FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE BANK ONLY LETTER OF OFFER

Transcription

1 LETTER OF OFFER FEBRUARY 21,2011 FOR THE EQUITY SHAREHOLDERS OF THE BANK ONLY The Karur Vysya Bank Limited The Bank was incorporated on June 22, 1916 under the Companies Act, 1913 with the Registrar of Companies, Trichinopoly. The Bank now comes under the jurisdiction of the Registrar of Companies, Chennai. (For further details, please see "History and Other Corporate Matters" on page 59) Registered and Central Office : Post Box No. 21, Erode Road, Karur , Tamil Nadu, India Tel : ; ; Fax : Contact Person : Mr. R. Kannan, Company Secretary and Compliance Officer kvbshares@kvbmail.com; Website : FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE BANK ONLY ISSUE OF 30,502,976 EQUITY SHARES WITH A FACE VALUE OF ` 10/- EACH ("RIGHTS EQUITY SHARES") FOR CASH AT A PRICE OF ` 150/- INCLUDING A PREMIUM OF ` 140/- AGGREGATING UPTO ` CRORES TO THE EXISTING EQUITY SHAREHOLDERS OF THE KARUR VYSYA BANK LIMITED ("THE BANK" OR "THE ISSUER") ON RIGHTS BASIS IN THE RATIO OF TWO (2) RIGHTS EQUITY SHARES FOR EVERY FIVE (5) EQUITY SHARES HELD ON THE RECORD DATE I.E. FEBRUARY 18, 2011 ("RIGHTS ISSUE/ THE ISSUE"). THE ISSUE PRICE FOR THE EQUITY SHARES IS 15 TIMES OF THE FACE VALUE OF THE EQUITY SHARES. (in `) On Application First call Second and final call Total Amount Payable per equity share Payment Method Applicable to all categories of shareholders Face Value Premium Total * Please see risk factor no. 10 in the chapter titled "Risk Factors" beginning on page 11 of the Letter of Offer for risks associated with Payment Method. The Equity Shares issued under this issue shall be fully paid up with in 6(six) months from the date of allotment. For details on the payment methods please see "Terms of the Issue" beginning on page 123 of the Letter of Offer. GENERAL RISKS 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 risks involved. The securities being offered in the Issue have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Investors are advised to refer to the chapter titled "Risk Factors" beginning on page 11 of the Letter of Offer before making an investment in this Issue. ISSUER S ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that the Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in the Letter of Offer is true and correct in all material aspects 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 make this document as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The existing Equity Shares of the Bank are listed on the National Stock Exchange of India Limited ("NSE") and are traded at the Bombay Stock Exchange Limited ("BSE") under the permitted category. Application will be made to NSE for permission to deal in and for an official quotation in respect of the equity shares of the Bank being offered in terms of the Letter of Offer. The Bank has received 'in-principle' approval from NSE for listing of the equity shares being offered pursuant to this Rights Issue vide their letter no. NSE/ LIST/ dated December 10, For the purpose of this rights issue, the designated stock exchange is NSE. LEAD MANAGER TO THE ISSUE LETTER OF OFFER REGISTRAR TO THE ISSUE Karvy Investor Services Limited "Karvy House", 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad Tel: / Fax: cmg@karvy.com Website: Chennai Office: Contact Person: Mr. Harihara Subramanian Mobile: SEBI Registration No.: INM ISSUE PROGRAMME SKDC Consultants Limited Kanapathy Towers, 1391/A-1, Third Floor, Sathy Road, Ganapathy, Coimbatore Tel : Fax : info@skdc-consultants.com Website : Contact Person: Mr. K. Jayakumar SEBI Registration Number: INR Investor Grievance Id: kvb.rights@skdc-consultants.com ISSUE OPENS ON LAST DATE FOR REQUEST FOR SPLIT APPLICATION FORM ISSUE CLOSES ON February 28, 2011 March 8, 2011 March 15, 2011

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3 TABLE OF CONTENTS SECTION I - GENERAL 2 DEFINITIONS AND ABBREVATIONS 2 PRESENTATION OF FINANCIAL INFORMATION 9 FORWARD LOOKING STATEMENTS 10 SECTION II - RISK FACTORS 11 SECTION III - INTRODUCTION 26 THE ISSUE 26 SUMMARY FINANCIAL STATEMENTS 27 GENERAL INFORMATION 33 CAPITAL STRUCTURE 38 OBJECTS OF THE ISSUE 49 STATEMENT OF TAX BENEFITS 51 SECTION IV - HISTORY AND CORPORATE STRUCTURE 59 SECTION V - MANAGEMENT 63 SECTION VI - FINANCIAL INFORMATION 70 FINANCIAL STATEMENTS 71 CERTAIN OTHER FINANCIAL INFORMATION 106 MARKET PRICE INFORMATION 107 SECTION VII - LEGAL AND OTHER INFORMATION 109 GOVERNMENT AND OTHER APPROVALS 113 MATERIAL DEVELOPMENTS 114 OTHER REGULATORY AND STATUTORY DISCLOSURES 115 SECTION VIII - OFFERING INFORMATION 123 TERMS OF THE ISSUE 123 SECTION IX - STATUTORY AND OTHER INFORMATION 149 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION 149 DECLARATION 150 1

4 SECTION I - GENERAL DEFINITIONS AND ABBREVATIONS The following list of defined terms is intended for the convenience of the reader only and is not exhaustive. Conventional and General Terms Term Description Board : The Board of Directors of the Bank Companies Act : The Companies Act, 1956, as amended Depository : A depository registered with SEBI under the SEBI (Depository and Participant) Regulations, 1996, as amended from time to time. Depositories Act : The Depositories Act, 1996, as amended from time to time. Financial Year/Fiscal : The period of 12 months beginning April 1 and ending March 31 of the next year, unless otherwise stated ISIN : International Securities Identification Number allotted by a depository IT Act : The Income Tax Act, 1961, as amended Indian GAAP : The Generally Accepted Accounting Principles in India US GAAP : The Generally Accepted Accounting Principles in United States of America IFRS : International Financial Reporting Standards Listing Agreement : The equity listing agreements signed between the Bank and the Stock Exchange ` or Rupees and Rs. : The lawful currency of India SEBI Act : The Securities and Exchange Board of India Act, 1992, as amended SEBI Regulations/ ICDR Regulations : The Securities and Exchange Board of India(Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended Takeover Code : The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended Issue Related Terms Term Description Allottee(s) : The successful applicant(s) eligible for Allotment of Rights Equity Shares pursuant to the Issue 2

5 Term Description Allotment/Allotted : Unless the context otherwise requires, the allotment of Rights Equity Shares pursuant to the Issue to the Allottees ASBA /Application Supported by Blocked Amount : The application (whether physical or electronic) used by a shareholder to make an application authorizing the SCSB to block the amount payable on application in their specified bank account ASBA Investor : An applicant who; (a) Bankers to the Issue : The Karur Vysya Bank Limited holds the shares of the Bank in dematerialized form as on the record date and has applied for entitlements and / or additional shares in dematerialized form; (b) has not renounced his/her entitlements in full or in part; (c) is not a renouncee; (d) is applying through a bank account maintained with SCSBs. Business Day : Any day, other than Saturday or Sunday, on which commercial banks are open for business Composite Application Form / CAF : The form used by an Investor to make an application for allotment of Rights Equity Shares pursuant to the Issue Call Notice(s) : Call notice(s) as shall be sent by the Bank to each of the Investors for making the payment towards the balance amount payable under Payment Method Consolidated Certificate : In case of holding of Rights Equity Shares in physical form, the Bank would issue one certificate for the Rights Equity Shares allotted to one folio Controlling Branches : Such branches of the SCSBs which coordinate applications under the Issue by the ASBA Investors with the Registrar to the Issue and the Stock Exchanges and a list of which is available at Designated Branches : Such branches of the SCSBs which shall collect CAF from ASBA investor and a list of which is available on Designated Stock Exchange / DSE : NSE Eligible Equity Shareholder(s) : A holder(s) of Equity Shares as on the Record Date Issue : The issue 30,502,976 of Rights Equity Shares of ` 10/- each for cash at a price of `150/- including a premium of ` 140/ - per Rights Equity Share aggregating upto ` crores to the Eligible Equity Shareholders on rights basis in the ratio of 2 Rights Equity Share(s) for every 5 Equity Share(s) held as on the Record Date, i.e. February 18, 2011 Issue Closing Date : March 15, 2011 Issue Opening Date : February 28, 2011 Issue Price : ` 150/- per Equity Share 3

6 Term Description Issue Proceeds : The monies received by the Bank pursuant to the Rights Equity Shares which are Allotted pursuant to the Issue Investor(s) : The Equity Shareholders of the Bank on the Record Date i.e. February 18, Renouncees and any other persons eligible to subscribe to the Issue Lead Manager(s) : Karvy Investor Services Limited Letter of Offer : The letter of offer filed with the Stock exchange after incorporating SEBI comments on the Draft Letter of Offer Record Date : February 18, 2011 Registrar to the Issue : SKDC Consultants Limited Renouncee(s) : Any person(s) who has / have acquired Rights Entitlements from Eligible Equity Shareholders Rights Entitlement : The number of Rights Equity Shares that an Eligible Equity Shareholder is entitled to in proportion to his / her shareholding in the Bank as on the Record Date Rights Equity Shares : The equity shares of face value ` 10 each of the Bank offered and to be issued and allotted pursuant to the Issue SAF(s) : Split Application Form(s) Self Certified Syndicate Bank or SCSB : The banks which are registered with SEBI under the SEBI (Bankers to an Issue) Regulations, 1994 and offers services of ASBA, including blocking of bank account and a list of which is available on Stock Exchange(s) : The NSE where the Equity Shares of the Bank are presently listed and traded, apart from the BSE where the equity shares of the Bank are traded under permitted category. Bank and Industry Related Terms Term Description The Bank or KVB : The Karur Vysya Bank Limited, the Bank incorporated on June 22, 1916 under the Companies Act, 1913 with the Registrar of Companies, Trichinopoly, having its Registered and Central office at Post Box No. 21, Erode Road, Karur , Tamil Nadu, India Articles/Articles of Association/AoA : Articles of Association of the Bank Auditor : Statutory Auditors of the Bank, namely, M/s R. K. Kumar & Co., Chartered Accountants, Chennai. Bank Acquisition Act : Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, as amended from time to time 4

7 Term Description Board / Board of Directors : The Board of Directors of the Bank or a Committee thereof Chairman : The Chairman of the Bank Company Secretary and Compliance Officer : Mr. R. Kannan Director(s) : Any or all director(s) of the Bank, as the context may require Equity Share(s) : The equity share(s) of the Bank having a face value of ` 10 /-, inter alia including such equity shares of the Bank outstanding and fully -paid up, as on the Record Date, unless otherwise specified in the context thereof Erstwhile Auditors : M/s J L Sengupta & Co., Chartered Accountants, being the erstwhile statutory auditors of the Bank for the period till Memorandum/ Memorandum of Association : Memorandum of Association of the Bank Promoter(s) : Promoter(s) of the Bank i.e. Mr. Athi S Janarthanan, Mr. G. Rajasekaran, Mr. M K Venkatesan and Mr. A K Praburaj Promoter Group : The Promoter Group of the Bank as defined in the SEBI Regulations Registered and Central Office : The Registered and Central office of the Bank located at P.O. Box 21, Erode Road, Karur , Tamil Nadu, India Repatriation : Investment on repatriation basis means an investment the sale proceeds of which are, net of taxes, eligible to be repatriated out of India, and the expression Investment on non -repatriation basis, shall be construed accordingly. GDP : Gross Domestic Product CIBIL : Credit Information Bureau (India) Limited The BR Act/ Banking Regulation Act : The Banking Regulation Act, 1949 and subsequent amendments thereto Technical Terms and Abbreviations Term Description AFS : Available for Sale AY : Assessment Year AGM : Annual General Meeting ALCO : Asset Liability Management Committee AS : Accounting Standards, as issued by the ICAI ATMs : Automated Teller Machines 5

8 Term Description BG : Bank Guarantee Bps : Basis Points BSE : Bombay Stock Exchange Limited CAF : Composite Application Form CAGR : Compounded Annual Growth Rate CAIIB : Certified Associate of Indian Institute of Bankers CAR : Capital Adequacy Ratio CBS : Core Banking Solutions CBLO : Collateralized Borrowing and Lending Obligation CCBD : Cash Credit Book Debts CDR : Corporate Debt Restructuring CDSL : Central Depository Services (India) Limited CFO : Chief Financial Officer CISA : Certified Information Systems Auditor CIT : Commissioner of Income tax CRAR : Capital to Risk Weighted Assets Ratio CRR : Cash Reserve Ratio DEMAT : Dematerialised (Electronic / Depository as the context may be) DIN : Director Identification Number DP : Depository Participant DRT : Debt Recovery Tribunal ECS : Electronic Clearing Service ECGC : Export Credit Guarantee Corporation EGM : Extraordinary General Meeting EPS : Earnings per share FCNR (Account) : Foreign Currency Non-Resident (Account) FCNR (Banks) : Foreign Currency Non-Resident (Banks) FDI : Foreign Direct Investment FEMA : Foreign Exchange Management Act, 1999, as amended and any circulars, notifications, rules and regulations issued pursuant to the provisions thereof 6

9 Term Description FERA : Foreign Exchange Regulation Act, 1973 FI : Financial Institution FII(s) : Foreign Institutional Investors registered with SEBI under applicable laws FIPB : Foreign Investment Promotion Board FY : Financial Year ended GoI / Government : Government of India HFT : Held for Trading HTM : Held to Maturity HRD : Human Resource Department HUF : Hindu Undivided Family ICAI : Institute of Chartered Accountants of India ISIN : International Securities Identification Number IT : Income Tax Act, 1961 ITAT : Income Tax Appellate Tribunal KYC : Know Your Customer Norms as stipulated by the Reserve Bank of India KMP LAF : : Key Managerial Persons Liquidity Adjustment Facility MICR : Magnetic Ink Character Recognition MIS : Management Information System MoU : Memorandum of Understanding N.A. : Not Applicable NAV : Net asset value NEFT : National Electronic Fund Transfer NPA : Non-Performing Asset NR : Non Resident NRE Account : Non Resident External Account NRI(s) : Non Resident Indians, as defined in the Foreign Exchange Management (Deposit) Regulations, 2000, as amended NSDL : National Securities Depository Limited 7

10 Term Description NSE / Designated Stock Exchange : The National Stock Exchange of India Limited OCB(s) : Overseas Corporate Body(ies) OCC : Open Cash Credit PAN / GIR No. : Income Tax Permanent Account Number / General Index Reference Number PAT : Profit after Tax PBIT : Profit before Interest and Tax RPT : Related Party Transcations RBI : Reserve Bank of India RoC : Registrar of Companies, Tamil Nadu, located at Chennai RBS : Risk Based Supervision RTGS : Real time gross settlement SARFAESI Act 2002 / Securitisation Act : Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 SEBI : Securities and Exchange Board of India SGL : Statutory General Ledger SLR : Statutory Liquidity Ratio STT : Securities Transaction Tax Tier I Capital : The core capital of a bank, which provides the most permanent and readily available support against unexpected losses. It comprises paid-up capital and reserves consisting of any statutory reserves, free reserves and capital reserves as reduced by equity investments in subsidiaries, intangible assets, and losses in the current period and those brought forward from the previous period. Tier II Capital : The undisclosed reserves and cumulative perpetual preference shares, revaluation reserves, genera l provisions and loss reserves, hybrid debt capital instruments, investment fluctuation reserves and subordinated debt. TL-B : Term Loan Building WDV : Written down value YTM : Yield to Maturity 8

