd the Lead Managers to the Issue along with the Inter-se Allocation of Responsibilities

8. Memorandum of Understanding dated 04.07.2003 between the Bank and J M Morgan Stanley

9. Memorandum of Understanding dated 04.07.2003 between the Bank and Allianz Securities

10. Memorandum of Understanding dated 04.07.2003 between the Bank and A K Capital
Services Ltd the Lead Managers to the Issue along with the Inter-se Allocation of
Responsibilities between the Lead Managers.

11. Letter dated 10.06.2003, appointing Centrum Finance Ltd. as Co- Managers to the Issue.

12. Letter dated 10.06.2003 appointing Karvy Investor Services Ltd.as Co- Managers to the Issue.

B. Material Documents

1. Resolution of Board of Directors of the Bank at the Board Meeting held on 27.03.2003
i) approving the Issue
ii) appointing Lead Managers, Advisor to the Issue
iii) appointing and authorising the issue Committee for taking any action with regard to the
Issue and signing the Offer Document

2. Resolution of the Board of Directors dated 18.06.2003
i) approving the draft offer document

180
ii) authorising the Registrars to sign the Stockinvests on behalf of the Bank to dispose off
the applications received with Stockinvest.

3. Consent dated 28.06.2003 from the Auditors to act as Auditors to the Issue and for inclusion
of their report on the Accounts of the Bank in the form and content in which they appear in
the Offer Document

4. Tax Benefits report of the Auditors and their consent to the inclusion of the report and their
name in the offer document.

5. Copies of the Balance Sheet and Profit and Loss Accounts of Vijaya Bank, ViBank Housing
Finance Limited and Visveshvarya Grameena Bank for the five years ended March 31, 1999,
2000, 2001, 2002 and 2003.

6. Consent from all the other intermediaries viz. Lead Managers, Co-Managers and Registrars
for acting in their respective capacities.

7. Copies of the Listing Applications dated -----------, _________ and --------- to the Stock
Exchanges at Bangalore, Mumbai and the National Stock Exchange respectively for listing of
equity shares of the Bank.

8. Letter No. F.No.11/15/2001-BOA dated 9
th
June 2003 from Government of India, Ministry of
Finance, Department of Economic Affairs (Banking Division) to the Bank giving approval to
raise the paid up capital of the Bank by issue of shares.

9. Letter No. ___________ dated ____________ from Government of India, Ministry of Finance,
Department of Economic Affairs (Banking Division) to the Bank giving its consent to lock-in
of its shares as per the existing stipulations.

10. Government of India, Ministry of Finance, Department of Economic Affairs (Banking
Division), letter no F. No.12/35/99-BOA dated 27
th
March 2000, permitting the Bank to
reduce its paid-up capital by adjusting accumulated losses Rs.297.07 crores from its paid-up
capital as on March 31, 2003.

11. Gazette notification no. F.No.11/15/2001-BOA dated 9
th
June, 2003 from Ministry of
Finance, Department of Economic Affairs (Banking Division) exempting the Bank from
provisions of Section 15 (1) of the Banking Regulation Act, 1949, relating to payment of
Dividend and from Section 13 of the Banking Regulation Act, 1949, relating to payment of
brokerage. (Gazette notifications shall be issued separately.)

12. Tripartite agreement dated 22
nd
August 2000 entered into between the Bank, National
Securities Depository Ltd. (NSDL) and M/s. MCS, the Registrars to the Issue.

13. Tripartite agreement dated 28
th
July, 2000 among the Bank, Central Depository Services
(India) Ltd. (CDSL) and M/s MCS, the Registrars to the Issue.

14. Government of India notification no.F.No.9/24/2002-BOI dated 7
th
March 2003 appointing
Sri.P A Sethi as Executive Director of Vijaya Bank.

15. Government of India notification no. F.No.9/6/2002-BOI dated 14
th
August 2002 detailing
the terms and conditions of the appointment of Sri. M S Kapur as Chairman cum Managing
Director of Vijaya Bank.

181

16. Letter no. -------------- dated ----------- from Securities & Exchange Board of India, letter dated -
-------------- from the Bangalore Stock Exchange, letter dated ----------- from the Stock
Exchange, Mumbai and letter dated ------------- from the National Stock Exchange Ltd.

182
PART III
DECLARATION

All relevant provisions of the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 and Banking Companies (Acquisition and Transfer of Undertakings) Amendment Act,
1994 & Banking Companies (Acquisition and Transfer of Undertakings) Amendment Act, 1995
and Banking Companies (Acquisition and Transfer of Undertakings) Amendment Act, 1996 and
the guidelines issued by the Government have been complied with and no statement made in
this Draft Offer Document is contrary to the provisions of the said Act/ Regulations/ Guidelines
and rules framed thereunder.

Signed by all the Directors of the Board/ Committee, pursuant to the authority granted by the
Board of Directors of the Bank at the Board Meeting held on July 23, 2003.
Sd/-

- Chairman & Managing Director Shri M.S. Kapur
- Executive Director Shri P. A. Sethi
-Director Shri R. Renganath
-Director Shri A. P. Hota
-Director Shri M. Kiran
-Director Shri Babuseth Tyerwala
-Director Smt. Sukhada Mishra
-Director Shri Pawan Kumar Sharma
-Director Shri S. Ananathan
-Director Shri R. Ashok Kumar
-Director Shri B. K. Jagdish Chandra
-Director Shri S. P. Krishnaswamy

Place : Bangalore
Dated : July 23 2003

Vijaya Bank

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