11 PRESENTATION OF FINANCIAL INFORMATION Unless stated otherwise, the financial information used in this Letter of Offer is derived from the Bank's financial statements as of fiscal 2010 and Reviewed Financial Statements for the nine months ended on December 31, 2010 as stated in the report of M/s. R.K. Kumar & Co, Chartered Accountants, Chennai prepared in accordance with Indian GAAP and the Companies Act and in accordance with the SEBI (ICDR) Regulations, included in this Letter of Offer. The fiscal year of the Bank commences on April 1 and ends on March 31 of the next year. Unless stated otherwise, references herein to a fiscal year are to the fiscal year ended March 31 of a particular year. In this Letter of Offer, any discrepancies in any table between the total and the sum of the amounts listed may be due to rounding off. Unless otherwise stated, throughout this Letter of Offer all figures have been expressed in " ` " or "Rupees" and " Rs. ". 9

12 FORWARD LOOKING STATEMENTS Statements included in this Letter of Offer which contain words or phrases such as "will", "aim", "will likely result", "believe", "expect", "will continue", "anticipate", "estimate", "intend", "plan", "contemplate", "seek to", "future", "objective", "goal", "project", "should", "will pursue" and similar expressions or variations of such expressions, that are "forward-looking statements". Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with the Bank's expectations with respect to, but not limited to, the Bank's ability to successfully implement its strategy, its growth and expansion, technological changes, its exposure to market risks, credit risks, operational risks, general economic and political conditions in India which have an impact on its business activities or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry. For further discussion of factors that could cause the Bank's actual results to differ, see the section entitled "Risk Factors" beginning on page 11 of this Letter of Offer. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. In accordance with SEBI Regulations, the Bank will ensure that investors are informed of material developments until such time as the grant of listing and trading permission by the Stock exchange for the equity shares being issued. Neither the Bank nor the Lead Manager(s) nor any of their respective affiliates or advisors have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI / Stock exchange' requirements, the Bank and Lead Manager will ensure that Investors are informed of material developments until the time of the grant of listing and trading permission for the Rights Equity Shares by the Stock exchange. 10

13 SECTION II - RISK FACTORS An investment in equity and equity related securities involves a high degree of risk. You should carefully consider all the information in this Letter of Offer, including the risks and uncertainties described below, before making an investment. If any of the following risks actually occur, the business, financial condition, results of operations and prospects could suffer, the trading price of the Equity Shares and the Rights Equity Shares of the Bank could decline and you may lose all or part of your investment. You should also pay particular attention to the fact that the Bank is governed in India by a legal and regulatory environment which in some material respects may be different from that which prevails in other countries. The Bank's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the considerations described below and elsewhere in this Letter of Offer. The financial and other implications of material impact of risks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However, there are certain risks where the impact is not quantifiable and hence the same has not been disclosed in such risk factors. Materiality: The risk factors have been determined on the basis of their materiality. The following factors have been considered for determining their materiality: 1. Some events may not be material individually but may be found material collectively. 2. Some events may have a material impact qualitatively instead of quantitatively. 3. Some events may not be material at present but may have material impact in the future. INTERNAL RISK FACTORS 1. The Bank is involved in certain legal proceedings that, if determined against the Bank, could have a material adverse impact on the Bank. The aggregate amount involved is approximately ` crores as on January 31, The Bank is party to various legal proceedings including writ petition proceedings, suits, consumer matters, labour related proceedings, and taxation disputes etc. A summary of the litigations involving the Bank is as under: Sl. No. of Amount Involved Brief Description No. Cases ( ` in crores) 1 Suits filed by the Bank against defaulting borrowers Suits filed against the Bank by borrowers / customers / others In civil and consumer forum cases 3 Proceedings filed by the Bank on disputed tax claims Income Tax Service Tax Proceedings filed against the Bank on disputed tax claims Income Tax Service Tax Labour cases against the Bank Labour cases filed by the Bank Criminal proceedings against the Bank NIL NIL Note: Suits involving the Bank which are not acknowledged as debts are 35 in number amounting to Rs crores. 11

14 There are 450 legal proceedings in which the Bank is involved. The proceedings are pending at various forums and are at different stages of adjudication. The aggregate amounts involved in these legal proceedings are approximately ` crores as on January31, There are 24 disputes relating to income tax assessments in which the aggregate amount involved is approximately ` crores. In the event that an unfavorable order(s) is / are passed, the same may have an adverse effect on the Bank's operations and financial condition. For details, see "Outstanding Litigation and Other Defaults" on page 109 of this Letter of Offer. 2. As on March 31, 2010 and December 31, 2010 the contingent liability amounted to ` 5, and ` crores respectively. Contingent liabilities could adversely affect the financial condition and results of operations of the Bank. The contingent liabilities not provided for as on March 31, 2010 and December 31, 2010 are as follows ( ` in crores) Amount Amount (As on March (As on Contingent Liability 31, 2010) Deceember 31, 2010) I Claims against the Bank not acknowledged as debts II Liability on account of outstanding a) Forward Exchange Contracts 3, , b) Derivatives III Guarantees given on behalf of Constituents in India 1, , IV Acceptances, Endorsements and other Obligations TOTAL CONTINGENT LIABLITIES TOTAL DEPOSITS , , , , , % of Contingent Liabilities to total Deposits The contingent liabilities have arisen in the normal course of business of the Bank and are subject to the prudential norms as prescribed by RBI. In the event such contingent liabilities materialize, it may have an adverse effect on the Bank's financial performance. Contingent liabilities also include Forex contracts and guarantees. Foreign exchange contracts are forward contracts entered into with the constituents and deals with Banks which are mostly covered transactions. Bank Guarantees are issued on behalf of constituents who are vetted through a credit appraisal process. Hence the bank does not envisage more than normal business risk in these transactions. 3. The Bank is exposed to various industry sectors. The bank's exposure to infrastructure was 16.79% and 15.66% of the total funded exposure as on March 31, 2010 and December 31, 2010 respectively and textile constitute 10.93% and 9.98% as on March 31, 2010 and December 31, 2010 respectively followed by other sectors. Deterioration in the performance of any of the industry sectors where the bank has significant exposure may adversely impact its business. The credit exposure of the Bank to borrowers is dispersed across various sectors including, infrastructure, real estate, textile, iron and steel, petroleum, construction, cement, chemicals and chemical products, engineering and other industries. The funded exposure of the Bank in the infrastructure sector, which is the largest industry in which the Bank has funded exposure, as of March 31, 2010 was ` 2, crores which constituted % of its total funded exposure. And as on December 31, 2010 the exposure in the infrastructure sector stood at 15.66%. Any significant deterioration in the performance of a particular sector, including due to regulatory action or policy announcements by Government or State government authorities, could adversely impact the ability of borrowers in that industry to service their debt obligations owed to the Bank. In addition, the top five industries accounted for % and 35.02% of the Bank's funded exposure as of March 31, 2010 and as of December 31, 2010 respectively. Based on funded exposures, the five largest industry exposures were to the (i) infrastructure, (ii) textile, (iii) real estate, (iv) iron and steel and (v) petroleum industries. The detail of the total funded exposures to these industries is given below : 12

15 ( ` in crores) As on March 31, 2010 As on December 31, 2010 Industry Amount Outstanding % to total funded exposure Amount Outstanding % to total funded exposure Infrastructure 2, % 2, % Textile 1, % 1, % Real Estate % % Iron and Steel % % Petroleum % % Total 5, % 5, % Market difficulties in these industries could increase the Bank's non-performing loans, which may materially and adversely affect its business, results of operations and financial condition. The Bank is also exposed to infrastructure projects which are still under development and are open to risks arising out of delay in execution, failure of borrowers to execute projects on time, delay in getting approvals from necessary authorities and breach of contractual obligations by counterparties, all of which may adversely impact the projected cash flows. There can be no assurance that these projects will perform as anticipated. Risks arising out of a recession in the economy, a delay in project implementation or commissioning could lead to rise in delinquency rates and in turn, adversely impact the Bank's financial performance and results of operations. 4. The Bank has a regional concentration in Southern India and any adverse change in the economy of Tamil Nadu and other south-indian states can impact its results of operations. Additionally, the Bank may not be successful in expanding its operations to other parts of India. As of December 31, 2010, out of its 360 branches, 303 branches are located in southern India including 190 branches which are located in Tamil Nadu, constituting % of its total branch network. The concentration in the southern region and specifically in Tamil Nadu exposes the Bank to any adverse geological, ecological, economic and / or political circumstances in that region as compared to other banks that have more diversified national presence. Any disruption, disturbance or sustained downturn in the economy of Tamil Nadu and other south-indian states could adversely affect its business, financial condition and results of operations. Additionally, while the Bank continues to expand its operations outside its traditional areas such as Tamil Nadu and other south- Indian states, it faces risks with its operations in geographic areas in which it does not possess the same level of familiarity with the economy, consumer base and commercial operations. In addition, its competitors in such areas may already have established operations and the Bank may find it difficult to attract customers in such new areas. It may not be able to successfully manage the risks of such an expansion, which could have a material adverse effect on its advances, deposits and results of operations. 5. If the Bank is not able to maintain or reduce the level of NPA, business and financial condition of the Bank may be adversely affected. The gross and net NPAs of the Bank as at the end of fiscal were at 1.72% and 0.23 % as against 1.95% and 0.25 % respectively during the previous fiscal The gross and net NPA as on December 31, 2010 stands at 1.52% and 0.19% respectively. The Bank has taken steps to reduce the NPA level through a continuous recovery drive and improved risk management practices. But if the Bank is not able to control and reduce the NPAs, it could adversely affect the business and future financial performance. As on March 31, 2010, the Net NPA ratio of all Scheduled commercial banks stood at 1.12% and that of the old private sector banks stood at 0.83%. As against the same, KVB's net NPA ratio stood at 0.23% which is far below the industry and old private sector banks. 13

16 6. The Bank is exposed to risks related to lending, which could adversely affect the Bank's financial results Some or all of the Bank's customers or counterparties may be unable or unwilling to meet their respective contractual commitments in relation to lending, trading, hedging, settlement and other financial transactions. This may materially and adversely affect the Bank's operations and may require the Bank to engage in protracted litigation and recovery proceedings which may not adequately compensate the Bank for losses suffered by it. However the bank has put in place certain caps which restrict the bank's exposure to the counter parties by way of control measures viz. Constitution wise cap i.e. exposure to proprietary concerns restricted to ` 15 crores, Partnership firms ` 50 crores. Also the borrower wise exposure is restricted to 15% of the capital funds. The above are enshrined in the credit policy document of the bank to be normally adhered to by the respective sanctioning authorities. 7. The net interest income of the bank represented 28.18% and 31.09% of the total income as on March 31, 2010 and December 31, 2010 respectively. Hence the bank is vulnerable to interest rate risk. Interest income to a great extent depend on the interest rate movements. Volatlity in interest rates and other market conditions could adversely impact the business and financial results. For the year ended March 31, 2010 and for the nine month period ended December 31, 2010, the net interest income represented 28.18% and 31.09% of the total income of the Bank respectively. Volatility and changes in market interest rates could affect the interest the Bank earns on its assets differently from the interest it pays on its liabilities. The difference could result in an increase in interest expense relative to interest income leading to a reduction in its net interest income. Accordingly, volatility in interest rates could materially and adversely affect the business and financial performance of the Bank. An increase in interest rates may also adversely affect the rate of growth of important sectors of the Indian economy, such as the corporate, retail and agricultural sectors, which may adversely impact the business of the Bank. Interest rates, CRR and SLR are sensitive to many factors beyond the control of the Bank, including the RBI's monetary policy, deregulation of the financial sector in India and domestic and international economic and political conditions. Presently, the CRR prescribed by the RBI stands at 6.00% and the repo/ reverse repo rate at which banks borrow/ lend money from / to the RBI under liquidity adjustment facility is at 6.25% / 5.25%. Under the RBI regulations, the Bank is required to maintain a minimum specified Statutory Liquidity Ratio, which is presently 25% of its net demand and time liabilities in cash and government or other approved securities. As at March 31, 2010, 29.29% of the Bank's demand and time liabilities were in cash, government and other approved securities as SLR. As at December 31, 2010, 27.59% of the Bank's demand and time liabilities were in cash, government and other approved securities as SLR. As at March 31, 2010, 86.11% of its total investments, were in government and other approved securities for SLR. As at December 31, 2010, 87.48% of its total investments, were in government and other approved securities for SLR. The Bank has also made investments in unrated bonds as part of its non-slr portfolio. Returns on these investments are dependent to a large extent on interest rates. In a rising interest rate environment, especially if the increase was sudden or sharp, the Bank could be materially and adversely affected by the decline in the market value of the government securities portfolio and other fixed income securities and may be required to further provide for depreciation in the "Available for Sale" and "Held for Trading" categories. As at March 31, 2010, there were no investments under the "Held for Trading" category, 29.22% was in the "Available for Sale" category and 70.78% in the "Held to Maturity" category. As at December 31, 2010, there were no investments under "Held for Trading" category, 22.07% was in the "Available for Sale" category and 77.93% in the "Held to Maturity" category. The Bank is required to mark to market securities in the "Available for Sale" and "Held for Trading" categories which are subject to market risk. In respect of securities under the Held to Maturity category, the Bank is not required to mark the same to market but are required to amortize the difference between acquisition cost and face value of the security over the residual maturity period of the security wherever the acquisition cost is greater than the face value. 8. RBI has stipulated a minimum capital adequacy requirement of 9% (BASL II) and the Bank is maintaining capital adequacy ratio of 14.49% (Basel II) as on March 31, 2010 and 12.13% (BASL II) as on December 31, The failure of the bank to maintain the minimum capital adequacy requirements may adversely and materially affect its reputation, results of operations and financial conditions. The Bank is required by the RBI to maintain a minimum capital adequacy ratio of 9.00% (under Basel II norms) in relation to its total risk-weighted assets. It must maintain this minimum capital adequacy level to support its growth. 14

17 The capital adequacy ratio of the Bank was 14.49% (Basel II) as of March 31, And as of December 31, 2010, the total CAR was 12.13% (under Basel II norms). The Bank is exposed to the risk of the RBI increasing the applicable risk weightage for different asset classes from time to time. Although it currently meets the applicable capital adequacy requirements, certain adverse developments could affect its ability to continue to satisfy the capital adequacy requirements, including deterioration in its asset quality, decline in the values of its investments and changes in the minimum capital adequacy requirements. Furthermore, its ability to support and grow its business could be limited by a declining capital adequacy ratio if it is unable to access or have difficulty accessing the capital markets or have difficulty in obtaining capital in any other manner. The Bank cannot assure that it will be able to obtain additional capital on commercially reasonable terms in a timely manner, or raise capital at all. If it fails to meet capital adequacy requirements, the RBI may take certain actions, including restricting its lending and investment activities and the payment of dividends by the Bank. These actions could materially and adversely affect its reputation, results of operations and financial condition. 9. A reduction in the credit rating of the Bank could materially and adversely affect its business, financial condition and results of operations. The Certificate of Deposit Programme of the Bank for INR 20 billion ( ` 2,000 crores) are rated 'P1+' by the credit rating agency CRISIL for INR 10 billion ( ` 1,000 crores) and another INR 10 billion( ` 1,000 crores) by ICRA which has assigned the rating 'A1+'. Both the ratings indicate highest credit quality. A downgrade in credit rating may negatively affect the Bank's ability to obtain funds and increase the financing costs by increasing the interest rates of its outstanding debt or the interest rates at which the Bank is able to refinance existing debt or incur new debt, which may adversely affect its business, financial condition and results of operations. 10. The Equity Shares will be partly paid until they are made fully paid up from the date of allotment. Partly paid shares will be suspended from trading as per the rules and regulations of the Exchange prior to the Record Date fixed for the determination of the shareholders liable to pay the First and Final Call. The Rights Issue of equity shares is being made at a price of ` 150/- per share. All the shareholders will have to pay 50% of the issue price on application, 27% on First call and the balance 23% on the second and final call. Till such time as the total amount of ` 150/- is paid, the equity shares shall be considered to be partly paid up. The partly paid up shares will be listed and traded under a separate ISIN granted by the Depositories. The Bank will fix a record date to determine the list of shareholders to whom the Call Money Notice (defined hereinafter) would be sent for the first and then for the second and final Call. If the holder fails to pay the call money with any interest that may have accrued thereon after notice has been delivered by the Bank, then any shares in respect of which such notice has been given may, at any time thereafter before payment of the call money and interest and expenses due in respect thereof, be forfeited by resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and actually paid before the forfeiture. The Bank shall give advance notice to the NSE as per its requirement while fixing up the record date for making a call, and the trading in the partly paid up shares would be suspended as per the rules and regulations of NSE. The process of corporate action for credit of fully paid shares to the demat account of the shareholder may take some time from the date of last date of payment of the amount payable on Call. 11. As of December 31, 2010, 92.22% of the bank's business premises and 92.91% of the ATMs are on lease basis. As on December 31, 2010, the Bank has 360 branches, out of which 332 are located on leased premises. In addition, it has 437 ATMs out of which 31 ATMs are located on the freehold properties of the Bank and the remaining 406 ATMs are on leased premises. Any failure to renew lease agreements for these premises on terms and conditions favourable to the Bank may require it to shift the concerned branch offices, regional offices or the ATMs to new premises. This might affect its business operations. As on December 31, 2010, 19 lease agreements of the Bank had expired. They are for the Branch premises at the following places: Kolumam, Perunduraipattu, Palayamkottai, Chinnamannur, Elumalai, Sathyamangalam, Belukurichi, Polur, Thottyam, Suriyur, Cuddalore, Pune, Mangalapuram, Valayapatti, Markayankottai, Pethampalayam, Thudupathy, Rallabuduguru and Theni. The lessors are neither promoters/kmp nor other RPTs. The Bank is taking steps to renew the leases either on existing terms or on modified terms. 15

18 12. The bank may be penalized for not being in compliance with RBI circulars and the procedural guidelines that govern the Bank which could materially and adversely affect its reputation and results of operations. The bank has not been penalized for non-compliance of RBI circulars. However in a single instance on account of procedural lapse, a sum of ` 200/- has been debited by RBI as penalty for non-compliance of operational guidelines with regard to examination of soiled note received in remittance by one of the bank's currency chest to RBI. 13. There are operational risks associated with the Bank which, when realised, may have an adverse impact on the results of the Bank. The Bank is exposed to many types of operational risks, including the risk of fraud or other misconduct by employees or outsiders, theft or robbery, unauthorised transactions by employees or operational errors, including clerical or recordkeeping errors or errors resulting from faulty computer or telecommunications systems. Given the volume of transactions of the Bank, certain errors may be repeated or compounded before they are discovered and successfully rectified. The Bank cannot guarantee that such events will not occur in the future. Any such event could disrupt the reputation, operations, or otherwise have a material adverse effect on its business, financial condition or results of operation. The Bank also faces the risk that the design of controls of the Bank and procedures prove inadequate, or may be circumvented, thereby causing delays in detection or errors in information. Although the Bank maintains a system of controls designed to keep operational risk at appropriate levels, there can be no assurance that the Bank will not suffer losses from operational risks in the future. 14. "Loans written off to the extent of ` crores for the financial year ended March 31, 2010 and ` 2.19 crores for the nine months ended December 31, 2010." The loans written off during the FY were to the extent of ` crores and the loans written off do not belong to promoter group / RPTs. During the nine months ended December 31, 2010 the Bank has written off loan accounts to the tune of ` 2.19 crores. The gross NPA of the Bank as at the end of fiscal amounted to ` crores (1.72%) and for the current fiscal as on December 31, 2010 amounted to ` crores (1.52%). 15. As of March 31, 2010, 90.09% of the net advances of the bank were secured by tangible assets. The bank may experience delays in enforcing its collaterals in the event of borrower defaults on their obligations to the bank which may result in an inability to recover the expected value of the collateral which could adversely impact its financial results. The Bank takes collateral for a large proportion of its loans, including mortgages, pledges or hypothecation of inventories, receivables and other current assets, and, in some cases, charges on fixed assets and financial assets, such as marketable securities. As of March 31, 2010, 90.09% of its net advances were secured by tangible assets, such as properties, plant and machinery, inventory, receivables and other current assets. This stood at 91.21% of its net advances as on December 31, Foreclosure of such securities may require court or tribunal intervention that may involve protracted proceedings, and the process of enforcing security interests against collateral can be difficult. As a result, it may be difficult and time consuming for the Bank to take control of or liquidate the collateral securing any non-performing loans. Any delays in enforcement could result in a decline in the value of the collateral securing its loans, which may decrease the amounts the Bank can recover on the underlying loans which could adversely impact its financial results. Such difficulties in realizing the collateral fully or at all, including if it is instead compelled to restructure the loans, could adversely affect the business and financial results of the Bank. 16. The risk management policies and procedures of the Bank may not adequately address unanticipated risks. Inability to develop and implement effective risk management policies may adversely affect the business, financial condition and results of operations of the Bank. 16

19 The Bank has devoted significant resources to develop its risk management policies and procedures and expects to continue to do so in the future. Despite this, its policies and procedures to identify, monitor, manage and mitigate risks may not be fully effective. Some of its methods of managing risk are based upon the use of observed historical market behaviour. As a result, these methods may not accurately predict future risk exposures which could be significantly greater than indicated by the historical measures. As it seeks to expand the scope of its operations, the Bank also faces the risk of inability to develop risk management policies and procedures that are properly designed for those new business areas. Implementation and monitoring may prove particularly challenging with respect to any businesses that it may initiate. Inability to develop and implement effective risk management policies may adversely affect the business, financial condition and results of operations of the Bank. 17. If the Bank is unable to adapt to rapid technological changes, its business, future financial performance could suffer. The future success and ability of the Bank to compete with other banks will depend, in part, on its ability to respond to technological advances and emerging banking industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks. There can be no assurance that the Bank will successfully upgrade or implement new technologies effectively or adapt its transaction processing systems to customer requirements or emerging industry standards. If the Bank is unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market/technological conditions, customer requirements or technological changes, the financial performance of the Bank could be materially affected. 18. Significant security breaches in the computer systems and network infrastructure could adversely impact its business. The Bank seeks to protect its computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems. Computer break-ins and power disruptions could affect the security of information stored in and transmitted through these computer systems and networks. The Bank has implemented the Internet banking platform and bank believes that these concerns will intensify with its increased use of technology and Internet-based resources. To address these issues and to minimise the risk of security breaches, bank employ security systems, including firewalls and intrusion detection systems, conduct periodic penetration testing for identification and assessment of potential vulnerabilities and use encryption technology for transmitting and storing critical data such as passwords. However, these systems may not guarantee prevention of frauds, break-ins, damage or failure. A significant failure in security measures could have an adverse effect on its business. 19. If the Bank is not able to renew or maintain its statutory and regulatory permits and approvals and licenses required to operate the business, it may have a material and adverse effect on the business, financial condition and results of operations. The Bank requires certain statutory and regulatory permits and approvals and licenses to operate its business. It currently has all the approvals and licenses required for carrying on its operations. However, in the future, the Bank will be required to renew its permits and approvals and obtain new permits and approvals for its proposed operations, if any. While it believes that it will be able to renew or obtain such permits and approvals as and when required, there can be no assurance that the relevant authorities will issue any of such permits or approvals in the time-frame anticipated by it or at all. The failure to renew, maintain or obtain the required permits or approvals, including those set forth above, may result in the interruption of its operations or delay or prevent its expansion plans and may have a material and adverse effect on the business, financial condition and results of operations of the Bank. 17

20 20. The Bank relies on the accuracy and completeness of information provided to it about its customers and counterparties which if not accurate and complete may have a negative impact on its financial condition. In deciding whether to extend credit or enter into other transactions with customers and counterparties, the Bank may rely on information furnished to it by or on behalf of customers and counterparties, including financial statements and other financial information. The Bank may also rely upon certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit, the Bank may assume that a customer's audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. The financial condition and results of operations of the Bank could be negatively affected by relying on financial statements that do not comply with generally accepted accounting principles or other information that is materially misleading. 21. New product / services offered by the Bank may not be successful which may have a material adverse effect on its business, financial condition or results of operation. The Bank introduces new products / services to explore new business opportunities. It cannot assure that all its new products / services will gain customer acceptance and this may result in the incurring of preoperative expenses and launch costs. Further, the inability to grow in new business areas could adversely affect the Bank's business and financial performance. 22. Inability to attract and retain talented and professional manpower. Inability to attract and retain talented professionals or the resignation or loss of key management personnel may have an impact on the Bank's business and financial performance. The Bank's Human Resource Development (HRD) policy aims at bringing in new talent to meet the growing challenges in dynamic scenario in banking sector. Attempts have been made for lateral recruitment of skilled and professional candidates and imparting training to upgrade their skills. The attrition rate in the key management positions in the Bank is very low. 23. The Bank may not be able to assure of the deployment of funds as stated in objects as it is at the discretion of the Board of Directors and not subject to monitoring by any independent agency. The requirement of funds for meeting the objects of the issue has not been appraised by any bank or financial institutions and is based on the management's internal estimates. The Bank is in no position to assure the deployment of the funds so collected for the objects of the issue stated in the LOF. EXTERNAL RISK FACTORS 24. The Indian and global banking industry is very competitive and if the Bank is unable to effectively respond to competitive pressures it may adversely affect its business and growth. The Bank competes with several public and private sector Indian commercial banks as well as foreign commercial banks. Some of its competitors are large institutions, and may have much larger customer and deposit bases, larger branch networks and morecapital than that of the Bank. Some of its competitors may be better positioned to take advantage of market opportunities than it. The Bank faces competition in some or all of its products and services from Indian and foreign commercial banks, NBFCs, mutual funds and other entities operating in the Indian financial sector. In particular, private banks in India may have operational advantages in implementing new technologies, rationalising branches and recruiting employees through incentive-based compensation. In terms of the Consolidated FDI Policy, 2010 ("FDI Policy"), foreign banks are permitted to operate in India through its branches or establish wholly-owned subsidiaries in India or invest up to 74% in the equity of Indian private sector banks, which is likely to further increase competition in the Indian banking industry. The foreign banks that have established branches in India have aggressively pursued market share. 18

21 Additionally, the RBI has recently indicated that it intends to issue new banking licenses in order to expand the banking sector which would lead to higher competition amongst the banks. Further, the GoI is also encouraging banks and other financial institutions to significantly increase their lending to the agriculture sector, which will make this segment more competitive. Increased competitive pressure may have an adverse impact on the earnings of the Bank, its future financial performance and the market price of the Equity Shares. The Bank's future success will depend in large part on its ability to respond in an effective and timely manner and its ability to compete effectively. 25. Consolidation in the banking sector in India may adversely affect the Bank. The GoI has expressed a preference for consolidation in the banking sector in India. Mergers among public sector banks may result in enhanced competitive strengths in pricing and delivery channels for merged entities. If there is liberalisation of the rules for foreign investment in private sector banks, this could result in consolidation in the banking sector. The Bank may face greater competition from larger banks as a result of such consolidation, which may adversely affect the Bank's future financial performance and the market price of the Equity Shares. 26. Banking is a heavily regulated industry and material changes in the regulations that govern it could adversely affect the business of the Bank. Banks in India are subject to detailed supervision and regulation by the RBI. In addition, banks are subject generally to changes in Indian law, as well as to changes in regulation and GoI policies and accounting principles. Any change in the laws and regulations governing the banking sector could materially and adversely affect the banking sector as a whole, its business, its future financial performance, its shareholders' funds and the price of its Equity Shares, by requiring a restructuring of its activities and increasing costs. The Bank can carry on business / activities as specified in the Act. There is no flexibility to pursue profitable avenues if they arise, in contrast with other companies, where shareholders can amend the Object Clause by a Special Resolution. There are a number of restrictions under the Bank Acquisition Act, the Banking Regulation Act, the Nationalised Bank Scheme and various RBI notifications, press notes and circulars that affect the Bank's operating flexibility and affect or restrict the rights of investors. These restrictions are different from those normally applying to shareholders of companies incorporated under the Companies Act, and include the following: a) Setting up of subsidiaries by a Bank b) Management of the Bank including appointment of Directors c) Borrowings and creation of floating charge thereby hampering leverage. Banks may have to resort to unsecured debt instruments for borrowings d) Expansion of business as branches need to be licensed e) Disclosures in the Profit and Loss Account and Balance Sheet f) Production of documents and availability of records for inspection by shareholders g) Reconstruction of banks through amalgamation etc. h) Voluntary winding up i) Ownership restrictions The financial disclosures in the Letter of Offer may not be available to investors after listing, on continuous basis. Some of the rights / powers of shareholders available under the Companies Act are not available to the shareholders of Banks. 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 incurred and any other item of expenditure not represented by tangible assets) have been completely written off. 19

22 Further, any change in the laws and regulations governing the banking sector in India may materially and adversely affect its business, financial condition and results of operations. There are a number of restrictions under the Banking Regulation Act, which impede the operating flexibility and affect or restrict investors' rights. These include the following: Section 12(2) of the Banking Regulation Act states that "no person holding shares in a banking company shall exercise voting rights on poll in excess of 10.00% of the total voting rights of all the shareholders of the banking company". Section 15(1) of the Banking Regulation Act states that "no banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organization 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". Section 17(1) of the Banking Regulation Act requires every banking company to create a reserve fund and to transfer out of the balance of the profit of each year as disclosed in the profit and loss account a sum equivalent to not less than 20.00% (the RBI circular dated September 23, 2000 has fixed this limit at 25.00%) of such profit before paying any dividend. Section 19 of the Banking Regulation Act restricts the forming of subsidiaries by banks, which may prevent the Bank from exploiting emerging business opportunities. Similarly, Section 23 of the Banking Regulation Act contains certain restrictions on banking companies regarding the opening of new places of business and transfers of existing places of business, which may hamper the operational flexibility. Section 25 of the Banking Regulation Act requires each banking company to maintain assets in India equivalent to not less than 75.00% of its demand and time liabilities in India, which in turn may restrict the Bank from building overseas asset portfolios and exploiting overseas business opportunities. The Bank is required to obtain approval of RBI for the appointment and remuneration of the part time chairman and other whole time directors. RBI has powers to remove managerial and other persons from office, and to appoint additional directors. The Bank is also required to obtain approval of the RBI for the creation of floating charges on the borrowings, thereby hampering leverage. The Banking Regulation Act also contains provisions regarding production of documents and availability of records for inspection. Subject to and on account of laws governing banking companies, the financial disclosures in the offer document may not be available to the investors on a continuous basis after listing A compromise or arrangement between the Bank and the creditors or any class of them or between the Bank and the shareholders or any modification in such arrangement or compromise will not be sanctioned by any High Court unless such compromise or arrangement or modification, as the case may be, is certified by RBI in writing as capable of being implemented and as not being detrimental to the interests of the depositors. The amalgamation with any other banking company will require the sanction of RBI and shall be in accordance with the provisions of the Banking Regulation Act. The provisions for winding up of banking companies as specified in the Banking Regulation Act are at variance with the provisions of the Companies Act. Further, RBI can also apply for winding up of a banking company in certain circumstances and can also be appointed as the liquidator and the GoI could acquire the undertakings of banking companies in certain cases. The forms of business in which the Bank may engage are specified and regulated by the Banking Regulation Act. Pursuant to the provisions of section 8 of Banking Regulation Act, the Bank cannot directly or indirectly deal in the buying, selling or bartering of goods by itself or for others, except in connection with the realisation of security given to us or held by the Bank, or in connection with bills of exchange received for collection or negotiation, or in connection with the administration of estates as executor, trustee or otherwise, or in connection with any business specified under section 6(1)(o) of the Banking Regulation Act. Goods for this purpose means every kind of movable property, other than actionable claims, stocks, shares, money, bullion and all instruments referred to in section 6(1)(a) of Banking Regulation Act. Unlike a company incorporated under the Companies Act, which may amend the objects clause of its Memorandum of Association to commence a new business activity, banking companies may only carry on business activities permitted by Section 6 of the Banking Regulation Act or specifically permitted by the Reserve Bank of India. This may restrict the ability to pursue profitable business opportunities as they arise. 27. Changes to the prudential norms by the RBI requiring banks to maintain higher provisioning norms would adversely affect its profitability. In the event of the RBI effecting any changes to the prudential norms requiring banks to maintain higher provisioning norms for non performing assets, such increase in provisioning requirement would adversely impact the profitability, business, financial condition or results of operations of the Bank. 20

23 28. Foreign investment in the Bank is subject to limits specified by the Government of India. Under Indian laws, the aggregate permissible foreign investment (including foreign direct investment (''FDI'') and investment by registered foreign institutional investors (''FIIs'') and non-resident Indians (''NRIs'') in a private sector bank, such as the Bank, is limited to an aggregate of 74% of the paid up capital. Further, the foreign exchange regulations stipulate that the aggregate foreign institutional investor's / FII's holding cannot exceed 24% of the total issued capital. However, with the approval of the Board of Directors and the shareholders by way of a special resolution, the aggregate FII holding in a company can be increased up to sectoral limits. Presently, the FII shareholding limit of its Bank is 24% (Board has approved for increase in the limit to 35% through its resolution on , which is subject to Regulatory approval) of the paid up capital of the Bank. As of December 31, 2010, the level of aggregate foreign investment (including NRI investment) in the Bank was 23.44%. 29. Political instability and significant changes in the Government's policy on liberalisation of the Indian economy could impact the Bank's financial results and prospects. India has been charting a course of economic liberalisation and the Bank's business could be significantly influenced by the economic policies of the Government. However, there can be no assurance that these liberalisation policies will continue in the future. The rate of economic liberalisation could change, and laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in the Bank's securities could change as well. Any significant change in liberalization and deregulation policies could adversely affect business and economic conditions in India generally and the Bank's business in particular. If the Government introduces significant changes, the competitive position of the Bank's borrowers may be adversely affected and this may impact the quality of the Bank's loan portfolio. 30. Recent global economic conditions have had, and continue to have, an adverse effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect on its business, financial condition and results of operations and the price of its Equity Shares. Since August 2007, the global financial system experienced difficult credit and liquidity conditions and disruptions leading to less liquidity, greater volatility, general widening of spreads and, in some cases, lack of price transparency on inter-bank lending rates. These adverse trends accelerated sharply following the bankruptcy filing by Lehman Brothers in September 2008, leading to a global financial and economic crisis. In the US (where this particular crisis originated), the government has been forced to bail out leading financial institutions and inject additional capital in other banks. Likewise, in several European countries, the governments have injected capital into banks and have guaranteed deposits or increased the level of deposit guarantees. Although the proximate cause of this particular financial crisis, which is deeper than other recent financial crises, was the US residential mortgage market, investors should be aware that there is a recent history of financial crises and boom-bust cycles in multiple markets in both the emerging and developed economies which leads to risks for all financial institutions, including the Bank. A loss of investor confidence in the financial systems of India or other markets and countries or any financial instability in India or any other market may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector, the Bank's business and its future financial performance. The recent financial crisis has had a limited direct impact on it and the Bank have not experienced the same degree of write-downs as banks that were exposed to, or invested in, the US residential mortgage market. The Bank remains subject, moreover, to the risks posed by the indirect impact of the global credit crisis on the economy, some of which cannot be anticipated and the vast majority of which are not in its control. The Bank also remains subject to counterparty risk to financial institutions that fail or are otherwise unable to meet their obligations to it. 31. A prolonged slowdown in economic growth or rise in interest rates in India could cause the business of the Bank to suffer. The current slowdown in the Indian economy could adversely affect the Bank's business and its borrowers and contractual counter parties, especially if such a slowdown were to be continued and prolonged. The growth rate of India's Gross Domestic Product ("GDP") which was 9.0% or higher in each of fiscal 2006, fiscal 2007 and fiscal 2008, moderated to 6.7% during fiscal The GDP growth in the first quarter of fiscal 2010 at 6.1% represented a recovery over the 5.8% growth recorded during the preceding two quarters in the second half of fiscal From 2005, interest rates in the Indian economy increased significantly following 21

24 monetary measures to control rising inflation, and the Bank experienced a slowdown in disbursements of housing, automobile and other retail loans in fiscal 2007, fiscal 2008 and fiscal Even though the Reserve Bank of India has significantly reduced policy rates since October 2008, the course of market interest rates continues to be uncertain due to the increase in the fiscal deficit and the government borrowing program. Any increase in inflation in the future, due to increases in prices of commodities such as crude oil or otherwise, may result in a tightening of monetary policy. The uncertainty regarding liquidity and interest rates and any increase in interest rates or reduction in liquidity could adversely impact its business. The Indian economy in general and the agriculture sector in particular may be impacted by the level and timing of monsoon rainfall. Further, in light of the increasing linkage of the Indian economy to other economies, the Indian economy is increasingly influenced by economic and market conditions in other countries. As a result, recession in the United States and other countries in the developed world and slowdown in economic growth in major emerging markets like China could have an adverse impact on economic growth in India. A slowdown in the rate of growth in the Indian economy could result in lower demand for credit and other financial products and services and higher defaults among corporate, retail and rural borrowers, which could adversely impact the Bank's business, its financial performance, its stockholders' equity, its ability to implement the strategy and the price of its Equity Shares. The Bank's performance and the quality and growth of its assets are necessarily dependent on the health of the overall Indian economy. In addition, the Indian economy is in a state of transition. The share of the services sector in the economy is rising while that of the industrial, manufacturing and agricultural sectors is declining. It is difficult to gauge the impact of these fundamental economic changes on the business. Any slowdown in the Indian economy or future volatility in global commodity prices could materially and adversely affect its business, financial condition and results of operations. 32. Significant differences exist between Indian GAAP and other accounting principles, such as U.S. GAAP and IFRS, which may be material to investors' assessments of the financial condition of the Bank. Failure to successfully adopt IFRS could have a material adverse effect on its stock price. The financial statements of the Bank, including the financial statements provided in this Letter of Offer are prepared in accordance with Indian GAAP. The Bank has not attempted to quantify the impact of U.S. GAAP or IFRS on the financial data included in this Letter of Offer, nor does it provide a reconciliation of its financial statements to those of U.S. GAAP or IFRS. Each of U.S. GAAP and IFRS differs in significant respects from Indian GAAP. Accordingly, the degree to which the Indian GAAP financial statements included in this Letter of Offer will provide meaningful information is entirely dependent on the reader's level of familiarity with Indian accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Letter of Offer should accordingly be limited. The Ministry of Corporate Affairs and the ICAI, the accounting body that regulates the accounting firms in India, have announced a road map for the adoption of, and convergence of Indian GAAP with the IFRS (the "converged accounting standards") pursuant to which all scheduled commercial banks in India will be required to prepare their annual and interim financial statements under converged accounting standards beginning with fiscal period commencing April 1, Because there is significant lack of clarity on the adoption of and convergence with IFRS and there is not yet a recognized body of established practice on which to draw in forming judgments regarding its implementation and application, the Bank has not determined with any degree of certainty the impact that such adoption will have on its financial reporting. There can be no assurance that its financial condition, results of operations, cash flows or changes in shareholders' equity will not appear materially worse under converged accounting standards than under Indian GAAP. As the Bank is transitioning to converge accounting standards, it may encounter difficulties in the ongoing process of implementing and enhancing its MIS. Moreover, there is increasing competition for the small number of IFRS-experienced accounting personnel available as more Indian companies begin to prepare financial statements based on converged accounting standards. There can be no assurance that the adoption of converged accounting standards will not adversely affect the Bank's reported results of operations or financial condition and any failure to successfully adopt converged accounting standards by April 2013 could have a material adverse effect on its stock price. 22

25 33. A nation-wide credit bureau has become operational in India only recently and may not provide adequate information. The credit risk of borrowers in India is higher than in more developed countries. A nation-wide credit bureau, CIBIL, has become operational in India in the year CIBIL's database is in the process of development which may affect the quality of information available about the credit history of its borrowers, especially individuals and small businesses. Until such time, it may be more susceptible to higher NPAs compared to banks in more developed economies. 34. Any volatility in the exchange rate and increased intervention by the Reserve Bank of India in the foreign exchange market may lead to a decline in India's foreign exchange reserves and may affect liquidity and interest rates in the Indian economy, which could adversely impact the Bank. The direct adverse impact of the global financial crisis on India was felt in the form of reversal of capital inflows and decline in exports, leading to pressures on the balance of payments and a sharp depreciation of the Indian rupee compared to the US dollar. Any increased intervention by the Reserve Bank of India in the foreign exchange market to control the volatility of the exchange rate may result in a decline in India's foreign exchange reserves and reduced liquidity and higher interest rates in the Indian economy, which could adversely affect the business, financial condition and results of operations of the Bank. 35. Trade deficits could materially and adversely affect the Bank's business and the price of the Bank's Equity Shares. India's trade relationships with other countries and its trade deficit, driven to a major extent by global crude oil prices, may adversely affect Indian economic conditions. If trade deficits increase or are no longer manageable because of the rise in global crude oil prices or otherwise, the Indian economy, and therefore the Bank's business, its financial performance, shareholders' funds and the price of its Equity Shares could be materially and adversely affected. 36. Natural calamities, climate change and health epidemics could adversely affect the Indian economy and could in turn adversely affect the Bank's business. India has experienced natural calamities like earthquakes, floods and drought in the past few years. The extent and severity of these natural disasters determine their impact on the Indian economy. In particular, climatic and weather conditions, such as level and timing of monsoon rainfall, impact the agricultural sector which constitutes approximately 17% of India's GDP. For example, in fiscal 2003, many parts of India received significantly less than normal rainfall. As a result, the agricultural sector recorded a decline of 7.2%. While the growth rate of the agricultural sector was 10.0% in fiscal 2004, it was negligible in fiscal 2005 due to the erratic progress of the monsoon which adversely affected sowing operations for certain crops. During the third quarter of fiscal 2009, the agricultural sector recorded a decline of 0.8%. Further, any prolonged spells of below or above normal rainfall or other natural calamities, or global or regional climate change, could adversely affect the Indian economy and its business, especially the rural portfolio. The Bank has a reasonably well diversified agricultural advances portfolio which includes jewel loans granted to agriculturists. The Bank is diligently following the directive of RBI in maintaining 18% of its advances under agricultural sector. Health epidemics could disrupt the Bank's business. From April 2009, there have been outbreaks of swine flu, caused by H1N1 virus, in certain regions of the world, including India. Any future outbreak of health epidemics may restrict the level of business activity in affected areas, which may in turn adversely affect its business. 23

26 37. Any downgrading of India's debt rating by an international rating agency could have a negative impact on the business. Any adverse revisions to India's credit ratings for domestic and international debt by international rating agencies may adversely impact the Bank's ability to raise additional financing, and the interest rates and other commercial terms at which such additional financing is available. This could have a material adverse effect on its business and future financial performance, its ability to obtain financing for capital expenditures, and the price of its Equity Shares. The country has been experiencing an accelerated growth despite the inflationary pressures. Under these circumstances the chances of the down grading of the country's rating is not anticipated. 38. Share price of the Bank may fall below the historical price levels. The share price data of the Bank incorporated herein pertains to Equity Shares prior to the Rights Issue. The price of Equity Shares of the Bank may potentially vary significantly following the Issue and may potentially fall to levels which are below the historical price levels of the Equity Shares. 39. The market value of an investment in the Equity Shares of the Bank may fluctuate due to the volatility of the Indian securities markets The Indian Stock Exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities. Such fluctuations and volatility could affect the market price and liquidity of the securities of Indian companies, including the Equity Shares. Moreover, there have been occasions when secondary market operations have been interrupted and/or affected due to temporary exchange closures, broker defaults, settlement delays and strikes by brokerage firm employees. In addition, the governing bodies of the Indian Stock Exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. 40. There is no guarantee that the Rights Equity Shares will be listed on the Stock Exchange in a timely manner and any trading closures at the Stock Exchange may adversely affect the trading price of the Rights Equity Shares. In accordance with Indian law and practice, permission for listing of the Rights Equity Shares will not be granted until after those Rights Equity Shares have been issued and allotted. Approval will require all other relevant documents authorizing the issuing of Rights Equity Shares to be submitted. There could be a failure or a delay in listing the Rights Equity Shares on the NSE. Any failure or delay in obtaining the approval would restrict your ability to dispose of your Rights Equity Shares. The Stock Exchange(s) have in the past experienced problems, including temporary exchange closures, broker defaults, settlements delays and strikes by brokerage firm employees, which, if continuing or recurring, could affect the market price and liquidity of the securities of Indian companies. The existing equity shares of the Bank are listed on The National Stock Exchange of India Ltd. (NSE) which is the Designated Stock Exchange and are also being traded on the BSE under the permitted category. A closure of, or trading stoppage on, either of the exchanges could adversely affect the trading price of the Right Equity Shares. Further, the Equity Shares will be listed on the NSE. The shares allotted shall be listed with the stock exchange within stipulated time period as per ICDR Regulations. 24

27 Prominent Notes: i. The RBI conducts regular inspections of banking companies under the provisions of the Banking Regulation Act. The reports of the RBI are strictly confidential. The RBI does not permit disclosure of its inspection report. ii. This Issue is of 30,502,976 Rights Equity Shares having a face value of ` 10/- each for cash at a premium of ` 140/- per Rights Equity Share on rights basis to the existing Equity Shareholders of the Bank in the ratio of 2 Rights Equity Share for every 5 Equity Share held on the Record Date i.e. February 18, 2011 in terms of this Letter of Offer. The Issue is for an amount aggregating to ` crores. iii. Net worth of the Bank as on March 31, 2010 and as on December 31, 2010 was ` 1, crores and ` 1, crores respectively. iv. The book value per Equity Share as per the audited financial statement of the Bank as on March 31, 2010 and as on December 31, 2010 was ` and ` respectively. v. The Bank has entered into certain related party transactions as disclosed below. Key Management Personnel Designation Item Amount (in ` ) Shri. A. S. Janarthanan Chairman Remuneration 6,00,000/- Shri. P.T. Kuppuswamy M.D. & C.E.O. Remuneration 39,99,367/- vi. vii. viii. ix. None of the promoter(s) or the Directors, Promoters and promoter group of the Bank and their relatives have financed the purchase by any other person of securities of the Bank other than in the normal course of the business of the financing entity during the period of six months immediately preceding the date of filing this Letter of Offer with SEBI. The bank has not financed either directly or indirectly for the purchase of shares of KVB. No loans and advances have been granted to its Directors For transactions in Equity Shares by Directors of the Bank in the last nine months, preceding the date of filing of this Letter of Offer. Please refer to the section entitled "Capital Structure" on page 38. The Investors shall have an option to get the Rights Equity Shares in physical or dematerialized form. x. Trading in equity shares for all investors shall be in dematerialised form only. xi. xii. xiii. Other than as stated in this Letter of Offer under section titled "Management" on page 63, the Directors / Key Management Personnel have no interest other than to the extent of Equity Shares of the Bank held or reimbursement of expenses incurred or normal remuneration or benefits. The Lead Manager and the Bank shall make any information relating to the Issue available to the investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever. The Lead Manager and the Bank shall keep the shareholders/public informed of any material changes till the listing and trading commencement and the Bank shall continue to make all material disclosures as per the terms of the listing agreement. xiv. An investor may contact Lead Manager or Company Secretary and Compliance Officer of the Bank for any queries / complaints pertaining to the Issue. 25

28 SECTION III - INTRODUCTION THE ISSUE Pursuant to the resolution passed by the Board of Directors of the Bank under Section 81(1) of the Companies Act, 1956 at the meeting held on September 7, 2010, it has been decided to make the following offer to the Eligible Equity Shareholders of the Bank, with a right to renounce. The following is a summary of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information in the chapter titled "Terms of the Issue" beginning on page 123 of this Letter of Offer. Rights Equity Shares being offered by the Bank Rights Entitlement for Rights Equity Shares 30,502,976 Rights Equity Shares Record Date February 18, 2011 Face Value per Rights Equity Shares Issue Price per Rights Equity Share Equity Shares outstanding prior to the Issue Equity Shares outstanding after the Issue Terms of the Issue 2 Rights Equity Shares for every 5 Equity Shares held on the Record Date ` 10/- `150/- at a premium of `140/- per Rights Equity Share 76,257,442 Equity Shares 106,760,418 Equity Shares For more information, please refer to the section entitled Terms of the Issue beginning on page 123 of this Letter of Offer. Payment terms (in `) Amount Payable per equity share Payment Method* Applicable to all categories of shareholders Face Value Premium Total On Application First call Second and final call Total * Please see risk factor no. 10 in the chapter titled "Risk Factors" beginning on page 11 of this Letter of Offer for risks associated with Payment Method. For details on the payment methods please see "Terms of the Issue" beginning on page 123 of this Letter of Offer. Note: 1. All categories of Investors are eligible for this payment method. 2. While making an Application, the Investor shall make a payment of ` 75/- per Rights Equity Share. 3. Out of the amount of ` 75 /- paid on application, ` 6/- would be adjusted towards the face value of the Rights Equity Shares and ` 69/- shall be adjusted towards the share premium of the Rights Equity Shares. 4. The Bank reserves the right to adjust the amount received over and above the Application money towards the first call money and the balance, if any, will be refunded to the applicant. 5. First and Second and Final Call Notices shall be sent by the Bank for making the payment towards the balance amount due. 6. Rights Equity Shares in respect of which the balance amount payable remains unpaid may be forfeited, at any time after the due date for payment of the balance amount due. For further information please refer to the chapter titled "Terms of the Issue" beginning on page 123 of this Letter of Offer. 26

29 SUMMARY FINANCIAL STATEMENTS The following tables set forth the summary of the financial information derived from the financial statement of the Bank as of Fiscal 2010, Fiscal 2009 and reviewed financial statements for thenine months period ended on December 31, The financial statements have been prepared in accordance with Indian GAAP and the ICDR Regulations and are presented in the section titled "financial statements" beginning on page 71 of this Letter of Offer. The summary financial information presented below should be read in conjunction with the financial statements, notes thereto beginning from page 71 of this Letter of Offer. 27

30 BALANCE SHEET AS AT 31ST MARCH, 2010 ( ` In Crore) Particulars Schedule AS ON AS ON CAPITAL & LIABILITIES Capital Reserves & Surplus 2 1, , Deposits 3 19, , Borrowings Other Liabilities and Provisions TOTAL 21, , ASSETS Cash and Balances with Reserve Bank of India 6 1, Balances with Banks and Money at call and short notice Investments 8 6, , Advances 9 13, , Fixed Assets Other Assets TOTAL 21, , Contingent Liabilities 12 5, , Bills for collection

31 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2010 ( ` In Crore) Particulars Schedule Year Ended Year Ended I INCOME Interest earned 13 1, , Other Income TOTAL 2, , II EXPENDITURE Interest expended 15 1, , Operating expenses Provisions and Contingencies TOTAL 1, , III PROFIT Net Profit for the year Amount Transferred From Investment Reserve Nil 1.38 Amount Transferred From General Reserve Nil Profit brought forward TOTAL IV APPROPRIATIONS Transfers to Statutory Reserve Capital Reserve Special Reserve U/s 36(1)(viii) of IT Act Nil Revenue & Other Reserves Proposed Dividend Dividend Tax BALANCE OF PROFIT TOTAL Significant Accounting Policies 17 Notes on Accounts 18 29

32 CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010 ( ` In Crore) Particulars AS AT AS AT Cash Flow From Operating Activities Net Profit As Per Profit And Loss Account Adjustments For Depreciation Provisions And Contingencies Provision For Leave Encashment Profit/Loss On Sale Of Investments (56.36) (93.58) Profit / Loss On Sale Of Assets (0.44) (0.26) Operating Profit Before Working Capital Changes Increase/Decrease In Operating Assets Purchase And Sale Of Investments (1,837.47) (1,096.06) Funds Advances To Customers (3,112.10) (994.06) Other Operating Assets (32.74) ( ) ( ) Increase/Decrease In Operating Liabilities Deposits From Customers 4, , Borrowings From Banks (305.30) Other Operating Liabilities (106.27) Amount Paid To Pension & Gratuity Fund Nil Nil Cash Generated From Operations (65.93) Direct Taxes Paid (113.65) (134.25) Net Cash Generated From Operations (179.58) Cash Flow From Investing Activities Purchase Of Fixed Assets (45.11) (19.92) Sale Of Fixed Assets Net Cash Generated From Investing Activities (44.31) (19.39) Cash Flow From Financing Activities Proceeds From Share Capital Proceeds From Share Premium Proceeds From Tier II Bond Issuance DIVIDEND PAID (Incl. Dividend Distribution Tax) (75.42) (75.56) Net Cash Flow From Financing Activities (75.50) Cash Flow From Operating Activities (179.58) Cash Flow From Investing Activities (44.31) (19.39) Cash Flow From Financing Activities (75.49) Increase In Cash & Cash Equivalent (139.11) Cash And Cash Equivalents As At / , , Cash And Cash Equivalents As At / , ,

33 BALANCE SHEET AS AT 31ST DECEMBER 2010 ( ` In Crore) Particulars Schedule AS ON AS ON CAPITAL & LIABILITIES Capital Reserves & Surplus 2 1, Deposits 3 22, , Borrowings Other Liabilities and Provisions TOTAL 25, , ASSETS Cash and Balances with Reserve Bank of India Balances with Banks and Money at call and short notice Investments 8 6, , Advances 9 16, , Fixed Assets Other Assets TOTAL 25, , Contingent Liabilities 12 6, , Bills for collection

34 PROFIT AND LOSS ACCOUNT FOR THE NINE MONTHS ENDED 31ST DECEMBER, 2010 Particulars Schedule Period Ended ( ` In Crore) Period Ended I INCOME Interest earned Other Income TOTAL II EXPENDITURE Interest expended Operating expenses Provisions and Contingencies TOTAL III PROFIT Net Profit Profit brought forward TOTAL BALANCE OF PROFIT TOTAL

35 GENERAL INFORMATION Dear Eligible Equity Shareholder(s), Pursuant to the resolution passed by the Board at its meeting held on September 7, 2010 under Section 81 of the Companies Act, the Bank has been authorized to make the following Rights Issue to its Eligible Equity Shareholders: ISSUE OF 30,502,976 EQUITY SHARES WITH A FACE VALUE OF ` 10/- EACH ("RIGHTS EQUITY SHARES") FOR CASH AT A PRICE OF ` 150/- INCLUDING A PREMIUM OF ` 140/- AGGREGATING TO ` CRORES TO THE EXISTING EQUITY SHAREHOLDERS OF THE KARUR VYSYA BANK LIMITED ("THE BANK" OR "THE ISSUER") ON RIGHTS BASIS IN THE RATIO OF TWO RIGHTS EQUITY SHARES FOR EVERY FIVE EQUITY SHARES HELD ON THE RECORD DATE I.E. FEBRUARY 18, 2011 For further details please refer to "Terms of the Issue" beginning on page 123 of this Letter of Offer. Registered and Central Office of the Bank The Karur Vysya Bank Limited Post Box No. 21, Erode Road, Karur , Tamil Nadu, India Tel: ; ; Fax: kvbshares@kvbmail.com; Website: Registration No.: 1295 Corporate Identification Number : L65110TN1916PLC Address of the RoC The Registrar of Companies, Tamil Nadu 5th Floor, Shastri Bhavan Complex, Haddows Road, Chennai The Equity Shares of the Bank are listed on the NSE and are traded under the permitted category on the BSE. Company Secretary and Compliance Officer Mr. R. Kannan The Karur Vysya Bank Limited Post Box No. - 21, Erode Road, Karur Tel: Fax: kvbshares@kvbmail.com Website: Investors may contact the Company Secretary and Compliance Officer for any pre-issue / post-issue related matter such as nonreceipt of letters of allotment / share certificates / refund orders, etc. All grievances relating to the ASBA process may be addressed to the Registrar to the Issue, with a copy to the SCSB, giving full details such as name, address of the applicant, number of Equity Shares applied for, Amount blocked, ASBA Account number and the Designated Branch of the SCSB where the CAF was submitted by the ASBA Investors. 33

36 Lead Manager to the Issue Karvy Investor Services Limited "Karvy House", 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad Tel: / Fax: cmg@karvy.com Website: Chennai Office - Contact person: Mr. Harihara Subramanian Mobile: SEBI Registration No.: INM Bankers to the Issue The Karur Vysya Bank Limited Coimbatore Main Branch, 577, Oppanakara Street, Coimbatore Tel: Fax: Contact Person: Mr. K Nagarajan Website: coimbatoremain@kvbmail.com Self Certified Syndicate Bankers: APPLICATIONS SUPPORTED BY BLOCKED AMOUNT: Eligible Equity Shareholders may apply through the ASBA process. ASBA can be availed by all the Eligible Equity Shareholders. The Eligible Equity Shareholders are required to fill the ASBA form and submit the same to their bank which in turn will block the amount in the account as per the authority contained in ASBA form and undertake other tasks as per the specified procedure. On allotment, amount will be unblocked and account will be debited only to the extent required to pay for allotment of shares. Hence, there will be no need of refunds etc. ASBA form can be submitted to several banks, the list of such banks are given in the ASBA form and is available on website of SEBI at For more details on the ASBA process, please refer to the details given in ASBA form and also please refer to the section "Terms of the Issue" beginning on page 123 of this Letter of Offer. The list of banks that have been notified by SEBI to act as SCSBs for the ASBA Process are available at the SEBI website (URL reference: Details relating to designated branches of SCSBs collecting the ASBA forms are available at the above mentioned link. Legal Advisor to the Issue M/s Ramani and Shankar Advocates, 152, Kalidas Road, Ram Nagar Coimbatore Tel: , Fax: Contact Person: Mr. K N V Ramani ramanishankar@airtelmail.in 34

37 *Auditors of the Bank R.K. Kumar & Co., Chartered Accountants II Floor, , Congress Building 573, Anna Salai, Chennai Tel: / 67 Fax: Contact Person: Mr. G. Naganathan Mob: rkkco@dataone.in ICAI Firm Registration No: /S *The financial statements excluding Limited Review Report for nine months ended on December 31, 2010, incorporated in this Letter of Offer have been audited by M/s. J. L. Sengupta & Co., Chartered Accountants, Chennai erstwhile Statutory Auditors of the Bank. The shareholders of the Bank have appointed, M/s. R.K. Kumar & Co., Chartered Accountants, Chennai as new Statutory Auditors of the Bank in the last AGM held on July 21, Registrar to the Bank and the Issue SKDC Consultants Limited Kanapathy Towers, 1391/A-1, Third Floor, Sathy Road, Ganapathy, Coimbatore Tel: Fax: info@skdc-consultants.com Investor Grievance Id: kvb.rights@skdc-consultants.com Contact Person: Mr. K. Jayakumar SEBI Registration Number: INR Monitoring Agency Since the Issue size does not exceed ` 500 crores, the appointment of a monitoring agency as per Regulation 16 of the SEBI Regulations is not required. The Board of Directors of the Bank will monitor the use of the proceeds of this Issue. Underwriting This Issue is not being underwritten. Credit Rating As this is an issue of equity shares, credit rating is not required for this Issue. The Bank's Lower Tier II Bonds are rated by rating agencies ICRA as "LA+" (indicates adequate credit quality) vide its letter dated August 19, Impersonation As a matter of abundant caution, attention of the Investors is specifically drawn to the provisions of sub-section (1) of Section 68A of the Act which is reproduced below: "Any person (a) who makes in a fictitious name an application to a Bank for acquiring, or subscribing for, any shares therein, or otherwise induces a Bank to allot, or register any transfer of shares therein to him, or (b) any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years" Principal Terms of Loan and Assets charged as security as on December 31, 2010 NIL 35

38 Inter-se allocation of responsibilities: Karvy Investor Services Limited is the sole Lead Manager to the Issue. The details of responsibility for Karvy Investor Services Limited is follows: Sl.No Activities 1 Capital structuring with relative components and formalities such as type of instruments, etc. 2 Drafting and design of the Letter of Offer and of advertisement /publicity material including newspaper advertisements and brochure /memorandum containing salient features of the Letter of Offer. Compliance with the SEBI Regulations and other stipulated requirements and completion of prescribed formalities with Stock Exchange and SEBI. 3 Marketing of the Issue which will cover, inter alia, formulating marketing strategies, preparation of publicity budget, arrangements for selection of (i) ad-media and (ii) bankers to the issue. 4 Selection of various agencies connected with the Issue, namely Registrars to the Issue, printers, bankers and advertisement agencies 5 The post-issue activities will involve essential follow-up steps, which must include finalization of basis of allotment / weeding out of multiple applications, listing of instruments and dispatch of certificates and refunds, with the various agencies connected with the work such as registrars to the issue, bankers to the issue, and bank handling refund business. Even if many of these post-issue activities would be handled by other intermediaries, the Lead Manager shall be responsible for ensuring that these agencies fulfill their functions and enable him to discharge this responsibility through suitable agreements with the Issuer. 6 Ensuring compliance with the SEBI (ICDR) Regulations 2009 and other requirements and formalities specified by SEBI and the recognized stock exchanges where specified securities being offered are proposed to be listed. 36

39 OVERSEAS SHAREHOLDERS The distribution of this Letter of Offer and the Issue of the Rights Equity Shares of the Bank on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this Issue of Rights Equity Shares on a rights basis to its Rights Equity Shareholders and will dispatch the Letter of Offer and CAF to the Indian address of overseas shareholders. Equity Shareholders in foreign jurisdiction need to provide an Indian address, if not provided earlier, to receive this Letter of Offer. The securities of the Bank are only listed in India. No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose, except that this Letter of Offer has been filed with SEBI for observations. Accordingly, the Rights Equity Shares may not be offered or sold, directly or indirectly, and this Letter of Offer may not be distributed, in any jurisdiction, except in accordance with legal requirements applicable in such jurisdiction. Receipt of this Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such an offer and, in those circumstances, this Letter of Offer must be treated as sent for information only and should not be copied or redistributed. Accordingly, persons receiving a copy of this Letter of Offer should not, in connection with the issue of the Rights Equity Shares or with the Rights Entitlements, distribute or send this Letter of Offer in or into the United States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If this Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Rights Equity Shares or the Rights Entitlements referred to in this Letter of Offer. Neither the delivery of this Letter of Offer nor any sale hereunder shall under any circumstances create any implication that there has been no change in the Bank's affairs from the date hereof or that the information contained herein is correct as at any time subsequent to this date. 37

40 CAPITAL STRUCTURE The share capital of the Bank as on the date of filing of this Letter of Offer with SEBI is set forth below: Aggregate Nominal Particulars Value ( ` in crores) Authorized Share Capital: 200,000,000 Equity Shares of `10/- each Total Issued Capital: 76,257,442 Equity Shares of `10/- each Total Subscribed and Paid up Capital: 76,209,811Equity Shares of `10/- each Add: Shares kept in abeyance 47,631 Equity Shares of `10/- each 0.05 Total Present Issue being Offered to the eligible Equity Shareholders through the Letter of Offer 30,502,976 Equity Shares of `10/- each at a premium of `140, i.e., at a price of `150 per share Paid-up Capital after the Issue 106,678,620 Equity Shares of `10/- each Add: Shares kept in abeyance 81,798 Equity Shares of `10/- each* 0.08 Total Security Premium Account Before the Issue After the Issue * The Abeyance shares consist of (i) 6724 equity shares kept in abeyance in the rights issue of shares during the year 2003 (ii) 6724 equity shares kept in abeyance in the bonus issue of shares during the year 2006 (iii) equity shares kept in abeyance in the rights issue of shares during the year 2006 (iv) equity shares kept in abeyance in the bonus issue of shares during the year 2010 (v) equity shares to be kept in abeyance in the proposed rights issue of shares 2010 Notes to Capital Structure 1. Outstanding Instruments The Bank's Employees Stock Option Scheme, 2008 Aggregate Value at Issue Price ( ` in crores) The shareholders of the Bank vide Special Resolution dated July 24, 2008 have provided their approval to create, offer, issue and allot at any time to or for the benefit of such person(s) who are in the permanent employment of the Bank, including Directors (Executive and Non-Executive) of the Bank, whether working in India or out of India, under the "KVB Employees Stock Option Scheme, 2008 or KVBESOS- 2008" such number of equity shares not exceeding 1,000,000 Stock Options ("Securities") in the aggregate to eligible employees/ directors of the Bank, in one or more tranches, at such price and on such terms and conditions as may be fixed or determined by the Board in accordance with the Guidelines or other provisions of law as may be prevailing at that time and each such Stock Option shall be exercisable for one fully paid-up equity share. The Bank has constituted a Compensation Committee for the purpose of administration of the KVBESOS In the fiscal , the first tranche 470,250 stock options were vested on January 1, 2010 and the same were exercised by the eligible employees of the Bank. The exercised options were duly allotted on February 24,

41 The Bank granted second tranche of 529,750 stock options on February 24, 2010 to the eligible employees as determined by the Compensation Committee of the Board and these stock options shall vest after a period of one year. The vested options are exercisable over a period of one month from the date of vesting. The key terms of the KVBESOS, 2008 are as follow, There shall be minimum lock-in period of one year between the grant of options and vesting of options and the options shall 100% vest. The exercise price has been decided by the Board on the date of grant of option. The exercise period will commence from the vesting date and shall expire at the end of 1 (one) month from the date of vesting. Options granted out of second tranche 529,750 Exercise price `150/- per share/ option Options Exercised Nil Options forfeited/ lapsed Nil Money realized by exercise of options Not applicable Fully Diluted EPS (For Fiscal 2010 on a pre-issue basis) ` Lock-in In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 * Fair Value of the options as per independent valuer is ` The Bank has complied with the provisions of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, Person-wise details of options granted to Directors and key managerial persons Except as stated below, none of the key managerial persons or directors in the Bank has been granted stock options as on the date of the filing of the Letter of Offer: Sl. Name of the Director/ Key Managerial Designation No. of options granted No. Personnel 1 P T Kuppuswamy MD and CEO 1,100 2 T M Lakshmikanthan Executive Director R Sukumar Chief General Manager R Sakthivelu General Manager A Ananda Na darajan General Manager K Ven kateswara Rao General Manager S Ramalingam Deputy General Manager J Natarajan General Manager A S Vasudevan Deputy General Manager R Venkataramana Deputy General Manager A R Ramachandran Deputy General Manager T Sivaramaprasad Deputy General Manager G S Anantha Kumar Deputy General Manager S Balaji Deputy General Manager V Srinivasan Deputy General Manager M Balachandran Deputy General Manager The Board of Directors in the meeting held on 07/09/2010 decided to issue bonus shares in the ratio of 2:5 on the record date 18/09/2010. The Bonus shares are listed on NSE vide their letter NSE/LIST/2010/ P dated 22/09/

42 3. Shareholding Pattern The Shareholding pattern as on December 31, 2010 as filed with the Stock Exchange is as under: Category of Shareholder Shareholding of Promoter and Promoter Group Indian Individuals/ Hindu Undivided Family Central Government/ State Government(s) Number of Shareholders Total number of shares Number of shares held in dematerialized form Total shareholding as a percentage of total number of shares As a percentage of(a+b) 1 As a percentage of (A+B+C) Shares Pledged or otherwise encumbered Number of shares As a percent age 92 2,671,878 1,805, , NIL NIL NIL NIL NIL NIL Bodies Corporate 0 NIL NIL NIL NIL NIL NIL Financial Institutions/ Banks 0 NIL NIL NIL NIL NIL NIL Any Others(Specify) 0 NIL NIL NIL NIL NIL NIL Sub Total(A)(1) 92 2,671,878 1,805, , Foreign Individuals (Non-Residents Individuals/ Foreign Individuals) 0 NIL NIL NIL NIL NIL NIL Bodies Corporate 0 NIL NIL NIL NIL NIL NIL Institutions 0 NIL NIL NIL NIL NIL NIL Any Others(Specify) 0 NIL NIL NIL NIL NIL NIL Sub Total(A)(2) 0 NIL NIL NIL NIL NIL NIL Total Shareholding of Promoter and Promoter Group (A)= (A)(1)+(A)(2) Public shareholding Institutions 92 2,671,878 1,805, , Mutual Funds/ UTI 15 1,341,200 1,339, N.A N.A Financial Institutions / Banks 4 269, , N.A N.A Central Government/ State Government(s) 0 NIL NIL NIL NIL N.A N.A Venture Capital Funds 0 NIL NIL NIL NIL N.A N.A Insurance Companies 4 1,650,284 1,650, N.A N.A Foreign Institutional Investors 54 1,633,0297 1,632, N.A N.A Foreign Venture Capital Investors Any Other (specify) (Foreign Financial Institution/Bank) 0 NIL NIL NIL NIL N.A N.A NIL NIL N.A N.A Sub-Total (B)(1) 78 19,591,408 19,586, N.A N.A 40

43 Non-institutions Bodies Corporate ,435,509 12,386, N.A N.A Individuals Category of Shareholder Individuals -i. Individual shareholders holding nominal share capital up to ` 1 lakh ii. Individual shareholders holding nominal share capital in excess of ` 1 lakh. Number of Shareholders Total number of shares Number of shares held in dematerialized form Total shareholding as a percentage of total number of shares As a percentage of(a+b) 1 As a percentage of (A+B+C) Shares Pledged or otherwise encumbered Number of shares As a percent age 55,654 20,851,668 15,774, N.A N.A ,583,718 15,162, N.A N.A Any Other (specify) Trusts 6 76,099 76, N.A N.A Directors and Their Relatives , , N.A N.A Foreign Nationals N.A N.A Non Resident Indians 483 1,534,113 1,527, N.A N.A Clearing Members , , N.A N.A Hindu Undivided Families , , N.A N.A Sub-Total (B)(2) 58,239 53,946,525 46,385, N.A N.A Total Public Shareholding (B)= (B)(1)+(B)(2) 58,317 73,537,933 65,972, N.A N.A. TOTAL (A)+(B) 58,409 76,209,811 67,777, , Shares held by Custodians and against which Depository Receipts have been issued - NIL NIL NIL NIL N.A N.A GRAND TOTAL (A)+(B)+(C) 58,409 76,209,811 67,777, , Details of the shares held by the Promoter and Promoter Group as on December 31, 2010 Total shares held Shares pledged or otherwise encumbered Sr. No. Name of the shareholder Number of shares As a % of grand total (A) +(B) +( C ) Number As a percentage As a % of grand total (A)+(B)+(C) of subclause (I)(a ) 1 ATHI JANARTHANAN S 515, , A J SURIYANARAYANA 161, , VIJAYA A J 65, SUDHA A S 6, NIRMALA J 58,

44 Total shares held Shares pledged or otherwise encumbered Sr. No. Name of the shareholder Number of shares As a % of grand total (A) +(B) +( C ) Number As a percentage As a % of grand total (A)+(B)+(C) of subclause (I)(a ) 6 ANURADHA C B 42, ANURADHA A J 15, RANGAMANNAR P S 104, C V BADRINATH 7, VASANTHA S 45, K S SRIMATHI 7, SREEMATHI S 30, K L SOUNDARARAJAN 10, M S JAYASEELA 18, LATHA VENKATESH 1, S R VENKATESAN 4, PREETI VENKATESAN 4, SWATHI V 3, M G VIVEKANANDAN SUBASH M G BALAKAMALA S M V SRINIVASAMOORTHY 79, , NIRUPAMA S 24, , M L SUMATHI LAKSHMINARASIMHAN M V KAMALA RAJASEKARAN 1, G RAJASEKARAN 177, , R. NAGESWARI 114, , R. GOPALAKRISHNAN (Late) 158, G MANI 132, , M LAKSHMI 21, V PADMALOCHANI 158, , R RAMKUMAR 80, , R DARSHNA DEVI 2, R ARCHANA 71, , E SRIMATHI 43, , A G ANANTHA KUMAR A SHYAMALA P S ETHIRAJAN 14, M K VENKATESAN 151, M V PRAJEETH

45 Total shares held Shares pledged or otherwise encumbered Sr. No. Name of the shareholder Number of shares As a % of grand total (A) +(B) +( C ) Number As a percentage As a % of grand total (A)+(B)+(C) of subclause (I)(a ) 42 USHA M V 32, , V ISWARRYA 8, M K SRINIVASAN 63, , MS JEEVAREKHA 39, , GIRIDHARAN M S SAKTHINIVASAN M S A G BADRINATH A K PRABURAJ 39, , A V KANDASWAMY 6, A K KASTHURI 5, B K JAYAMANOHARI 122, GOPALARATHNAM R 1, A P PREETHA 5, P SURIYAKUMARI 5, R PERUMAL 5, Total 2,671, , ,250 equity shares of the Bank issued pursuant to the Bank's Employee Stock Option Scheme are held under lock in for the period of 3 (three) years from the date of allotment of such equity shares in lieu of exercising the options by the eligible employees. 6. The details of shareholders holding more than one percent of the share capital of the Issuer as of December 31, 2010 are as follows: a) Promoter and Promoter Group Nil b) Others Sl. No. Name of the Shareholder No. of Shares Shares as % of total no. of shares 1 Mr. G. M. Rao and His Group Companies 3,772, Lotus Global Investments Ltd 3,711, Ares Diversified 3,696, Rakesh Jhunjhunwala Group 3,588, India Max Investment Fund Limited 3,454, Boyance Infrastructure Private Limited 2,692, M3 Investment Private Limited 1,485, Acacia Partners, Lp 1,238, Subramanian Subbiah 1,044, G B International Private Limited 937, Total 25,623,

46 7. RELEVANT RBI PROVISIONS Rights issues by private sector banks - Acknowledgement of transfer / allotment of shares i. In terms of RBI Circular DBOD.No.PSBS.BC.79/ / dated March 20, 2002, listed as well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue. ii. While reviewing, the following issues have emerged with reference to percentage of holding at the time of rights issue:- a) When some shareholders (individuals/ entities / groups) pick up unsubscribed shares which would result in his / its holding going up as a percentage of total paid up capital of the Bank. b) When some shareholders not picking up their entitlements, holdings of the other shareholders would go up in percentage even if they pick up their own entitlements. The above matter has been examined from the point of view of applicability of RBI Circular DBOD. No. PSBS. BC. 64/ / dated February 3, 2004 on acknowledgement of transfer/ allotment of shares in private sector banks and DBOD. No. BP.BC.71/ / dated February 28, 2005 on ownership and governance and also the regulatory limits such as the cap for the aggregate FDI/FII/NRI holdings and the 5% limit for a bank's investment in equity of another bank. RBI has advised banks going for rights issue to make complete disclosure of the regulatory requirements in the offer documents, including the following that: i. Subscription to rights other than own entitlement will not be permitted if such subscription would result in breach of any statutory / regulatory ceilings ii. iii. Any acquisition of shares that will take the shareholding of any entity / group of entities to 5% or more of the paid up capital of the Bank would require acknowledgement of RBI in terms of the criteria laid down in the RBI guidelines contained in the Circular DBOD. No. PSBS. BC. 64/ / dated February 3, Further, in terms of the guidelines on ownership and governance issued on February 28, 2005 any acquisition that will take the shareholding of any entity/ group, directly or indirectly, to 10% or more of the paid-up capital of the Bank will require the prior approval of RBI If the holding of any shareholder breaches any statutory / regulatory ceilings as a result of non-subscription of rights by other shareholders, the shareholder concerned will not be able to acquire any further shares till his/ its shareholding is brought within the stipulated ceilings. 8. No further issue of capital by way of issue of bonus shares, preferential allotment, rights issue or public issue or in any other manner which will affect the equity capital of the Bank, shall be made during the period commencing from the filing of the Letter of Offer with the SEBI to the date on which the Rights Equity Shares issued under the Letter of Offer are listed or application moneys are refunded on account of the failure of the Issue. 9. Further, except for the allotment of Equity Shares pursuant to exercise of stock options vested pursuant to our Bank's Employee Stock Option Scheme, at present our Bank has no intention to alter the equity capital structure by way of split/consolidation of the denomination of the shares, or issue of shares on a preferential basis or issue of bonus or rights or pubic issue of shares or any other securities for a period of six months from the date of opening of the Issue. 10. The Issue being a Rights Issue, provisions of Promoters' contribution and lock-in are not applicable as per Regulation 34 (c) of SEBI (ICDR) Regulations. 11. The attention of the investors is drawn to section 12 (2) of the Banking Regulation Act 1949, as amended which states that: "No person holding shares in the banking company shall in respect of any shares held by him, exercise voting rights on poll in excess of 10% of the total voting rights of all the shareholders of the banking company." Furthermore, in terms of RBI Circular DBOD.No.BC.79/ / dated March 20, 2002, listed as well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue. 44

47 12. The Equity Shares issued under this Issue shall be fully paid up within 6 (six) months from date of allotment. 13. The details of transactions on the stock exchange in the shares of the Bank by the promoters / directors of the Bank during the last nine months is as given as follows; Transactions by the Promoters Bought Sold Sl. Name No. of No. of No Date Price (In `) Date Price (In `) Shares Shares 1 G Rajasekaran G Mani R Ramkumar R Darshna Devi E Srimathi A K Praburaj A V Kandasamy B K Jayamanohari C V Badrinath M K Venkatesan M V Prajeeth M K Srinivasan 13 M S Jayaseela Transmission from her deceased husband Shri M G Sankaranarayanan

48 Sl. No Name M V Srinivasamoorthy 15 S Nirupama A S Janarthanan R. Perumal P. Suriyakumari Date Bought No. of Shares Price (In `) Date Sold No. of Shares Price (In `) Transferred to his wife Mrs S Nirupama do do do do do Transferred from Shri M V Srinivasamoorthy Transferred from Shri M V Srinivasamoorthy Transferred from Shri M V Srinivasamoorthy Transferred from Shri M V Srinivasamoorthy Transferred from Shri M V Srinivasamoorthy Transferred from Shri M V Srinivasamoorthy M V Usha M S Sakthinivasan Transferred to his grand son Transactions by the Directors and their relatives Bought Sl. Name No. of No Date Shares 1 2 Dr V G Mohan Prasad, Director Ms Radha Prasad, W/o Dr V G Mohan Prasad Price (In `) Sold Date No. of Price Shares (In `)

49 Transactions by the Directors and their relatives Sl. No Name M G S Ramesh Babu, Director Ms Anuraadha Ramesh, W/o Shri M G S Ramesh Babu Ms Sindhuja Ramesh, D/o Shri M G S Ramesh Babu Ms M S Subbulakshmi, M/o Shri M G S Ramesh Babu G Sarangan, F/o Dr. S Krishnakumar Ms S G Hemalatha, W/o Shri S Ganapathi Subramanian V Santhanaraman, Director Kusumanchi Harish S/o K Parameshwara Rao Bought Date No. of Shares Price (In `) Transfer within the family Date Sold No. of Shares Transfer within the family Price (In `) Transfer within the family /12/ /12/ /12/ /12/ /12/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ Transfer within the family 11 P T Kuppuswamy

50 14. The Bank / Promoters / Promoters Group / Directors / Lead Manager have not entered into Buy Back arrangements for purchase of securities issued by the Bank. 15. At any given time there shall be only one denomination for the shares of the Bank and the disclosures and accounting norms specified by SEBI from time to time will be complied with. 16. The Promoters and Promoter Group have confirmed that they intend to subscribe to the full extent of their Rights Entitlement in the Issue. 17. There is no intention by the Promoters to participate in the unsubscribed portion over and above their rights entitlement. 18. The Bank has not revalued its assets since its inception and hence issue of shares out of the revaluation reserve does not arise. 19. The Issue will remain open for 16 days. However, the Board will have the right to extend the Issue period as it may determine from time to time but not exceeding 30 days from the Issue Opening Date. 48

51 OBJECTS OF THE ISSUE The Bank is regulated by the RBI. The RBI guidelines require the Bank to maintain a minimum Capital Adequacy Ratio (CAR) of 9% (under Basel II norms) subject to a minimum Tier I CAR of 6%. As per the financial statements, as of March 31, 2010, the total CAR was 14.49% (under Basel II norms) including Tier-I CAR of 12.88% and Tier-II CAR of 1.61%. And as of December 31, 2010, the total CAR was 12.13% (under Basel II). The objects of the Issue are to augment the capital base of the Bank to meet the capital requirements and growth in its assets, primarily its loan and investment portfolio, compliance with regulatory requirements including meeting the expenses of the Issue. The main objects clause set out in the Memorandum of Association enables the Bank to undertake the existing activities and the activities for which funds are being raised by this Issue. Further, the Bank confirms that the activities carried out by it to the date have been in accordance with the objects clause of its Memorandum of Association. Requirement and Sources of Funds Particulars Amount ( ` in crores) Augment the capital base to meet the capital adequacy requirements arising out of growth in the business Estimated Issue Expenses 1.88 Net Proceeds The stated objects of the Issue are proposed to be financed entirely from the proceeds of the Issue. Therefore, excluding the amount to be raised through proposed Rights issue, there is no requirement of firm arrangements of finance. a) Augment the capital base to meet the capital adequacy requirements arising out of growth in the businesses of the Bank As the Bank is engaged in the business of banking, it is seeking to strengthen its capital base to support the future growth in its assets and comply with the capital adequacy requirements applicable to the Bank. b) Estimated Issue Expenses The total expenses of the Issue are estimated to be approximately ` 1.88 crores. The Issue related expenses include, among others, Issue management fees, Registrar fees, printing and distribution expenses, fees of the legal counsels, advertisement, listing fees to the Stock exchange etc. The break-up of total issue expenses is as under - Particulars Expense ( `in crores) Expense (% of the total Issue size) Expense (% of the Total expenses) Fees of Lead Manager(s) Fees to the Registrar to the issue, Legal Advisor and Auditor Advertising and Publicity Expenses Printing, Postage and Stationery Expenses Contingency, Stamp duty and Statutory Fees Total estimated Issue expenses The fees payable to SCSBs is contingent to number of ASBA applications and not ascertainable at the moment. 49

52 Monitoring of Utilisation of Funds The Board shall monitor the utilisation of the net proceeds of the Issue. The Bank will disclose the details of the utilisation of the net proceeds, including interim use, under a separate head in its financial statements specifying the purpose for which such proceeds have been utilized or otherwise disclosed as per the disclosure requirements of its listing agreement(s) with the Stock Exchange(s). The Bank shall disclose to the Audit Committee, the uses and application of funds under the heads as specified above, on a quarterly basis as a part of the quarterly declaration of financial results. Further, on an annual basis, the Bank shall prepare a statement of funds utilized for purposes other than those stated in the Letter of Offer, if any, and place it before the Audit Committee. Such disclosure shall be made only till such time that the full money raised through the Issue has not been fully spent. This statement shall be certified by the statutory auditors of the Bank. The Audit Committee shall make appropriate recommendations to the Board to take up steps in this matter. Interest of Directors or Key Management Personnel in the Objects of the Issue No part of the proceeds of the Issue will be paid by the Bank as consideration to its Directors or key management personnel except in the usual course of business. 50

53 STATEMENT OF TAX BENEFITS We hereby confirm that the information provided below states the possible direct tax benefits available to Karur Vysya Bank Limited ("The Bank") and its shareholders under the current direct tax laws presently in force in India. Several of these benefits are dependent on the Bank or its shareholders fulfilling the conditions prescribed under the relevant provisions of the tax law. Hence, the ability of the Bank or its shareholders to derive tax benefits is dependent upon fulfilling such conditions, which based on business imperatives, the Bank or its shareholders may or may not choose to fulfill. The benefits discussed below are not exhaustive. We are informed that this statement is only intended to provide general information to the investors and hence is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of tax consequences and the changing tax provisions, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of their participation in the issue. Unless otherwise specified, sections referred to below are sections of the Income-tax Act, 1961 ("The Act"). The Income-tax rates referred here are the existing tax rates based on the rates prescribed in the Finance Act, 2010 for the Financial Year All the provisions set out below are subject to conditions specified in the respective sections. The below mentioned contents are based on information, explanations and representations obtained from the Bank and on the basis of our understanding of the business activities and operations of the Bank and the interpretation of tax laws presently in force in India. We do not express any opinion or provide any assurance as to whether: The Bank or its shareholders will continue to obtain these benefits in future; or The conditions prescribed for availing the benefits, where applicable have been/ would be met. I. INCOME-TAX ACT, 1961 A. TO THE BANK (i) Special Tax Benefits: 1. As per the provisions of section 36(1)(iiia) the Act, the Bank is entitled to deduction in respect of prorata amount of discount on a zero coupon bond, having regard to the period of life of such bond, calculated in the manner as may be prescribed by rules in this behalf. Zero coupon bond is defined under section 2(48) of the Act to mean a bond issued by any infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank on or after in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company/fund or public sector company or scheduled bank and which is notified by the Central Government in this behalf. 2. Under section 36(1)(vii), any bad debt or part thereof written off as irrecoverable in the accounts of the Bank is allowable as a deduction from the Bank's total income. However deduction is limited to the amount by which such bad debts or part thereof, exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the Act, and further subject to compliance with section 36(2)(v) of the Act which requires that such debt or part thereof should have been debited to the provision for bad and doubtful debts account. 51

54 3. Under section 36(1)(viia) of the Act, a deduction is allowable in respect of any provision made for bad and doubtful debts, by an amount not exceeding 7.5% of total income (computed before making any deduction under this section and Chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by rural branches of the Bank. As per the third proviso to the section and subject to the conditions specified therein, the Bank at its option is allowed a further deduction for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government. 4. In terms of section 36(1) (viii) of the Act, the bank is allowed deduction at 20% of the profits derived from the business of long term finance for industrial or agricultural development or development of infrastructure facility in India or development of housing in India computed in the manner specified under the section and carried to the Special Reserve account from time to time not exceeding twice the paid-up capital and general reserves. The amount withdrawn from such a Special Reserve Account would be chargeable to income tax in the year of withdrawal, in accordance with the provisions of section 41(4A) of the Act. 5. In terms of section 43D of the Act, interest on certain categories of bad and doubtful debts as specified in Rule 6EA of the Income-tax Rules, 1962, shall be chargeable to tax only in the year of receipt or credit to Profit and Loss Account, whichever is earlier. (ii) General Tax Benefits 1. As per provisions of Section 10(15)(i) of the Act, income by way of interest, premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as notified by the Central Government in the Official Gazette is exempt from tax, subject to such conditions and limits as may be specified by Central Government in this behalf. 2. Under section 10(15)(vii) of the Act, interest on bonds issued by a local authority or by a State Pooled Finance Entity and specified by the Central Government by notification in the Official Gazette is exempt from tax. For the purpose of this section, "State Pooled Finance Entity" means such entity which is set up in accordance with the guidelines for the Pooled Finance Development Scheme notified by the Central Government in the Ministry of Urban Development. 3. Dividends earned by the Bank are exempt from tax in accordance with and subject to the provisions of section 10(34) read with section 115-O of the Act. However, as per section 94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt. 4. Income earned by the Bank from investment in units of a specified Mutual Fund is exempt from tax under section 10(35) of the Act. However, as per section 94(7) of the Act, losses arising from the sale/ redemption of units purchased within three months prior to the record date (for entitlement to receive income) and sold within nine months from the record date, will be disallowed to the extent such loss does not exceed the amount of income claimed exempt. Further, as per section 94(8) of the Act, if an investor purchases units within three months prior to the record date for entitlement of bonus and is allotted bonus units without any payment on the basis of holding original units on the record date and such person sells/ redeems the original units within nine months of the record date, then the loss arising from sale/ redemption of the original units will be ignored for the purpose of computing income chargeable to tax and the amount of loss ignored shall be regarded as the cost of acquisition of the bonus units. 52

55 5. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to incomes which do not form part of the total income under the Act. Thus, any expenditure incurred to earn tax exempt income is not tax deductible expenditure. 6. Under the provisions of section 43(5) (d) of the Act, an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956, carried out in a recognized stock exchange is not deemed to be a speculative transaction. An eligible transaction is defined to mean any transaction carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary and which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number and permanent account number. 7. In case of loss under the head "Profit and Gains from Business or Profession (Non Speculative)", it can be set-off against other income and the excess loss after set-off can be carried forward for set-off against Business Income of the next eight Assessment Years in terms of provisions of section 70, 71 & 72 of the Act. 8. The unabsorbed depreciation, if any, can be adjusted against any other income and can be carried forward for set-off against the income of future years as per the provisions of section 32 of the Act. 9. From assessment year beginning 1st April, 2010, the amount of tax paid under Section 115JB of the Act by the Bank for any assessment year beginning on or after 1st April 2006 will be available as credit for ten years succeeding the Assessment Year in which MAT credit becomes allowable in accordance with the provisions of section 115JAA of the Act. B. TO THE SHAREHOLDERS OF THE BANK (i) Special Tax Benefits: There are no special tax benefits available to the shareholders of the Bank. (ii) General Tax Benefits: (i) RESIDENTS: 1. Dividends earned on shares of the Bank are exempt from tax in accordance with and subject to the provisions of section 10(34) read with section 115-O of the Act. However, as per section 94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt. 2. Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of Banks share is fully exempt from tax in accordance with the provision of section 10(38) of the Act where the sale is made on or after October 1, 2004 on a recognized stock exchange and transaction is chargeable to securities transaction tax. 3. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to incomes which do not form part of the total income under the Act. Thus, any expenditure incurred to earn tax exempt income is not tax deductible expenditure. 4. Under section 36(1)(xv) of the Act, securities transaction tax paid by a shareholder in respect of taxable securities transactions entered into in the course of its business, would be allowed as a deduction if the income arising from such taxable securities transactions is included in the income computed under the head "profit and gains of business or profession". 53

56 5. Under section 54EC of the Act, long term capital gain arising on sale of Bank`s share {other than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is invested in certain notified bonds within a period of six months from the date of such transfer (up to a maximum limit of Rs 50 lakhs) and held for a minimum period of three years. 6. Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale of Bank's share {other than sale referred to in section 10(38) of the Act is exempt from tax if the net consideration is invested to purchase a residential house property within a period of one year before or two years after the date of sale/ transfer or invested in the construction of a residential house property within a period of three years after the date of sale/transfer. If only a part of the net consideration is invested in the new asset then the exemption will be available proportionately. 7. Taxable long term capital gains would arise [if not exempt under section 10(38) or any other section of the Act] to a resident shareholder where the equity shares are held for a period of more than 12 months prior to the date of transfer of the shares. In accordance with and subject to the provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the following amounts would be deductible from the full value of consideration: (a) (b) Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index notified by the Central Government; and Expenditure incurred wholly and exclusively in connection with the transfer of shares 8. Under section 111A of the Act, Short term capital gains on the transfer of equity shares, where the shares are held for a period of not more than 12 months would be taxed at 15% (plus applicable surcharge and education cess), where the sale is made on or after October 1, 2004 on a recognized stock exchange and the transaction is chargeable to securities transaction tax. In all other cases, the short term capital gains would be taxed at the normal rates of tax (plus applicable surcharge and education cess). Cost indexation benefits would not be available in computing tax on short term capital gain. 9. Under section 112 of the Act, long-term capital gains are subject to tax at a rate of 20% (plus applicable surcharge and cess) after indexation, as provided in the second proviso to section 48 of the Act. However, in case of listed securities or units, the amount of such tax could be limited to 10% (plus applicable surcharge and cess), without indexation, at the option of the shareholder in cases where securities transaction tax is not levied. 10. From assessment year beginning 1st April, 2010, the amount of tax paid under section 115JB of the Act by the Corporate Assessee for any assessment year beginning on or after 1st April 2006 will be available as credit for ten years succeeding the Assessment Year in which MAT credit becomes allowable in accordance with the provisions of section 115JAA of the Act. 11. In accordance with the provisions of section 56(1)(vii) of the Act, If an individual or HUF receives any shares, without consideration, the aggregate fair market value of which exceeds ` 50,000, the whole of the fair market value of such shares will be considered as income in the hands of the recipient. Similarly, if an individual or HUF receives any shares for consideration which is less than the fair market value of the shares by an amount exceeding ` 50,000, the fair market value of such shares as exceeds the consideration will be considered as income in the hands of the recipient. However, the above ceilings of ` 50,000 shall not apply to any shares received from any relative (as given in Explanation to clause (vi) of subsection (2) of Section 56 of the Act) or on the occasion of the marriage of the individual or under a will or by way of inheritance or in contemplation of death of the payer or donor, as the case may be or from any local authority as defined in the explanation to section 10(20) of the Act or from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 of the Act or from any trust or institution registered under section 12AA of the Act. 54

57 (ii) NON-RESIDENT SHAREHOLDERS INCLUDING NON RESIDENT INDIANS (NRIs) AND FOREIGN INSTITUTIONAL INVESTORS (FIIs): 1. Dividends earned on shares of the Bank are exempt in accordance with and subject to the provisions of section 10(34) read with Section115-O of the Act. However, as per section 94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt. 2. Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of Bank's share is fully exempt from tax in accordance with the provisions of section 10(38) of the Act, where the sale is made on or after October, on a recognized stock exchange and the transaction is chargeable to securities transaction tax. 3. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to incomes which do not form part of the total income under the Act. Thus, any expenditure incurred to earn tax exempt income is not tax deductible expenditure. 4. Under section 36(1)(xv) of the Act, securities transaction tax paid by a shareholder in respect of taxable securities transactions entered into in the course of its business, would be allowed as a deduction if the income arising from such taxable securities transactions is included in the income computed under the head "Profit and gains of business or profession. 5. Under section 54EC of the Act, long term capital gain arising on sale of Bank`s share {other than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is invested in certain notified bonds within a period of six months from the date of such transfer (upto a maximum limit of Rs 50 lakhs) and held for a minimum period of three years. 6. Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale of the Bank's shares [other than the sale referred to in section 10(38) of the Act], is exempt from tax if the net consideration is invested to purchase a residential house property within a period of one year before or two years after the date of sale/ transfer or invested in the construction of a residential house property within a period of three years after the date of sale/transfer. If only a part of the net consideration is invested in the new asset then the exemption will be available proportionately. 7. Long term capital gains would arise [if not exempt under section 10(38) or any other section of the Act] to a non-resident shareholder where the equity shares are held for a period of more than 12 months prior to the date of transfer of the shares. In accordance with and subject to the provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the following amounts would be deductible from the full value of consideration: (a) (b) Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index notified by the Central Government; and Expenditure incurred wholly and exclusively in connection with the transfer of the shares Section 48 of the Act further provides that capital gains arising from the transfer of equity shares acquired by the non-resident in foreign currency, are to be computed by converting the cost of acquisition/ improvement, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of transfer of the capital asset into the same foreign currency as was initially utilized in the purchase of the shares and the capital gains so computed in such foreign currency shall be reconverted into Indian currency. Indexation will not be available in this case. 8. Under Section 111A of the Act, Short term capital gains on the transfer of equity shares, where the shares are held for a period of not more than 12 months would be taxed at 15% (plus applicable surcharge and education cess), where the sale is made on or after October 1, 2004 on a recognized stock exchange and the transaction is chargeable to securities transaction tax. In all other cases, the short term capital gains would be taxed at the normal rates of tax (plus applicable surcharge and education cess). Cost indexation benefits would not be available in computing tax on short term capital gain. 55

58 9. Under section 112 of the Act, long-term capital gains are subject to tax at a rate of 20% (plus applicable surcharge and cess) after indexation, as provided in the second proviso to section 48 of the Act. However, in case of listed securities or units, the amount of such tax could be limited to 10% (plus applicable surcharge and cess), without indexation, at the option of the shareholder in cases where securities transaction tax is not levied. 10. Option available to Non-resident Indian [s] (NRI) as per Chapter XII-A of the Act: (i) (ii) (iii) (iv) Under section 115E of the Act, long term capital gains arising to a NRI on transfer of specified capital assets (including on the Bank`s equity share) are taxable at the rate of 10% (plus education cess) without indexation. Short-term capital gains are however, taxable at the normal rates of tax. Under section 115F of the Act, long-term capital gains arising to a NRI from the transfer of shares of the Bank subscribed to in convertible foreign exchange shall be exempt from tax, if the net consideration is reinvested in specified asset or in any savings certificate as defined by section 10(4B) of the Act, within six months of the date of transfer. If only part of the net consideration is so reinvested, the exemption shall be proportionately reduced. The amount so exempted shall be chargeable to tax subsequently, if the specified assets are transferred or converted into money within three years from the date of their acquisition. Under section 115G of the Act, a NRI is not required to file a return of income under section 139(1) of the Act, if his only income is from foreign exchange asset investments or long-term capital gains in respect of those assets or both, provided that tax has been deducted at source from such income as per the provisions of Chapter XVII-B of the Act. As per the provisions of section 115-I of the Act, a NRI may elect not to be governed by the provisions of Chapter XII-A for any assessment year by furnishing his return of income for that assessment year under section 139 of the Act to the effect 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 and tax on such total income shall be charged in accordance with the other provisions of the Act. 11. As per section 115AD of the Act, long term capital gains arising on transfer of shares purchased by FIIs, are taxable at the rate of 10% (plus applicable surcharge and education cess) if such long term capital gains are not exempt under section 10(38) of the Act. Short term capital gains earned by FIIs are taxable at the rate of 15% (plus applicable surcharge and education cess) if the transaction is chargeable to securities transaction tax [proviso to section 115AD(1)(ii)]. In all other cases the short term capital gains shall be taxed at 30% (plus applicable surcharge and education cess). Indexation benefits are not available. Further, the provisions of the first proviso of section 48 of the Act will not apply. 12. Under section 195 of the Act, dividends paid by the Bank in accordance with the provisions of Section 115-O of the act, are not subject to deduction of tax at source. 13. Under Section 196D of the Act, no deduction of tax at source shall be made in respect of capital gains arising on sale proceeds to FIIs on transfer of shares. 14. Under section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Double tax avoidance agreement (tax treaty) entered into between India and the country of physical domicile of the non-resident, if any, to the extent they are more beneficial to the non-resident. Thus, a non-resident (including NRIs) can opt to be governed by the provisions of the Act or the applicable tax treaty, whichever is more beneficial. 56

59 (iii) MUTUAL FUNDS: 1. Under section 10(23D) of the Act, exemption is available in respect of income (including capital gains arising on transfer of shares of the Bank) of a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or such other Mutual fund set up by a public sector bank or a public financial institution or authorized by the Reserve Bank of India and subject to the conditions as the Central Government may specify by notification. II. WEALTH TAX ACT, 1957 Notes: Shares are not treated as assets within the meaning of Section 2(ea) of the Wealth-tax Act, Accordingly, shares purchased in the issue are not liable to Wealth-tax in the hands of the shareholders. 1. The above statement of possible tax benefits sets out the provisions of the direct tax law in a summary manner only and is not a complete analysis or list of all potential tax consequences of the purchase, ownership and disposal of shares. 2. The stated benefits will be available only to the sole/ first named holder in case the shares are held by joint holders. 3. In respect of non-residents, the tax rates and the consequent taxation mentioned above shall be further subject to any benefits available under the tax treaty, if any, between India and the country in which the non-resident has fiscal domicile. 4. No assurance is given that the Revenue authorities / Courts will concur with the view expressed herein. Our view is based on the existing provisions of law and its interpretation which is subject to change from time to time. We do not assume responsibility to update our view consequent to such changes. for R.K. Kumar & Co., Chartered Accountants F.R.No /S 57

60 REGULATIONS AND POLICIES The main legislation governing commercial banks in India is the Banking Regulation Act, Other important laws include RBI Act, 1932, the Negotiable Instruments Act, 1881 and the Banker's Books Evidence Act, Additionally, RBI, from time to time, issues guidelines to be followed by the banks. Compliance with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. Banking companies are also subject to the purview of the Companies Act and if such companies are listed on a stock exchange in India then various regulations of SEBI would additionally apply to such companies. No new regulations are applicable for the proposed objects of the issue since the object is to augment the capital base of the Bank to meet its capital adequacy requirements arising out of growth in its business. 58

61 SECTION IV - HISTORY AND CORPORATE STRUCTURE The Karur Vysya Bank Limited was incorporated on June 22, 1916 under the Indian Companies Act, 1913 and commenced its operations on July 1, 1916 in the aftermath of the first World War, with a view to revive agriculture, trade and industry in and around Karur. Its first branch was opened at Dindigul on January 17, Started with a paid-up capital of ` 0.01 crore on July 1, 1916, The Karur Vysya Bank has today grown into a premier institution that straddles across fifteen states and two Union Territories, with 360 branches. From its inception, the Net Owned Funds of The Karur Vysya Bank has reached ` 1, crores as on March 31, 2010 and ` 1, crores as on December 31, The following banks merged with the KVB: a) Selvavridhi Bank Limited, Coimbatore in 1963 b) Salem Shri Kannika Parameshwari Bank Limited, Salem in 1964 c) Pathinengrama Arya Vysya Bank Limited, Kombai in 1964 d) Coimbatore Bhagyalakshmi Bank Limited, Coimbatore in 1965 The gross NPA at the end of March 31, 2010 amounted to ` crores (1.72%) as against ` crores (1.95%) for the year ended March 31, The Net NPA of the Bank as on March 31, 2010 amounted to ` crores (0.23%) as against ` crores (0.25%) for the year ended March 31, The gross and net NPA as on December 31, 2010 stood at ` crores (1.52%) and ` crores (0.19%) respectively. Total business has grown to over ` 32,000 crores, with deposits and advances at ` 19, crores and ` 13, crores respectively as on March 31, The Bank's deposits and advances were ` 22, crores and ` 16, crores respectively as on December 31, Capital adequacy is at 12.13% (under BASEL II norms) as against the RBI requirement of 9%. As of December 31, 2010 the Bank has set up 360 branches, 437 ATMs, 7 satellite offices, 13 service centres and 24 administrative offices. The Bank has implemented core banking solutions across all its branches. The Bank has set up a Disaster Recovery Site (DRS) at Cyber Pearl, Hi-Tech City, Hyderabad. The Bank is ensuring less than 30 minutes old data backup of the Primary Data Centre Databases at this DRS using a Disaster Recovery Automation Solution. MAIN OBJECTS The objects for which the Bank has been established are: 1. To carry on the business of Banking in all its aspects, whether in India or elsewhere in the world; 2. To carry on all or any of the following business: a. The borrowing, raising or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveler's cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or other; the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; b. Acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers; 59

62 c. Contracting for public and private loans and negotiating and issuing the same; d. the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or Private, of State, Municipal or other loans or of shares, stock, debentures, or debenture stock of any company, Corporation of Association and the lending of money for the purpose of any such issue; e. carrying on and transacting every kind of guarantee and indemnity business; f. managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims; g. acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security; h. undertaking and executing trusts; i. undertaking the administration of estates as executor, trustee or otherwise; j. establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependants or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent object for any exhibition or for any public, general or useful object, k. the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the company; l. selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company. m. acquiring and undertaking the whole or any part of the business of any person, or company, when such business is of a nature enumerated or described in the sub-section; n. doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; o. to open, establish, maintain and operate currency chests and small coin depots on such terms and conditions as may be required by the Reserve Bank of India (established under the Reserve Bank of India Act, 1934) and enter into all administrative or other arrangements for under-taking such functions with the Reserve Bank of India. (Amended at the Annual General Meeting held on ). p. any other form of business which the Central Government may, by notification in the official Gazette specify as a form of business in which it is lawful for a banking company to engage. 3. And generally to do and perform all such other acts and things as may be incidental or conducive to the attainment of the above objects or any of them. 4. To do all or any of the above things as principals, agents, insurers, or otherwise and either alone or in conjunction with others. 60

63 MAJOR EVENTS Year 1916 Incorporation of the Bank 1927 First branch opened at Dindigul, Tamil Nadu 1952 KVB became a scheduled Bank Major Events of The Bank 1963 Merger of Selvavridhi Bank Limited with the Bank 1964 Merger of Salem Shri Kannika Parameswari Bank Limited and Pathinengrama Arya Vysya Bank Limited, Kombai 1965 Merger of Coimbatore Bhagyalakshmi Bank Limited Licensed to deal in foreign currencies and to transact foreign exchange business; establishment 1980 of International Division for forex operations Obtained license to act as a Corporate agent for the purpose of procuring or soliciting life 2003 insurance business and general insurance business (since renewed the licenses in 2009 for a further period of 3 years) % computerization of branches and offices 2005 Implemented CBS in all branches Won the prestigious CFBP Jamnalal Bajaj Award for Fair Business Practices. This award was given for the first time for banking industry. Banking Technology Excellence Award 2008 for the best use of IT for customer service in Semi Urban and Rural Areas given by the IDRBT. Received the Gold CIO award in more than ` 1000 crores category of the Enterprise Connect Awards 09 instituted by CIOL (Cyber Media India Online Ltd) 2010 The Banker magazine, London has featured KVB among the Top 1000 old Banks and KVB is one of the 32 Indian Banks featured in the list. Received Banking Technology Excellence Award instituted by IDRBT for under the category Best IT Infrastructure Management for the year

64 ORGANISATION CHART OF THE KARUR VYSYA BANK LIMITED Corporate Structure BOARD OF DIRECTORS PART-TIME NON EXECUTIVE CHAIRMAN AFMD BIA ACCOUNTS AND FUNDS MANAGEMENT DEPT. BUSINESS INTELLIGENCE AND ANALYTICAL CELL DRS DISASTER RECOVERY SITE PMD DO DIVISIONAL OFFICE RPC CCO CENTRAL CLEARING OFFICE HRD HUMAN RESOURCES DEPT. CPC CENTRAL PROCESSING INFORMATION TECH ITD CENTRE DEPT. CMD CREDIT MANAGEMENT DEPT IAD INSPECTION & AUDIT DEPT. CMC CREDIT MONITORING CELL ID INTERNATIONAL DIVISION OTSD OPERATION &TECHNOLOGY SMALL, MEDIUM SME SERVICES DEPT. ENTERPRISES DC DATA CENTRE LEGAL LEGAL DEPT. RMCD PLANNING AND MARKETING DEPT. REGIONAL PROCESSING CENTRE. RISK MANAGEMENT AND COMPLIANCE DEPT. SO SATELLITE OFFICE STC STAFF TRAINING COLLEGE VIG VIGILANCE CELL TAX TAX CELL 62